As filed with the Securities and Exchange Commission on September 12, 2016
Registration No. 333-211720
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Valvoline Inc.
(Exact name of registrant as specified in its Charter)
Kentucky | 2992 | 30-0939371 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
3499 Blazer Parkway
Lexington, KY 40509
(859) 357-7777
(Address, including zip code, and telephone number, including area code, of registrants principal executive office)
Samuel J. Mitchell, Jr.
Chief Executive Officer
Valvoline Inc.
3499 Blazer Parkway
Lexington, KY 40509
(859) 357-7777
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a copy to:
Peter J. Ganz Senior Vice President, General Counsel and Secretary Ashland Inc. 50 E. RiverCenter Boulevard P.O. Box 391 Covington, KY 41012-0391 (859) 815-3333 |
Julie M. ODaniel General Counsel and Corporate Secretary Valvoline Inc. 3499 Blazer Parkway Lexington, KY 40509 (859) 357-7777 |
Susan Webster Thomas E. Dunn Andrew J. Pitts Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 |
Jonathan M. DeSantis Ilir Mujalovic Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022 (212) 848-4000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (check one)
Large Accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Amount to be
|
Proposed Maximum
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Proposed Maximum
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Amount of
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||||
Common stock, par value $0.01 per share |
34,500,000 |
$23.00 |
$793,500,000 |
$79,905.45 |
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(1) | Includes 4,500,000 shares of common stock which may be purchased pursuant to the underwriters overallotment option. |
(2) | Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933. |
(3) | The registrant previously paid $10,070 of this amount in connection with the initial filing of the registration statement on May 31, 2016. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
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 state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated September 12, 2016
PROSPECTUS
30,000,000 Shares
Common Stock
This is Valvoline Inc.s initial public offering. We are selling 30,000,000 shares of our common stock.
We expect the public offering price to be between $20.00 and $23.00 per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol VVV.
After the completion of this offering, Ashland Inc. will continue to control a majority of the voting power of our common stock. As a result, we will be a controlled company within the meaning of the New York Stock Exchange listing standards. See ManagementStatus as a Controlled Company under NYSE Listing Standards and Principal Stockholders for additional information.
Investing in the common stock involves risks that are described in the Risk Factors section beginning on page 17 of this prospectus.
Per Share | Total | |||||||
Public offering price |
$ | $ | ||||||
Underwriting discount and commissions (1) |
$ | $ | ||||||
Proceeds, before expenses, to us |
$ | $ |
(1) | See Underwriting (Conflicts of Interest) beginning on page 184 of this prospectus for additional information regarding total underwriter compensation. |
The underwriters may also exercise their option to purchase up to an additional 4,500,000 shares from us, at the public offering price, less the underwriting discount, to cover over allotments for 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2016.
Joint Book-Running Managers
BofA Merrill Lynch | Citigroup | Morgan Stanley |
Deutsche Bank Securities | Goldman, Sachs & Co. | J.P. Morgan |
Senior Co-Manager
Scotiabank
Co-Managers
BTIG | Mizuho Securities | PNC Capital Markets LLC | SunTrust Robinson Humphrey |
The date of this prospectus is , 2016.
WE INTRODUCED MOTOR OIL
BACK IN 1866. AND
WEVE BEEN
REINVENTING IT EVER SINCE. 1866 1930s 1960s 1970s 1980 1987 1997 2004
J-6541 ©2016 Valvoline Trademark, Valvoline or its subsidiaries, registered in various countries
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Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of Our Common Stock |
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F-1 |
We have not and the underwriters have not authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where such offers and sales are permitted. The information in this prospectus or any free writing prospectus is accurate only as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Through and including , 2016 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
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FOR INVESTORS OUTSIDE THE UNITED STATES
Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We use various trademarks, trade names and service marks in our business, including Valvoline TM , Valvoline Instant Oil Change SM , MaxLife TM , SynPower TM and Premium Blue TM . For convenience, we may not include the SM , ® or symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks, trade names or service marks referred to in this prospectus are the property of their respective owners.
This prospectus includes industry data and forecasts that we obtained from industry publications and surveys, public filings and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included information. Statements as to our ranking, market position and market estimates are based on independent industry publications, third-party forecasts, managements estimates and assumptions about our markets and our internal research. We have not independently verified such third-party information nor have we ascertained the underlying economic assumptions relied upon in those sources, and we cannot assure you of the accuracy or completeness of such information contained in this prospectus. Such data involve risks and uncertainties and is subject to change based on various factors, including those discussed under Risk Factors and Cautionary Statement Regarding Forward-Looking Statements.
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This summary highlights certain information about us and this offering contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the Risk Factors section and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.
As used in this prospectus, the terms Valvoline, the Company, we, us and our may, depending on the context, refer to Valvoline Inc., to the Valvoline business segment of Ashland Inc. as described more particularly under Certain Relationships and Related Party TransactionsRelationship with AshlandHistorical Relationship with Ashland or to Valvoline Inc. and its consolidated subsidiaries after giving effect to the contribution and separation transactions described under Certain Relationships and Related Party TransactionsRelationship with AshlandSeparation Steps.
We describe in this prospectus the businesses that will be contributed to us by Ashland as part of our separation from Ashland as if they were our businesses for all historical periods described. Our historical financial results as part of Ashland contained in this prospectus may not reflect our financial results in the future as a standalone company or what our financial results would have been had we been a standalone company during the periods presented.
Immediately prior to the closing of this offering, Ashland Inc. and we will become subsidiaries of Ashland Global Holdings Inc., or Ashland Global, a newly formed public holding company. Accordingly, as used in this prospectus, references to Ashland in the context of any time prior to the date Ashland Inc. becomes a wholly owned subsidiary of Ashland Global Holdings Inc. refer to Ashland Inc., and references to Ashland in the context of any time on or after the date Ashland Inc. becomes a wholly owned subsidiary of Ashland Global Holdings Inc. refer to Ashland Global. At the time of the contribution (as described below), Ashland and certain of its consolidated subsidiaries (other than us) will hold substantially all of the historical assets and liabilities related to the business that Valvoline Inc. and its consolidated subsidiaries will acquire pursuant to the contribution.
Our fiscal year ends on September 30 of each year. We refer to the year ended September 30, 2015 as fiscal 2015, the year ended September 30, 2014 as fiscal 2014 and the year ended September 30, 2013 as fiscal 2013.
Our Company
We are one of the most recognized and respected premium consumer brands in the global automotive lubricant industry, known for our high quality products and superior levels of service. Established in 1866, our heritage spans 150 years, during which we have developed powerful name recognition across multiple product and service channels. We have significant positions in the United States in all of the key lubricant sales channels, and also have a strong international presence with our products sold in approximately 140 countries.
In the United States and Canada, our products are sold to consumers through over 30,000 retail outlets, to installer customers with over 12,000 locations, and to approximately 1,050 Valvoline branded franchised and
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company-owned quick lube stores. We serve our customer base through an extensive sales force and technical support organization, allowing us to leverage our technology portfolio and customer relationships globally, while meeting customer demands locally. This combination of scale and strong local presence is critical to our success.
We have a history of leading innovation with revolutionary products such as All Climate , DuraBlend and MaxLife . In addition to our iconic Valvoline-branded passenger car motor oils and other automotive lubricant products, we provide a wide array of lubricants used in heavy duty equipment, as well as automotive chemicals and fluids designed to improve engine performance and lifespan. Our premium branded product offerings enhance our high quality reputation and provide our customers with solutions that address a wide variety of needs.
We deliver products and services to our customers across three business segments:
| Core North America: We sell to consumers in the United States and Canada who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, as well as to installer customers, such as car dealers, general repair shops and third-party quick lube locations, which use our products to service vehicles owned by Do-It-For Me or DIFM consumers. We also have a strategic relationship with Cummins Inc. (Cummins), a leading heavy duty engine manufacturer, for co-branding products in the heavy duty business. Our Core North America business segment represented 54% of our total sales and 53% of our total Adjusted EBITDA in fiscal 2015. |
| Quick Lubes: We operate the second-largest United States retail quick lube service chain by number of stores, Valvoline Instant Oil Change (VIOC), which provides fast, trusted service through approximately 715 franchised and 335 company-owned stores. We also sell our products and provide Valvoline branded signage to independent quick lube operators through our Express Care program. Our Quick Lubes business segment represented 20% of our total sales and 27% of our total Adjusted EBITDA in fiscal 2015. |
| International: Our products are sold in approximately 140 countries outside of the United States and Canada. International sales include both passenger car products and heavy duty products used in a wide variety of heavy duty equipment. We sell our passenger car products to installer customers primarily through distributors, and our heavy duty products directly to customers, as well as through distributors. Our International business segment represented 26% of our total sales and 20% of our total Adjusted EBITDA in fiscal 2015. |
In fiscal 2015, we generated approximately $2.0 billion in sales, $422 million in Adjusted EBITDA and $196 million in net income. During the same period, our Adjusted EBITDA margin, which we define as Adjusted EBITDA as a percentage of sales, was 21.5%. For the nine months ended June 30, 2016, we generated approximately $1.4 billion in sales, $346 million in Adjusted EBITDA and $208 million in net income. Adjusted EBITDA margin for that period was 24.1%. In addition, we generated free cash flow of $285 million and cash flows provided by operating activities of $330 million during fiscal 2015 and $154 million and $186 million, respectively, for the nine months ended June 30, 2016. See Summary Historical and Pro Forma Combined Financial Data for the definition of Adjusted EBITDA and free cash flow, each a non-GAAP measure, and a reconciliation of such measures to net income and cash flows provided by operating activities, as applicable.
Our Market
We participate in the global finished lubricants market, which had demand of over 11.7 billion gallons, or $60 billion, in 2015. For the same period, demand for passenger car motor oil and motorcycle oil accounted for slightly over 24% of global lubricant demand, while the remaining 76% of demand was for commercial and industrial products. The United States has historically accounted for the largest amount of lubricant demand, followed by China and India. The lubricants market is currently impacted by a shift in demand for high performance and synthetic-based products.
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Our Competitive Strengths
We believe the following strengths differentiate us from our competitors and are important to our success:
Iconic Brand with Premium Products . Valvoline is a highly recognized and respected premium consumer brand. According to our research, we have a total awareness rate of 90% with consumers in the United States, and in many countries around the globe the Valvoline trademark is a symbol of high quality, which helps us to command premium prices. We are known for our high quality products, market leading technology and superior levels of service.
Unique Multi-Channel Presence . We operate through multiple automotive maintenance outlets and are committed to delivering an outstanding customer experience against a diverse set of customer expectations, leveraging our strong channel partner and quick lube network. Whether the customer is a consumer driving in for a fast and trusted VIOC quick lube experience, an installer looking to improve the performance of its business, a heavy duty customer looking to effectively service on-road and off-road vehicles or a DIY consumer looking for high quality products to service their vehicles, we leverage our Hands on Expertise to provide a solution to their unique and individual needs.
Industry-Leading, Valvoline-Branded Quick Lube Business. With over 335 company-owned VIOC stores and another 715 franchised locations, we are the largest franchisor of quick lube stores that owns and operates its own oil change centers. VIOC is committed to providing our customers with a quick, easy and trusted oil change experience. Our VIOC company-owned stores have had nine years of consecutive same-store sales growth * and consistently outperformed our competitors, delivering on average over 36% more daily oil changes during 2015 than competing quick lube service centers. Our proprietary point-of-sale system allows us to leverage data, to understand our customers needs and to customize individual service recommendations, and SuperPro, our proprietary service process, is designed to deliver a consistently outstanding customer experience. We also believe our vertical integration is an additional competitive advantage, as we generate value for the overall enterprise, as well as an additional profit pool, by selling our own, high-quality motor oil and family of products to our owned stores, our franchisees and other quick lube channel partners.
Strong History of Innovation. Innovation is central to the successful performance of our business. As a result, we invest significant resources in our research and development programs and in developing relationships with OEMs, with a goal of developing new and innovative products to meet the current and future needs of our customers. We have an established track record of pioneering new product categories, such as synthetic blends, high mileage motor oil and racing motor oil. The introduction of MaxLifeTM and Full Synthetic High Mileage has driven significant trade-up to our higher performing synthetic and other premium products, contributing to both retailer and installer profitability. In addition, innovations in our sales and marketing efforts have been a cornerstone of our success.
Independent, Focused Organization. Under the leadership of our Chief Executive Officer, Samuel J. Mitchell, Jr., our management team has extensive experience in the consumer products and lubricants industry in the areas of commercial operations, sales, marketing and research and development. Our leadership team has instituted a strong, unified corporate culture focused on speed and Hands On customer service. Our efficient global network of businesses and technical, supply chain and product support groups allow us to bring solutions to the market quickly. Our entire business, unlike our largest competitors, is focused on lubricants and automotive maintenance, enabling us to stay customer focused. Our separation from Ashland will provide us the flexibility to invest in Valvolines growth initiatives and to act quickly in making decisions for the benefit of the business, our channel partners, customers and shareholders.
* | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
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Strong Financial Performance and Free Cash Flow Generation. Our high margin business is able to generate significant free cash flow. Our premium mix improvements, VIOC same-store sales growth, international volume and profit growth and proactive approach to changes in the base oil market resulted in fiscal 2015 Adjusted EBITDA of $422 million and Adjusted EBITDA margin of 21.5%. Adjusted EBITDA and Adjusted EBITDA margin for the nine months ended June 30, 2016 were $346 million and 24.1%, respectively. Strong earnings combined with efficient working capital management have led to high free cash flow, which grew from $133 million in fiscal 2014 to $285 million in fiscal 2015. We generated free cash flow of $154 million for the nine months ended June 30, 2016. This strong free cash flow provides us with significant financial flexibility.
Our Business and Growth Strategy
We intend to achieve sustainable growth and profitability by executing the following strategies:
Grow and Strengthen Quick Lube Network. We are committed to growing the footprint of our profitable quick lube network. We expect this growth to be driven by both organic store expansion and opportunistic, high-quality acquisitions in both core and new markets within the VIOC system, as well as strong sales efforts to partner with new Express Care operators. In addition, we plan to continue delivering same-store sales growth within our existing stores.
| Organic Store Expansion: We currently operate 335 company-owned and have an additional 715 franchised quick lube centers across 44 states. Given the strength of our brand and new unit economics, we believe we can continue growing our network in both new and existing company and franchise markets. In addition, we believe that continued expansion of our Express Care program will continue to provide wider exposure to our brand by penetrating channels, primarily smaller operators, which do not fit our franchised model and typically offer other non-quick lube services such as auto repair and car washes. |
| Opportunistic Acquisitions: We believe that the large and fragmented nature of the North American quick lube market creates an opportunity for us to grow. VIOCs acquisition of Oil Can Henrys in February 2016 added 89 stores to our Quick Lube portfolio in the Pacific Northwest, Colorado, Arizona and southern California. We expect to continue to opportunistically look at acquisitions as a way of supplementing our organic store growth. |
| Continue to Drive Additional Growth and Profitability from Existing Stores: Our VIOC company-owned and franchised stores have generated nine consecutive years of same-store sales growth. We plan to continue delivering growth by attracting new customers through our targeted digital marketing efforts, our proprietary point-of-sale system and our Hands on Expertise culture and approach, and by increasing average net ticket size through improvements within our selling of premium oils, penetration of extra services, discount efficiency and pricing opportunities. |
Accelerate International Growth across Key Markets. Our International business currently accounts for approximately 26% of combined sales. We plan to accelerate our growth internationally by focusing on key markets where demand for premium lubricants is growing. Our primary targets include China, India and select countries in Latin America, including Mexico. Our strategies for growth vary by market, but generally revolve around building strong distribution channels in underserved geographies, replacing less successful distributors and improving brand awareness among installer customers in those regions.
We also plan to expand our presence in the heavy duty lubricant space, which is an important channel in our targeted international markets, by developing products that will lower the total cost of ownership for fleet operators and users of other heavy duty equipment, leveraging our existing relationships with leading OEMs and building and strengthening other OEM relationships.
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Leverage Innovation to Drive Market Share and Profitability in Core North America. Innovations in product development, packaging and marketing have driven improvements in our product mix, with United States premium-branded lubricant sales volume increasing to approximately 40% of total sales volume in 2015, up from approximately 31% in 2011.
We believe that our focus on innovation will continue to drive premium lubricant mix improvement in addition to increasing sales of our broader product portfolio, such as Valvoline Professional Series service chemicals, coolants, filters and other non-lubricant products. In addition, we intend to leverage our expertise to continue to add significantly more value to our installer customers than our more cost-driven competitors. Lastly, we are also investing in e-commerce solutions with our existing business partners and a new digital infrastructure that will be used across our enterprise. We believe that this digital infrastructure will improve the speed, innovation and efficiency of our business, and also drive more effective customer engagement, acquisition and retention.
Ashland Ownership and Our Separation from Ashland
Prior to the completion of this offering, we will be a wholly owned subsidiary of Ashland. Immediately prior to the completion of this offering, we plan to amend and restate our articles of incorporation and by-laws and increase the total number of authorized shares of our common stock. In this prospectus, we refer to these transactions collectively as the recapitalization. After the completion of this offering, Ashland will own 85% of our outstanding common stock (or approximately 83% if the underwriters exercise their overallotment option in full).
In connection with this offering, we and Ashland intend to enter into agreements and take certain actions to transfer to us substantially all of the assets and liabilities related to our business, as well as certain other assets and liabilities, such as certain tax and pension plan liabilities. Except for the nominal assets that we currently hold, Ashland holds all of the historical assets and liabilities related our business. We and Ashland will enter into a separation agreement that provides for the separation of our business from Ashland to take effect no later than the closing of this offering (the Separation Agreement). We also intend to enter into a tax matters agreement with Ashland that will govern the rights, responsibilities and obligations of Ashland and us after the closing of this offering with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests) (the Tax Matters Agreement). In addition, we and Ashland will enter into transition services agreements governing Ashlands provision of various services to us, and our provision of various services to Ashland, on a transitional basis, and several other ancillary agreements in connection with the contribution and separation. In this prospectus, references to the contribution refer to Ashlands transfer to us (in connection with certain reorganization transactions) of the assets and liabilities related to our business, and the term separation refers to the separation of our business from Ashlands other businesses (including the contribution), along with the effectiveness of various agreements between us and Ashland. See Certain Relationships and Related Party Transactions.
In July 2016, Valvoline Finco One LLC (Valvoline Finco One) and Valvoline Finco Two LLC (Valvoline Finco Two), wholly owned finance subsidiaries of Ashland Inc. and its subsidiaries, completed the following financing transactions. Valvoline Finco One entered into a credit agreement providing for senior secured credit facilities consisting of a senior secured revolving credit facility and a senior secured term loan facility. The senior secured term loan facility will provide us with up to $875.0 million of borrowings and the senior secured revolving credit facility will provide us with up to $450.0 million of borrowing capacity. Valvoline Finco Two issued senior unsecured notes in an aggregate principal amount of $375.0 million. Following the contribution and subject to the satisfaction of certain conditions, Valvoline Finco One and Valvoline Finco Two will merge with and into us and we will assume all of their respective obligations with respect to such financing transactions. We expect to transfer the net proceeds of the senior secured term loan
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facility and Valvoline Finco Two transferred the net proceeds of the senior unsecured notes to Ashland through intercompany transfers. As an additional source of liquidity following the separation, we expect to also enter into a trade receivable securitization facility with an aggregate principal amount of approximately $150.0 million. We refer to the transactions related to this incurrence of debt collectively as the related financing transactions. See Description of Indebtedness.
As described under Use of Proceeds, immediately prior to the closing of this offering, we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any such short-term loan facility so that, after giving effect to the application of the net proceeds of this offering, there is no more than approximately $375.0 million outstanding under the secured term loan facility and no borrowings outstanding under our senior secured revolving credit facility and any such short-term loan facility. See Description of Indebtedness.
Ashland has informed us that, at some time in the future, but no earlier than the expiration of the 180-day lock-up period described under Underwriting (Conflicts of Interest), it intends to effect a tax-free spin-off of its remaining ownership interest in us to its shareholders (the spin-off). Ashland has no obligation to effect the spin-off and it may retain its ownership interest in us indefinitely or dispose of all or a portion of its ownership interest in us in a sale or other transaction. Any such spin-off or other disposition by Ashland of its remaining interest in us (an other disposition) would be subject to various conditions, including receipt of an opinion of tax counsel in connection with the spin-off, receipt of any necessary regulatory or other approvals and the existence of satisfactory market conditions. The conditions to a spin-off or other disposition by Ashland may not be satisfied. Ashland has no obligation to pursue or consummate any further disposition of its ownership interest in us by any specified date or at all, whether or not these conditions are satisfied.
We believe, and Ashland has advised us that it believes, that the separation, this offering and the spin-off will provide a number of benefits to our business, to Ashlands business and to Ashlands shareholders. These potential benefits include improving the strategic and operational flexibility of both companies, increasing the focus of the management teams on their respective business operations, and allowing each company to adopt the capital structure, investment policy and dividend policy best suited to its financial profile and business needs. In addition, as we will be a standalone company, potential investors will be able to invest directly in our business.
Risks Affecting Our Business
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described in Risk Factors before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be negatively affected. In such case, the trading price of our common stock would likely decline, and you may lose part or all of your investment. These risks include, but are not limited to:
| damage to our reputation or brand; |
| failure to meet the growth goals for our business; |
| reduced demand for our products or services as a result of market or other factors; |
| downward pressure on prices and margins due to competition; |
| the loss of any of our largest customers; |
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| failure to develop and successfully market new products and implement our digital platforms; |
| our substantial indebtedness and other liabilities; |
| failure to achieve the expected benefits and successfully execute the separation; |
| potential tax liabilities that may be created as a result of the spin-off or the separation; |
| operating as an independent publicly traded company, including compliance with applicable laws and regulations; and |
| our status as a controlled company and the possibility that Ashlands interests may conflict with yours. |
Company Information
We were incorporated in Kentucky on May 13, 2016 in connection with our planned separation from Ashland. Our principal executive offices are at 3499 Blazer Parkway, Lexington, Kentucky 40509 and our telephone number is (859) 357-7777. Our website is http://www.valvoline.com . The information and other content contained on our website are not part of this prospectus.
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The Offering
Issuer |
Valvoline Inc. |
Common stock offered by us in this offering |
30,000,000 shares (34,500,000 shares if the underwriters exercise their overallotment option in full) |
Common stock to be held by Ashland immediately after this offering |
170,000,000 shares |
Common stock to be outstanding immediately after this offering |
200,000,000 shares (204,500,000 shares if the underwriters exercise their overallotment option in full) |
Underwriters option |
We have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase up to 4,500,000 additional shares of common stock solely to cover over allotments. |
Use of proceeds |
We estimate that the net proceeds from this offering, after deducting the underwriting discount and estimated offering expenses payable by us, will be approximately $605.0 million (or approximately $697.0 million if the underwriters overallotment option is exercised in full), assuming that the shares of our common stock to be sold in this offering are sold at $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus. Immediately prior to the closing of this offering, we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan facility and either our senior secured revolving credit facility or any such short-term loan facility so that, after giving effect to the application of the net proceeds of this offering, there is no more than approximately $375.0 million outstanding under our senior secured term loan facility and no borrowings outstanding under our senior secured revolving facility and any such short-term loan facility. We would retain and expect to use for general corporate purposes any additional proceeds to us from the exercise by the underwriters of their overallotment option. See Use of Proceeds. |
Certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under our senior secured credit facilities, and, if we opt to enter into a new short-term loan facility, are |
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expected to become lenders under any such short-term loan facility. To the extent an underwriter or one of its affiliates is a lender under our senior secured credit facilities and/or any such short-term loan facility, they will receive a portion of the proceeds from this offering. See Conflicts of interest, Use of Proceeds and Underwriting (Conflicts of Interest). |
In addition, certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under Ashlands term loan facility (the Ashland Term Loan) and Ashlands revolving credit facility (the Ashland Revolver, and together with the Ashland Term Loan, the Ashland Credit Facilities), as governed by Ashlands credit agreement dated as of June 23, 2015, as amended or otherwise modified from time to time. In particular, Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank, N.A., an affiliate of Citigroup Global Markets Inc., Deutsche Bank Trust Company Americas, an affiliate of Deutsche Bank Securities Inc., Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, The Bank of Nova Scotia, an affiliate of Scotia Capital (USA) Inc., Mizuho Bank, Ltd., an affiliate of Mizuho Securities USA Inc., PNC Capital Markets LLC and its affiliate, PNC Bank, National Association, and SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc., are lenders and agents under the Ashland Credit Facilities and may receive proceeds as a result of repayment by Ashland of the Ashland Credit Facilities. Ashland has informed us that it currently expects to use any amounts from borrowings or other debt incurrences by us prior to the closing of this offering that are transferred by us to Ashland to repay borrowings under the Ashland Credit Facilities. See Underwriting (Conflicts of Interest). |
Dividend policy |
We expect to pay quarterly cash dividends to holders of our common stock beginning with the quarter ending December 31, 2016. The declaration and payment of dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, legal requirements and other factors that our board of directors deems relevant. In addition, the instruments governing our indebtedness may limit our ability to pay dividends. |
Risk factors |
You should read the Risk Factors section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
Conflicts of interest |
As described in the Use of Proceeds, we expect to use a portion of the net proceeds from this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any new short-term loan facility. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith |
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Incorporated, Citibank N.A., an affiliate of Citigroup Global Markets Inc., Morgan Stanley Bank, N.A., an affiliate of Morgan Stanley & Co, LLC, Deutsche Bank AG New York Branch, an affiliate of Deutsche Bank Securities Inc., Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, The Bank of Nova Scotia, an affiliate of Scotia Capital (USA) Inc., Mizuho Bank, Ltd., an affiliate of Mizuho Securities USA Inc., PNC Bank, National Association, an affiliate of PNC Capital Markets LLC and SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc., are lenders and agents under our senior secured credit facilities and are expected to become lenders under any such new short-term loan facility. Because Bank of America, N.A., Citibank N.A., Morgan Stanley Bank, N.A., Deutsche Bank AG New York Branch, Goldman Sachs Bank USA, J.P. Morgan Chase Bank, N.A., The Bank of Nova Scotia and PNC Bank, National Association are expected to receive 5% or more of the net proceeds of this offering, not including underwriting compensation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Morgan Stanley & Co, LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and PNC Capital Markets LLC as underwriters participating in this offering, are deemed to have a conflict of interest within the meaning of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (Rule 5121). Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121, which requires that a qualified independent underwriter (QIU) participate in the preparation of this prospectus and perform the usual standards of due diligence with respect thereto. BTIG, LLC has agreed to act as the QIU for this offering. BTIG, LLC will not receive any additional compensation for acting as the QIU. We have agreed to indemnify BTIG, LLC against certain liabilities incurred in connection with acting as a QIU, including liabilities under the Securities Act. In accordance with Rule 5121, none of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Morgan Stanley & Co, LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and PNC Capital Markets LLC will confirm sales to discretionary accounts without the prior written approval of the customer. |
Proposed NYSE symbol |
We have applied for listing of our common stock on the NYSE under the symbol VVV. |
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Directed share program |
At our request, the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our and Ashlands respective directors and officers, certain of our and Ashlands employees and VIOC franchise owners. Any shares purchased by our directors and officers in the directed share program will be subject to a 180-day lock-up period, and any shares purchased by other persons in the directed share program will be subject to a 90-day lock-up period. See Underwriting (Conflicts of Interest). |
Unless otherwise indicated, the information presented in this prospectus:
| gives effect to the transactions described under Certain Relationships and Related Party TransactionsRelationship with AshlandSeparation Steps; |
| assumes that the shares of our common stock to be sold in this offering are sold at $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus; and |
| assumes the underwriters will not exercise their overallotment option. |
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Summary Historical and Pro Forma Combined Financial Data
The following financial data should be read in conjunction with our audited and unaudited combined financial statements and the related notes, and our unaudited pro forma condensed combined financial statements and the related notes, included elsewhere in this prospectus.
The following table summarizes our historical and pro forma combined financial data. The summary historical combined balance sheet data as of September 30, 2015 and 2014 and statement of operations data for the years ended September 30, 2015, 2014, and 2013 is derived from our audited combined financial statements included elsewhere in this prospectus. The summary historical combined financial data as of and for the nine months ended June 30, 2016 and 2015 is derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The historical combined balance sheet data as of September 30, 2013 is derived from our unaudited annual combined financial statements, which are not included in this prospectus. In the opinion of management, the unaudited combined financial statements include all normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and the operating results for these periods. The operating results for the nine months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ended September 30, 2016 or any other interim periods or any future year or period.
The summary historical combined financial data includes certain expenses of Ashland that were allocated to us for certain corporate functions including, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by us during the periods presented. However, these shared expenses may not represent the amounts that we would have incurred had we operated autonomously or independently from Ashland. Actual costs that would have been incurred if we had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, such as information technology and infrastructure. In addition, our summary historical combined financial data does not reflect changes that we expect to experience in the future as a result of our separation from Ashland, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations.
The summary pro forma combined financial data reflects the impact of certain transactions, which comprise the following:
| the recapitalization, the contribution and the separation; |
| the receipt of approximately $605.0 million in net proceeds from the sale of shares of our common stock in this offering at an assumed initial offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and commissions and estimated offering expenses payable by us, and the use of approximately $605.0 million of these proceeds to repay indebtedness; |
| the indebtedness to be incurred in the related financing transactions; and |
| other adjustments described in the notes to the unaudited pro forma condensed combined financial statements. |
The unaudited pro forma condensed combined balance sheet reflects the separation as if it occurred on June 30, 2016, while the unaudited pro forma condensed combined statements of operations give effect to the separation as if it occurred on October 1, 2014, the beginning of the earliest period presented. The pro forma adjustments, described in Unaudited Pro Forma Condensed Combined Financial Statements, are based on currently available information and certain assumptions that management believes are reasonable. Excluded from the pro forma adjustments are items that are non-recurring in nature or are not material.
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The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the separation from Ashland been completed on June 30, 2016 for the unaudited pro forma condensed combined balance sheet or on October 1, 2014 for the unaudited pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of this offering.
The following summary combined financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the Unaudited Pro Forma Condensed Combined Financial Statements and accompanying notes and the interim and annual combined financial statements and accompanying notes included elsewhere in this prospectus.
Pro forma | Historical | |||||||||||||||||||||||||||
(Dollars in millions) |
Nine months
ended June 30, |
Year ended
September 30, |
Nine months ended
June 30, |
Year ended
September 30, |
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2016 | 2015 | 2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Statement of Operations Data: |
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Sales |
$ | 1,435.2 | $ | 1,966.9 | $ | 1,435.2 | $ | 1,483.1 | $ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | ||||||||||||||
Cost of sales |
867.8 | 1,281.8 | 867.8 | 955.5 | 1,281.8 | 1,408.9 | 1,338.3 | |||||||||||||||||||||
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Gross profit |
567.4 | 685.1 | 567.4 | 527.6 | 685.1 | 632.4 | 657.9 | |||||||||||||||||||||
Selling, general and administrative |
211.6 | 529.3 | 210.6 | 194.5 | 290.8 | 302.8 | 213.4 | |||||||||||||||||||||
Corporate expense allocation |
| | 60.2 | 58.6 | 79.5 | 95.0 | 88.2 | |||||||||||||||||||||
Equity and other income |
16.2 | 8.3 | 16.2 | 3.7 | 8.3 | 30.1 | 24.3 | |||||||||||||||||||||
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Operating income |
372.0 | 164.1 | 312.8 | 278.2 | 323.1 | 264.7 | 380.6 | |||||||||||||||||||||
Net interest and other financing expense |
25.0 | 30.0 | | | | | | |||||||||||||||||||||
Net loss on acquisition and divestiture |
(0.6 | ) | (26.3 | ) | (0.6 | ) | (26.3 | ) | (26.3 | ) | | | ||||||||||||||||
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Income before income taxes |
346.4 | 107.8 | 312.2 | 251.9 | 296.8 | 264.7 | 380.6 | |||||||||||||||||||||
Income tax expense |
117.5 | 26.7 | 104.5 | 88.8 | 100.7 | 91.3 | 134.5 | |||||||||||||||||||||
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Net income |
$ | 228.9 | $ | 81.1 | $ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||||||||||
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Pro forma | Historical | |||||||||||||||||||||||
(Dollars in millions) |
As of
June 30, |
As of
June 30, |
As of
September 30, |
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2016 | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents (1) |
$ | 50.0 | $ | $ | $ | $ | $ | |||||||||||||||||
Current assets |
553.3 | 496.3 | 501.0 | 477.3 | 544.7 | 519.1 | ||||||||||||||||||
Property, plant and equipment, net |
284.1 | 280.1 | 245.1 | 253.5 | 272.4 | 270.2 | ||||||||||||||||||
Total assets |
1,634.0 | 1,118.0 | 994.6 | 977.9 | 1,082.5 | 1,062.0 | ||||||||||||||||||
Current liabilities |
475.3 | 295.3 | 307.9 | 298.6 | 293.5 | 312.6 | ||||||||||||||||||
Long-term debt (less current portion) |
720.0 | | | | | | ||||||||||||||||||
Total liabilities |
2,268.0 | 378.0 | 369.0 | 360.8 | 357.7 | 378.3 |
(Dollars in millions) |
Nine months ended
June 30, |
Year ended
September 30, |
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2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Cash Flow Data: |
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Cash flow provided by operations |
$ | 185.7 | $ | 268.5 | $ | 329.8 | $ | 170.6 | $ | 272.9 | ||||||||||
Capital expenditures |
31.8 | 26.1 | 45.0 | 37.2 | 40.9 |
Nine months ended
June 30, |
Year ended
September 30, |
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2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
Other Financial Data: |
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(Unaudited) |
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Lubricant Sales Volume (in millions of gallons) |
130.0 | 123.9 | 167.4 | 162.6 | 158.4 | |||||||||||||||
Company-Owned Same-Store Sales Growth (2) |
7% | 7% | 8% | 5% | 2% | |||||||||||||||
Franchisee Same-Store Sales Growth (2) (3) |
8% | 7% | 8% | 6% | 2% | |||||||||||||||
EBITDA (4) |
$ | 340.8 | $ | 279.8 | $ | 334.8 | $ | 301.8 | $ | 416.3 | ||||||||||
Adjusted EBITDA (4) (5) |
$ | 345.5 | $ | 322.8 | $ | 421.8 | $ | 369.2 | $ | 342.3 | ||||||||||
Free cash flow (6) |
$ | 153.9 | $ | 242.4 | $ | 284.8 | $ | 133.4 | $ | 232.0 |
(1) | Historically, cash and cash equivalents were held at the Ashland level utilizing Ashlands centralized approach to cash management. |
(2) | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
(3) | Our franchisees are distinct legal entities and we do not consolidate the results of operations of our franchisees. |
(4) | In addition to our net income determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures including EBITDA, which we define as our net income, plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization, and Adjusted EBITDA, which we define as EBITDA adjusted for losses (gains) on pension and other postretirement plans remeasurement, net gain (loss) on acquisitions and divestitures, impairment of equity investment, restructuring, other income and (expense) and other items. Management believes the use of non-GAAP measures on a combined and reportable segment basis assists investors in understanding the ongoing operating performance of our business by presenting comparable financial results between periods. The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA provide a supplemental presentation of our operating performance on a combined and reportable segment basis. Adjusted EBITDA generally includes adjustments for unusual, non-operational or restructuring-related activities. |
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The combined financial statements include actuarial gains and losses for defined benefit pension and other postretirement benefit plans recognized annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example the life expectancy of plan participants. Management believes Adjusted EBITDA, which includes the expected return on pension plan assets and excludes both the actual return on pension plan assets and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of our operating performance. Management believes these actuarial gains and losses are primarily financing activities that are more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business and that do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees and retirees.
EBITDA and Adjusted EBITDA each have limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, or more meaningful than, net income as determined in accordance with U.S. GAAP. Because of these limitations, you should rely primarily on net income as determined in accordance with U.S. GAAP and use EBITDA and Adjusted EBITDA only as supplements. In evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating EBITDA and Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be construed as a basis to infer that our future results will be unaffected by unusual or non-recurring items.
(5) | Includes net periodic pension and other postretirement income and expense for both Valvoline stand-alone pension plans and multiemployer pension and other postretirement plans recognized ratably through the fiscal year. The nine months ended June 30, 2016 and 2015 included income of $4.2 million and $0.5 million, respectively, while fiscal years 2015 and 2013 included income of $0.7 million and $0.5 million, respectively. Adjusted EBITDA during 2014 included $0.6 million of net periodic pension and other postretirement expense. This income and expense is comprised of service cost, interest cost, expected return on plan assets and amortization of prior service credit and is disclosed in further detail in Note K in the Notes to Combined Financial Statements for fiscal years 2015, 2014 and 2013 and Note G in the Notes to Condensed Combined Financial Statements for the fiscal nine months ended June 30, 2016 and 2015. The expected return on pension plan assets included in Adjusted EBITDA was income of $26.4 million and $30.0 million for the nine months ended June 30, 2016 and 2015, respectively, and income of $39.8 million, $34.8 million and $34.3 million for the fiscal years 2015, 2014 and 2013, respectively. Excluded from Adjusted EBITDA is the actual return on pension plan assets of income of $14.2 million and a loss of $0.3 million for the nine months ended June 30, 2016 and 2015, respectively, and income of $4.9 million, $48.3 million and $23.4 million for the fiscal years 2015, 2014 and 2013, respectively. |
The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented.
Nine months ended
June 30, |
Year ended
September 30, |
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(Dollars in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Net income |
$ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||||||
Income tax expense |
104.5 | 88.8 | 100.7 | 91.3 | 134.5 | |||||||||||||||
Depreciation and amortization |
28.6 | 27.9 | 38.0 | 37.1 | 35.7 | |||||||||||||||
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EBITDA |
340.8 | 279.8 | 334.8 | 301.8 | 416.3 | |||||||||||||||
Losses (gains) on pension and other postretirement plans remeasurement |
4.7 | 2.0 | 46.0 | 61.1 | (74.0 | ) | ||||||||||||||
Net loss on divestiture |
| 26.3 | 26.3 | | | |||||||||||||||
Impairment of equity investment |
| 14.3 | 14.3 | | | |||||||||||||||
Restructuring |
| 0.4 | 0.4 | 6.3 | | |||||||||||||||
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Adjusted EBITDA |
$ | 345.5 | $ | 322.8 | $ | 421.8 | $ | 369.2 | $ | 342.3 | ||||||||||
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(6) | We use free cash flow as an additional non-GAAP metric of cash flow generation. By deducting capital expenditures from operating cash flows, we are able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow from operating activities, free cash flow includes the impact of capital expenditures, providing a more complete picture of cash generation. Free cash flow has certain limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as allocated costs, and includes the pension and other postretirement plan remeasurement losses and gains related to Ashland sponsored benefit plans accounted for as a participation in a multi-employer plan. The amount of mandatory versus discretionary expenditures can vary significantly between periods. Our results of operations are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, our financial results and free cash flow are not necessarily comparable with similar information for other comparable companies. Free cash flow has limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, or more meaningful than, cash flows provided by operating activities as determined in accordance with U.S. GAAP. In evaluating free cash flow, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating free cash. Our presentation of free cash flow should not be construed as a basis to infer that our future results will be unaffected by unusual or non-recurring items. Because of these limitations, you should rely primarily on cash flows provided by operating activities as determined in accordance with U.S. GAAP and use free cash flow only as a supplement. |
The following table reconciles free cash flow to cash flows provided by operating activities for the periods presented.
Nine months ended
June 30, |
Year ended
September 30, |
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(Dollars in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Cash flows provided by operating activities |
$ | 185.7 | $ | 268.5 | $ | 329.8 | $ | 170.6 | $ | 272.9 | ||||||||||
Less: |
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Additions to property, plant and equipment |
(31.8 | ) | (26.1 | ) | (45.0 | ) | (37.2 | ) | (40.9 | ) | ||||||||||
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Free cash flow |
$ | 153.9 | $ | 242.4 | $ | 284.8 | $ | 133.4 | $ | 232.0 | ||||||||||
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Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in shares of our common stock. We describe below what we believe are currently the material risks and uncertainties we face, but they are not the only risks and uncertainties we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose part or all of your investment.
Risks Related to Our Business
Damage to our brand and reputation could have an adverse effect on our business.
Maintaining our strong reputation with both consumers and customers is a key component of our business. Product or service complaints or recalls, our inability to ship, sell or transport affected products and governmental investigations may harm our reputation with consumers and customers, which may materially and adversely affect our business operations, decrease sales and increase costs.
We manufacture and market a variety of products, such as automotive and industrial lubricants and antifreeze, and provide automotive maintenance services. If allegations are made that some of our products have failed to perform up to consumers or customers expectations or have caused damage or injury to individuals or property, or that our services were not provided in a manner consistent with our vision and values, the public may develop a negative perception of our brands. In addition, if our franchisees or Express Care operators do not successfully operate their quick lube service centers in a manner consistent with our standards, our brand, image and reputation could be harmed, which in turn could negatively impact our business and operating results. A negative public perception of our brands, whether justified or not, could impair our reputation, involve us in litigation, damage our brand equity and have a material adverse effect on our business. In addition, damage to the reputation of our competitors or others in our industry could negatively impact our reputation and business.
We have set aggressive growth goals for our business, including increasing sales, cash flow, market share and margins, in order to achieve our long-term strategic objectives. Execution of our growth strategies and business plans to facilitate that growth involves a number of risks.
We have set aggressive growth goals for our business in order to meet our long-term strategic objectives and improve shareholder value. Our failure to meet one or more of these goals or objectives would negatively impact our business and is one of the most important risks that we face. Aspects of that risk include, among others, changes to the economic environment, changes to the competitive landscape, including those related to automotive maintenance recommendations and consumer preferences, attraction and retention of skilled employees, the potential failure of product innovation plans, failure to comply with existing or new regulatory schemes, failure to maintain a competitive cost structure and other risks outlined in greater detail in this Risk Factors section.
Demand for our products and services could be adversely affected by consumer spending trends, declining economic conditions, trends in our industry and a number of other factors, all of which are beyond our control.
Demand for our products and services may be affected by a number of factors we cannot control, including the number and age of vehicles in current service, regulation and legislation, technological advances in the automotive industry and changes in engine technology, including the adoption rate of electric or other alternative engine technologies. In addition, during periods of declining economic conditions, consumers may defer vehicle maintenance. Similarly, increases in energy prices may cause miles driven to decline, resulting in less wear and tear
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and lower demand for maintenance, which may lead to consumers deferring purchases of our products and services. All of these factors, which impact metrics such as drain intervals and oil changes per day, could result in a decline in the demand for our products and services and adversely affect our sales, cash flows and overall financial condition. Between 2007 and 2012, U.S. passenger car motor oil volumes declined. This decline in demand is a result of, among other factors, changing automotive OEM specifications and longer recommended intervals between oil changes. Over the past two years, however, market volume has increased, largely due to the increase in the number of cars on the road and miles driven.
The success of our growth initiatives depends on our ability to successfully develop and implement one or more integrated digital platforms that will help us better understand consumers and more effectively engage them.
We are in the process of designing and implementing a number of digital platforms that will integrate our operations with customer and consumer data. The successful development and implementation of these digital platforms will depend on our ability to identify an appropriate strategy, dedicate adequate resources and select technologies that will provide us with adequate flexibility to adapt to future developments in the marketplace and changes in consumer and customer behavior. We have incurred and expect to incur significant upfront investments to develop these digital platforms. There is a risk that once implemented, these digital platforms will not deliver all or part of the expected benefits, including additional sales. As we develop and implement our digital platforms, we may elect to modify, replace or abandon certain technology initiatives, which could result in write-downs.
Our success depends upon our ability to attract and retain key employees and the identification and development of talent to succeed senior management.
Our success depends on our ability to attract and retain key personnel, and we rely heavily on our senior management team. The inability to recruit and retain key personnel or the unexpected loss of key personnel may adversely affect our operations. This risk of unwanted employee turnover is substantial in positions that require certain technical expertise. This risk is also substantial in developing international markets we have targeted for growth and in North America, where attracting marketing and technical expertise to geographies necessary to support our management is important to our success. This risk is further enhanced by the planned separation from Ashland. In addition, because of our reliance on our senior management team, our future success depends, in part, on our ability to identify and develop or recruit talent to succeed our senior management and other key positions throughout the organization. If we fail to identify and develop or recruit successors, we are at risk of being harmed by the departures of these key employees.
We face significant competition from other companies, which places downward pressure on prices and margins and may adversely affect our business and results of operations.
We operate in highly competitive markets, competing against a number of domestic and foreign companies. Competition is based on several key criteria, including brand recognition, product performance and quality, product price, product availability and security of supply, ability to develop products in cooperation with customers and customer service, as well as the ability to bring innovative products or services to the marketplace. Certain key competitors, including Shell/Pennzoil and Jiffy Lube, BP/Castrol and Exxon/Mobil, are significantly larger than us and have greater financial resources and more diverse portfolios of products and services, leading to greater operating and financial flexibility. As a result, these competitors may be better able to withstand adverse changes in conditions within the relevant industry, the prices of raw materials and energy or general economic conditions. In addition, competitors pricing decisions could compel us to decrease our prices, which could negatively affect our margins and profitability. Additional competition in markets served by us could adversely affect margins and profitability and could lead to a reduction in market share. Also, we compete in certain markets that are declining, such as the U.S. passenger car motor oil market. If our strategies for dealing with declining markets and leveraging market opportunities are not successful, our results of operations could be negatively affected.
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Because of the concentration of our sales to a small number of retailers, the loss of one or more of, or a significant reduction in orders from, our top retail customers could adversely affect our financial results, as could the loss of one of our distributor relationships.
Our Core North America segments sales represented approximately 54% of our total sales in fiscal 2015. Napa Auto Parts, AutoZone, Advance Auto Parts, OReilly Auto Parts and another large national retailer together accounted for 46% of Core North Americas fiscal 2015 sales and 45% of Core North Americas outstanding trade accounts receivable as of June 30, 2016. Napa Auto Parts accounted for greater than 10% of Core North Americas fiscal 2015 sales. Our volume of sales to these customers fluctuates and can be influenced by many factors, including product pricing, purchasing patterns and promotional activities. The loss of, or significant reduction in orders from, one of our top five retail customers or any other significant customer could have a material adverse effect on our business, financial condition, results of operations or cash flows, as could customer disputes regarding shipments, fees, merchandise condition or related matters. Our inability to collect accounts receivable from one of our major customers, or a significant deterioration in the financial condition of one of these customers, including a bankruptcy filing or a liquidation, could also have a material adverse effect on our financial condition, results of operations or cash flows. We also rely on independent distributors to sell and deliver our products. Disagreements or the loss of our relationship with a distributor could also have a material adverse effect on our financial condition, results of operations or cash flows.
Our marketing activities may not be successful.
We invest substantial resources in advertising, consumer promotions and other marketing activities in order to maintain and strengthen our brand image and product awareness. The Valvoline name and brand image are integral to the growth of our business and our expansion into new markets. Failure to adequately market and differentiate our products and services from competitive products and services could adversely affect our business. There can be no assurances that our marketing strategies will be effective or that our investments in advertising activities will result in a corresponding increase in sales of our products. If our marketing initiatives are not successful, we will have incurred significant expenses without the benefit of higher sales of our products. In addition, if any party with whom we have a sponsorship relationship were to generate adverse publicity, our brand image could be harmed.
Our business exposes us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.
The development, manufacture and sale of automotive, commercial and industrial lubricants, automotive chemicals and the provision of automotive maintenance services involve an inherent risk of exposure to product liability claims, false advertising claims, product recalls, workplace exposure, product seizures and related adverse publicity. A product liability claim, false advertising claim or related judgment against us could also result in substantial and unexpected expenditures, affect consumer or customer confidence in our products, and divert managements time and attention from other responsibilities. Although we maintain product liability insurance, there can be no assurance that the type or level of coverage we have is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured product liability judgment against us could have a material adverse effect on our reputation, results of operations and financial condition.
Failure to develop and market new products and production technologies could impact our competitive position and have an adverse effect on our business and results of operations.
The lubricants industry is subject to periodic technological change and ongoing product improvements. In order to maintain margins and remain competitive, we must successfully develop and introduce new products or improvements that appeal to our customers and ultimately to global consumers. Changes in additive technologies, base oil production techniques and sources, and the demand for improved performance by OEMs
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and consumers place particular pressure on us to continue to improve our product offerings. Our efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by difficulties or delays in product development and service innovation, including the inability to identify viable new products, successfully complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products or service techniques. Due to the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the products we are currently developing, or could develop in the future, will achieve substantial commercial success. The time and expense invested in product development may not result in commercial products or provide revenues. We could be required to write-off our investment in a new product that does not reach commercial viability. Moreover, we may experience operating losses after new products are introduced and commercialized because of high start-up costs, unexpected manufacturing costs or problems, or lack of demand.
The impact of changing laws or regulations or the manner of interpretation or enforcement of existing laws or regulations could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This risk includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, the possible taxation under foreign laws of certain income we report in other jurisdictions, regulations related to the protection of private information of our employees and customers, regulations issued by the U.S. Federal Trade Commission (and analogous non-U.S. agencies) affecting us and our customers, compliance with the REACH regulation (and analogous non-EU initiatives). In addition, compliance with laws and regulations is complicated by our substantial and growing global footprint, which will require significant and additional resources to ensure compliance with applicable laws and regulations in the approximately 140 countries where we conduct business.
Our global operations expose us to trade and economic sanctions and other restrictions imposed by the United States, the European Union and other governments and organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the Foreign Corrupt Practices Act (the FCPA) and other federal statutes and regulations, including those established by the Office of Foreign Assets Control (OFAC). Under these laws and regulations, as well as other anti-corruption laws, anti-money-laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to business practices, including cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could adversely impact our business, results of operations and financial condition.
Although we have implemented policies and procedures in these areas, we cannot assure you that our policies and procedures are sufficient or that directors, officers, employees, representatives, distributors, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions or other export control, anti-corruption, anti-money-laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
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Our substantial global operations subject us to risks of doing business in foreign countries, which could adversely affect our business, financial condition and results of operations.
Sales from our International business segment accounted for 26% of our sales for fiscal 2015. We expect sales from international markets to continue to represent an even larger portion of our sales in the future. Also, a significant portion of our manufacturing capacity is located outside of the United States. Accordingly, our business is subject to risks related to the differing legal, political, cultural, social and regulatory requirements and economic conditions of many jurisdictions.
The global nature of our business presents difficulties in hiring and maintaining a workforce in certain countries. Fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided in foreign countries. In addition, foreign countries may impose additional withholding taxes or otherwise tax our foreign income, or adopt other restrictions on foreign trade or investment, including currency exchange controls. The imposition of tariffs is also a risk that could impair our financial performance. In addition, joint ventures, particularly our existing joint ventures with Cummins in India and China, are an important part of our growth strategy internationally. If our relationship with one of our joint venture partners were to deteriorate, it could negatively impact our ability to achieve our growth goals internationally.
Certain legal and political risks are also inherent in the operation of a company with our global scope. For example, it may be more difficult for us to enforce our agreements or collect receivables through foreign legal systems. There is a risk that foreign governments may nationalize private enterprises in certain countries where we operate. In certain countries or regions, terrorist activities and the response to such activities may threaten our operations more than in the United States. Social and cultural norms in certain countries may not support compliance with our corporate policies including those that require compliance with substantive laws and regulations. Also, changes in general economic and political conditions in countries where we operate, particularly in Europe, the Middle East and emerging markets, are a risk to our financial performance and future growth. For example, we exited our Venezuelan joint venture in 2015 due in part to the continued lack of exchangeability between the Venezuelan bolivar and U.S. dollar and other Venezuelan regulations. In addition, in executing our global growth strategies, we have entered into several important strategic relationships with joint venture partners, such as Cummins, unaffiliated distributors, toll manufacturers and others. The need to identify financially and commercially strong partners to fill these roles who will comply with the high manufacturing and legal compliance standards we require is a risk to our financial performance.
As we continue to operate our business globally, our success will depend, in part, on our ability to anticipate and effectively manage these and other related risks. There can be no assurance that the consequences of these and other factors relating to our multinational operations will not have an adverse effect on our business, financial condition or results of operations.
The competitive nature of our markets may delay or prevent us from passing increases in raw material costs on to our customers. In addition, certain of our suppliers may be unable to deliver products or raw materials or may withdraw from contractual arrangements. The occurrence of either event could adversely affect our results of operations.
Rising and volatile raw material prices, especially for base oil and lubricant additives, may negatively impact our costs, results of operations and the valuation of our inventory. We are not always able to raise prices in response to increased costs of raw materials, and our ability to pass on the costs of such price increases is dependent upon market conditions. Likewise, reductions in the valuation of our inventory due to market volatility may not be recovered and could result in losses.
We purchase certain products and raw materials from suppliers, often pursuant to written supply contracts. If those suppliers are unable to meet our orders in a timely manner or choose to terminate or otherwise avoid contractual arrangements, we may not be able to make alternative supply arrangements. For base oils, our
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suppliers are primarily large oil producers, many of whom operate oil lubricant production and sales businesses as part of their enterprise. There are risks inherent in obtaining important raw materials from actual or potential competitors, including the risk that applicable antitrust laws may be inadequate to mitigate our exposure to these risks. We purchase substantially all of our lubricant additives from the following four suppliers: Afton Chemical Corporation, Chevron Oronite Company LLC, the Infineum group of companies and Lubrizol Corporation. Because the industry is characterized by a limited number of lubricant additives suppliers, there are a limited number of alternative suppliers with whom we could transact in the event of a disruption to our existing supply relationships. The inability of our suppliers to meet our supply demands could also have a material adverse effect on our business.
Also, domestic and global government regulations related to the manufacture or transport of certain raw materials may impede our ability to obtain those raw materials on commercially reasonable terms. If we are unable to obtain and retain qualified suppliers under commercially acceptable terms, our ability to manufacture and deliver products in a timely, competitive and profitable manner or grow our business successfully could be adversely affected.
Acquisitions, strategic alliances and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact our business and results of operations.
Acquisitions, particularly for our VIOC business, and building strategic alliances for distribution and manufacturing, particularly in international markets, including through joint venture partnerships, product distribution and toll manufacturing arrangements, are important elements of our overall growth strategy. We expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. These transactions and agreements could be material to our financial condition and results of operations. In addition, the process of integrating an acquired company, business, or product may create unforeseen operating difficulties or expenditures. The areas where we face risks include:
| diversion of managements time and attention from operating our business to acquisition integration challenges; |
| failure to successfully grow the acquired business or product lines; |
| implementation or remediation of controls, procedures and policies at the acquired company; |
| integration of the acquired companys accounting, human resources and other administrative systems, and coordination of product, engineering and sales and marketing functions; |
| transition of operations, users and customers onto our existing platforms; |
| reliance on the expertise of our strategic partners with respect to market development, sales, local regulatory compliance and other operational matters; |
| failure to obtain required approvals on a timely basis, if at all, from governmental authorities, or conditions placed upon approval under competition and antitrust laws which could, among other things, delay or prevent us from completing a transaction, or otherwise restrict our ability to realize the expected financial or strategic goals of an acquisition; |
| in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries; |
| cultural challenges associated with integrating employees from the acquired company into our organization, and retention of employees from the companies we acquire; |
| liability for, or reputational harm from, activities of the acquired company before the acquisition or from our strategic partners, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and |
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| litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former securityholders or other third parties. |
Our failure to address these risks or other problems encountered in connection with our past or future acquisitions, investments or strategic alliances could cause us to fail to realize the anticipated benefits of such acquisitions, investments or strategic alliances, incur unanticipated liabilities and harm our business generally.
Our acquisitions, investments and strategic alliances could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, impairment of goodwill or purchased long-lived assets and restructuring charges, any of which could harm our financial condition, results of operations and cash flows. Also, the anticipated benefits of our acquisitions may not be realized. In addition, our balance sheet includes goodwill primarily related to acquisitions and future acquisitions may result in our recognition of additional goodwill. The impairment of a significant portion of this goodwill would negatively affect our financial results.
The business model for our VIOC business, including its dependence on franchised oil change centers, presents a number of risks.
VIOC is made up of a nation-wide network of both company-owned and franchised stores. Our success relies in part on the financial success and cooperation of our franchisees. However, we have limited influence over their operations. Our franchisees manage their businesses independently and are responsible for the day to day operations of approximately 68% of VIOC stores as of June 30, 2016. Our revenue and income growth from franchised stores are largely dependent on the ability of our franchisees to grow their sales. Our franchisees may have limited or no sales growth, and our revenues and margins could be negatively affected as a result. In addition, if sales or business performance trends worsen for franchisees, their financial results may deteriorate, which could result in, among other things, VIOC store closures, delayed or reduced payments to us and reduced growth in the number of VIOC stores.
Our success also depends on the willingness and ability of our independent franchisees to implement major initiatives, which may require additional investment by them, and remain aligned with us on operating, promotional and capital intensive reinvestment plans. The ability of our franchisees to contribute to the achievement of our overall plans is dependent in large part on the availability of funding to our franchisees at reasonable interest rates and may be negatively impacted by the financial markets in general or the creditworthiness of individual franchisees.
Our operating performance and reputation could also be negatively impacted if our independent franchisees experience service failures or otherwise operate in a manner that projects a brand image inconsistent with our values, particularly if our contractual and other rights and remedies are limited, costly to exercise or subject to litigation. If our franchisees do not successfully operate VIOC stores in a manner consistent with our standards, our brand, image and reputation could be harmed, which in turn could negatively impact our business and operating results.
The ownership mix of company-owned and franchised VIOC stores also affects our results and financial condition. The decision to own stores or to operate under franchise or license agreements is driven by a large number of factors with a complex and changing interrelationship. In addition, the size of our largest franchisees creates additional risk due to our dependence on their particular growth, financial and operating performance and cooperation and alignment with our initiatives.
In addition, we are the primary supplier of products to all VIOC stores. The growth and performance of our lubricants and other product lines depends in large part on the performance of our VIOC business, potentially amplifying the negative affect of the other risks related to the VIOC business model. Poor performance by VIOC stores would negatively impact revenues and income for other Valvoline reporting segments.
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Adverse developments in the global economy or in regional economies and potential disruptions of financial markets could negatively impact our customers and suppliers, and therefore have a negative impact on our results of operations.
A global or regional economic downturn may reduce customer demand or inhibit our ability to produce and sell products. Our business and operating results are sensitive to global and regional economic downturns, credit market tightness, declining consumer and business confidence, fluctuating commodity prices, volatile exchange rates, changes in interest rates, sovereign debt defaults and other challenges, including those related to international sanctions and acts of aggression or threatened aggression that can affect the global economy. With 74% of our sales coming from North America in fiscal 2015, we are particularly sensitive to the risk of an economic slowdown or downturn in that region. In the event of adverse developments or stagnation in the economy or financial markets, our customers may experience deterioration of their businesses, reduced demand for their products, cash flow shortages and difficulty obtaining financing. As a result, existing or potential customers might delay or cancel plans to purchase products and may not be able to fulfill their obligations to us in a timely fashion. Further, suppliers may experience similar conditions, which could impact their ability to fulfill their obligations to us. A weakening or reversal of the global economy or a substantial part of it could negatively impact our business, results of operations, financial condition and ability to grow.
We use information technology systems to conduct business, and these systems are at risk from cyber security threats.
The nature of our business, the markets we serve and the geographic profile of our operations make us a target of cyber security threats. Despite steps we take to mitigate or eliminate them, cyber security threats to our systems are increasing and becoming more advanced and could occur as a result of the activity of hackers, employee error or employee misconduct. A breach of our information technology systems could lead to the loss and destruction of trade secrets, confidential information, proprietary data, intellectual property, customer and supplier data and employee personal information, and could disrupt business operations which could adversely affect our relationships with business partners and harm our brands, reputation and financial results. Our customer data may include names, addresses, phone numbers, email addresses and payment account information, among other information. Depending on the nature of the customer data that is compromised, we may also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds for the individuals affected by the incident. We do not currently carry insurance for breaches of our information technology systems.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks, domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely on a combination of laws and contractual restrictions with employees, customers, suppliers, affiliates and others, to establish and protect our various intellectual property rights. For example, we have generally registered and continue to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as appropriate. Effective trademark protection may not be available or may not be sought in every country in which our products are made available and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or be registered, even if available.
We generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then-current facts and circumstances, and will continue to do so in the future. No assurances can be given that any patent application we have filed or will file will result in a patent being issued, or that any existing or future patents will afford adequate or meaningful protection against competitors or against similar technologies. In addition, no assurances can be given that third parties will not create new products or methods that achieve similar results without infringing upon patents we own.
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Despite these measures, our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise or third parties could copy or otherwise obtain and use our intellectual property without authorization. The occurrence of any of these events could result in the erosion of our brands and limit our ability to market our brands using our various trademarks, as well as impede our ability to effectively compete against competitors with similar products and services, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights held by third parties. In addition, in the future, third parties may sue us for alleged infringement of their proprietary or intellectual property rights. We may not be aware of whether our products do or will infringe existing or future patents or the intellectual property rights of others. In addition, litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations.
Our pension and postretirement benefit plan obligations are currently underfunded, and we may have to make significant cash payments to some or all of these plans, which would reduce the cash available for our businesses.
In connection with the separation, we will assume certain of Ashlands historical U.S. postretirement benefit plans and qualified and non-qualified pension liabilities, including liabilities for multiemployer plans for certain employees covered by collective bargaining agreements. The funded status of our pension plans is dependent upon many factors, including returns on invested assets, the level of certain market interest rates and the discount rate used to determine pension obligations. Unfavorable returns on plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for our businesses. In addition, a decrease in the discount rate used to determine pension obligations could result in an increase in the valuation of pension obligations, which could affect the reported funding status of our pension plans and future contributions. Similarly, an increase in discount rates could increase the periodic pension cost in subsequent fiscal years. Our policy to recognize changes in the fair value of the pension assets and liabilities annually through mark to market accounting could result in volatility in our results of operations, which could be material. In addition, our pension and postretirement benefit plan obligations are currently underfunded, and we may have to make significant cash payments to some or all of these plans, which would reduce the cash available for our businesses.
Under the Employee Retirement Income Security Act of 1974, as amended, the Pension Benefit Guaranty Corporation (PBGC) has the authority to terminate an underfunded tax-qualified pension plan under limited circumstances. In the event our tax-qualified pension plans are terminated by the PBGC, we could be liable to the PBGC for some portion of the underfunded amount.
Business disruptions from natural, operational and other catastrophic risks could seriously harm our operations and financial performance. In addition, a catastrophic event at one of our facilities or involving our products or employees could lead to liabilities that could further impair our operations and financial performance.
Business disruptions, including those related to operating hazards inherent with the production of lubricants, natural disasters, severe weather conditions, supply or logistics disruptions, increasing costs for energy, temporary plant and/or power outages, information technology systems and network disruptions, cyber-security breaches, terrorist attacks, armed conflicts, war, pandemic diseases, fires, floods or other catastrophic events, could seriously harm our operations, as well as the operations of our customers and suppliers, and may adversely impact our financial performance. Although it is impossible to predict the occurrence or consequences of any such events, they could result in reduced demand for our products, make it difficult or impossible for us to
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manufacture our products or deliver products and services to our customers or to receive raw materials from suppliers, or create delays and inefficiencies in the supply chain. In addition to leading to a serious disruption of our businesses, a catastrophic event at one of our facilities or involving our products or employees could lead to substantial legal liability to or claims by parties allegedly harmed by the event.
While we maintain business continuity plans that are intended to allow us to continue operations or mitigate the effects of events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from all such events. In addition, insurance maintained by us to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.
We have incurred, and will continue to incur, substantial costs as a result of environmental, health and safety (EHS), and hazardous substances liabilities and related compliance requirements. These costs could adversely impact our cash flow, and, to the extent they exceed our established reserves for these liabilities, our results of operations or financial condition.
We are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and human health and safety, as well as the generation, storage, handling, treatment, disposal and remediation of hazardous substances and waste materials. We have incurred, and will continue to incur, significant costs and capital expenditures to comply with these laws and regulations.
EHS regulations change frequently, and such regulations and their enforcement have tended to become more stringent over time. Accordingly, changes in EHS laws and regulations and the enforcement of such laws and regulations could interrupt our operations, require modifications to our facilities or cause us to incur significant liabilities, costs or losses that could adversely affect our profitability. Actual or alleged violations of EHS laws and regulations could result in restrictions or prohibitions on plant operations as well as substantial damages, penalties, fines, civil or criminal sanctions and remediation costs.
Our business involves the production, storage and transportation of hazardous substances. Under some environmental laws, we may be strictly liable and/or jointly and severally liable for environmental damages caused by releases of hazardous substances and waste materials into the environment. For instance, under relevant laws and regulations we may be deemed liable for soil and/or groundwater contamination at sites we currently own and/or operate even though the contamination was caused by a third party such as a former owner or operator, and at sites we formerly owned and operated if the release of hazardous substances or waste materials was caused by us or by a third party during the period we owned and/or operated the site. We also may be deemed liable for soil and/or groundwater contamination at sites to which we sent hazardous wastes for treatment or disposal, notwithstanding that the original treatment or disposal activity accorded with all applicable regulatory requirements.
We are responsible for, and have financial exposure to, liabilities from pending and threatened claims which could adversely impact our results of operations and cash flow.
There are various claims, lawsuits and administrative proceedings pending or threatened against us. Such actions are with respect to commercial matters, false advertising, product liability, toxic tort liability and other matters that seek remedies or damages, some of which are for substantial amounts. While these actions are being contested, their outcome is not predictable. Our results could be adversely affected by financial exposure to these liabilities. Further, as a potential successor to Ashland, we may be subject to a consent order dated January 5, 1998 with the U.S. Federal Trade Commission arising out of charges that ads for our TM8 Engine Treatment product contained claims that were unsubstantiated. Under the consent order, which expires January 5, 2018, we may not make unsubstantiated claims about the performance or attributes of any engine treatment in the future or misrepresent results of tests or studies used to support our claims. We have agreed to indemnify Ashland for any
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liability arising out of the consent order. We could also be subject to additional legal proceedings in the future that may adversely affect our business, including administrative proceedings, class actions, employment and personal injury claims, disputes with current or former suppliers, claims by current or former franchisees and intellectual property claims.
Insurance maintained by us to protect against claims for damages alleged by third parties is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our liabilities to others. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.
Our substantial indebtedness may adversely affect our business, results of operations and financial condition.
After giving effect to the separation and contribution transactions and the application of the net proceeds of this offering, we expect to have outstanding indebtedness of approximately $750.0 million. Our substantial indebtedness could adversely affect our business, results of operations and financial condition by, among other things:
| requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our debt, which would reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes; |
| limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy and other purposes; |
| making us more vulnerable to adverse changes in general economic, industry and regulatory conditions and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions; |
| placing us at a competitive disadvantage compared with our competitors that have less debt and lower debt service requirements; |
| making us more vulnerable to increases in interest rates since some of our indebtedness is subject to variable rates of interest; and |
| making it more difficult for us to satisfy our financial obligations. |
In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our other cash needs. If we are not able to pay our debts as they become due, we could be in default under the terms of our indebtedness. We might also be required to pursue one or more alternative strategies to repay indebtedness, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, we may negatively affect our ability to generate revenues.
If we are unable to access the capital markets or obtain bank credit, our financial position, growth plans, liquidity and results of operations could be negatively impacted.
We are dependent on a stable, liquid, and well-functioning financial system to fund our operations and capital investments. In particular, we may rely on the public or private debt markets to fund portions of our capital investments and the commercial paper market and bank credit facilities to fund seasonal needs for working capital. Our access to these markets depends on multiple factors including the condition of debt capital markets, our operating performance and our credit ratings. If rating agencies lower our credit ratings, it could adversely impact our ability to access the debt markets, our cost of funds and other terms for new debt issuances. Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit rating will remain the same. In connection with Valvoline Finco Twos issuance of senior unsecured notes in July
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2016, Moodys Investors Services, Inc., one of such credit rating agencies, stated that in the event that the net proceeds from this offering are less than $500 million, it would expect to lower our credit ratings by one notch to reflect our higher leverage in that scenario.
We are subject to payment-related risks for owned VIOC stores.
At our owned VIOC stores, we accept a variety of payment methods, including credit cards and debit cards. Accordingly, we are, and will continue to be, subject to significant and evolving regulations and compliance requirements, including obligations to implement enhanced authentication processes that could result in increased costs, reduce the ease of use of certain payment methods and expand liability for us. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time. We rely on independent service providers for payment processing, including credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed. We are also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for losses incurred by card issuing banks or consumers, subject to fines and higher transaction fees, lose our ability to accept credit and debit card payments from our customers or process electronic fund transfers or facilitate other types of payments and our brand, business and results of operations could be significantly harmed.
Risks Related to Our Separation from Ashland
The spin-off may not occur and the separation may not be successful.
Upon completion of this offering, we will be a standalone public company, although we will continue to be controlled by Ashland. Ashland has announced its intention to consummate the spin-off approximately six months after the closing of this offering. However, Ashland may abandon or change the structure of the spin-off if it determines, in its sole discretion, that the spin-off is not in the best interest of Ashland or its shareholders. Such determination may take into account, without limitation, the potential impact on the spin-off of a change in control of Ashland.
In addition, the process of becoming a standalone public company may distract our management from focusing on our business and strategic priorities. Further, although we expect to have direct access to the debt and equity capital markets following this offering, we may not be able to issue debt or equity on terms acceptable to us or at all. Moreover, even with equity compensation tied to our business, we may not be able to attract and retain employees as desired. We also may not fully realize the anticipated benefits of being a standalone public company if any of the risks identified in this Risk Factors section, or other events, were to occur. If we do not realize these anticipated benefits for any reason, our business may be negatively affected. In addition, the separation could adversely affect our operating results and financial condition.
As long as Ashland controls us, your ability to influence matters requiring shareholder approval will be limited.
After this offering, Ashland will own 170,000,000 shares of our common stock, representing 85% of the total outstanding shares of our common stock (or approximately 83% if the underwriters exercise their overallotment option in full). For so long as Ashland beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of our outstanding common stock, Ashland will be able to elect all of the members of our board of directors. Upon completion of this offering, three members of our board of directors, William A. Wulfsohn, Stephen F. Kirk and Vada O. Manager, will also be members of the Ashland board of directors. Mr. Wulfsohn is the Chairman and Chief Executive Officer of Ashland.
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The spin-off could result in significant tax liability to Ashland, and in certain circumstances, we could be required to indemnify Ashland for material taxes pursuant to indemnification obligations under the Tax Matters Agreement.
Ashland expects to obtain a written opinion of counsel to the effect that the spin-off should qualify for non-recognition of gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (the Code). The opinion of counsel would not address any U.S. state or local or foreign tax consequences of the spin-off. The opinion will assume that the spin-off will be completed according to the terms of the Separation Agreement and will rely on the facts as described in the Separation Agreement, the Tax Matters Agreement, other ancillary agreements, the information statement to be distributed to Ashlands shareholders in connection with the spin-off and a number of other documents. In addition, the opinion will be based on certain representations as to factual matters from, and certain covenants by, Ashland and us. The opinion cannot be relied on if any of the assumptions, representations or covenants is incorrect, incomplete or inaccurate or is violated in any material respect.
The opinion of counsel will not be binding on the Internal Revenue Service (the IRS) or the courts, and there can be no assurance that the IRS or a court will not take a contrary position. Ashland has not requested, and does not intend to request, a ruling from the IRS regarding the U.S. federal income tax consequences of the spin-off.
If the spin-off were determined not to qualify for non-recognition of gain and loss, then Ashland would recognize gain as if it had sold our common stock in a taxable transaction in an amount up to the fair market value of our common stock it distributed in the spin-off. In addition, certain reorganization transactions undertaken in connection with the separation and the spin-off could be determined to be taxable, which could result in additional taxable gain. Under certain circumstances, as described in Certain Relationships and Related Party TransactionsRelationship with AshlandTax Matters Agreement, we could have an indemnification obligation to Ashland with respect to tax on some or all of such gain.
We could have an indemnification obligation to Ashland if events or actions subsequent to the spin-off cause the spin-off to be taxable.
If, due to breaches of covenants that we will agree to in connection with the separation or the spin-off, it were determined that the spin-off did not qualify for non-recognition of gain and loss, we could be required to indemnify Ashland for the resulting taxes (and reasonable expenses). In addition, Section 355(e) of the Code generally creates a presumption that the spin-off would be taxable to Ashland, but not to its shareholders, if we or our shareholders were to engage in transactions that result in a 50% or greater change (by vote or value) in the ownership of our stock during the four-year period beginning on the date that begins two years before the date of the spin-off, unless it were established that such transactions and the spin-off were not part of a plan or series of related transactions. If the spin-off were taxable for U.S. federal income tax purposes to Ashland due to a breach of our covenants or a 50% or greater change in the ownership of our stock, Ashland would recognize gain as if it had sold our common stock in a taxable transaction in an amount up to the fair market value of our stock held by it immediately before the spin-off, and we generally would be required to indemnify Ashland for the tax on such gain and related expenses, as well as any additional gain in connection with certain reorganization transactions undertaken to effect the separation and the spin-off. Any such obligation could have a material impact on our operations. See Certain Relationships and Related Party TransactionsRelationship with AshlandTax Matters Agreement for more information.
We intend to agree to numerous restrictions to preserve the tax-free nature of the spin-off, which may reduce our strategic and operating flexibility.
We intend to agree in the Tax Matters Agreement to covenants and indemnification obligations designed to preserve the tax-free nature of the spin-off. These covenants and indemnification obligations may limit our ability to pursue strategic transactions or engage in new businesses or other transactions that might be beneficial and could discourage or delay a strategic transaction that our shareholders may consider favorable. See Certain Relationships and Related Party TransactionsRelationship with AshlandTax Matters Agreement for more information.
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Although we expect to enter into the Tax Matters Agreement under which the amount of our tax sharing payments to Ashland after this offering will generally be determined as if we filed our own consolidated, combined or separate tax returns, we nevertheless will have joint and several liability with Ashland for the consolidated U.S. federal income taxes of the Ashland consolidated group. In addition, we expect to agree to indemnify Ashland for certain pre-offering U.S. taxes that arise on audit and are directly attributable to neither the Valvoline business nor Ashlands specialty ingredients and performance materials businesses (collectively, the Chemicals business).
We will be included in the U.S. federal consolidated group tax return, and possibly certain combined or similar group tax returns, with Ashland (Ashland Group Returns) for the period starting approximately on the date of the closing of this offering and through the date of the spin-off (the Interim Period). Under the Tax Matters Agreement, Ashland will generally make all necessary tax payments to the relevant tax authorities with respect to Ashland Group Returns, and we will make tax sharing payments to Ashland. The amount of our tax sharing payments will generally be determined as if we and each of our relevant subsidiaries included in the Ashland Group Returns filed our own consolidated, combined or separate tax returns for the Interim Period that include only us and/or our relevant subsidiaries, as the case may be.
For taxable periods that begin on or after the day after the date of the spin-off, we will no longer be included in any Ashland Group Returns and will file tax returns that include only us and/or our subsidiaries, as appropriate. We will not be required to make tax sharing payments to Ashland for those taxable periods. Nevertheless, we have (and will continue to have following the spin-off) joint and several liability with Ashland to the IRS for the consolidated U.S. federal income taxes of the Ashland consolidated group for the taxable periods in which we were part of the Ashland consolidated group.
Pursuant to the terms of the Tax Matters Agreement, we expect to indemnify Ashland for certain U.S. federal, state or local taxes for any tax period prior to the closing of this offering (the Pre-IPO Period) of Ashland and/or its subsidiaries for that period that arise on audit or examination and are directly attributable to neither the Valvoline business nor the Chemicals business. Any payment obligations that may arise as a result of our assuming liability for such taxes could negatively affect our financial position and cash flows. See Certain Relationships and Related Party TransactionsRelationship with AshlandTax Matters Agreement.
We have no operating history as a standalone public company, and our historical and pro forma financial information is not necessarily representative of the results we would have achieved as a standalone public company and may not be a reliable indicator of our future results.
The historical financial information we have included in this prospectus does not reflect, and the pro forma financial information included in this prospectus may not reflect, what our financial position, results of operations or cash flows would have been had we been a standalone entity during the historical periods presented, or what our financial position, results of operations or cash flows will be in the future as an independent entity.
The pro forma financial information included in this prospectus includes adjustments based upon available information we believe to be reasonable. However, the assumptions may change and actual results may differ. In addition, we have not made pro forma adjustments to reflect many significant changes that will occur in our cost structure, funding and operations as a result of our transition to becoming a public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with being a publicly traded, standalone company. For additional information about the basis of presentation of our pro forma financial information and historical financial information included in this prospectus, see Selected Combined Financial Data and Unaudited Pro Forma Condensed Combined Financial Statements.
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If Ashland experiences a change in control, our current plans and strategies could be subject to change.
As long as Ashland controls us, it will have significant influence over our plans and strategies, including strategies relating to marketing and growth. In the event Ashland experiences a change in control, a new Ashland owner may attempt to cause us to revise or change our plans and strategies, as well as the agreements between Ashland and us, described in this prospectus. A new owner may also have different plans with respect to the contemplated spin-off of our common stock to Ashland shareholders, including not affecting such a spin-off.
Our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a standalone company after the expiration of our shared services and other intercompany agreements with Ashland.
As a business segment of Ashland, we relied on administrative and other resources of Ashland, including information technology, accounting, finance, human resources and legal, to operate our business. In connection with this offering, we have entered into various service agreements to retain the ability for specified periods to use these Ashland resources. See Certain Relationships and Related Party Transactions. These services may not be provided at the same level as when we were a business segment within Ashland, and we may not be able to obtain the same benefits that we received prior to this offering. These services may not be sufficient to meet our needs, and after our agreements with Ashland expire (which will generally occur within 24 months following the closing of this offering), we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have with Ashland. We will need to create our own administrative and other support systems or contract with third parties to replace Ashlands systems. In addition, we have received informal support from Ashland which may not be addressed in the agreements we have entered into with Ashland, and the level of this informal support may diminish as we become a more independent company. Any failure or significant downtime in our own administrative systems or in Ashlands administrative systems during the transitional period could result in unexpected costs, impact our results and/or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.
After this offering, we will be a smaller company relative to Ashland, which could result in increased costs because of a decrease in our purchasing power.
Prior to this offering, we were able to take advantage of Ashlands size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit and other professional services. We are a smaller company than Ashland, and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to this offering. As a standalone company, we may be unable to obtain office space, goods, technology and services at prices or on terms as favorable as those available to us prior to this offering, which could increase our costs and reduce our profitability.
In order to preserve the ability for Ashland to distribute its shares of our common stock on a tax-free basis, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow.
Beneficial ownership by Ashland of at least 80% of the total voting power of our classes of voting stock and 80% of each class of our non-voting stock is required in order for Ashland to effect the spin-off of us or certain other tax-free transactions. We have agreed that, so long as the spin-off could, in the reasonable discretion of Ashland, be effectuated, we will not knowingly take or fail to take, or permit any of our affiliates to knowingly take or fail to take, any action that could reasonably be expected to preclude Ashlands ability to effectuate the spin-off. As a result, we may be precluded from pursuing certain growth initiatives, including the creation of a class of non-voting stock.
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Ashland has agreed to indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Ashlands ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Separation Agreement and certain other agreements with Ashland, Ashland has agreed to indemnify us for certain liabilities. However, third parties could also seek to hold us responsible for any of the liabilities that Ashland has agreed to retain, and there can be no assurance that the indemnity from Ashland will be sufficient to protect us against the full amount of such liabilities, or that Ashland will be able to fully satisfy its indemnification obligations in the future. Even if we ultimately succeed in recovering from Ashland any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial position, results of operations and cash flows.
Some of our directors and executive officers own Ashland common stock, restricted shares of Ashland common stock or options to acquire Ashland common stock and hold positions with Ashland, which could cause conflicts of interest, or the appearance of conflicts of interest, that result in our not acting on opportunities we otherwise may have.
Some of our directors and executive officers own Ashland common stock, restricted shares of Ashland stock or options to purchase Ashland common stock. In addition, Mr. Wulfsohn will serve as the Non-Executive Chairman of our board of directors, while retaining his role as Chairman and Chief Executive Officer of Ashland. Stephen E. Kirk and Vada O. Manager, who will also serve on our board of directors, are independent directors of Ashland.
Ownership of Ashland common stock, restricted shares of Ashland common stock and options to purchase Ashland common stock by our directors and executive officers after this offering and the presence of executive officers or directors of Ashland on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both us and Ashland that could have different implications for Ashland than they do for us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Ashland and us regarding terms of the agreements governing the separation and the relationship between Ashland and us thereafter, including the Separation Agreement, the employee matters agreement, the Tax Matters Agreement, the transition services agreements or any other commercial agreements between Ashland and us. Potential conflicts of interest could also arise if we enter into commercial arrangements with Ashland in the future. As a result of these actual or apparent conflicts of interest, we may be precluded from pursuing certain growth initiatives.
Ashlands ability to control our board of directors may make it difficult for us to recruit high-quality independent directors.
So long as Ashland beneficially owns shares of our common stock representing at least a majority of the votes entitled to be cast by the holders of our outstanding voting stock, Ashland can effectively control and direct our board of directors. Following the completion of this offering, three members of our board of directors will also be members of the Ashland board of directors. Further, the interests of Ashland and our other shareholders may diverge. Under these circumstances, persons who might otherwise accept our invitation to join our board of directors may decline.
Our inability to resolve favorably any disputes that arise between us and Ashland with respect to our past and ongoing relationships may adversely affect our operating results.
Disputes may arise between Ashland and us in a number of areas relating to our ongoing relationships, including:
| labor, tax, employee benefit, indemnification and other matters arising from our separation from Ashland; |
| employee retention and recruiting; |
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| business combinations involving us; and |
| the nature, quality and pricing of services that we and Ashland have agreed to provide each other. |
We may not be able to resolve potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.
The agreements we have entered into with Ashland may be amended upon agreement between the parties. While we are controlled by Ashland, we may not have the leverage to negotiate amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party.
We will be a controlled company within the meaning of the NYSE rules and, as a result, we intend to rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
After the completion of this offering, Ashland will own more than 50% of the total voting power of our common stock and we will be a controlled company under the NYSE corporate governance standards. As a controlled company, certain exemptions under the NYSE corporate governance standards free us from the obligation to comply with certain of the NYSE corporate governance requirements, including the requirements:
| that a majority of our board of directors consists of independent directors; |
| that we have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committees purpose and responsibilities; |
| that we have a governance and nominating committee that is comprised entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
| the requirement for an annual performance evaluation of our nominating and governance and compensation committees. |
Although we intend to comply with these requirements, we will not be required to provide the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE. In the event that we cease to be a controlled company within the meaning of the NYSE rules, we will be required to comply with these requirements after specified transition periods.
We may have received better terms from unaffiliated third parties than the terms we will receive in the agreements we expect to enter into with Ashland.
The agreements we expect to enter into with Ashland in connection with the separation, including the Separation Agreement, a transition services agreement, a reverse transition services agreement, the Tax Matters Agreement, an employee matters agreement, an equity registration rights agreement with respect to Ashlands continuing ownership of our common stock, a shared environmental liabilities agreement and certain other commercial agreements, were prepared in the context of the separation while we were still a wholly owned subsidiary of Ashland. See Certain Relationships and Related Party TransactionsRelationship with Ashland. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of Ashland. As a result, the terms of those agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated third parties.
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Risks Related to This Offering and Ownership of Our Common Stock
No market currently exists for our common stock. We cannot assure you that an active trading market will develop for our common stock.
Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the NYSE or otherwise, or how liquid that market might become. If an active market does not develop, you may have difficulty selling any shares of our common stock that you purchase in this initial public offering. The initial public offering price for the shares of our common stock will be determined by negotiations between us and the representatives of the underwriters, and may not be indicative of prices that will prevail in the open market following this offering.
If our stock price fluctuates after this offering, you could lose a significant part of your investment.
The market price of our common stock will be influenced by many factors, some of which are beyond our control, including those described above in Risks Related to Our Business and the following:
| the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts; |
| the inability to meet the financial estimates of analysts who follow our common stock; |
| strategic actions by us or our competitors; |
| announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments; |
| variations in our quarterly operating results and those of our competitors; |
| general economic and stock market conditions; |
| risks related to our business and our industry, including those discussed above; |
| changes in conditions or trends in our industry, markets or customers; |
| terrorist acts; |
| future sales of our common stock or other securities; |
| whether, when and in what manner Ashland completes the spin-off; and |
| investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives. |
As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price or may not be able to resell them at all. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.
We may change our dividend policy at any time.
Although following this offering we initially expect to pay quarterly cash dividends to holders of our common stock, we have no obligation to pay any dividend, and our dividend policy may change at any time without notice to our shareholders. The declaration and amount of any future dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law and after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, contractual obligations, legal requirements and other factors that our board of directors deems relevant. As a result, we cannot assure you that we will pay dividends at any rate or at all.
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Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
The market price of our common stock could decline significantly as a result of sales or other distributions of a large number of shares of our common stock in the market after this offering, including shares which might be offered for sale or distributed by Ashland. The perception that these sales might occur could depress the market price of our common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Upon completion of this offering, we will have 200,000,000 shares of common stock (204,500,000 shares if the underwriters exercise their overallotment option in full) outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, as amended (the Securities Act), except for any shares of common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We will grant registration rights to Ashland with respect to shares of our common stock. Any shares registered pursuant to the registration rights agreement described in Certain Relationships and Related Party Transactions will be freely tradable in the public market following a 180-day lock-up period as described below.
In connection with this offering, we, our directors and executive officers and Ashland have each agreed to enter into a lock-up agreement and thereby be subject to a lock-up period, meaning that they and their permitted transferees will not be permitted to sell any of the shares of our common stock for 180 days after the date of this prospectus, without the prior consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC on behalf of the underwriters. Although we have been advised that there is no present intention to do so, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, on behalf of the underwriters may, in their sole discretion and without notice, release all or any portion of the shares of our common stock from the restrictions in any of the lock-up agreements described above. See Underwriting (Conflicts of Interest).
Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of our common stock.
You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering, and you will suffer additional dilution if the underwriters exercise their overallotment option.
If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution, as the initial public offering price of our common stock will be substantially greater than the pro forma net tangible book value per share of our common stock. Based on the assumed initial offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, if you purchase our common stock in this offering, you will suffer immediate and substantial dilution of approximately $25.96 per share. In connection with the separation, we will assume Ashland stock-based compensation awards of our employees, which may result in additional dilution to investors in this offering.
Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
We have historically operated our business as a division of a public company. As a standalone public company, we will have additional legal, accounting, insurance, compliance and other expenses that we have not incurred historically. After this offering, we will become obligated to file with the Securities and Exchange Commission (SEC) annual and quarterly reports and other reports that are specified in Section 13 and other
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sections of the Securities Exchange Act of 1934, as amended (the Exchange Act). We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. In addition, we will become subject to other reporting and corporate governance requirements, including certain requirements of the NYSE, and certain provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.
Sarbanes-Oxley, as well as rules subsequently implemented by the SEC and the NYSE, have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling and administrative expenses and a diversion of managements time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements and implementing them could materially adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and customers in our company and could materially adversely affect our business and cause our share price to fall.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and stock price.
As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of Sarbanes-Oxley, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our managements attention from other matters that are important to the operation of our business. We also expect the regulations under Sarbanes-Oxley to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our stock or if our operating results do not meet their expectations, our stock price could decline.
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We could be subject to securities class action litigation.
In the past, securities class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in the price of our common stock, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and results of operations and divert managements attention and resources from our business.
Anti-takeover provisions in our charter documents and under Kentucky law could discourage, delay or prevent a change in control of our company and may result in an entrenchment of management and diminish the value of our common stock.
Several provisions of our amended and restated certificate of incorporation and amended and restated by-laws could make it difficult for our shareholders to change the composition of our board of directors, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that our shareholders may consider favorable.
These include:
| provisions in our amended and restated articles of incorporation and our amended and restated by-laws limiting the ability of our shareholders to remove directors without cause, change the authorized number of directors and fill director vacancies; |
| provisions in our amended and restated articles of incorporation prohibiting cumulative voting in the election of directors; |
| the availability under our amended and restated articles of incorporation of authorized but unissued shares of preferred stock for issuance by us from time to time at the discretion of our board of directors; |
| provisions in our amended and restated by-laws requiring that shareholders provide advance notice in order to raise business or make nominations at shareholders meetings, which could have the effect of delaying shareholder action until the next shareholders meeting that is favored by the holders of a majority of our outstanding voting securities or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us; |
| provisions in our amended and restated articles of incorporation limiting the ability of shareholders to adopt, amend or repeal our amended and restated by-laws and to amend or repeal certain provisions in our amended and restated articles of incorporation; and |
| provisions in Section 271B.12 of the Kentucky Business Corporation Act (the KBCA) and our amended and restated articles of incorporation preventing us from engaging in certain business combinations with an interested shareholder (generally defined as a beneficial owner of 10% or more of our outstanding voting power) for a period of five years after the date such shareholder became an interested shareholder, unless certain procedures are followed or certain conditions are satisfied. |
These anti-takeover provisions could substantially impede the ability of our shareholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and your ability to realize any potential change-in-control premium. You should carefully review our amended and restated articles of incorporation and our amended and restated by-laws, forms of which are filed as exhibits to the registration statement of which this prospectus is a part, which will govern your rights as a shareholder, as well as Description of Capital Stock and the provisions of applicable Kentucky law.
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Our board of directors will have the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.
Our board of directors will have the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock may impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our board of directors will make any determination to issue shares of preferred stock on its judgment as to our and our shareholders best interests. Our board of directors, in so acting, could issue preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the shareholders may believe to be in their best interests or in which shareholders would have received a premium for their stock over the then prevailing market price of the stock.
38
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our industry, position, goals, strategy, future operations, future financial position, future revenues, estimated costs, prospects, margins, profitability, capital expenditures, liquidity, capital resources, dividends, plans and objectives of management, including those made in the sections entitled Prospectus Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business, are forward-looking statements. The words anticipate, believe, estimate, likely, expect, intend, may, plan, predict, project, forecast, target, potential, will, would, could, should, continue, contemplate, might, objective, on-going, seek and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements are based on our current expectations and assumptions regarding, as of the date such statements are made, our future operating performance and financial condition, including our separation from Ashland, the expected timetable for the spin-off and our future financial and operating performance, strategic and competitive advantages, leadership and future opportunities, as well as the economy and other future events or circumstances. Our expectations and assumptions include, without limitation, internal forecasts and analyses of current and future market conditions and trends, management plans and strategies, operating efficiencies and economic conditions (such as prices, supply and demand, cost of raw materials, and the ability to recover raw-material cost increases through price increases), and risks and uncertainties associated with the following: demand for our products and services; sales growth in emerging markets; the prices and margins of our products and services; the strength of our reputation and brand; our ability to develop and successfully market new products and implement our digital platforms; our ability to retain our largest customers; potential product liability claims; achievement of the expected benefits of the separation; our substantial indebtedness (including the possibility that such indebtedness and related restrictive covenants may adversely affect our future cash flows, results of operations, financial condition and our ability to repay debt) and other liabilities; operating as a standalone public company; our ongoing relationship with Ashland; failure, caused by us, of Ashlands spin-off of our common stock to its shareholders to qualify for tax-free treatment, which may result in significant tax liabilities to Ashland for which we may be required to indemnify Ashland; and the impact of acquisitions and/or divestitures we have made or may make (including the possibility that we may not realize the anticipated benefits from such transactions). These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in Risk Factors. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
See Risk Factors for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this prospectus and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
39
Based on our assumed initial public offering price of $21.50 per share (the midpoint of the price range set forth on the cover page of this prospectus), we estimate that the net proceeds we will receive from the sale of our common stock in this offering will be approximately $605.0 million (or approximately $697.0 million if the underwriters overallotment option is exercised in full), after deducting the underwriting discount and commissions and estimated offering expenses payable by us. Immediately prior to the closing of this offering, we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any such short-term loan facility so that, after giving effect to the application of the net proceeds of this offering, there is no more than approximately $375.0 million outstanding under the secured term loan facility and no borrowings outstanding under our senior secured revolving credit facility and any such short-term loan facility. We would retain and expect to use for general corporate purposes any additional proceeds to us from the exercise by the underwriters of their overallotment option.
Ashland has informed us that it currently expects to use any amounts from borrowings or other debt incurrences by us prior to the closing of this offering that are transferred by us to Ashland to repay borrowings under the Ashland Credit Facilities. Ashland has informed us that as of June 30, 2016, approximately $500 million and $1.05 billion of borrowings were outstanding under the Ashland Revolver and the Ashland Term Loan, respectively. Ashland has not made a final determination as to which facilities it will repay and it may elect to repay other facilities or different amounts of these facilities. Certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under the Ashland Credit Facilities. In particular, Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank, N.A., an affiliate of Citigroup Global Markets Inc., Deutsche Bank Trust Company Americas, an affiliate of Deutsche Bank Securities Inc., Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, The Bank of Nova Scotia, an affiliate of Scotia Capital (USA) Inc., Mizuho Bank, Ltd., an affiliate of Mizuho Securities USA Inc., PNC Capital Markets LLC and its affiliate, PNC Bank, National Association, and SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc., are lenders and agents under the Ashland Credit Facilities and may receive proceeds as a result of repayment by Ashland of the Ashland Credit Facilities. See Underwriting (Conflicts of Interest).
Certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under our senior secured credit facilities and, if we opt to enter into a new short-term loan facility, are expected to become lenders under such short-term loan facility. In particular, Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank N.A., an affiliate of Citigroup Global Markets Inc., Morgan Stanley Bank, N.A., an affiliate of Morgan Stanley & Co, LLC, Deutsche Bank AG New York Branch, an affiliate of Deutsche Bank Securities Inc., Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, The Bank of Nova Scotia, an affiliate of Scotia Capital (USA) Inc., Mizuho Bank, Ltd., an affiliate of Mizuho Securities USA Inc., PNC Bank, National Association, an affiliate of PNC Capital Markets LLC and SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc. are lenders and agents under our senior secured credit facilities and are expected to become lenders under any such new short-term loan facility. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any such short-term loan facility. To the extent an underwriter or one of its affiliates is a lender under our senior secured credit facilities and/or any such short-term loan facility, they will receive a portion of the proceeds from this offering. See Underwriting (Conflicts of Interest) for additional information.
40
A $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per share would increase (decrease) the net proceeds to us from this offering by approximately $30.0 million, assuming the expected number of shares to be sold by us in this offering remains the same and after deducting the underwriting discount and commissions and estimated offering expenses payable by us. If the underwriters exercise their overallotment option in full, we estimate our net proceeds will be approximately $697.0 million. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us by approximately $20.0 million, assuming that the assumed initial public offering price of $21.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the underwriting discount and commissions and estimated offering expenses payable by us.
41
We intend to pay quarterly cash dividends to holders of our common stock beginning with the quarter ending December 31, 2016. The declaration and payment of dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, legal requirements and other factors that our board of directors deems relevant. In addition, the instruments governing our indebtedness may limit our ability to pay dividends. Therefore, no assurance is given that we will pay any dividends to our shareholders, or as to the amount of any such dividends if our board of directors determines to do so.
42
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2016 on an actual basis and on a pro forma basis to reflect the transactions described in Unaudited Pro Forma Condensed Combined Financial Statements.
The information below is not necessarily indicative of what our cash and cash equivalents and capitalization would have been had the separation and contribution transactions been completed as of June 30, 2016. In addition, it is not indicative of our future cash and cash equivalents and capitalization. This table is derived from, and is qualified in its entirety by reference to, our historical and pro forma financial statements and the notes thereto included elsewhere in this prospectus, and should be read in conjunction with Selected Combined Financial Data, Unaudited Pro Forma Condensed Combined Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations and our combined financial statements and notes thereto included elsewhere in this prospectus.
As of
June 30, 2016 |
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Actual | Pro forma (1) | |||||||
(Unaudited) | ||||||||
(Dollars in millions, except per share data) |
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Cash and cash equivalents (2) |
$ | | $ | 50.0 | ||||
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Debt: |
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Long-term debt (including current portion and debt issuance costs) |
| $ | 740.0 | |||||
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Total debt |
| $ | 740.0 | |||||
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Equity: |
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Ashlands net investment |
$ | 804.0 | $ | | ||||
Common stock, $0.01 par value (400,000,000 shares authorized and 200,000,000 shares issued and outstanding on a pro forma basis) (3) |
| 2.0 | ||||||
Accumulated other comprehensive income (loss) |
(64.0 | ) | (14.0 | ) | ||||
Additional paid-in capital |
| (622.0 | ) | |||||
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Total equity (deficit) |
$ | 740.0 | $ | (634.0 | ) | |||
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Total capitalization |
$ | 740.0 | $ | 106.0 | ||||
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(1) | Immediately prior to the closing of this offering we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any such short-term facility so that, after giving effect to the application of the net proceeds of this offering, there is no more than approximately $375.0 million outstanding under the senior secured term loan facility and no borrowings outstanding under our senior secured revolving credit facility and any such short-term facility. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price, the actual number of shares sold and other terms of this offering determined at pricing. |
(2) | Ashland uses a centralized approach to cash management. Accordingly, cash and cash equivalents are held by Ashland at the corporate level and were not attributed to Valvoline for the period presented. Transfers of cash, both to and from Ashlands centralized cash management system, are reflected as a component of Ashlands net investment in Valvoline on the Combined Balance Sheet and as a financing activity within the accompanying Combined Statement of Cash Flows. |
(3) | The number of shares of common stock issued and outstanding on a pro forma basis assumes the underwriters do not exercise their overallotment option. |
43
Investors purchasing our common stock in this offering will experience immediate and substantial dilution in the pro forma net tangible book value of their shares of common stock. Dilution in pro forma net tangible book value represents the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.
Pro forma net tangible book deficit represents our total tangible assets (total assets less intangible assets) less total liabilities, divided by the pro forma number of outstanding shares of common stock. As of June 30, 2016, before giving effect to the sale and issuance of 30,000,000 shares of our common stock, our pro forma net tangible book deficit was $(1,392.7) million, or $(8.19) per share. After giving effect to the sale and issuance of 30,000,000 shares of our common stock in this offering at an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book deficit as of June 30, 2016 would have been approximately $(892.7) million, or $(4.46) per share. This represents an immediate increase in pro forma as adjusted net tangible book deficit of $3.73 per share to our existing shareholder, Ashland, and an immediate dilution of $25.96 per share to new investors participating in this offering.
The following table illustrates this dilution on a per share basis to new investors:
Assumed initial price to public per share |
$ | 21.50 | ||||||
Pro forma net tangible book deficit per share as of June 30, 2016 (1) |
$ | (8.19 | ) | |||||
Increase per share attributable to new investors (2) |
$ | 3.73 | ||||||
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Pro forma as adjusted net tangible book deficit per share after this offering (3) |
(4.46 | ) | ||||||
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Dilution per share to new investors |
$ | 25.96 | ||||||
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(1) | Determined by dividing the net tangible book value of the contributed tangible assets (total assets less intangible assets) less total liabilities by the total number of common shares (170,000,000 common shares) to be issued to Ashland for its contribution of assets and liabilities to us in connection with the separation. |
(2) | Represents the difference between pro forma as adjusted net tangible book value per share after this offering and pro forma net tangible book value per share as of June 30, 2016. |
(3) | Determined by dividing (i) pro forma as adjusted net tangible book value, which is our pro forma net tangible book value plus the cash proceeds of this offering at an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and commissions and estimated offering expenses payable by us, by (ii) the total number of our common shares to be outstanding following this offering. |
A $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, would not impact our pro forma net tangible book deficit or our pro forma as adjusted net tangible book deficit (based on the assumption that any additional proceeds resulting from an increase in the assumed initial public offering price of $21.50 per share would be used to reduce an equivalent amount of our short-term indebtedness and therefore has no impact on pro forma net tangible book deficit or pro forma as adjusted net tangible book deficit). However, a $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per share would increase (decrease) dilution per share to investors participating in this offering by $1.00 per share.
If the underwriters exercise their overallotment option in full, the pro forma as adjusted net tangible book deficit per share after this offering would be $(3.92) per share, the incremental increase in the pro forma net tangible book value per share to our existing shareholder, Ashland, would be $4.27 per share and the pro forma dilution to new investors participating in this offering would be $25.42 per share.
44
The following table summarizes, on the pro forma as adjusted basis described above as of June 30, 2016, the differences between the number of shares of common stock purchased from us, the total consideration and the price per share paid by our existing shareholder, Ashland, and by investors participating in this offering at an assumed initial public offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting the underwriting discount and commissions and estimated offering expenses payable by us.
Shares Purchased |
Total Consideration
(Dollars in millions) |
Weighted-
Average Price Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Ashland |
170,000,000 | (1) | 85 | % | $ | | | % | $ | | ||||||||||
Investors participating in this offering |
30,000,000 | 15 | % | 645.0 | 100.0 | % | 21.50 | |||||||||||||
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Total |
200,000,000 | 100.0 | % | $ | 645.0 | 100.0 | % | $ | 3.23 | |||||||||||
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(1) | Represents the total number of common shares to be issued to Ashland for its contribution of assets and liabilities to us. |
45
SELECTED COMBINED FINANCIAL DATA
The following financial data should be read in conjunction with our audited and unaudited combined financial statements and the related notes, and our unaudited pro forma condensed combined financial statements and the related notes, included elsewhere in this prospectus.
The following table summarizes our historical combined financial data. The selected historical combined balance sheet data as of September 30, 2015 and 2014 and statement of operations data for the years ended September 30, 2015, 2014 and 2013 are derived from our audited combined financial statements included elsewhere in this prospectus. The selected historical combined financial data as of and for the nine months ended June 30, 2016 and 2015 is derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The historical combined balance sheet data as of September 30, 2013, 2012 and 2011 and statement of operations data for the years ended September 30, 2012 and 2011 are derived from our unaudited annual combined financial statements, which are not included in this prospectus. In the opinion of management, the unaudited combined financial statements include all normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and the operating results for these periods. The operating results for the nine months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ended September 30, 2016 or any other interim periods or any future year or period.
The selected historical combined financial data includes certain expenses of Ashland that were allocated to us for certain corporate functions including, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by us during the periods presented. However, these shared expenses may not represent the amounts that would have been incurred had we operated autonomously or independently from Ashland. Actual costs that would have been incurred if we had been a standalone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, such as information technology and infrastructure. In addition, our historical combined financial data does not reflect changes that we expect to experience in the future as a result of our separation from Ashland, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations.
Our annual and interim combined financial statements also do not reflect the assignment of certain assets and liabilities between Ashland and us as reflected under Unaudited Pro Forma Condensed Combined Financial Statements included elsewhere in this prospectus. Consequently, the financial information included in this section may not necessarily reflect what our financial position, results of operations and cash flows would have been had we been a standalone company during the periods presented. Accordingly, these historical results should not be relied upon as an indicator of our future performance.
46
The following selected historical combined financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the Unaudited Pro Forma Condensed Combined Financial Statements and accompanying notes and the interim and annual combined financial statements and accompanying notes included elsewhere in this prospectus.
(Dollars in millions) |
Nine months ended
June 30, |
Year ended
September 30, |
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2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
Statement of Operations Data: |
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Sales |
$ | 1,435.2 | $ | 1,483.1 | $ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | $ | 2,034.0 | $ | 1,971.1 | ||||||||||||||
Cost of sales |
867.8 | 955.5 | 1,281.8 | 1,408.9 | 1,338.3 | 1,502.1 | 1,447.9 | |||||||||||||||||||||
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Gross profit |
567.4 | 527.6 | 685.1 | 632.4 | 657.9 | 531.9 | 523.2 | |||||||||||||||||||||
Selling, general and administrative |
210.6 | 194.5 | 290.8 | 302.8 | 213.4 | 302.3 | 298.8 | |||||||||||||||||||||
Corporate expense allocation |
60.2 | 58.6 | 79.5 | 95.0 | 88.2 | 80.6 | 81.7 | |||||||||||||||||||||
Equity and other income |
16.2 | 3.7 | 8.3 | 30.1 | 24.3 | 22.5 | 19.6 | |||||||||||||||||||||
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Operating income |
312.8 | 278.2 | 323.1 | 264.7 | 380.6 | 171.5 | 162.3 | |||||||||||||||||||||
Net loss on acquisition and divestiture |
(0.6 | ) | (26.3 | ) | (26.3 | ) | | | | | ||||||||||||||||||
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Income before income taxes |
312.2 | 251.9 | 296.8 | 264.7 | 380.6 | 171.5 | 162.3 | |||||||||||||||||||||
Income tax expense |
104.5 | 88.8 | 100.7 | 91.3 | 134.5 | 57.7 | 52.4 | |||||||||||||||||||||
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Net income |
$ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | $ | 113.8 | $ | 109.9 | ||||||||||||||
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As of
June 30, |
As of
September 30, |
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2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||
Balance Sheet Data: |
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Current assets |
$ | 496.3 | $ | 501.0 | $ | 477.3 | $ | 544.7 | $ | 519.1 | $ | 496.2 | $ | 501.1 | ||||||||||||||
Property, plant and equipment, net |
280.1 | 245.1 | 253.5 | 272.4 | 270.2 | 262.1 | 255.7 | |||||||||||||||||||||
Total assets |
1,118.0 | 994.6 | 977.9 | 1,082.5 | 1,062.0 | 1,023.9 | 993.1 | |||||||||||||||||||||
Current liabilities |
295.3 | 307.9 | 298.6 | 293.5 | 312.6 | 291.8 | 289.4 | |||||||||||||||||||||
Total liabilities |
378.0 | 369.0 | 360.8 | 357.7 | 378.3 | 354.0 | 337.0 |
47
(Dollars in millions) |
Nine months
ended June 30, |
Year ended
September 30, |
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Unaudited | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Other Financial Data: |
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Lubricant Sales Volume (in millions of gallons) |
130.0 | 123.9 | 167.4 | 162.6 | 158.4 | 158.7 | 171.3 | |||||||||||||||||||||
Company-Owned Same-Store Sales Growth (1) |
7% | 7% | 8% | 5% | 2% | 4% | 4% | |||||||||||||||||||||
Franchisee Same-Store Sales Growth (1)(2) |
8% | 7% | 8% | 6% | 2% | 2% | 2% | |||||||||||||||||||||
EBITDA (3) |
$ | 340.8 | $ | 279.8 | $ | 334.8 | $ | 301.8 | $ | 416.3 | $ | 207.2 | $ | 199.9 | ||||||||||||||
Adjusted EBITDA (3) |
$ | 345.5 | $ | 322.8 | $ | 421.8 | $ | 369.2 | $ | 342.3 | $ | 275.0 | $ | 251.6 | ||||||||||||||
Free cash flow (4) |
$ | 153.9 | $ | 242.4 | $ | 284.8 | $ | 133.4 | $ | 232.0 | $ | 98.1 | $ | 86.6 |
(1) | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
(2) | Our franchisees are distinct legal entities and we do not consolidate the results of operations of our franchisees. |
(3) | For a complete discussion of the method of calculating EBITDA and Adjusted EBITDA and their usefulness, refer to Prospectus SummarySummary Historical and Pro Forma Combined Financial Data included elsewhere in this prospectus. |
The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented.
(Dollars in millions) |
Nine months
ended June 30, |
Year ended
September 30, |
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2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
Net income |
$ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | $ | 113.8 | $ | 109.9 | ||||||||||||||
Income tax expense |
104.5 | 88.8 | 100.7 | 91.3 | 134.5 | 57.7 | 52.4 | |||||||||||||||||||||
Depreciation and amortization |
28.6 | 27.9 | 38.0 | 37.1 | 35.7 | 35.7 | 37.6 | |||||||||||||||||||||
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EBITDA |
340.8 | 279.8 | 334.8 | 301.8 | 416.3 | 207.2 | 199.9 | |||||||||||||||||||||
Losses (gains) on pension and other postretirement plans remeasurement |
4.7 | 2.0 | 46.0 | 61.1 | (74.0 | ) | 67.8 | 51.7 | ||||||||||||||||||||
Net loss on divestiture |
| 26.3 | 26.3 | | | | | |||||||||||||||||||||
Impairment of equity investment |
| 14.3 | 14.3 | | | | | |||||||||||||||||||||
Restructuring |
| 0.4 | 0.4 | 6.3 | | | | |||||||||||||||||||||
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Adjusted EBITDA |
$ | 345.5 | $ | 322.8 | $ | 421.8 | $ | 369.2 | $ | 342.3 | $ | 275.0 | $ | 251.6 | ||||||||||||||
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(4) | For a complete discussion of the method of calculating free cash flow and its usefulness, refer to Prospectus SummarySummary Historical and Pro Forma Combined Financial Data included elsewhere in this prospectus. |
The following table reconciles free cash flow to cash flows provided by operating activities for the periods presented. |
(Dollars in millions) |
Nine months
ended June 30, |
Year ended
September 30, |
||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||
Cash flows provided by operating activities |
$ | 185.7 | $ | 268.5 | $ | 329.8 | $ | 170.6 | $ | 272.9 | $ | 137.8 | $ | 122.7 | ||||||||||||||
Less: |
||||||||||||||||||||||||||||
Additions to property, plant and equipment |
(31.8) | (26.1) | (45.0) | (37.2) | (40.9) | (39.7) | (36.1) | |||||||||||||||||||||
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Free cash flow |
$ | 153.9 | $ | 242.4 | $ | 284.8 | $ | 133.4 | $ | 232.0 | $ | 98.1 | $ | 86.6 | ||||||||||||||
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48
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements consist of the unaudited pro forma condensed combined statements of operations for the nine months ended June 30, 2016 and for the year ended September 30, 2015, and the unaudited pro forma condensed combined balance sheet as of June 30, 2016. The unaudited pro forma condensed combined financial statements have been derived by application of pro forma adjustments to our historical combined financial statements included elsewhere in this prospectus.
The unaudited pro forma condensed combined balance sheet reflects the separation as if it occurred on June 30, 2016, while the unaudited pro forma condensed combined statements of operations give effect to the separation as if it occurred on October 1, 2014, the beginning of the earliest period presented. The pro forma adjustments, described in the related notes, are based on currently available information and certain assumptions that management believes are reasonable. Excluded from the pro forma adjustments are items that are non-recurring in nature or are not material.
The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the separation from Ashland been completed on June 30, 2016 for the unaudited pro forma condensed combined balance sheet or on October 1, 2014 for the unaudited pro forma condensed combined statements of operations. The unaudited pro forma condensed combined financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of this offering.
In addition, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are preliminary and have been made solely for purposes of developing these unaudited pro forma condensed combined financial statements. Actual results could differ, perhaps materially, from these estimates and assumptions.
The unaudited pro forma condensed combined financial statements reflect the impact of certain transactions, which comprise the following:
| the recapitalization, the contribution and the separation; |
| the receipt of approximately $605.0 million in net proceeds from the sale of shares of our common stock in this offering at an assumed initial offering price of $21.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discount and commissions and estimated offering expenses payable by us, and the use of approximately $605.0 million of these proceeds to repay indebtedness; |
| the indebtedness incurred in the related financing transactions; and |
| other adjustments described in the notes to the unaudited pro forma condensed combined financial statements. |
We have operated as a business segment of Ashland since 1950. As a result, Ashland provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury, and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Ashland. 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 sales, relative percentage of headcount or specific identification. The total amount of these allocations from
49
Ashland was approximately $60.2 million in the nine months ended June 30, 2016 and approximately $79.5 million in the year ended September 30, 2015. These cost allocations are primarily reflected within corporate expense allocation in the combined statements of operations and comprehensive income. 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 completion of this offering, we expect Ashland to continue to provide some services related to these functions on a transitional basis for a fee. These services will be provided under the transitional services agreement described in Certain Relationships and Related Party TransactionsRelationship with Ashland. Upon completion of this offering, we will assume responsibility for all our standalone public company costs, including the costs of corporate services currently provided by Ashland. The unaudited pro forma condensed combined financial statements do not include such public company costs, which we currently estimate to be approximately $20.0 million during our first fiscal year as a standalone public company.
The following unaudited pro forma condensed combined financial statements and the related notes should be read in conjunction with Use of Proceeds, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations, and the interim and annual combined financial statements and the related notes included elsewhere in this prospectus.
50
Valvoline
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended June 30, 2016
(In millions except per share data)
Valvoline
Historical |
Adjustments |
Valvoline
Pro Forma |
||||||||||||||
Sales |
$ | 1,435.2 | $ | | $ | 1,435.2 | ||||||||||
Cost of sales |
867.8 | | 867.8 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Gross profit |
567.4 | | 567.4 | |||||||||||||
Selling, general and administrative expenses |
210.6 | 1.0 | (A | ) | 211.6 | |||||||||||
(60.0 | ) | (B | ) | |||||||||||||
0.8 | (C | ) | ||||||||||||||
59.2 | (D | ) | ||||||||||||||
Corporate expense allocation |
60.2 | (1.0 | ) | (A | ) | | ||||||||||
(59.2 | ) | (D | ) | |||||||||||||
Equity and other income |
16.2 | | 16.2 | |||||||||||||
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|
|
|
|||||||||||
Operating income |
312.8 | 59.2 | 372.0 | |||||||||||||
Net interest and other financing expense |
| 25.0 | (E | ) | 25.0 | |||||||||||
Net loss on acquisition |
(0.6 | ) | | (0.6 | ) | |||||||||||
|
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|
|
|
|
|||||||||||
Income before income taxes |
312.2 | 34.2 | 346.4 | |||||||||||||
Income tax expense |
104.5 | 13.0 | (F | ) | 117.5 | |||||||||||
|
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Net income |
$ | 207.7 | $ | 21.2 | $ | 228.9 | ||||||||||
|
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|
|||||||||||
Earnings per Share, Basic and Diluted |
||||||||||||||||
Basic |
N/A | $ | 1.14 | (G) | ||||||||||||
Diluted |
N/A | $ | 1.14 | (G) | ||||||||||||
Weighted Average Shares Outstanding |
||||||||||||||||
Basic |
N/A | 200,000,000 | (G) | |||||||||||||
Diluted |
N/A | 200,000,000 | (G) |
See notes to unaudited pro forma condensed combined financial statements.
51
Valvoline
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended September 30, 2015
(In millions except per share data)
Valvoline
Historical |
Adjustments |
Valvoline
Pro Forma |
||||||||||||||
Sales |
$ | 1,966.9 | $ | | $ | 1,966.9 | ||||||||||
Cost of sales |
1,281.8 | | 1,281.8 | |||||||||||||
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|
|
|
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Gross profit |
685.1 | | 685.1 | |||||||||||||
Selling, general and administrative expenses |
290.8 | (25.0 | ) | (A | ) | 529.3 | ||||||||||
185.0 | (B | ) | ||||||||||||||
1.0 | (C | ) | ||||||||||||||
77.5 | (D | ) | ||||||||||||||
Corporate expense allocation |
79.5 | (2.0 | ) | (A | ) | | ||||||||||
(77.5 | ) | (D | ) | |||||||||||||
Equity and other income |
8.3 | | 8.3 | |||||||||||||
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Operating income |
323.1 | (159.0 | ) | 164.1 | ||||||||||||
Net interest and other financing expense |
| 30.0 | (E | ) | 30.0 | |||||||||||
Net loss on divestiture |
(26.3 | ) | | (26.3 | ) | |||||||||||
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|
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Income before income taxes |
296.8 | (189.0 | ) | 107.8 | ||||||||||||
Income tax expense |
100.7 | (74.0 | ) | (F | ) | 26.7 | ||||||||||
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Net income |
$ | 196.1 | $ | (115.0 | ) | $ | 81.1 | |||||||||
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Earnings per Share, Basic and Diluted |
||||||||||||||||
Basic |
N/A | $ | 0.41 | (G) | ||||||||||||
Diluted |
N/A | $ | 0.41 | (G) | ||||||||||||
Weighted Average Shares Outstanding |
||||||||||||||||
Basic |
N/A | 200,000,000 | (G) | |||||||||||||
Diluted |
N/A | 200,000,000 | (G) |
See notes to unaudited pro forma condensed combined financial statements.
52
Valvoline
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2016
(In millions)
Valvoline
Historical |
Adjustments |
Valvoline
Pro Forma |
||||||||||
Assets |
||||||||||||
Current assets |
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Cash and cash equivalents |
$ | | $ | 50.0 | (H) | $ | 50.0 | |||||
(605.0 | )(I) | |||||||||||
605.0 | (K) | |||||||||||
Accounts receivable |
338.3 | 2.0 | (J) | 340.3 | ||||||||
Inventories |
136.4 | | 136.4 | |||||||||
Other assets |
21.6 | 5.0 | (J) | 26.6 | ||||||||
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Total current assets |
496.3 | 57.0 | 553.3 | |||||||||
Noncurrent assets |
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Property, plant and equipment, net |
280.1 | 4.0 | (J) | 284.1 | ||||||||
Goodwill |
255.4 | | 255.4 | |||||||||
Intangibles |
3.3 | | 3.3 | |||||||||
Equity method investments |
29.5 | | 29.5 | |||||||||
Other assets |
53.4 | 370.0 | (B) | 508.4 | ||||||||
10.0 | (F) | |||||||||||
5.0 | (I) | |||||||||||
70.0 | (J) | |||||||||||
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Total noncurrent assets |
621.7 | 459.0 | 1,080.7 | |||||||||
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|
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Total assets |
$ | 1,118.0 | $ | 516.0 | $ | 1,634.0 | ||||||
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|
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Liabilities and stockholders equity |
||||||||||||
Current liabilities |
||||||||||||
Short-term debt |
$ | | $ | 105.0 | (I) | $ | | |||||
(105.0 | )(I) | |||||||||||
Current portion of long-term debt |
| 45.0 | (I) | 20.0 | ||||||||
(25.0 | )(I) | |||||||||||
Trade and other payables |
145.0 | 25.0 | (J) | 170.0 | ||||||||
Accrued expenses and other liabilities |
150.3 | 35.0 | (B) | 285.3 | ||||||||
85.0 | (F) | |||||||||||
15.0 | (J) | |||||||||||
|
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|
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Total current liabilities |
295.3 | 180.0 | 475.3 | |||||||||
Noncurrent liabilities |
||||||||||||
Long-term debt (less current portion) |
| 1,195.0 | (I) | 720.0 | ||||||||
(475.0 | )(I) | |||||||||||
Employee benefit obligations |
11.3 | 910.0 | (B) | 921.3 | ||||||||
Deferred income taxes |
23.8 | | 23.8 | |||||||||
Other liabilities |
47.6 | 55.0 | (F) | 127.6 | ||||||||
25.0 | (J) | |||||||||||
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|
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Total noncurrent liabilities |
82.7 | 1,710.0 | 1,792.7 | |||||||||
Stockholders equity (deficit): |
||||||||||||
Common stock |
| 2.0 | (K)(iv) | 2.0 | ||||||||
Additional paid-in capital |
| 603.0 | (K)(iii) | (622.0 | ) | |||||||
(1,225.0 | )(K)(i) | |||||||||||
Invested equity attributable to Ashland Inc. |
804.0 | (2,029.0 | )(K)(ii) | | ||||||||
1,225.0 | (K)(i) | |||||||||||
Accumulated other comprehensive income (loss) |
(64.0 | ) | 50.0 | (B) | (14.0 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity (deficit) |
740.0 | (1,374.0 | ) | (634.0 | ) | |||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 1,118.0 | $ | 516.0 | $ | 1,634.0 | ||||||
|
|
|
|
|
|
See notes to unaudited pro forma condensed combined financial statements.
53
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
(A) Costs from allocated pension and other postretirement plans
We have accounted for our participation in the Ashland sponsored pension and other postretirement plans (i.e., the single-employer plans) as a participation in a multi-employer plan in the historical carve-out financial statements. Under this method of accounting, we recognized our allocated portion of net periodic benefit costs within the historical carve-out financial statements. This adjustment represents the elimination of expenses associated with allocated pension and other postretirement plans included in selling, general and administrative expenses and corporate expense allocation within the historical combined financial statements as a result of the multi-employer approach for carve-out financial statements. Under the multi-employer approach, expense for these plans was allocated based primarily on our participation in the plans.
For the year ended September 30, 2015, the reduction in expense totaled $27.0 million, comprised of $25.0 million within selling, general and administrative expenses and $2.0 million within corporate expense allocation. The adjustment for the nine months ended June 30, 2016 represents an increase in expense of $1.0 million within selling, general and administrative expenses and a reduction in expense of $1.0 million within corporate expense allocation. As explained in Note B below, certain pension and other postretirement plans will be transferred to us that were not historically identified as stand-alone Valvoline benefit plans. The costs associated with these plans are included as an adjustment to the pro forma condensed combined financial statements described in Note B.
(B) Pension and other postretirement plans transferred to Valvoline
Reflects the addition of net pension and other postretirement plan liabilities and expense or income that will be transferred to us by Ashland as part of the Separation and that were not historically considered stand-alone Valvoline benefit plans. We have accounted for our participation in the Ashland sponsored pension and other postretirement plans (i.e., the single-employer plans) as a participation in a multi-employer plan in the historical carve-out financial statements as noted in Note A above. Under this method of accounting, the net unfunded liabilities were not included within the combined balance sheet and only an allocated portion of their costs were included within the combined statements of operations, as further described in the Notes to Combined Financial Statements and consistent with the accounting for our participation in a multi-employer plan in the historical carve-out financial statements. Plans transferred to us by Ashland include a substantial portion of Ashlands largest U.S. qualified pension plan and non-qualified U.S. pension plans.
The balance sheet adjustments for these transferring plans include a $35.0 million adjustment to accrued expense and other liabilities, a $910.0 million adjustment to employee benefit obligations, a $50.0 million adjustment, net of tax of $30.0 million, to accumulated other comprehensive income (loss) and $370.0 million of related deferred tax assets as of June 30, 2016. This adjustment includes the net unfunded liabilities to be transferred to us as a result of the separation that were excluded from our historical combined balance sheet, which has been presented using the multi-employer approach.
The expense adjustment related to these transferring plans was $185.0 million, which includes a $211.0 million loss related to actuarial remeasurements, for the year ended September 30, 2015 and income of $60.0 million for the nine months ended June 30, 2016 and reflects all of the service cost, interest cost, expected return on plan assets, amortization of prior service credit and remeasurement gains and losses, including actuarial gains and losses, associated with these transferring plans. No adjustment to cost of sales was made as cost of sales within the historical carve-out financial statements included an allocation of pension and other postretirement benefit costs associated with manufacturing employees.
(C) Executive performance incentive and retention program
Certain executives were granted performance-based restricted shares of Ashland in October 2015 in order to provide an incentive to remain employed with us in the period after the separation. The expense associated with these awards is not recognized until the spin-off occurs and will be recognized ratably over the vesting period,
54
which is generally three years. The unaudited pro forma condensed combined statement of operations reflects the assumption that the spin-off occurred on October 1, 2014 and that the median amount of potential shares to be awarded will be earned and expensed over the service period. Therefore our estimate of the fair value of the awards resulted in expense of $1.0 million for the year ended September 30, 2015 and $0.8 million for the nine months ended June 30, 2016, respectively.
(D) Corporate expense allocation
Represents the reclassification of our corporate expense allocations to selling, general and administrative expense.
(E) Interest expense
The unaudited pro forma condensed combined statements of operations reflect an annual adjustment of $30.0 million for the expected interest expense and the amortization of new deferred financing costs on our new indebtedness to be incurred and remain outstanding following the separation, which consists of $375.0 million of borrowings under our five-year senior secured term loan facility and $375.0 million aggregate principal amount of our 5.500% senior unsecured notes due 2024, as further described in Note I below. Pro forma interest expense (i) reflects an adjustment of $27.0 million in annual interest expense based on the estimated weighted average annual interest rate of 3.75% on our new indebtedness to be incurred and remain outstanding in conjunction with the separation, and (ii) reflects annual amortization expense of $3.0 million on the approximately $15.0 million of deferred debt issuance costs associated with our new indebtedness, utilizing a weighted average maturity of 6.5 years. A 0.25% increase or decrease in the annual interest rate on the weighted average annual interest rate would increase or decrease pro forma interest expense by $2.0 million annually.
The following table reflects the adjustments in the unaudited pro forma condensed combined statements of operations to reflect the impact of the adjustments to interest expense.
(Dollars in millions) |
Year ended
September 30, 2015 |
Nine months ended
June 30, 2016 |
||||||
Interest expense |
$ | 27.0 | $ | 23.0 | ||||
Amortization of deferred debt issuance costs |
3.0 | 2.0 | ||||||
|
|
|
|
|||||
Pro forma adjustment to interest expense |
$ | 30.0 | $ | 25.0 | ||||
|
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|
|
(F) Resulting tax effects
Reflects the tax effects of the pro forma adjustments at the applicable tax rates, and adjustments related to the Tax Matters Agreement, or stand alone effects within the respective jurisdictions. The applicable tax rates could be different (either higher or lower) depending on activities subsequent to the separation.
(G) Pro forma earnings per share / weighted-average shares outstanding
The weighted-average number of shares used to compute pro forma basic and diluted earnings per share for the nine months ended June 30, 2016 and the year ended September 30, 2015 is 200,000,000, which represents the number of shares we expect to be outstanding after giving effect to this offering.
(H) Cash and cash equivalents
Represents $50.0 million of cash that Ashland will transfer to us once the Separation occurs. Historically, cash and cash equivalents were held at the Ashland level utilizing Ashlands centralized approach to cash management.
55
(I) New debt financing
The unaudited pro forma condensed combined balance sheet reflects the following transactions as if they occurred on June 30, 2016:
| borrowings under our five-year senior secured term loan facility in an aggregate principal amount of $875.0 million (the net proceeds of which will be transferred to Ashland through intercompany transfers) and are assumed to bear interest at LIBOR plus 1.75% per annum based on the executed credit agreement; |
| the issuance of our 5.500% senior unsecured notes due 2024 in an aggregate principal amount of $375.0 million (the net proceeds of which have been transferred to Ashland through intercompany transfers); |
| our entering into a senior secured revolving credit facility with a borrowing capacity of $450.0 million and a trade receivable securitization facility with an expected borrowing capacity of approximately $150.0 million; |
| the incurrence of short-term borrowings of $105.0 million (the net proceeds of which will be transferred to Ashland through intercompany transfers); and |
| the application of $605.0 million of net proceeds of this offering to repay all of the $105.0 million of short-term indebtedness and $500.0 million (which includes $25.0 million within the current portion of long-term debt) of the senior secured term loan facility incurred prior to the completion of this offering, resulting in total debt outstanding after giving effect to the foregoing of $750.0 million, consisting of $375.0 million of borrowings under our five-year senior secured term loan and $375.0 million of our 5.500% senior unsecured notes due 2024. |
The adjustment to long-term debt also reflects the capitalization of approximately $10.0 million of new deferred debt issuance costs that we incurred or will incur in connection with the related financing transactions. In addition, $5.0 million of new deferred debt issuance costs related to the senior secured revolving credit facility have been reflected as an adjustment to other noncurrent assets. These costs will be deferred and recognized over the terms of the respective debt agreements.
(J) Legacy assets and liabilities
Represents certain Ashland legacy assets and liabilities that are expected to be transferred to us as a result of the Separation. The assets to be transferred principally relate to deferred compensation and tax attributes and the liabilities to be transferred primarily consist of deferred compensation, certain Ashland legacy business insurance reserves and certain trade payables. These legacy assets and liabilities include a $2.0 million adjustment to accounts receivable, a $5.0 million adjustment to other current assets, a $4.0 million adjustment to property, plant and equipment, net, a $70.0 million adjustment to other noncurrent assets, a $25.0 million adjustment to trade and other payables, a $15.0 million adjustment to accrued expenses and other liabilities and a $25.0 million adjustment to other noncurrent liabilities.
(K) Offering adjustments
Represents (i) the reclassification of Ashlands net investment in us, which will be reclassified into additional paid-in capital, (ii) the balancing entry to reflect the effect of the other pro forma adjustments, (iii) the receipt of approximately $605.0 million in net proceeds, after deducting the underwriters discount and offering expenses payable by us, associated with the sale of 30,000,000 shares of common stock in this offering at the assumed initial public offering price of $21.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) and (iv) the required balancing entry to reflect the par value of our outstanding common stock.
56
The following reflects the adjustments in our unaudited pro forma condensed combined balance sheet to reflect the impact of the receipt and usage of the net proceeds from this offering on short-term and long-term debt, Ashlands net investment, common stock and additional paid-in capital:
As of June 30, 2016 |
||||||||||||
(Dollars in millions) |
Proceeds
from initial public offering/ Use of proceeds |
Conversion of
Ashlands net investment to additional paid-in capital (a) |
Total adjustments for
this offering and use of proceeds |
|||||||||
Short-term debt |
(105.0 | ) | | (105.0 | ) | |||||||
Long-term debt (includes current portion) |
(500.0 | ) | | (500.0 | ) | |||||||
Invested equity attributable to Ashland Inc. |
| 1,225.0 | 1,225.0 | |||||||||
Common stock |
2.0 | | 2.0 | |||||||||
Additional paid-in-capital |
603.0 | (1,225.0 | ) | (622.0 | ) |
(a) | Excludes the impact of pro forma adjustments (B), (F), (H), (J) and (I), related to the portion attributable to the issuance of debt, as these do not impact additional paid-in-capital. |
57
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our audited and unaudited combined financial statements and the related notes, and our unaudited pro forma condensed combined financial statements and the related notes, included elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that are subject to risks and uncertainties. See Cautionary Statement Regarding Forward-Looking Statements for a discussion of the uncertainties, risks, and assumptions associated with those statements. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the section entitled Risk Factors.
Our fiscal year ends on September 30 of each year. We refer to the year ended September 30, 2016 as fiscal 2016, the year ended September 30, 2015 as fiscal 2015, the year ended September 30, 2014 as fiscal 2014 and the year ended September 30, 2013 as fiscal 2013.
BUSINESS OVERVIEW
We are one of the most recognized and respected premium consumer brands in the global automotive lubricant industry, known for our high quality products and superior levels of service. Established in 1866, our heritage spans 150 years, during which we have developed powerful name recognition across multiple product and service channels. We have significant positions in the United States in all of the key lubricant sales channels, and also have a strong international presence with our products sold in approximately 140 countries.
In the United States and Canada, our products are sold to consumers through over 30,000 retail outlets, to installer customers with over 12,000 locations, and to approximately 1,050 Valvoline branded franchised and company-owned stores. We serve our customer base through an extensive sales force and technical support organization, allowing us to leverage our technology portfolio and customer relationships globally, while meeting customer demands locally. This combination of scale and strong local presence is critical to our success.
We have a history of leading innovation with revolutionary products such as All Climate , DuraBlend and MaxLife . In addition to our iconic Valvoline-branded passenger car motor oils and other automotive lubricant products, we provide a wide array of lubricants used in heavy duty equipment, as well as automotive chemicals and fluids designed to improve engine performance and lifespan. Our premium branded product offerings enhance our high quality reputation and provide our customers with solutions that address a wide variety of needs.
Reportable Segments
Our reporting structure is principally composed of three reportable segments: Core North America, Quick Lubes and International. We also have an Unallocated and other segment.
Core North America
Our Core North America business segment sells Valvoline and other branded products in the United States and Canada to both consumers who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, as well as to installer customers who use our products to service vehicles owned by Do-It-For-Me or DIFM consumers. We sell to DIY consumers through over 30,000 retail outlets, such as AutoZone, Advance Auto Parts and OReilly Auto Parts, as well as leading mass merchandisers and independent auto parts stores. We sell to DIFM consumers through installers who collectively operate over 12,000 locations in the United States and Canada. Installer customers include car dealers, general repair shops and third-party quick lube chains. We directly serve these
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customers with our own sales force and fulfillment capabilities, through retailers such as NAPA, and a network of approximately 140 distributors. Our key installer customers include large national accounts such as Goodyear, Monro, Express Oil Change, TBC Retail Group and Sears. Our installer channel team also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies, and we have a strategic relationship with Cummins for co-branding products in the heavy duty business.
Quick Lubes
Our Quick Lubes business segment services the passenger car and light truck quick lube market through two platforms: our company-owned and franchised VIOC stores, which we believe comprise the industrys best retail quick lube service chain; and Express Care, a quick lube customer platform developed for independent operators who purchase Valvoline motor oil and other products pursuant to contracts while displaying Valvoline branded signage. VIOC, which is the second-largest United States retail quick lube service chain by number of stores, provides fast, trusted service through approximately 715 franchised and 335 company-owned stores. Our VIOC stores provide a broad range of preventive maintenance services, including full-service oil changes, OEM mileage-based services (transmission, radiator and gear box fluid exchange services), tire rotations, fuel system services and seasonal air conditioning coolant replacement services. VIOC company-owned stores have had nine years of consecutive same-store sales growth * and consistently outperformed our competitors, delivering on average over 36% more daily oil changes during 2015 than competing quick lube service centers. Our franchisees have also enjoyed strong results, performing on average 22% more daily oil changes in 2015 than competitors. We also sell our products and provide Valvoline branded signage to independent quick lube operators through our Express Care program. The Express Care platform has been designed to support smaller (typically single store) operators that do not fit our franchised model and typically offer other non-quick lube services such as auto repair and car washes. In 2015, we estimate that VIOC and Express Care stores performed approximately 13% of the total oil changes in the quick lube market.
International
Our International business segment sells Valvoline and our other branded products in approximately 140 countries. Our key international markets include China, India, Latin America, Australia Pacific and EMEA. We have significant overall market share in India and Australia and a growing presence in a number of markets, with primary growth targets being China, India and select countries within Latin America, including Mexico. Our International business segment sells products for both consumer and commercial vehicles and equipment, and is served by company-owned manufacturing facilities in the United States, Australia and the Netherlands, a joint venture-owned facility in India and third-party warehouses and toll manufacturers in other regions. Our heavy duty products are used in a wide variety of heavy duty equipment, including on-road trucks and buses, agricultural equipment, construction and mining equipment and power generation equipment. We go to market in our International business in three ways: (1) through our own local sales, marketing and back office support teams, which we refer to as our wholly owned affiliate markets; (2) through joint ventures; and (3) through independent distributors. In our wholly owned affiliate markets, we have a direct presence and maintain the sales and marketing teams required to build effective channels. We have 50/50 joint ventures with Cummins in India and China. We also have smaller joint ventures in select countries in Latin America. In other countries, we go to market via independent distributors, which provide access to these geographies with limited capital investment.
* | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
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Business Results
Sales by each reportable segment expressed as a percentage of total combined sales were as follows:
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
Sales by Reportable Segment |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Core North America |
52 | % | 55 | % | 54 | % | 55 | % | 56 | % | ||||||||||
Quick Lubes |
23 | % | 19 | % | 20 | % | 18 | % | 17 | % | ||||||||||
International |
25 | % | 26 | % | 26 | % | 27 | % | 27 | % | ||||||||||
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Sales by geography expressed as a percentage of total combined sales were as follows:
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
Sales by Geography |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
North America (a) |
75 | % | 74 | % | 74 | % | 73 | % | 73 | % | ||||||||||
Europe |
7 | % | 8 | % | 8 | % | 8 | % | 9 | % | ||||||||||
Asia Pacific |
14 | % | 14 | % | 14 | % | 14 | % | 14 | % | ||||||||||
Latin America & other |
4 | % | 4 | % | 4 | % | 5 | % | 4 | % | ||||||||||
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(a) | We only include the United States and Canada in our North American designation. |
Our Adjusted EBITDA increased 14% during 2015 compared to 2014 from $369.2 million to $421.8 million (see U.S. GAAP reconciliation under Combined ReviewOperating IncomeEBITDA and Adjusted EBITDA). The increase in Adjusted EBITDA was primarily due to an increase in Adjusted EBITDA in our Core North America and Quick Lubes reportable segments, while the International reportable segments Adjusted EBITDA was consistent with the prior year primarily due to the negative impact of foreign currency exchange. Core North Americas Adjusted EBITDA increased $36.0 million, or 20%, compared to 2014, while Quick Lubes Adjusted EBITDA increased $16.0 million, or 17%, compared to 2014. These increases were primarily driven by increased volumes and lower raw material costs, specifically relating to the price of base oil, which increased gross profit.
Acquisitions and Divestitures
Oil Can Henrys Acquisition
On December 11, 2015, Ashland announced that it signed a definitive agreement to acquire OCH International, Inc. (Oil Can Henrys), which was the 13 th largest quick-lube network in the United States, servicing approximately 1 million vehicles annually with 89 quick-lube stores, 47 company-owned stores and 42 franchise locations in Oregon, Washington, California, Arizona, Idaho and Colorado. On February 1, 2016, Ashland completed the acquisition.
The acquisition of Oil Can Henrys is reported within the Quick Lubes reportable segment and is valued at $72.0 million, which included acquired indebtedness of $10.5 million, working capital reimbursements of $0.5 million, cash received of $2.4 million and additional post-closing purchase price adjustments of $1.3 million, for a total all-cash purchase price of $64.7 million. Net of cash acquired, the total purchase price was $62.3 million.
Car Care Products Divestiture
During 2015, Ashland entered into a definitive sale agreement to sell our car care products within the Core North America reportable segment for $24.0 million, which included Car Brite and Eagle One automotive
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appearance products. Prior to the sale, we recognized a loss of $26.3 million before tax in 2015 to recognize the assets at fair value less cost to sell. The loss is reported within the net loss on divestiture caption within the combined statements of operations and comprehensive income. The transaction closed on June 30, 2015 and we received net proceeds of $19.3 million after adjusting for certain customary closing costs and final working capital amounts.
Venezuela Equity Method Investment Divestiture
During 2015, we sold the equity method investment in Venezuela within the International reportable segment. Prior to the sale, we recognized a $14.3 million impairment in 2015, for which there was no tax effect, within the equity and other income caption of the combined statements of operations and comprehensive income.
Our decision to sell the equity investment and the resulting impairment charge recorded during 2015 was a result of the continued devaluation of the Venezuelan currency (bolivar) based on changes to the Venezuelan currency exchange rate mechanisms during the fiscal year. In addition, the continued lack of exchangeability between the Venezuelan bolivar and U.S. dollar had restricted the equity method investees ability to pay dividends and obligations denominated in U.S. dollars. These exchange regulations and cash flow limitations, combined with other recent Venezuelan regulations and the impact of declining oil prices on the Venezuelan economy, had significantly restricted our ability to conduct normal business operations through the joint venture arrangement.
Financing Activity
In July 2016, Valvoline Finco One and Valvoline Finco Two, wholly owned finance subsidiaries of Ashland Inc. and its subsidiaries, completed the following financing transactions. Valvoline Finco One entered into a credit agreement providing for senior secured credit facilities consisting of a senior secured revolving credit facility and a senior secured term loan facility. The senior secured term loan facility will provide us with up to $875.0 million of borrowings and the senior secured revolving credit facility will provide us with up to $450.0 million of borrowing capacity. Valvoline Finco Two issued senior unsecured notes in an aggregate principal amount of $375.0 million. Following the contribution and subject to the satisfaction of certain conditions, Valvoline Finco One and Valvoline Finco Two will merge with and into Valvoline and we will assume all of their respective obligations under such financing transactions. We expect to transfer the net proceeds of the senior secured term loan facility and Valvoline Finco Two has transferred the net proceeds of the senior unsecured notes to Ashland through intercompany transfers. See Description of Indebtedness.
CERTAIN FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Industry
The global finished lubricants market is a $60 billion market with demand for over 11.7 billion gallons of lubricants in 2015. For the same period, demand for passenger car motor oil and motorcycle oil accounted for slightly over 24% of global lubricant demand, while the remaining 76% of demand was for commercial and industrial products. The United States has historically accounted for the largest amount of lubricant demand, followed by China and India. The lubricants market is impacted by the following key drivers and trends:
| Global lubricants market demand is shifting towards higher performance finished lubricants, largely driven by advancements in vehicle/equipment design and OEM requirements for improved efficiency, reduced carbon footprints and optimized fuel consumption. |
| There has been increasingly stringent regulation, particularly in North America and Europe aimed at reducing toxic emissions, which has led to a continuous drive for innovation given changing specifications for lubricants. |
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Between 2007 and 2012, the North American transport lubes market experienced average annual volume declines of 2.7% per annum, due in part to an increase in oil change intervals, which have |
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resulted from changing OEM recommendations and advancements in engine technology. Over the past two years, market volume has increased, largely due to the increase in the number of cars on the road and miles driven. |
| A surge in the number of cars on the road has led to rapid expansion of passenger vehicle lubricant sales in developing regions. For example, the number of passenger cars on the road in China grew from 59 million in 2010 to 121 million in 2014, representing a compound annual growth rate of 21%. |
Business and Growth Strategies
The strength of our business model is our ability to generate profitable sales across multiple channels to market, leveraging the Valvoline brand through effective marketing, innovative product technology and the capabilities of our team. We have delivered strong profits and return on capital, with balanced results across all of our sales channels. Today, Valvoline is a high margin, high free cash flow generating business, with significant growth opportunities across all of our business segments. Our key business and growth strategies include:
| growing and strengthening our quick lube network through organic store expansion, opportunistic, high-quality acquisitions in both core and new markets within the VIOC system and strong sales efforts to partner with new Express Care operators, in addition to continued same-store sales growth and profitability within our existing VIOC system stores as a result of attracting new customers and increasing customer satisfaction, customer loyalty and average ticket size; |
| accelerating international growth across key markets where demand for premium lubricants is growing, such as China, India and select countries in Latin America, including Mexico, by building strong distribution channels in underserved geographies, replacing less successful distributors and improving brand awareness among installer customers in those regions; and |
| leveraging innovation, both in terms of product development, packaging, marketing and the implementation of our new digital infrastructure, to strengthen our market share and profitability in Core North America. |
Raw Material Supply and Prices
The key raw materials used by our business are base oils, additives, packaging materials (high density polyethylene bottles and steel drums) and ethylene glycol. We continuously monitor global supply and cost trends of these key raw materials. We obtain these raw materials from a diversified network of large global suppliers and regional providers. Our sourcing strategy is to ensure supply through contracting a diversified supply base while leveraging market conditions to take advantage of spot opportunities whenever such conditions are available. We leverage our worldwide spend to obtain favorable contract terms from the global suppliers and use the regional providers to ensure market competitiveness and reliability in our supply chain. For materials that must be customized for us, we work with market leaders with global footprints and well developed business continuity plans. We also utilize our research and development resources to develop alternative product formulations, which provide flexibility in the event of supply interruptions. We closely monitor our supply chain and conduct annual supply risk assessments of our critical suppliers to reduce risk.
We seek to actively manage fluctuations in supply costs, product selling prices and the timing thereof to preserve unit margins. The prices of many of our products fluctuate based on the price of base oil, which is a large percentage of our cost of sales. Historically, base oil prices have been volatile, which sometimes causes sharp cost increases during periods of short supply, which was the case in 2011. Since that time, base oil supply has increased dramatically while global demand has generally grown at a steady and moderate rate. Although base oil, a derivative of crude, is highly correlated to the global oil market, excess supply of base oil in recent years has contributed to reduced volatility in the base oil market.
We have generally been successful in adjusting product selling prices to account for changes in base oil costs in order to preserve unit margins. As part of our strategy to mitigate the impact of base oil volatility, we
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have negotiated base oil supply contracts with terms that have reduced the impact of changes in the base oil market on our financial results. With respect to our sales of branded products in the United States, we have also revised our contracts with many of our customers to accelerate the timing of adjustments to our selling prices in response to changes in raw material prices. Pricing adjustments to product sold to our larger national or regional accounts in our installer channel tend to be made pursuant to contract and are often based on movements in published base oil indices. Pricing for product sold to our franchisees is adjusted on a periodic basis pursuant to an agreed upon index (weighted combination of published base oil indices), the composition and weighting of which may be updated from time to time by Valvoline and representatives of our franchisees. Pricing adjustments for product sold in our DIY channel, private label products in the United States and product sold to smaller accounts in our installer channel are generally market driven, based on negotiations in light of base oil costs and the pricing strategies of our competitors.
Our Relationship with Ashland
We are currently a business unit of Ashland and our combined financial statements have been derived from the consolidated financial statements and accounting records of Ashland. Our historical expenses are not necessarily indicative of the expenses we may incur in the future as a standalone public company. Although we intend to enter into certain agreements with Ashland in connection with this offering and the separation, the amount and composition of our expenses may vary from historical levels since the fees charged for the services under the agreements may be higher or lower than the costs reflected in the historical allocations. In addition, we intend to replace these services over time with ones supplied either internally by our employees or by third parties, the cost of which may be higher or lower than the historical allocations. We are currently investing in expanding our own administrative functions, including finance, legal and compliance and human resources, as well as our information technology infrastructure, to replace services currently provided by Ashland. See Certain Relationships and Related Party TransactionsRelationship with Ashland and Unaudited Pro Forma Condensed Combined Financial Statements.
Ashland provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Ashland. 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 sales, relative percentage of headcount or specific identification. The total amount of these allocations from Ashland was approximately $60.2 million in the nine months ended June 30, 2016 and approximately $79.5 million in the year ended September 30, 2015. These cost allocations are primarily reflected within corporate expense allocation in the combined statements of operations and comprehensive income. 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 completion of this offering, we expect Ashland to continue to provide some services related to these functions on a transitional basis for a fee. These services will be provided under the transitional services agreement described in Certain Relationships and Related Party TransactionsRelationship with Ashland. Upon completion of this offering, we will assume responsibility for all our standalone public company costs, including the costs of corporate services currently provided by Ashland. See Certain Factors Affecting Our Financial Condition and Results of OperationsPublic Company Expenses.
Compensation
We expect to institute competitive compensation policies and programs as a standalone public company, the expense for which may differ from the compensation expense allocated by Ashland in our combined financial statements.
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Pension and Other Post Retirement Plan Liabilities
We expect that approximately $945.0 million in net unfunded pension and other postretirement plan liabilities will be transferred to us by Ashland as part of the separation. As announced by Ashland in March 2016, these pension plans are frozen to new participants and, effective September 2016, the accrual of pension benefits for participants will be frozen. Certain postretirement benefits were also eliminated or curtailed. Plans transferred to us by Ashland will include a substantial portion of the largest U.S. qualified pension plan and non-qualified U.S. pension plans.
Similar to our current standalone defined benefit pension plans, we will recognize the change in the fair value of plan assets and net actuarial gains and losses for the pension and other postretirement plan liabilities transferred to us by Ashland annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement within the combined statement of operations and comprehensive income. The remaining components of pension and other postretirement benefits expense will be recorded ratably on a quarterly basis. Our policy to recognize these changes annually through mark to market accounting could result in volatility in our results of operations, which could be material.
As of June 30, 2016, the pro forma pension and other postretirement benefit plans had aggregate benefit obligations of approximately $3,615.0 million and an aggregate value of plan assets of approximately $2,660.0 million, resulting in a net unfunded balance for the plans of approximately $955.0 million. The net unfunded liability of the pension plans was approximately $870.0 million at June 30, 2016, of which 99% related to the transferring U.S. pension plans. The remainder of the net unfunded liability consists of other postretirement benefit plans within the U.S. and Canada.
Principal plan assumptions used by Ashland Inc. as of June 30, 2016 are as follows: discount rate: 3.60%; and expected long-term rate of return on plan assets: 7.05%. The plan assumptions represent a blended weighted-average rate for the U.S. and non-U.S. plans. Non-U.S. plans use assumptions generally consistent with those of U.S. plans.
We will calculate funding requirements for U.S. qualified pension plans funding through the year ending September 30, 2017 in accordance with the regulations set forth in the Moving Ahead for Progress in the 21st Century Act (MAP-21), which provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974. Specifically, MAP-21 allows for the use of a 25-year average interest rate within an upper and lower range for purposes of determining minimum funding obligations instead of an average interest rate for the two most recent years, as was previously required. During the year ending September 30, 2017, we expect to contribute approximately $15.0 million to the U.S. non-qualified pension plans to be transferred and do not expect to make any contributions to the U.S. qualified pension plans to be transferred.
As part of our strategy to reduce risk and administrative costs associated with the pension plans to be transferred, we are currently exploring the possible transfer of up to $400 million of pension plan liabilities to a third party insurer. Any such transfer would result in the third party assuming the applicable plan liabilities in exchange for a payment from plan assets in an amount equal to such liabilities, along with a negotiated fee. Because the amount of the plan assets transferred would exceed the plan liabilities transferred by the amount of the fee paid to the third party, any such transaction would result in a slight increase to our net pension plan liabilities. We have not entered into any definitive agreements with respect to such a transfer and may elect to enter into a transfer involving a lesser amount of plan liabilities or not to enter into any such transfer of plan liabilities.
The foregoing discussion contains forward-looking statements that are subject to risks and uncertainties. See Cautionary Statement Regarding Forward-Looking Statements.
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Public Company Expenses
As a result of this offering, we will become subject to the reporting requirements of the Exchange Act and Sarbanes-Oxley. We will have to establish additional procedures and practices as a standalone public company. As a result, we will incur additional costs as a standalone public company, including internal audit, investor relations, director and officer insurance, stock administration and regulatory compliance costs. We currently estimate that these additional costs will be approximately $20.0 million during our first fiscal year as a standalone public company.
Seasonality
Overall, there is little seasonality in our business. Our Quick Lubes business and, to a lesser extent, our Core North America business tend to experience slightly higher sales volume in the summer months due to summer vacations and increased driving, as well as during the periods of time leading into holidays. Both businesses also tend to slow a little from October to February due to inclement weather in parts of the United States and Canada. Our International business experiences almost no seasonality due to its geographic diversity and the high percentage of its business in the commercial and industrial lubricants market, which is less influenced by weather.
RESULTS OF OPERATIONS COMBINED REVIEW
Non-GAAP Performance Metrics
In addition to our net income determined in accordance with U.S. GAAP, we evaluate operating performance using certain non-GAAP measures including EBITDA, which we define as our net income, plus income tax expense (benefit), net interest and other financing expenses, and depreciation and amortization, Adjusted EBITDA, which we define as EBITDA adjusted for losses (gains) on pension and other postretirement plans remeasurement, net gain (loss) on acquisitions and divestitures, impairment of equity investment, restructuring, other income and (expense) and other items, which may include pro forma impact of significant acquisitions or divestitures and restructuring costs, as applicable, and Adjusted EBITDA margin, which we define as Adjusted EBITDA as a percentage of sales. These measures are not prepared in accordance with U.S. GAAP and as related to pro forma adjustments, contain our best estimates of cost allocations and shared resource costs. Management believes the use of non-GAAP measures on a combined and reportable segment basis assists investors in understanding the ongoing operating performance of our business by presenting comparable financial results between periods. The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in calculating EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA provide a supplemental presentation of our operating performance on a combined and reportable segment basis. Adjusted EBITDA generally includes adjustments for unusual, non-operational or restructuring-related activities.
The combined financial statements include actuarial gains and losses for defined benefit pension and other postretirement benefit plans recognized annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement during a fiscal year. Actuarial gains and losses occur when actual experience differs from the estimates used to allocate the change in value of pension and other postretirement benefit plans to expense throughout the year or when assumptions change, as they may each year. Significant factors that can contribute to the recognition of actuarial gains and losses include changes in discount rates used to remeasure pension and other postretirement obligations on an annual basis or upon a qualifying remeasurement, differences between actual and expected returns on plan assets and other changes in actuarial assumptions, for example the life expectancy of plan participants. Management believes Adjusted EBITDA, which includes the expected return on pension plan assets and excludes both the actual return on pension plan assets (see page 68 for the amounts of expected and actual returns on pension plan assets) and the impact of actuarial gains and losses, provides investors with a meaningful supplemental presentation of our operating performance. Management believes these actuarial gains and losses are primarily financing activities that are
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more reflective of changes in current conditions in global financial markets (and in particular interest rates) that are not directly related to the underlying business and that do not have an immediate, corresponding impact on the compensation and benefits provided to eligible employees and retirees.
We use free cash flow as an additional non-GAAP metric of cash flow generation. By deducting capital expenditures, we are able to provide a better indication of the ongoing cash being generated that is ultimately available for both debt and equity holders as well as other investment opportunities. Unlike cash flow from operating activities, free cash flow includes the impact of capital expenditures, providing a more complete picture of cash generation. Free cash flow has certain limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as allocated costs, and includes the pension and other postretirement plan remeasurement losses or gains related to Ashland sponsored benefit plans accounted for as a participation in a multi-employer plan. The amount of mandatory versus discretionary expenditures can vary significantly between periods. Our results of operations are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, our financial results are not necessarily comparable with similar information for other comparable companies.
EBITDA, Adjusted EBITDA and free cash flow each have limitations as an analytical tool and should not be considered in isolation from, or as an alternative to, or more meaningful than, net income and cash flows provided from operating activities as determined in accordance with U.S. GAAP. Because of these limitations, you should rely primarily on net income and cash flows provided from operating activities as determined in accordance with U.S. GAAP and use EBITDA, Adjusted EBITDA and free cash flow only as supplements. In evaluating EBITDA, Adjusted EBITDA and free cash flow, you should be aware that in the future we may incur expenses similar to those for which adjustments are made in calculating EBITDA, Adjusted EBITDA and free cash flow. Our presentation of EBITDA, Adjusted EBITDA and free cash flow should not be construed as a basis to infer that our future results will be unaffected by unusual or non-recurring items.
Combined Review
Net income
Our net income is primarily affected by results within operating income, income taxes and other significant events or transactions that are unusual or nonrecurring. Operating income includes our adjustment for the immediate recognition of the change in the fair value of the plan assets and net actuarial gains and losses for defined benefit pension plans and other postretirement benefit plans each fiscal year.
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Key financial results during the nine months ended June 30, 2016 and 2015 included the following:
| our net income amounted to $207.7 million and $163.1 million during the nine months ended June 30, 2016 and 2015, respectively; |
| the effective income tax rates of 33% and 35% for the nine months ended June 30, 2016 and 2015, respectively, are generally in line with the U.S. statutory rate; and |
| operating income was $312.8 million and $278.2 million during the nine months ended June 30, 2016 and 2015, respectively. |
Fiscal years ended September 30, 2015, 2014 and 2013
Key financial results for 2015, 2014 and 2013 included the following:
| our net income amounted to $196.1 million in 2015, $173.4 million in 2014 and $246.1 million in 2013; |
| the effective income tax rate of 34% for each of 2015 and 2014 and 35% for 2013 are generally in line with the U.S. statutory rate; and |
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| operating income was $323.1 million, $264.7 million and $380.6 million during 2015, 2014 and 2013, respectively. |
For further information on the items reported above, see the discussion in the comparative Combined Statements of Operations and Comprehensive Income Caption Review.
Operating income
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Operating income was $312.8 million and $278.2 million during the nine months ended June 30, 2016 and 2015, respectively. The current and prior periods operating income include certain key items that are excluded to arrive at Adjusted EBITDA. These key items are summarized as follows:
| expense of $4.7 million and $2.0 million during the nine months ended June 30, 2016 and 2015, respectively, from the allocated pension and other postretirement plans remeasurement adjustments; |
| $14.3 million impairment related to the joint venture equity investment within Venezuela during the nine months ended June 30, 2015; and |
| restructuring costs include allocated expense of $0.4 million during the nine months ended June 30, 2015. |
Operating income during nine months ended June 30, 2016 and 2015 included depreciation and amortization of $28.6 million and $27.9 million, respectively. EBITDA totaled $340.8 million and $279.8 million, respectively, during each period, while Adjusted EBITDA totaled $345.5 million and $322.8 million, respectively, during each period.
Fiscal years ended September 30, 2015, 2014 and 2013
Operating income amounted to $323.1 million, $264.7 million and $380.6 million in 2015, 2014 and 2013, respectively. The current and prior years operating income include certain key items that are excluded to arrive at Adjusted EBITDA. These key items are summarized as follows:
| expense of $46.0 million and $61.1 million in 2015 and 2014, respectively, and income of $74.0 million in 2013 from the allocated pension and other postretirement plans remeasurement adjustments; |
| restructuring costs include allocated expense of $0.4 million in 2015 and $6.3 million in 2014; and |
| $14.3 million impairment related to the joint venture equity investment within Venezuela during 2015. |
Operating income for 2015, 2014 and 2013 included depreciation and amortization of $38.0 million, $37.1 million and $35.7 million, respectively. EBITDA totaled $334.8 million, $301.8 million and $416.3 million for 2015, 2014 and 2013, respectively. Adjusted EBITDA totaled $421.8 million, $369.2 million and $342.3 million, respectively, during each fiscal year.
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EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA results in the following table have been prepared to illustrate the ongoing effects of our operations, which exclude certain key items since management believes the use of such non-GAAP measures on a combined and reportable segment basis assists investors in understanding the ongoing operating performance by presenting the financial results between periods on a more comparable basis.
For the nine
months ended June 30, |
For the year ended
September 30, |
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(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Net income |
$ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||||||
Income tax expense |
104.5 | 88.8 | 100.7 | 91.3 | 134.5 | |||||||||||||||
Depreciation and amortization |
28.6 | 27.9 | 38.0 | 37.1 | 35.7 | |||||||||||||||
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EBITDA |
340.8 | 279.8 | 334.8 | 301.8 | 416.3 | |||||||||||||||
Losses (gains) on pension and other postretirement plans remeasurement |
4.7 | 2.0 | 46.0 | 61.1 | (74.0 | ) | ||||||||||||||
Net loss on divestiture |
| 26.3 | 26.3 | | | |||||||||||||||
Impairment of equity investment |
| 14.3 | 14.3 | | | |||||||||||||||
Restructuring |
| 0.4 | 0.4 | 6.3 | | |||||||||||||||
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Adjusted EBITDA (a) |
$ | 345.5 | $ | 322.8 | $ | 421.8 | $ | 369.2 | $ | 342.3 | ||||||||||
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(a) | Includes net periodic pension and other postretirement income and expense for both Valvoline stand-alone pension plans and multi-employer pension and other postretirement plans recognized ratably through the fiscal year. The nine months ended June 30, 2016 and 2015 included income of $4.2 million and $0.5 million, respectively, while fiscal years 2015 and 2013 included income of $0.7 million and $0.5 million, respectively. Adjusted EBITDA during 2014 included $0.6 million of net periodic pension and other postretirement expense. This income and expense is comprised of service cost, interest cost, expected return on plan assets and amortization of prior service credit and is disclosed in further detail in Note K in the Notes to Combined Financial Statements for fiscal years 2015, 2014 and 2013 and Note G in the Notes to Condensed Combined Financial Statements for the fiscal nine months ended June 30, 2016 and 2015. The expected return on pension plan assets included in Adjusted EBITDA was income of $26.4 million and $30.0 million for the nine months ended June 30, 2016 and 2015, respectively, and income of $39.8 million, $34.8 million and $34.3 million for the fiscal years 2015, 2014 and 2013, respectively. Excluded from Adjusted EBITDA is the actual return on pension plan assets of income of $14.2 million and a loss of $0.3 million for the nine months ended June 30, 2016 and 2015, respectively, and income of $4.9 million, $48.3 million and $23.4 million for the fiscal years 2015, 2014 and 2013, respectively. |
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME CAPTION REVIEW
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
A comparative analysis of our combined statements of operations and comprehensive income by caption is provided as follows for the nine months ended June 30, 2016 and 2015.
Nine months ended June 30 | ||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Sales |
$ | 1,435.2 | $ | 1,483.1 | $ | (47.9 | ) |
The following table provides a reconciliation of the change in sales between the nine months ended June 30, 2016 and 2015.
(In millions) |
Nine months ended
June 30, 2016 |
|||
Pricing |
$ | (74.6 | ) | |
Volume |
62.5 | |||
Product mix |
21.5 | |||
Currency exchange |
(31.4 | ) | ||
Divestiture and acquisition, net |
(25.9 | ) | ||
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|
|||
Change in sales |
$ | (47.9 | ) | |
|
|
68
Sales decreased $47.9 million, or 3%, to $1,435.2 million during the current period. Lower product pricing decreased sales by $74.6 million, or 5%, while higher volume levels increased sales by $62.5 million, or 4%, as lubricant gallons sold increased to 130.0 million. Unfavorable foreign currency exchange decreased sales by $31.4 million, or 2%, while changes in product mix increased sales by $21.5 million. Unfavorable foreign currency exchange was primarily due to the U.S. dollar strengthening compared to various foreign currencies, primarily the Yuan and Australian dollar. The divestiture of car care products within the Core North America reportable segment, during fiscal 2015, decreased sales by $44.9 million, while the acquisition of Oil Can Henrys within the Quick Lubes reportable segment, during fiscal 2016, increased sales by $19.0 million compared to the prior year period.
Nine months ended June 30 | ||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Cost of sales |
$ | 867.8 | $ | 955.5 | $ | (87.7 | ) | |||||
Gross profit as a percent of sales |
39.5 | % | 35.6 | % |
The following table provides a reconciliation of the changes in cost of sales between the nine months ended June 30, 2016 and 2015.
(In millions) |
Nine months ended
June 30, 2016 |
|||
Product cost |
$ | (95.3 | ) | |
Volume and product mix |
54.7 | |||
Currency exchange |
(23.1 | ) | ||
Divestiture and acquisition, net |
(22.5 | ) | ||
Pension and other postretirement benefit plans expense (income) (including remeasurements) |
(1.5 | ) | ||
|
|
|||
Change in cost of sales |
$ | (87.7 | ) | |
|
|
Cost of sales decreased $87.7 million during the current period. Lower raw material costs decreased cost of sales by $95.3 million. Increases in volumes and changes in product mix combined to increase cost of sales by $54.7 million while favorable foreign currency exchange decreased cost of sales by $23.1 million. The divestiture of car care products, during fiscal 2015, decreased cost of sales by $37.7 million, while the acquisition of Oil Can Henrys, during fiscal 2016, increased cost of sales by $15.2 million. Pension and other postretirement benefit plans income of $1.5 million includes remeasurement losses of $1.9 million and $1.2 million in the current and prior year period, respectively. This increase of $0.7 million in the remeasurement losses was more than offset by the increase in recurring pension and other postretirement income compared to the prior year period.
Nine months ended June 30 | ||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Selling, general and administrative expense |
$ | 210.6 | $ | 194.5 | $ | 16.1 | ||||||
As a percent of sales |
14.7 | % | 13.1 | % |
Selling, general and administrative expense increased $16.1 million, or 8%, during the current period as compared to the prior year period. Key drivers of this increase were:
| increased advertising costs of $8.5 million during the current period; |
| employee cost increase of $3.7 million during the current period; |
| increased consulting and legal costs of $3.3 million during the current period, primarily related to digital infrastructure upgrades; and |
| increased bad debt expense of $1.1 million during the current period. |
69
Nine months ended
June 30 |
||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Corporate expense allocation |
$ | 60.2 | $ | 58.6 | $ | 1.6 |
Corporate expense allocations remained relatively consistent with the prior year period.
Nine months ended
June 30 |
||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Equity and other income |
||||||||||||
Equity income (loss) |
$ | 10.6 | $ | (4.4 | ) | $ | 15.0 | |||||
Other income |
5.6 | 8.1 | (2.5 | ) | ||||||||
|
|
|
|
|
|
|||||||
$ | 16.2 | $ | 3.7 | $ | 12.5 | |||||||
|
|
|
|
|
|
Equity and other income (loss) increased $12.5 million during the current period primarily as a result of the $14.3 million impairment of the Venezuelan equity method investment in the prior year period.
Nine months ended
June 30 |
||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Net loss on acquisition and divestiture |
||||||||||||
Valvoline car care products |
$ | | $ | (26.3 | ) | $ | 26.3 | |||||
Oil Can Henrys |
(0.6 | ) | | (0.6 | ) | |||||||
|
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|
|
|
|
|||||||
$ | (0.6 | ) | $ | (26.3 | ) | $ | 25.7 | |||||
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|
|
|
|
|
Net loss on acquisition and divestiture during the current period includes transaction costs related to the acquisition of Oil Can Henrys while the prior year period included the impairment of car care products.
Nine months ended June 30 | ||||||||||||
(In millions) |
2016 | 2015 | Change | |||||||||
Income tax expense |
$ | 104.5 | $ | 88.8 | $ | 15.7 | ||||||
Effective tax rate |
33 | % | 35 | % |
The overall effective tax rate was 33% for the nine months ended June 30, 2016 and was impacted by a net favorable benefit primarily related to the reinstatement of research and development credits. The overall effective tax rate of 35% for the nine months ended June 30, 2015 was unfavorably impacted by the loss on the disposition of car care products and the impairment of the Venezuelan equity method investment for which no tax benefit was realized.
Fiscal years ended September 30, 2015, 2014 and 2013
A comparative analysis of the Combined Statements of Operations and Comprehensive Income by caption is provided as follows for the years ended September 30, 2015, 2014 and 2013.
(In millions) |
2015 | 2014 | 2013 |
2015
Change |
2014
Change |
|||||||||||||||
Sales |
$ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | $ | (74.4 | ) | $ | 45.1 |
70
The following table provides a reconciliation of the change in sales between fiscal years 2015 and 2014 and between fiscal years 2014 and 2013.
(In millions) |
2015
Change |
2014
Change |
||||||
Pricing |
$ | (52.7 | ) | $ | 4.3 | |||
Volume |
51.5 | 35.8 | ||||||
Product mix |
11.2 | 15.6 | ||||||
Currency exchange |
(70.4 | ) | (10.6 | ) | ||||
Divestiture |
(14.0 | ) | | |||||
|
|
|
|
|||||
Change in sales |
$ | (74.4 | ) | $ | 45.1 | |||
|
|
|
|
2015 compared to 2014
Sales decreased $74.4 million, or 4%, to $1,966.9 million in 2015. Unfavorable foreign currency exchange and lower product pricing decreased sales by $70.4 million, or 3%, and $52.7 million, or 3%, respectively. Unfavorable foreign currency exchange was due to the U.S. dollar strengthening compared to various foreign currencies, primarily the Euro and Australian dollar. Higher volume levels and changes in product mix increased sales by $51.5 million, or 3%, and $11.2 million, respectively. During 2015, lubricant gallons sold increased 3% to 167.4 million. The divestiture of car care products within the Core North America reportable segment during fiscal 2015 decreased sales by $14.0 million compared to the prior year.
2014 compared to 2013
Sales increased $45.1 million, or 2%, to $2,041.3 million in 2014. Volume increased sales by $35.8 million, or 2%, as lubricant gallons sold increased 3% to 162.6 million gallons during 2014. Changes in product mix and improved pricing increased sales by $15.6 million and $4.3 million, respectively. Unfavorable foreign currency exchange decreased sales by $10.6 million.
(In millions) |
2015 | 2014 | 2013 |
2015
Change |
2014
Change |
|||||||||||||||
Cost of sales |
$ | 1,281.8 | $ | 1,408.9 | $ | 1,338.3 | $ | (127.1 | ) | $ | 70.6 | |||||||||
Gross profit as a percent of sales |
34.8 | % | 31.0 | % | 33.0 | % |
Fluctuations in cost of sales are driven primarily by raw material prices, volume and changes in product mix, currency exchange, losses or gains on pension and other postretirement benefit plan remeasurements and other certain charges incurred as a result of changes or events within the businesses or restructuring activities.
The following table provides a reconciliation of the changes in cost of sales between fiscal years 2015 and 2014 and between fiscal years 2014 and 2013.
(In millions) |
2015
Change |
2014
Change |
||||||
Product cost |
$ | (105.7 | ) | $ | | |||
Currency exchange |
(52.0 | ) | (7.3 | ) | ||||
Volume and product mix |
43.3 | 35.6 | ||||||
Divestiture |
(11.4 | ) | | |||||
Pension and other postretirement benefit plans expense (income) (including remeasurements) |
(1.3 | ) | 42.3 | |||||
|
|
|
|
|||||
Change in cost of sales |
$ | (127.1 | ) | $ | 70.6 | |||
|
|
|
|
71
2015 compared to 2014
Cost of sales decreased $127.1 million during 2015 compared to 2014. Lower raw material costs decreased cost of sales by $105.7 million primarily due to declining base oil prices in 2015. Favorable foreign currency exchange decreased cost of sales by $52.0 million, while changes in volume and product mix combined to increase cost of sales by $43.3 million. The divestiture of car care products during fiscal 2015 also decreased cost of sales by $11.4 million.
2014 compared to 2013
Cost of sales increased $70.6 million during 2014 compared to 2013. Changes in volume and product mix combined to increase cost of sales by $35.6 million, while favorable foreign currency exchange decreased cost of sales by $7.3 million. Pension and other postretirement plan expense increased $42.3 million compared to 2013 primarily due to the recognition of a remeasurement loss of $18.6 million in 2014 compared to a gain of $23.1 million in 2013 with the remainder due to the change in recurring pension and other postretirement income.
(In millions) |
2015 | 2014 | 2013 |
2015
change |
2014
change |
|||||||||||||||
Selling, general and administrative expense |
$ | 290.8 | $ | 302.8 | $ | 213.4 | $ | (12.0 | ) | $ | 89.4 | |||||||||
As a percent of sales |
14.8 | % | 14.8 | % | 10.7 | % |
2015 compared to 2014
Selling, general and administrative expense decreased $12.0 million, or 4%, during 2015 as compared to 2014. Key drivers of this decrease were:
| a decrease of $14.3 million related to the pension and other postretirement costs. Specifically, a loss of $27.8 million on the pension and other postretirement plans remeasurement was recognized during 2015 compared to a loss of $42.5 million in 2014. The loss recognized, inclusive of both Valvoline specific plans and shared plans accounted for under the multi-employer approach, decreased primarily due to changes in the discount rate. See Note B in the Notes to Combined Financial Statements for further discussion on this accounting policy; |
| approximately $18.5 million of cost savings related to restructuring programs; |
| favorable foreign currency exchange of $9.3 million; |
| increase of $9.3 million due to costs associated with supply chain operations that, as described below, were included within the corporate expense allocations prior to 2015; |
| increased advertising expense of $4.8 million; |
| increased legal, consultant and technology cost of $4.7 million; and |
| increased incentive compensation expense of $3.6 million. |
2014 compared to 2013
Selling, general and administrative expense increased $89.4 million, or 42%, during 2014 as compared to 2013. Key drivers of this increase were:
| an increase of $94.8 million related to pension and other postretirement costs attributable to Valvoline. Specifically, a loss of $42.5 million on the pension and other postretirement plans remeasurement was recognized during 2014 compared to a gain of $50.9 million in 2013, primarily impacted by a decrease in discount rates, the change in mortality assumptions and the return on plan assets. The remaining increase was due to the change in recurring pension and other postretirement income; |
72
| severance costs associated with restructuring programs of $6.3 million; and |
| a decrease of $12.7 million in advertising and promotional expenses. |
(In millions) |
2015 | 2014 | 2013 |
2015
change |
2014
change |
|||||||||||||||
Corporate expense allocation |
$ | 79.5 | $ | 95.0 | $ | 88.2 | $ | (15.5 | ) | $ | 6.8 |
2015 compared to 2014
Corporate expense allocations decreased $15.5 million in 2015 compared to 2014 primarily due to a $9.3 million decrease from a change in reporting of supply chain operations. Prior to 2015, supply chain operations were previously included within corporate allocation; however, in 2015 the reporting of these costs attributable to our operations were realigned in order to be directly reported by us within selling, general and administrative expense. Additional decreases were the result of cost savings as a result of restructuring programs.
2014 compared to 2013
Corporate expense allocations increased $6.8 million in 2014 compared to 2013 primarily due to increased incentive compensation expense.
(In millions) |
2015 | 2014 | 2013 |
2015
change |
2014
change |
|||||||||||||||
Equity and other income |
||||||||||||||||||||
Equity income (loss) |
$ | (2.2 | ) | $ | 10.2 | $ | 12.8 | $ | (12.4 | ) | $ | (2.6 | ) | |||||||
Other income |
10.5 | 19.9 | 11.5 | (9.4 | ) | 8.4 | ||||||||||||||
|
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|
|
|
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|
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|
|
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$ | 8.3 | $ | 30.1 | $ | 24.3 | $ | (21.8 | ) | $ | 5.8 | ||||||||||
|
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|
|
|
|
|
|
|
2015 compared to 2014
Equity income (loss) decreased by $12.4 million during 2015 compared to 2014, primarily due to the $14.3 million impairment of a joint venture equity investment within Venezuela in 2015. For additional information see Note C in the Notes to Combined Financial Statements. Other income decreased by $9.4 million primarily due to a favorable arbitration ruling on a commercial contract in 2014. For additional information see Note L in the Notes to Combined Financial Statements.
2014 compared to 2013
Equity income decreased by $2.6 million during 2014 compared to 2013 primarily due to decreased equity income within India and Venezuela joint ventures. Other income increased by $8.4 million primarily due to the favorable arbitration ruling on a commercial contract in 2014.
(In millions) |
2015 | 2014 | 2013 |
2015
change |
2014
change |
|||||||||||||||
Net loss on divestiture |
||||||||||||||||||||
Valvoline car care products |
$ | (26.3 | ) | $ | | $ | | $ | (26.3 | ) | $ | | ||||||||
|
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|||||||||||
$ | (26.3 | ) | $ | | $ | | $ | (26.3 | ) | $ | | |||||||||
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73
The loss on divestiture in 2015 represents the loss on the disposition of car care products. This loss was a result of the book value exceeding the sales price of the assets sold.
(In millions) |
2015 | 2014 | 2013 |
2015
change |
2014
change |
|||||||||||||||
Income tax expense |
$ | 100.7 | $ | 91.3 | $ | 134.5 | $ | 9.4 | $ | (43.2 | ) | |||||||||
Effective tax rate |
34 | % | 34 | % | 35 | % |
The effective tax rates are generally in line with the U.S. statutory rate. For fiscal years 2015 through 2013, the effective tax rate was impacted favorably by the lower tax rate on foreign earnings and net favorable permanent items. These favorable items are offset by the unfavorable impact of state taxes. These adjustments net to an immaterial overall impact to the effective tax rate for each year.
RESULTS OF OPERATIONS REPORTABLE SEGMENT REVIEW
Results of our reportable segments are presented based on our management structure and internal accounting practices. The structure and practices are specific to us; therefore, the financial results of our reportable segments are not necessarily comparable with similar information for other comparable companies. We allocate all costs to our reportable segments except for certain significant company-wide restructuring activities, such as certain restructuring plans described in Note D in the Notes to Combined Financial Statements for three years ended September 30, and other costs or adjustments that relate to former businesses that we no longer operate. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded to Unallocated and other. We refine our expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Revisions to our methodologies that are deemed insignificant are applied on a prospective basis.
We provide EBITDA and Adjusted EBITDA for each of our reportable segments as a means to enhance the understanding of financial measurements that we have internally determined to be relevant measures of comparison for each reportable segment. Each of these non-GAAP measures is defined as follows: EBITDA (operating income plus depreciation and amortization), Adjusted EBITDA (EBITDA adjusted for key items, which may include pro forma effects for significant acquisitions or divestitures, as applicable), and Adjusted EBITDA margin (Adjusted EBITDA as a percentage of sales). We do not allocate items to each reportable segment below operating income, such as income taxes. As a result, reportable segment EBITDA and Adjusted EBITDA are reconciled directly to operating income since it is the most directly comparable Combined Statements of Operations and Comprehensive Income caption.
74
The following table shows sales, operating income and statistical operating information by reportable segment for the nine months ended June 30, 2016 and 2015 and each of the last three years ended September 30.
For the nine
months ended June 30, |
For the year ended
September 30, |
|||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Sales |
||||||||||||||||||||
Core North America |
$ | 739.6 | $ | 814.6 | $ | 1,060.7 | $ | 1,114.0 | $ | 1,107.5 | ||||||||||
Quick Lubes |
332.2 | 289.2 | 394.4 | 369.9 | 343.7 | |||||||||||||||
International |
363.4 | 379.3 | 511.8 | 557.4 | 545.0 | |||||||||||||||
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|
|
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$ | 1,435.2 | $ | 1,483.1 | $ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | |||||||||||
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|
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Operating income (loss) |
||||||||||||||||||||
Core North America |
$ | 170.2 | $ | 158.8 | $ | 200.5 | $ | 165.0 | $ | 157.7 | ||||||||||
Quick Lubes |
83.7 | 71.3 | 94.8 | 79.7 | 70.1 | |||||||||||||||
International |
52.7 | 43.3 | 64.7 | 78.4 | 67.8 | |||||||||||||||
Unallocated and other |
6.2 | 4.8 | (36.9 | ) | (58.4 | ) | 85.0 | |||||||||||||
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$ | 312.8 | $ | 278.2 | $ | 323.1 | $ | 264.7 | $ | 380.6 | |||||||||||
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Depreciation and amortization |
||||||||||||||||||||
Core North America |
$ | 12.2 | $ | 11.9 | $ | 16.6 | $ | 16.1 | $ | 15.3 | ||||||||||
Quick Lubes |
12.1 | 12.1 | 16.2 | 15.3 | 15.1 | |||||||||||||||
International |
4.3 | 3.9 | 5.2 | 5.7 | 5.3 | |||||||||||||||
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$ | 28.6 | $ | 27.9 | $ | 38.0 | $ | 37.1 | $ | 35.7 | |||||||||||
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Operating information |
||||||||||||||||||||
Core North America |
||||||||||||||||||||
Lubricant sales gallons |
76.1 | 74.5 | 99.9 | 99.0 | 98.8 | |||||||||||||||
Premium lubricants (percent of U.S. branded volumes) |
41.0 | % | 37.1 | % | 36.6 | % | 33.7 | % | 30.0 | % | ||||||||||
Gross profit as a percent of sales (a) |
42.6 | % | 36.4 | % | 36.6 | % | 31.6 | % | 31.0 | % | ||||||||||
Quick Lubes |
||||||||||||||||||||
Lubricant sales gallons |
14.6 | 12.8 | 17.4 | 15.9 | 15.5 | |||||||||||||||
Premium lubricants (percent of U.S. branded volumes) |
56.7 | % | 52.2 | % | 54.5 | % | 52.2 | % | 49.5 | % | ||||||||||
Gross profit as a percent of sales (a) |
41.6 | % | 40.3 | % | 39.8 | % | 38.4 | % | 38.9 | % | ||||||||||
International |
||||||||||||||||||||
Lubricant sales gallons |
39.3 | 36.6 | 50.1 | 47.7 | 44.1 | |||||||||||||||
Premium lubricants (percent of lubricant volumes) |
29.1 | % | 30.6 | % | 30.9 | % | 30.1 | % | 29.2 | % | ||||||||||
Gross profit as a percent of sales (a) |
30.8 | % | 29.9 | % | 30.2 | % | 27.7 | % | 28.3 | % |
(a) | Gross profit is defined as sales, less cost of sales. |
Core North America
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Core North America sales decreased $75.0 million, or 9%, to $739.6 million during the current period. Lower product pricing and the disposition of car care products decreased sales by $56.8 million, or 7%, and $44.9 million, or 6%, respectively. Changes in product mix and higher volume levels increased sales by $19.5 million, or 2%, and $10.3 million, respectively. Unfavorable foreign currency exchange decreased sales by $3.1 million primarily due to the U.S. dollar strengthening compared to the Canadian dollar.
Gross profit increased $18.2 million during the current period compared to the prior year period. Lower product costs, partially offset by lower product pricing, increased gross profit by $14.0 million, while changes in
75
volume and product mix combined to increase gross profit by $12.2 million. The divestiture of car care products and unfavorable foreign currency exchange decreased gross profit by $7.2 million and $0.8 million, respectively. Gross profit as a percent of sales (or gross profit margin) during the current period increased 6.2 percentage points to 42.6%.
Selling, general and administrative expense (which, for reportable segment purposes, includes corporate expense allocation costs) increased $7.5 million during the current period, primarily as a result of $5.3 million of increased advertising costs, $3.1 million of increased consulting and legal costs and $1.6 million of increased bad debt expense and $1.6 million of salaries expense. These increases were partially offset by cost savings from the divestiture of car care products of $6.2 million. Equity and other income increased $0.7 million compared to the prior year primarily as a result of higher other income.
Operating income totaled $170.2 million in the current period as compared to $158.8 million in the prior year period. EBITDA increased $11.7 million to $182.4 million in the current period. EBITDA margin increased 3.7 percentage points to 24.7% in the current period.
2015 compared to 2014
Core North America sales decreased $53.3 million, or 5%, to $1,060.7 million in 2015. Lower product pricing and the disposition of car care products decreased sales by $51.4 million, or 5%, and $14.0 million, or 1%, respectively. Higher volume levels and changes in product mix increased sales by $9.2 million and $8.3 million, respectively. Unfavorable foreign currency exchange decreased sales by $5.4 million due to the U.S. dollar strengthening compared to the Canadian dollar.
Gross profit increased $36.2 million during 2015 compared to 2014. Lower product costs, partially offset by lower product pricing, increased gross profit by $33.8 million. Increases in volumes and changes in product mix combined to increase gross profit by $6.5 million, while unfavorable foreign currency exchange decreased gross profit by $1.5 million. The divestiture of car care products also decreased gross profit by $2.6 million. Gross profit margin during 2015 increased 5.0 percentage points to 36.6%.
Selling, general and administrative expense increased $0.3 million during 2015 as compared to 2014, primarily as a result of $5.2 million of increased advertising costs, $1.5 million of increased Ashland allocated resource costs, a $1.4 million increase in salaries and benefits and $1.0 million of increased incentive compensation costs. These increases were partially offset by restructuring savings related to salaries and advertising of $4.4 million and $3.5 million, respectively, and cost savings from the divestiture of car care products of $1.5 million. Equity and other income decreased $0.4 million compared to the prior year primarily as a result of lower other income.
Operating income totaled $200.5 million in 2015 as compared to $165.0 million in 2014. EBITDA increased $36.0 million to $217.1 million in 2015. EBITDA margin increased 4.2 percentage points to 20.5% in 2015.
2014 compared to 2013
Core North America sales increased $6.5 million to $1,114.0 million during 2014. Changes in product mix and higher volumes increased sales by $12.8 million and $5.7 million, respectively. These increases were nearly offset by lower pricing and unfavorable foreign currency exchange, which decreased sales by $9.1 million and $2.9 million, respectively.
Gross profit increased $8.1 million during 2014 compared to 2013. Lower product costs, partially offset by lower product pricing, increased gross profit by $8.1 million while increases in volume and changes in product mix combined to increase gross profit by $0.8 million. Unfavorable foreign currency exchange reduced gross profit by $0.8 million. Gross profit margin during 2014 increased 0.6 percentage points to 31.6%.
76
Selling, general and administrative expense increased $1.4 million during 2014 as compared to 2013, primarily as a result of increased Ashland allocated resource costs of $4.1 million and increased salaries and benefits costs of $2.2 million. These increases were partially offset by decreased advertising and promotional expenses of $4.4 million and $0.5 million of favorable foreign currency exchange. Equity and other income increased by $0.6 million during 2014 compared to 2013, primarily due to an increase in equity income from a domestic joint venture.
Operating income totaled $165.0 million in 2014 as compared to $157.7 million in 2013. EBITDA increased $8.1 million to $181.1 million in 2014. EBITDA margin increased 0.7 percentage points to 16.3% in 2014.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation is provided as a means to enhance the understanding of financial measurements that we have internally determined to be relevant measures of comparison for the results of Core North America. There were no unusual or key items that affected comparability for Adjusted EBITDA during the nine months ended June 30, 2016 and 2015 and fiscal years 2015, 2014 and 2013.
For the nine
months ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Operating income |
$ | 170.2 | $ | 158.8 | $ | 200.5 | $ | 165.0 | $ | 157.7 | ||||||||||
Depreciation and amortization |
12.2 | 11.9 | 16.6 | 16.1 | 15.3 | |||||||||||||||
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EBITDA |
$ | 182.4 | $ | 170.7 | $ | 217.1 | $ | 181.1 | $ | 173.0 | ||||||||||
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Quick Lubes
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Quick Lubes sales increased $43.0 million, or 15%, to $332.2 million during the current period. Volume increased sales by $27.8 million as lubricant sales gallons increased to 14.6 million during the current period. The acquisition of Oil Can Henrys increased sales $19.0 million, while unfavorable product pricing decreased sales by $5.1 million. Changes in product mix increased sales $1.3 million.
Gross profit increased $21.6 million during the current period compared to the prior year period. Increases in volumes and changes in product mix combined to increase gross profit by $9.9 million. Lower raw material costs, partially offset by unfavorable product pricing, increased gross profit by $7.9 million, while the acquisition of Oil Can Henrys increased gross profit by $3.8 million. Gross profit margin during the current period increased 1.3 percentage points to 41.6%.
Selling, general and administrative expense increased $9.0 million during the current period. The increase was primarily a result of $4.5 million of increased allocated resource costs, a $2.7 million increase in operating costs as a result of the acquisition of Oil Can Henrys, a $1.5 million increase in advertising and sales promotion costs and a $1.2 million increase in salaries and incentive compensation costs. These increases were partially offset by $1.2 million of decreased legal costs. Equity and other income decreased $0.2 million compared to the prior year period.
Operating income totaled $83.7 million in the current period as compared to $71.3 million in the prior year period. EBITDA increased $12.4 million to $95.8 million in the current period. EBITDA margin in the current period remained consistent with the prior year period at 28.8%.
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2015 compared to 2014
Quick Lubes sales increased $24.5 million, or 7%, to $394.4 million during 2015. Volume increased sales by $18.2 million as lubricant sales gallons increased to 17.4 million during 2015. Favorable pricing and changes in product mix increased sales by $4.6 million and $1.7 million, respectively.
Gross profit increased $14.8 million during 2015 compared to 2014. Lower raw material costs and favorable product pricing increased gross profit by $8.2 million. Increases in volumes and changes in product mix combined to increase gross profit by $6.6 million. Gross profit margin during 2015 increased 1.4 percentage points to 39.8%.
Selling, general and administrative expense decreased $0.2 million during 2015 as compared to 2014. The decrease was primarily a result of $4.7 million of cost savings from Ashland allocated resource costs. These costs were partially offset by a $1.5 million increase in salary and benefit costs and a $1.2 million increase in legal and consulting costs, as well as increased advertising costs and bad debt expense of $0.6 million and $0.4 million, respectively. Equity and other income increased $0.1 million compared to the prior year due to a gain on the disposition of certain assets.
Operating income totaled $94.8 million in 2015 as compared to $79.7 million in 2014. EBITDA increased $16.0 million to $111.0 million in 2015. EBITDA margin increased 2.4 percentage points to 28.1% in 2015.
2014 compared to 2013
Quick Lubes sales increased $26.2 million, or 8%, to $369.9 million during 2014 with higher pricing increasing sales by $14.7 million, or 4%. Changes in volume and product mix increased sales by $9.6 million, or 3%, and $1.9 million, respectively.
Gross profit increased $8.4 million during 2014 compared to 2013. Increases in volumes and changes in product mix combined to increase gross profit by $6.4 million, while price improvements, partially offset by higher raw materials costs, increased gross profit by $2.0 million. Gross profit margin during 2014 decreased 0.5 percentage points to 38.4%.
Selling, general and administrative expense decreased $1.1 million during 2014 as compared to 2013, primarily as a result of decreased advertising and promotional expenses of $1.5 million and insurance expense of $0.6 million, partially offset by increased Ashland allocated resource costs of $1.8 million. Equity and other income increased by $0.1 million during 2014 compared to 2013, primarily due to a gain on the disposition of certain assets.
Operating income totaled $79.7 million in 2014 as compared to $70.1 million in 2013. EBITDA increased $9.8 million to $95.0 million in 2014. EBITDA margin increased 0.9 percentage points to 25.7% in 2014.
Additional Sales and Growth Information
Quick Lubes sales are influenced by the number of company-owned stores and the business performance of those stores. The following table provides supplemental information regarding our company-owned stores that we believe is relevant to an understanding of our Quick Lubes business.
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
Average Store Units |
271 | 261 | 261 | 260 | 257 | |||||||||||||||
Average Sales per Store (in thousands) |
$ | 680.1 | $ | 641.0 | $ | 864.4 | $ | 804.6 | $ | 770.9 | ||||||||||
Same-Store Sales Growth* |
6.5% | 7.1% | 7.5% | 4.5% | 1.9% |
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Through Quick Lubes, we sell products to and receive royalty fees from our VIOC franchisees. As a result, Quick Lubes sales are influenced by the number of units owned by our franchisees and the business performance of our franchisees. Our franchisees are distinct legal entities and we do not consolidate the results of operations of our franchisees. The following table provides supplemental information regarding our franchisees that we believe is relevant to an understanding of our Quick Lubes business.
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
Average Store Units |
632 | 605 | 610 | 574 | 499 | |||||||||||||||
Average Sales per Store (unaudited, in thousands) |
$ | 644.2 | $ | 599.4 | $ | 807.1 | $ | 760.5 | $ | 720.9 | ||||||||||
Same-Store Sales Growth * |
8.4% | 7.3% | 7.8% | 5.5% | 2.2% |
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA presentation is provided as a means to enhance the understanding of financial measurements that we have internally determined to be relevant measures of comparison for the results of Quick Lubes. There were no unusual or key items that affected comparability for Adjusted EBITDA for all periods presented herein.
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Operating income |
$ | 83.7 | $ | 71.3 | $ | 94.8 | $ | 79.7 | $ | 70.1 | ||||||||||
Depreciation and amortization |
12.1 | 12.1 | 16.2 | 15.3 | 15.1 | |||||||||||||||
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EBITDA |
$ | 95.8 | $ | 83.4 | $ | 111.0 | $ | 95.0 | $ | 85.2 | ||||||||||
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International
Summarized below are the sales by geographic region for the International reportable segment for the nine months ended June 30, 2016 and 2015 and the last three fiscal years ended September 30.
International |
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For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
Sales by Geography |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Europe, Middle East and Africa |
29 | % | 29 | % | 29 | % | 31 | % | 32 | % | ||||||||||
Australia |
27 | % | 27 | % | 27 | % | 29 | % | 32 | % | ||||||||||
Asia Pacific excluding Australia |
26 | % | 26 | % | 26 | % | 23 | % | 22 | % | ||||||||||
Latin America |
18 | % | 18 | % | 18 | % | 17 | % | 14 | % | ||||||||||
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100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||
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Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
International sales decreased $15.9 million, or 4%, to $363.4 million during the current period. Unfavorable foreign currency exchange, primarily with the Yuan and Australian dollar, decreased sales by $28.3 million, or 7%. Higher volume levels and changes in product mix increased sales by $24.4 million, or 6%, and $0.7 million, respectively. Lower product pricing decreased sales by $12.7 million.
* | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
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Gross profit decreased $1.5 million during the current period compared to the prior year period. Unfavorable foreign currency exchange decreased gross profit by $7.5 million, while increases in volumes and changes in product mix combined to increase gross profit by $7.2 million. Lower product pricing was partially offset by lower product costs decreasing gross profit by $1.2 million. Gross profit margin during the current period increased 0.9 percentage points to 30.8%.
Selling, general and administrative expense increased $1.0 million during the current period, primarily as a result of $0.5 million of bad debt expense. Equity and other income (loss) increased $11.9 million compared to the prior year period primarily as a result of the $14.3 million impairment of the Venezuelan equity method investment in the prior year period. For additional information see Note C in the Notes to Condensed Combined Financial Statements for the period ended June 30, 2016.
Operating income totaled $52.7 million in the current period as compared to $43.3 million in the prior year period. EBITDA increased $9.8 million in the current period to $57.0 million. Adjusted EBITDA decreased $4.5 million and Adjusted EBITDA margin decreased 0.5 percentage points to 15.7% in the current period.
2015 compared to 2014
International sales decreased $45.6 million, or 8%, to $511.8 million during 2015. Unfavorable currency exchange decreased sales by $65.0 million as a result of the U.S. dollar strengthening as compared to various foreign currencies, primarily the Euro and the Australian dollar. Volume increased sales $24.1 million, as lubricant gallons sold increased to 50.1 million during 2015, and changes in product mix increased sales by $1.2 million. Unfavorable product pricing decreased sales by $5.9 million.
Gross profit increased $0.4 million during 2015 compared to 2014. Unfavorable foreign currency exchange decreased gross profit by $16.9 million while lower raw material costs, partially offset by lower product pricing, increased gross profit by $11.1 million. Increases in volumes and changes in product mix combined to increase gross profit by $6.2 million. Gross profit margin during 2015 increased 2.5 percentage points to 30.2%.
Selling, general and administrative expense decreased $7.3 million, or 7%, during 2015 as compared to 2014, primarily as a result of declines from favorable foreign currency exchange of $8.5 million, which was partially offset by increased sales promotion costs of $1.1 million.
Equity and other income decreased by $21.4 million during 2015 compared to 2014, primarily due to the $14.3 million impairment of an equity method investment in Venezuela during 2015 and $7.7 million from a favorable arbitration ruling on a commercial contract during 2014. For additional information see Notes C and L in the Notes to Combined Financial Statements.
Operating income totaled $64.7 million in 2015 as compared to $78.4 million in 2014. EBITDA decreased $14.2 million to $69.9 million in 2015. Adjusted EBITDA increased $0.1 million to $84.2 million in 2015. Adjusted EBITDA margin increased 1.4 percentage points to 16.5% in 2015.
2014 compared to 2013
International sales increased $12.4 million, or 2%, to $557.4 million during 2014. Volume increased sales by $20.4 million, or 4%, as lubricant gallons sold increased to 47.7 million gallons during 2014. Changes in product mix also increased sales by $1.0 million. Unfavorable foreign currency exchange and lower pricing decreased sales by $7.7 million and $1.3 million, respectively.
Gross profit increased $0.3 million during 2014 compared to 2013. Increases in volumes and changes in product mix combined to increase gross profit by $8.4 million, while lower pricing and higher production costs combined to decrease gross profit by $5.6 million. Unfavorable foreign currency exchange reduced gross profit by $2.5 million. Gross profit margin during 2014 decreased 0.6 percentage points to 27.7%.
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Selling, general and administrative expense decreased $5.1 million during 2014 as compared to 2013, primarily as a result of decreased advertising and promotional expenses of $6.6 million and favorable foreign currency exchange of $1.8 million. These decreases were partially offset by increased salaries and benefits costs of $2.9 million.
Equity and other income increased by $5.2 million during 2014 compared to 2013, as a result of an increase of $8.4 million in other income due to a favorable arbitration ruling on a commercial contract during 2014. This increase was partially offset by a decrease of $3.2 million in equity income primarily related to unfavorable performance in our India and Venezuela joint ventures.
Operating income totaled $78.4 million in 2014 as compared to $67.8 million in 2013. EBITDA increased $11.0 million to $84.1 million in 2014. EBITDA margin increased 1.7 percentage points to 15.1% in 2014. There were no unusual or key items that affected comparability for EBITDA during 2014 and 2013.
EBITDA and Adjusted EBITDA reconciliation
The following EBITDA and Adjusted EBITDA presentation is provided as a means to enhance the understanding of financial measurements that we have internally determined to be relevant measures of comparison for the results of International. Adjusted EBITDA results have been prepared to illustrate the ongoing effects of our operations, which exclude certain key items. The $14.3 million adjustment during the nine months ended June 30, 2015 is related to the impairment of an equity method investment within Venezuela.
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Operating income |
$ | 52.7 | $ | 43.3 | $ | 64.7 | $ | 78.4 | $ | 67.8 | ||||||||||
Depreciation and amortization |
4.3 | 3.9 | 5.2 | 5.7 | 5.3 | |||||||||||||||
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EBITDA |
57.0 | 47.2 | 69.9 | 84.1 | 73.1 | |||||||||||||||
Impairment of equity investment |
| 14.3 | 14.3 | | | |||||||||||||||
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Adjusted EBITDA |
$ | 57.0 | $ | 61.5 | $ | 84.2 | $ | 84.1 | $ | 73.1 | ||||||||||
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Unallocated and Other
Unallocated and other generally includes items such as components of pension and other postretirement benefit plan expenses (excluding service costs, which are allocated to the reportable segments), certain significant company-wide restructuring activities and legacy costs.
The following table summarizes the key components of the Unallocated and other segments operating income (expense) for the nine months ended June 30, 2016 and 2015 and each of the last three years ended September 30.
For the nine months
ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Gain (losses) on pension and other postretirement plan remeasurement |
$ | (4.7 | ) | $ | (2.0 | ) | $ | (46.0 | ) | $ | (61.1 | ) | $ | 74.0 | ||||||
Pension and other postretirement net periodic income (a) |
10.9 | 7.2 | 9.5 | 9.0 | 11.0 | |||||||||||||||
Restructuring activities |
| (0.4 | ) | (0.4 | ) | (6.3 | ) | | ||||||||||||
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Total income (expense) |
$ | 6.2 | $ | 4.8 | $ | (36.9 | ) | $ | (58.4 | ) | $ | 85.0 | ||||||||
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(a) | Amounts exclude service costs of $6.7 million for each of the nine months ended June 30, 2016 and 2015, $8.8 million during 2015, $9.6 million during 2014 and $10.5 million during 2013, which are allocated to our reportable segments. |
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Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Unallocated and other recorded income was $6.2 million and $4.8 million during the nine months ended June 30, 2016 and 2015, respectively. Unallocated and other includes pension and other postretirement net periodic costs and income within operations that have not been allocated to reportable segments. These costs and income are reflective of standalone Valvoline pension plans as well as the shared pension and other postretirement plans accounted for under a multi-employer approach. These costs include interest cost, expected return on assets and amortization of prior service credit, which resulted in income of $10.9 million and $7.2 million during the current and prior year period, respectively. Unallocated and other also includes gains and losses on pension and other postretirement plan remeasurements, which resulted in a loss of $4.7 million and $2.0 million during the current and prior year period, respectively. Fluctuations in these amounts from year to year result primarily from changes in the discount rate but are also partially affected by differences between the expected and actual return on plan assets during each year as well as other changes in other actuarial assumptions such as changes in demographic data or mortality assumptions. The current period remeasurement losses include the allocation of the curtailment gains and actuarial losses resulting from the March 2016 announced plan amendments of certain shared pension and other postretirement plans. These plan amendments will freeze the pension benefits for the majority of Ashlands U.S. pension plans as of September 30, 2016 and reduce the retiree life and medical benefits effective October 1, 2016 and January 1, 2017, respectively.
Fiscal years ended September 30, 2015, 2014 and 2013
Unallocated and other recorded expense was $36.9 million for 2015 and $58.4 million for 2014, and income of $85.0 million for 2013. Unallocated and other includes pension and other postretirement net periodic costs and income within operations that have not been allocated to reportable segments. These costs and income are reflective of standalone Valvoline pension plans as well as the shared pension and other postretirement plans accounted for under a multi-employer approach. These costs include interest cost, expected return on assets and amortization of prior service credit, which resulted in income of $9.5 million during 2015, $9.0 million during 2014 and $11.0 million during 2013. Unallocated and other also includes gains and losses on pension and other postretirement plan remeasurements, which resulted in a loss of $46.0 million in 2015, a loss of $61.1 million in 2014 and a gain of $74.0 million in 2013. Fluctuations in these amounts from year to year result primarily from changes in the discount rate but are also partially affected by differences between the expected and actual return on plan assets during each year as well as other changes in other actuarial assumptions such as changes in demographic data or mortality assumptions.
Unallocated and other also includes severance expense of $0.4 million and $6.3 million during 2015 and 2014, respectively, related to restructuring programs.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Overview
Historically, the primary source of liquidity for our business was the cash flow provided by our operations, which was transferred to Ashland to support its overall cash management strategy. Transfers of cash to and from Ashlands cash management system have been reflected in Ashlands net investment in the historical combined balance sheets, statements of cash flows and statements of changes in invested equity. We have not reported cash or cash equivalents for the periods presented in the combined balance sheets.
Upon the completion of this offering, we will maintain separate cash management and financing functions for operations. Additionally, our capital structure, long-term commitments and sources of liquidity will change significantly from our historical capital structure, long-term commitments and sources of liquidity. The cash balance on the date of the completion of this offering is expected to be approximately $50.0 million. However, that amount could fluctuate based on the outcome of several of our current assumptions.
82
In July 2016, Valvoline Finco One and Valvoline Finco Two, wholly owned finance subsidiaries of Ashland Inc. and its subsidiaries, completed the following financing transactions. Valvoline Finco One entered into a credit agreement providing for senior secured credit facilities consisting of a senior secured revolving credit facility and a senior secured term loan facility. The senior secured term loan facility will provide us with up to $875.0 million of borrowings and the senior secured revolving credit facility will provide us with up to $450.0 million of borrowing capacity. Valvoline Finco Two issued senior unsecured notes in an aggregate principal amount of $375.0 million. Following the contribution and subject to the satisfaction of certain conditions, Valvoline Finco One and Valvoline Finco Two will merge with and into Valvoline and we will assume all of their respective obligations under such financing transactions. We expect to transfer the net proceeds of the senior secured term loan facility and Valvoline Finco Two has transferred the net proceeds of the senior unsecured notes to Ashland through intercompany transfers. As an additional source of liquidity following the separation, we expect to also enter into a trade receivable securitization facility with an aggregate principal amount of approximately $150.0 million. See Description of Indebtedness.
As described under Use of Proceeds, immediately prior to the closing of this offering, we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We expect to use the net proceeds of this offering to reduce our obligations under our senior secured term loan and either our senior secured revolving credit facility or any such short-term loan facility so that, after giving effect to the application of the net proceeds of this offering, there is no more than approximately $375.0 million outstanding under the secured term loan facility and no borrowings outstanding under our senior secured revolving credit facility and any such short-term loan facility. See Description of Indebtedness.
Further, we expect that approximately $945.0 million in net unfunded pension and other postretirement plan liabilities will be transferred to us by Ashland as part of the separation. As announced by Ashland in March 2016, these pension plans are frozen to new participants and, effective September 2016, the accrual of pension benefits for participants will be frozen. Certain postretirement benefits were also eliminated or curtailed. Plans transferred to us by Ashland will include a substantial portion of the largest U.S. qualified pension plan and non-qualified U.S. pension plans.
No U.S. qualified pension plan contributions are required in 2016 and approximately $22.0 million will be contributed to the U.S. non-qualified pension plans in 2016. During 2017, no contributions are expected to be required to be made to the U.S. qualified pension plans, while approximately $15.0 million of contributions are expected to be required to be made to the U.S. non-qualified pension plans. We expect to fund the costs of the non-qualified plans as the benefits are paid.
We believe that our available cash and cash flows expected to be generated from operations will be adequate to satisfy our current and planned operations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of sales growth, the expansion of our sales and marketing activities, our expansion into other markets and our results of operations. To the extent that existing cash, cash from operations and credit facilities are insufficient to fund our future activities, we may need to raise additional funds through public equity or debt financing.
Operating activities
The cash generated during each period is primarily driven by net income results, adjusted for certain non-cash items such as depreciation and amortization and remeasurement adjustments to the pension and other postretirement plans, as well as changes in working capital, which are fluctuations within accounts receivable, inventory, trade and other payables, and accrued expenses and other liabilities. We continue to emphasize working capital management as a high priority and focus.
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The following table sets forth the cash flows associated with our operating activities for the nine months ended June 30, 2016 and 2015 and the fiscal years 2015, 2014 and 2013.
For the nine
months ended June 30, |
For the year ended
September 30, |
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(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Cash flows provided (used) by operating activities: |
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Net Income |
$ | 207.7 | $ | 163.1 | $ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||||||
Adjustments to reconcile income to cash flows from operating activities |
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Depreciation and amortization |
28.6 | 27.9 | 38.0 | 37.1 | 35.7 | |||||||||||||||
Deferred income taxes |
| | (9.1 | ) | (16.0 | ) | 37.7 | |||||||||||||
Equity income from affiliates |
(10.6 | ) | (10.0 | ) | (12.1 | ) | (10.2 | ) | (12.8 | ) | ||||||||||
Distributions from equity affiliates |
10.7 | 14.4 | 17.9 | 7.5 | 7.7 | |||||||||||||||
Net loss on acquisition and divestiture |
0.6 | 26.3 | 26.3 | | | |||||||||||||||
Impairment of equity method investment |
| 14.3 | 14.3 | | | |||||||||||||||
Loss (gain) on pension and postretirement plan remeasurement |
| | 2.0 | 1.0 | (2.5 | ) | ||||||||||||||
Change in operating assets and liabilities (a) |
(51.3 | ) | 32.5 | 56.4 | (22.2 | ) | (39.0 | ) | ||||||||||||
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Total cash flows provided by operating activities |
$ | 185.7 | $ | 268.5 | $ | 329.8 | $ | 170.6 | $ | 272.9 | ||||||||||
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(a) | Excludes changes resulting from operations acquired or sold. |
The following table details certain changes in key operating assets and liabilities for the nine months ended June 30, 2016 and 2015 and for the years ended September 30, 2015, 2014 and 2013.
For the nine
months ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Changes in assets and liabilities (a) |
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Accounts receivable |
$ | (3.2 | ) | $ | 30.1 | $ | 53.4 | $ | (31.3 | ) | $ | (1.3 | ) | |||||||
Inventories |
(9.5 | ) | (5.1 | ) | (6.4 | ) | 8.2 | (18.9 | ) | |||||||||||
Trade and other payables |
(28.2 | ) | (5.8 | ) | (7.3 | ) | (7.8 | ) | 12.0 | |||||||||||
Accrued expenses and other liabilities |
13.9 | 15.9 | 9.3 | (11.3 | ) | 8.8 | ||||||||||||||
Other assets and liabilities |
(24.3 | ) | (2.6 | ) | 7.4 | 20.0 | (39.6 | ) | ||||||||||||
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Change in operating assets and liabilities |
$ | (51.3 | ) | $ | 32.5 | $ | 56.4 | $ | (22.2 | ) | $ | (39.0 | ) | |||||||
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(a) | Excludes changes resulting from operations acquired or sold. |
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Changes in net working capital (accounts receivable, inventory, trade and other payables and accrued expense and other liabilities) accounted for an outflow of $27.0 million and an inflow of $35.1 million during the nine months ended June 30, 2016 and 2015, respectively, and were driven by the following:
| Accounts receivable Changes in accounts receivable were a cash outflow of $3.2 million and a cash inflow of $30.1 million during the nine months ended June 30, 2016 and 2015, respectively. The cash inflow during the prior year period related to the inception of the program of selling certain customer accounts receivables to a financial institution at the beginning of fiscal 2015. See Note B in the Notes to Condensed Combined Financial Statements for further information on this program. |
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| Inventory Changes in inventory from year to year are primarily a result of increased volume levels as well as inventory management strategies. |
| Trade and other payables and accrued expenses and other liabilities Changes in trade and other payables and accrued expenses and other liabilities combined were cash outflows of $14.3 million and an inflow of $10.1 million during the nine months ended June 30, 2016 and 2015, respectively. Fluctuations within trade and other payables is primarily a result of timing of payments, inventory balances and currency movements. |
The remaining cash outflows for operating assets and liabilities during the nine months ended June 30, 2016 and 2015 of $24.3 million and $2.6 million, respectively, were primarily due to adjustments to other long term assets and liabilities.
Operating cash flows for the nine months ended June 30, 2016 included net income of $207.7 million and noncash adjustments of $28.6 million for depreciation and amortization.
Operating cash flows for the nine months ended June 30, 2015 included net income of $163.1 million and noncash adjustments of $27.9 million for depreciation and amortization, the loss on the disposition of car care products of $26.3 million, and $14.3 million related to the impairment of the Venezuelan equity method investment.
Fiscal years ended September 30, 2015, 2014 and 2013
Changes in net working capital (accounts receivable, inventory, trade and other payables and accrued expense and other liabilities) accounted for inflows of $49.0 million and $0.6 million in 2015 and 2013, respectively, and an outflow of $42.2 million in 2014, and were driven by the following:
| Accounts receivable The cash inflow related to accounts receivable during 2015 compared to 2014 was primarily due to the sale of certain customer accounts receivable to a financial institution of $41.4 million as of September 30, 2015. See Note B in the Notes to Combined Financial Statements for further information on this activity. The cash outflow related to accounts receivable during 2014 compared to 2013 was due to increased sales compared to 2013 and also slower paced collections. |
| Inventory Changes in inventory from year to year are primarily a result of sales activity and inventory management strategies. The cash outflows during 2015 and 2013 were primarily the result of increased lubricant gallon volumes compared to the preceding years, while the cash inflow during 2014 was the result of a decrease in lubricant gallon volumes compared to 2013. |
| Trade and other payables and accrued expenses and other liabilities Changes in trade and other payables and accrued expenses and other liabilities combined were cash inflows of $2.0 million in 2015, cash outflows of $19.1 million in 2014 and cash inflows of $20.8 million in 2013. Fluctuations within trade and other payables is primarily a result of timing of payments and inventory balances. The change during 2014 within accrued expenses and other liabilities was primarily due to the completion of certain costs associated with the construction of a manufacturing facility. The changes in 2015 and 2013 within accrued expenses and other liabilities were primarily due to increased incentive compensation accruals. |
The remaining cash inflows for operating assets and liabilities during 2015 and 2014 of $7.4 million and $20.0 million, respectively, and an outflow of $39.6 million during 2013 were primarily due to adjustments to other long term assets and liabilities.
Operating cash flows for 2015 included net income of $196.1 million, $2.0 million of losses on pension plan remeasurements for standalone Valvoline plans and noncash adjustments of $38.0 million for depreciation and amortization, the loss on the disposition of car care products of $26.3 million, and $14.3 million related to the impairment of the Venezuelan joint venture equity investment.
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Operating cash flows for 2014 included net income of $173.4 million, $1.0 million of losses on pension plan remeasurements for standalone Valvoline plans and a noncash adjustment of $37.1 million for depreciation and amortization.
Operating cash flows for 2013 included net income of $246.1 million, a $2.5 million gain on pension plan remeasurement for standalone Valvoline plans and a noncash adjustment of $35.7 million for depreciation and amortization.
Investing activities
The following table sets forth the cash flows associated with our investing activities for the nine months ended June 30, 2016 and 2015 and the fiscal years 2015, 2014 and 2013.
For the nine
months ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Cash flows provided (used) by investing activities |
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Additions to property, plant and equipment |
$ | (31.8 | ) | $ | (26.1 | ) | $ | (45.0 | ) | $ | (37.2 | ) | $ | (40.9 | ) | |||||
Proceeds from disposal of property, plant and equipment |
0.6 | 0.7 | 0.9 | 0.8 | 0.5 | |||||||||||||||
Purchase of operations - net of cash acquired |
(69.7 | ) | (4.7 | ) | (4.7 | ) | (1.9 | ) | (0.2 | ) | ||||||||||
Proceeds from sale of operations |
| 23.9 | 22.8 | | | |||||||||||||||
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Total cash flows used by investing activities |
$ | (100.9 | ) | $ | (6.2 | ) | $ | (26.0 | ) | $ | (38.3 | ) | $ | (40.6 | ) | |||||
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Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Cash used by investing activities was $100.9 million and $6.2 million during the nine months ended June 30, 2016 and 2015, respectively. The purchase of operations of $69.7 million during the current period relates primarily to the acquisition of Oil Can Henrys as well as other nominal Quick Lubes locations, while the prior year period included $4.7 million for a Quick Lube acquisition. Both periods include cash outflows for capital expenditures of $31.8 million and $26.1 million, respectively.
Fiscal years ended September 30, 2015, 2014 and 2013
Cash used by investing activities was $26.0 million in 2015 compared to $38.3 million and $40.6 million for 2014 and 2013, respectively. Fiscal 2015 included cash outflows of $45.0 million for capital expenditures and $4.7 million for a Quick Lube acquisition, as well as cash inflows of $22.8 million from the disposition of car care products and the Venezuelan equity method investment.
The significant cash investing activities for 2014 and 2013 included cash outflows for capital expenditures of $37.2 million and $40.9 million, respectively.
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Financing activities
The following table sets forth the cash flows associated with our financing activities for the nine months ended June 30, 2016 and 2015 and fiscal years 2015, 2014 and 2013.
For the nine
months ended June 30, |
For the year
ended September 30, |
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(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Cash flows provided (used) by financing activities |
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Net transfers to Ashland |
$ | (84.8 | ) | $ | (262.3 | ) | $ | (303.8 | ) | $ | (132.3 | ) | $ | (232.3 | ) | |||||
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Total cash flows used by financing activities |
$ | (84.8 | ) | $ | (262.3 | ) | $ | (303.8 | ) | $ | (132.3 | ) | $ | (232.3 | ) | |||||
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As Ashland managed our cash and financing arrangements, all excess cash generated through earnings were deemed remitted to Ashland and all sources of cash were deemed funded by Ashland. See Note B in the Notes to Combined Financial Statements for additional information.
Nine months ended June 30, 2016 compared to nine months ended June 30, 2015
Cash used by financing activities was $84.8 million and $262.3 million for the nine months ended June 30, 2016 and 2015, respectively. The current period net transfers to Ashland amount was driven by the acquisition of Oil Can Henrys and changes in working capital.
Fiscal years ended September 30, 2015, 2014 and 2013
Cash used by financing activities was $303.8 million for 2015, $132.3 million for 2014 and $232.3 million for 2013. Cash provided by operations, which increased for the reasons discussed previously, and proceeds from the disposition of car care products drove the $171.5 million increase in cash transferred from us to Ashland during 2015 compared to 2014. The 2013 net transfers to Ashland were driven by earnings results.
Free cash flow and other liquidity information
The following table sets forth free cash flow for the disclosed periods and reconciles free cash flow to cash flows provided by operating activities. Free cash flow has certain limitations, including that it does not reflect adjustments for certain non-discretionary cash flows, such as allocated costs, and includes the pension and other postretirement plan remeasurement losses or gains related to Ashland sponsored benefit plans accounted for as a participation in a multi-employer plan. See Results of OperationsCombined ReviewNon-GAAP Performance Metrics for additional information.
For the nine
months ended June 30, |
For the year ended September 30, | |||||||||||||||||||
(In millions) |
2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Cash flows provided by operating activities |
$ | 185.7 | $ | 268.5 | $ | 329.8 | $ | 170.6 | $ | 272.9 | ||||||||||
Less: |
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Additions to property, plant and equipment |
(31.8 | ) | (26.1 | ) | (45.0 | ) | (37.2 | ) | (40.9 | ) | ||||||||||
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Free cash flows |
$ | 153.9 | $ | 242.4 | $ | 284.8 | $ | 133.4 | $ | 232.0 | ||||||||||
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At June 30, 2016, working capital (current assets minus current liabilities) amounted to $201.0 million, compared to $178.7 million at the end of 2015. Working capital is affected by our use of the last-in, first-out (LIFO) method of inventory valuation that valued inventories below their replacement costs by $24.8 million at June 30, 2016 and $31.2 million at September 30, 2015. Accounts receivable amounted to 115% of current liabilities at June 30, 2016 and 112% at September 30, 2015.
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Debt
Historically, the primary source of liquidity for our business was the cash flow provided by our operations, which was transferred to Ashland to support its overall cash management strategy. Transfers of cash to and from Ashlands cash management system have been reflected in Ashlands net investment in the historical combined balance sheets, statements of cash flows and statements of changes in invested equity. We have not reported cash or cash equivalents or debt for the periods presented in the combined balance sheets.
Valvoline Finco One entered into a credit agreement providing for senior secured credit facilities consisting of a senior secured revolving credit facility and a senior secured term loan facility. Our senior secured term loan facility will provide us with up to $875.0 million of borrowings and the senior secured revolving credit facility will provide us with up to $450.0 million of borrowing capacity. Valvoline Finco Two issued senior unsecured notes in an aggregate principal amount of $375.0 million. Following the contribution and subject to the satisfaction of certain conditions, Valvoline Finco One and Valvoline Finco Two will merge with and into Valvoline and we will assume all of their respective obligations under such financing transactions. We expect to transfer the net proceeds of the senior secured term loan facility and Valvoline Finco Two has transferred the net proceeds of the senior unsecured notes to Ashland through intercompany transfers. As an additional source of liquidity following the separation, we expect to also entered into a trade receivable securitization facility with an aggregate principal amount of approximately $150.0 million. See Description of Indebtedness.
Capital expenditures
Capital expenditures were $31.8 million for the nine months ended June 30, 2016 and $45.0 million for 2015. The annual average capital expenditure during the last three years was $41.0 million. Capital expenditures by reportable segment for the last three fiscal years are set forth in the table below.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Core North America |
$ | 20.2 | $ | 15.2 | $ | 14.9 | ||||||
Quick Lubes |
19.2 | 16.4 | 19.5 | |||||||||
International |
5.6 | 5.6 | 6.5 | |||||||||
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$ | 45.0 | $ | 37.2 | $ | 40.9 | |||||||
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Contractual obligations and other commitments
The following table sets forth our obligations and commitments to make future payments under existing contracts at September 30, 2015. Excluded from the table are contractual obligations for which the ultimate settlement of quantities or prices are not fixed and determinable or capital lease obligations.
(In millions) |
Total |
Less than
1 Year |
1-3
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3-5
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More than
5 years |
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Contractual obligations |
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Operating lease obligations (a) |
$ | 62.7 | $ | 12.6 | $ | 19.6 | $ | 11.8 | $ | 18.7 | ||||||||||
Employee benefit obligations (b) |
5.0 | 3.2 | 0.3 | 0.3 | 1.2 | |||||||||||||||
Unrecognized tax benefits (c) |
4.7 | | | | 4.7 | |||||||||||||||
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Total contractual obligations |
$ | 72.4 | $ | 15.8 | $ | 19.9 | $ | 12.1 | $ | 24.6 | ||||||||||
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(a) | As a result of the acquisition of Oil Can Henrys during the period ended March 31, 2016, future minimum operating lease obligations increased approximately $50.0 million over the term of the existing lease agreements. This increase is excluded from the figures reflected in the table above. |
(b) | Includes estimated funding of Valvoline specific pension plans for 2016, as well as projected benefit payments through 2025 under our unfunded pension plans. Excludes the benefit payments from the pension plan trust funds. See Note K in the Notes to Combined Financial Statements. |
(c) | Due to uncertainties in the timing of the effective settlement of tax positions with respect to taxing authorities, we are unable to determine the timing of payments related to noncurrent unrecognized tax benefits, including interest and penalties. Therefore, these amounts were included in the More than 5 years column. |
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The foregoing table does not give effect to indebtedness, unfunded pension liabilities and certain other liabilities that we expect to incur or assume in connection with the separation transactions and the completion of this offering.
Tax-related commitments
Valvoline will be included in Ashland Group Returns for the Interim Period. Under the Tax Matters Agreement, Ashland will generally make all necessary tax payments to the relevant tax authorities with respect to Ashland Group Returns, and Valvoline will make tax sharing payments to Ashland. The amount of the tax sharing payments will generally be determined as if Valvoline and each of its relevant subsidiaries included in the Ashland Group Returns filed their own consolidated, combined or separate tax returns for the Interim Period that include only Valvoline and/or its relevant subsidiaries, as the case may be.
For taxable periods that begin on or after the day after the date of the spin-off, Valvoline will no longer be included in any Ashland Group Returns and will file tax returns that include only Valvoline and/or its subsidiaries, as appropriate. Valvoline will not be required to make tax sharing payments to Ashland for those taxable periods. Nevertheless, Valvoline has (and will continue to have following the spin-off) joint and several liability with Ashland to the IRS for the consolidated U.S. federal income taxes of the Ashland consolidated group for the taxable periods in which Valvoline was part of the Ashland consolidated group.
Pursuant to the expected terms of the Tax Matters Agreement, Valvoline will indemnify Ashland for certain U.S. federal, state or local taxes for any tax period prior to the closing of this offering of Ashland and/or its subsidiaries for that period that arise on audit or examination and are directly attributable to neither the Valvoline business nor the Chemicals business. Any payment obligations that may arise as a result of Valvoline. assuming liability for such taxes could negatively affect Valvolines financial position and cash flows.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our normal course of business, we are a party to various financial guarantees and other commitments. These arrangements involve elements of performance and credit risk that are not included in the combined balance sheets. The possibility that we would have to make actual cash expenditures in connection with these obligations is largely dependent on the performance of the party whose obligations we guarantee, or the occurrence of future events that we are unable to predict. We have reserved the approximate fair value of these guarantees in accordance with U.S. GAAP.
NEW ACCOUNTING PRONOUNCEMENTS
For a discussion and analysis of recently issued accounting pronouncements and its impact on us, see Note B in the Notes to Combined Financial Statements
CRITICAL ACCOUNTING POLICIES
The preparation of our combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill), sales deductions and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
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Long-lived Assets
Tangible assets
The cost of property, plant and equipment is depreciated by the straight-line method over the estimated useful lives of the assets. Buildings are depreciated principally over 5 to 35 years and machinery and equipment principally over 5 to 15 years. We review property, plant and equipment asset groups for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We monitor these changes and events on at least a quarterly basis. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset group, or a current expectation that an asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the property, plant and equipment asset groups, as well as specific appraisals in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other property, plant and equipment asset groups. If the future undiscounted cash flows result in a value that is less than the carrying value, then the long-lived asset is considered impaired and a loss is recognized based on the amount by which the carrying amount exceeds the estimated fair value. Various factors that we use in determining the impact of these assessments include the expected useful lives of long-lived assets and the ability to realize any undiscounted cash flows in excess of the carrying amounts of such asset groups, and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Because judgment is involved in determining the fair value of property, plant and equipment asset groups, there is risk that the carrying value of these assets may require adjustment in future periods.
Goodwill
We review goodwill for impairment annually or when events and circumstances indicate an impairment may have occurred. This annual assessment is performed as of July 1 and consists of us determining each reporting units current fair value compared to its current carrying value. Our reporting units for the allocation of goodwill, and the associated goodwill balances, include the Core North America ($89.1 million as of September 30, 2015), Quick Lubes ($40.7 million as of September 30, 2015) and International ($39.6 million as of September 30, 2015) reportable segments.
In reviewing goodwill for impairment, we have the option to first perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we are not required to perform any additional tests in assessing goodwill for impairment. However, if we conclude otherwise or elect not to perform the qualitative assessment, then we are required to perform the first step of a two-step impairment review process.
We performed the quantitative assessment for each reporting unit during the applicable fiscal year periods within this standalone report and upon completion of this assessment noted no impairment for any fiscal year periods within the financial statements. During the fiscal 2015 annual impairment analysis, all of our reporting units fair value exceeded the book value by greater than 300%.
Our assessment of an impairment charge on goodwill could change in future periods if any or all of the following events were to occur with respect to a particular reporting unit: a significant change in projected business results, a divestiture decision, significant changes to certain discounted cash flow assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or other significant economic events.
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Sales Deductions
We recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition, when persuasive evidence of an arrangement exists, products are received or services are provided to customers, the sales price is fixed or determinable and collectability is reasonably assured. Provisions are made at the time of revenue recognition for sales rebates and discounts consisting primarily of promotion rebates and customer pricing discounts. These provisions are recorded as a reduction of revenue based on contract terms and our historical experience with similar programs and require managements judgment with respect to estimating customer participation and performance levels. Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined. The cost of these programs is recognized as incurred and recorded as a reduction of sales and totaled $344.8 million, $321.7 million and $300.4 million in the Combined Statements of Operations and Comprehensive Income for September 30, 2015, 2014 and 2013, respectively.
Income Taxes
The provision for income taxes includes current income taxes as well as deferred income taxes. Under U.S. GAAP, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. The effect of changes in tax rates on deferred taxes is recognized in the period in which the enactment date changes. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized.
Our income taxes as presented are calculated on a separate return basis, although our operations have historically been included in Ashlands U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. As our operations in many jurisdictions are unincorporated commercial units of Ashland and its subsidiaries, standalone tax returns have not been filed for the operations in these jurisdictions. Accordingly, our tax results as presented are not necessarily reflective of the results that we would have generated on a standalone basis.
Our combined balance sheet reflects assumptions regarding the expected manner of separation of the Company that would result in Ashland retaining certain tax items in a number of jurisdictions. As a result, the tax items that Ashland would retain in these jurisdictions have been eliminated from our combined balance sheet. The income tax expense of these items has been reflected in the combined statements of operations and comprehensive income, with a corresponding offset to total invested equity.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Exchange Risk
We are exposed primarily to market risks associated with foreign currency exchange rates. Our foreign currency risk is primarily limited to the Euro, Australian Dollar, Canadian Dollar and Chinese Yuan. We participate in Ashlands centralized foreign currency derivatives program which mitigates risk associated with the foreign currency exposures. We believe our foreign currency risk is limited as 72% of our revenue during the year ended September 30, 2015 and 71% of our revenue in each of the years ended September 30, 2014 and 2013 was based in U.S. dollars, and 80% and 78% of our net assets was based in U.S. dollars. We do not have material exposures to market risk with respect to investments.
Inflation and Changing Prices
Our financial statements are prepared on the historical cost method of accounting in accordance with U.S. GAAP and, as a result, do not reflect changes in the purchasing power of the U.S. dollar. Monetary assets (such as cash, cash equivalents and accounts receivable) lose purchasing power as a result of inflation, while monetary
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liabilities (such as accounts payable and indebtedness) result in a gain, because they can be settled with dollars of diminished purchasing power. As of September 30, 2015, our monetary assets exceed our monetary liabilities, leaving us currently more exposed to the effects of future inflation. However, given the recent consistent stability of inflation in the United States in the past several years as well as forward economic outlooks, current inflationary pressures seem moderate.
Certain of the industries in which we operate are capital-intensive, and replacement costs for our plant and equipment generally would substantially exceed their historical costs. Accordingly, depreciation and amortization expense would be greater if it were based on current replacement costs. However, because replacement facilities would reflect technological improvements and changes in business strategies, such facilities would be expected to be more productive than existing facilities, mitigating at least part of the increased expense.
We use the LIFO method to value a portion of our inventories to provide a better matching of revenues with current costs. However, LIFO values such inventories below their replacement costs during inflationary periods.
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OUR COMPANY
We are one of the most recognized and respected premium consumer brands in the global automotive lubricant industry, known for our high quality products and superior levels of service. Established in 1866, our heritage spans 150 years, during which we have developed powerful name recognition across multiple product and service channels. We have significant positions in the United States in all of the key lubricant sales channels, and also have a strong international presence with our products sold in approximately 140 countries.
In the United States and Canada, our products are sold to consumers through over 30,000 retail outlets, to installer customers with over 12,000 locations, and to approximately 1,050 Valvoline branded franchised and company-owned quick lube stores. We serve our customer base through an extensive sales force and technical support organization, allowing us to leverage our technology portfolio and customer relationships globally, while meeting customer demands locally. This combination of scale and strong local presence is critical to our success.
We have a history of leading innovation with revolutionary products such as All Climate, DuraBlend and MaxLife. In addition to our iconic Valvoline-branded passenger car motor oils and other automotive lubricant products, we provide a wide array of lubricants used in heavy duty equipment, as well as automotive chemicals and fluids designed to improve engine performance and lifespan. Our premium branded product offerings enhance our high quality reputation and provide our customers with solutions that address a wide variety of needs.
We deliver products and services to our customers across three business segments:
| Core North America: We sell to consumers in the United States and Canada who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, through retail outlets, including AutoZone, OReilly Auto Parts and Advance Auto Parts. We also sell to installer customers such as car dealers, general repair shops and third-party quick lube locations, including Goodyear, Monro, Express Oil Change, TBC Retail Group and Sears, directly and through distributors. Installers use our products to service vehicles owned by Do-It-For-Me or DIFM consumers. Our installer channel team also sells branded products and solutions to heavy duty customers, such as on-highway fleets and construction companies, and we have a strategic relationship with Cummins, a leading heavy duty engine manufacturer, for co-branding products in the heavy duty business. |
| Quick Lubes: We operate the second-largest United States retail quick lube service chain by number of stores, Valvoline Instant Oil Change, which provides fast, trusted service through approximately 715 franchised and 335 company-owned stores. Our VIOC company-owned stores have had nine years of consecutive same-store sales growth * and consistently outperformed our competitors, delivering on average over 36% more daily oil changes during 2015 than competing quick lube service centers. Our franchisees have also enjoyed strong results, performing on average 22% more daily oil changes in 2015 than competitors. We also sell our products and provide Valvoline branded signage to independent quick lube operators through our Express Care program. In 2015, we estimate that VIOC and Express Care stores performed approximately 13% of the total oil changes in the quick lube market. |
* | We have historically determined same-store sales growth on a fiscal year basis, with new stores excluded from the metric until the completion of their first full fiscal year in operation. |
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| International: Our products are sold in approximately 140 countries outside of the United States and Canada, where, like in Core North America, Valvoline is positioned as a high performance, high quality brand. International sales include both passenger car products and heavy duty products used in a wide variety of heavy duty equipment. We sell our passenger car products to installer customers primarily through distributors, and our heavy duty products directly to customers, as well as through distributors. |
Sales and Adjusted EBITDA contribution of each of our segments is as follows:
Fiscal 2015 Sales Contribution |
Fiscal 2015 Adj. EBITDA Contribution |
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FY15 Sales: $2.0 Billion | FY15 Adjusted EBITDA: $422 Million |
In fiscal 2015, we generated approximately $2.0 billion in sales, $422 million in Adjusted EBITDA and $196 million in net income. During the same period, our Adjusted EBITDA margin, which we define as Adjusted EBITDA as a percentage of sales, was 21.5%. In addition, we generated free cash flow of $285 million and cash flows provided by operating activities of $330 million during fiscal 2015. Leveraging the strength of our brand, our superior product performance and multiple channels to market, we have generated strong margins and cash flow across each of our reportable segments. See SummarySummary Historical and Pro Forma Combined Financial Data for the definition of Adjusted EBITDA and free cash flow, each a non-GAAP measure, and a reconciliation of such measures to net income and cash flows provided by operating activities, as applicable.
Adjusted EBITDA ($ in Millions) and Adjusted EBITDA Margin
Key drivers to our strong financial performance:
| Premium Mix Shift: Our overall product mix has continued to shift toward premium-branded lubricant sales, with United States premium-branded lubricant sales volume increasing to approximately 40% of total sales volume in 2015, up from approximately 31% in 2011. |
| Annual Growth in VIOC Same-Store Sales: We have had nine consecutive years of same-store sales growth in our company-owned VIOC stores. Most recently, same-store sales grew 8% from 2014 to 2015. |
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| Consistent Volume and Profit Growth in International Markets: From 2009 to 2015, International sales volume grew at a 7% compound annual growth rate. International sales are diversified across key global regions, and our growth strategy focuses on three attractive markets: China, India and select countries in Latin America, including Mexico. We believe that partnering with leading original equipment manufacturers, such as Cummins, has helped us drive growth and positions us well for continued international expansion. |
| Proactive Product Pricing and Raw Material Cost Management: We have been successful in maintaining our margins through changes in base oil costs. We closely monitor raw material market dynamics and have negotiated base oil supply contracts with terms that have reduced the impact of changes in base oil prices on our financial results. Additionally, we have revised our contracts with many of our customers to shorten the timing of adjustments to our selling prices in response to changes in raw material prices. |
Our Value Proposition and Business Model
Founded in 1866, the Valvoline brand stands for high quality and performance, allowing us to command premium pricing for our products. The strength of our business model is our ability to generate profitable sales across multiple channels to market, leveraging the Valvoline brand through effective marketing, innovative product technology and the capabilities of our team. We have delivered strong profits and return on capital, with balanced results across all of our sales channels. Today, Valvoline is a high margin, high free cash flow generating business, with significant growth opportunities across all of our business segments.
Our successful business model is further strengthened by our commitment to partnering with customers and channel partners to drive value-creating solutions. We drive growth by providing cutting edge innovations, high-quality products and dedicated customer service. Our Hands on Expertise customer service model, which pairs our deep automotive knowledge with a commitment to developing unparalleled customer solutions, is designed to help us outperform our competitors.
A Rich History of Innovation
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We have a 150 year history of industry-leading innovation. The companys history dates back to 1866, when Dr. John Ellis discovered the lubricating properties of crude oil. Valvoline was trademarked seven years later, making it the first trademarked motor oil in U.S. history. By 1895 we began to cement our place in American racing culture, when a Valvoline lubricated race car won the first known automotive race in North American history. In the early 1900s, the Valvoline brand gained national prominence as one of the recommended motor oils for the iconic Ford Model T. |
During the 20th century, we furthered our tradition of innovation, pioneering one of the worlds first aircraft engine motor oils, developing All-Climate Motor Oil, which eliminated the need for seasonal oil changes, and introducing Valvoline Racing Motor Oil, which became, and is to this day, one of the best-selling racing motor oils of all time. In 1986, we expanded into the quick lube market with the acquisition of an 81 store chain. Two years later we franchised our first five VIOC stores. In 1998, we began a partnership with Cummins, a leading global designer, manufacturer and distributor of engines, filtration and power generation products, that includes the sale of Cummins-endorsed Valvoline lubricants such as Premium Blue heavy duty engine oil. We have been selling products outside the United States for over 90 years, and now sell products in approximately 140 countries.
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We continued to be a leader in the lubricants industry in product innovation with the introduction of DuraBlend in 1996, our first synthetic motor oil blend, and MaxLife in 2000, the first motor oil specifically engineered for cars with over 75,000 miles. We continue to invest significant resources in our research and development programs and in developing relationships with OEMs with a goal of creating new and innovative products to meet the current and future needs of our customers. It is this spirit of performance and innovation that has made us into a global business today and that we believe will continue to drive our growth in the future.
OUR BUSINESS SEGMENTS
We operate our business through three reportable operating segments: Core North America, Quick Lubes and International.
Core North America
In our Core North America business segment we sell Valvoline and other branded products in the United States and Canada to both consumers who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, as well as to installer customers who use our products to service vehicles owned by Do-It-For-Me or DIFM consumers.
We sell to DIY consumers through over 30,000 retail outlets, such as AutoZone, Advance Auto Parts and OReilly Auto Parts, as well as leading mass merchandisers and independent auto parts stores. We have been successful in driving premium lubricants growth with DIY consumers by building strong retailer relationships, offering high quality products and using effective consumer marketing. We are a recognized innovator among branded lubricant companies, a distinction that enables us to build strong customer relationships. We frequently partner with retailers on distinct promotions to drive consumers to their stores to purchase Valvoline products. We work directly with top retailers on category management, assisting them with identification of category trends and optimizing their product assortment and shelf sets to improve profitability. We stress the importance of selling high margin products such as MaxLife TM (designed for high mileage vehicles) and SynPower TM (a synthetic lubricant).
We sell to DIFM consumers through installers who collectively operate over 12,000 locations in the United States and Canada. Installer customers include car dealers, general repair shops and third-party quick lube chains. We directly serve these customers with our own sales force and fulfillment capabilities, through retailers such as NAPA, and a network of approximately 140 distributors. Our key installer customers include large national accounts such as Goodyear, Monro, Express Oil Change, TBC Retail Group and Sears. Our installer channel team also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies, and we have a strategic relationship with Cummins for co-branding products in the heavy duty business.
We believe we add significantly more value to our installer customers than our more cost-driven competitors by sharing our expertise in the areas of sales, marketing and supply chain management to help them grow their businesses through improvements in customer acquisition, retention and sales mix. We believe that our differentiated service approach allows us to charge premium prices.
Our Core North America business segment generated approximately $1.1 billion in sales and $217 million in Adjusted EBITDA in 2015, contributing 54% of our overall sales and 53% of our Adjusted EBITDA. We believe the success of our Core North America operations is driven by the strength of the Valvoline brand and our portfolio of high quality lubricants and strong relationships with our channel partners.
Quick Lubes
Our Quick Lubes business segment services the passenger car and light truck quick lube market through two platforms: our company-owned and franchised VIOC stores, which we believe comprise the industrys best retail
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quick lube service chain; and Express Care, a quick lube customer platform developed for independent operators who purchase Valvoline motor oil and other products pursuant to contracts while displaying Valvoline branded signage.
VIOC stores offer consumers a quick, easy and trusted way to maintain their vehicles, utilizing well trained technicians who have access to a proprietary computer-based point-of-sale technology system along with SuperPro, our proprietary service process that sets forth rigorous protocols for both the steps that must be followed in the service of vehicles and for interactions with consumers. Our VIOC stores provide a broad range of preventive maintenance services, including full-service oil changes, OEM mileage-based services (transmission, radiator and gear box fluid exchange services), tire rotations, fuel system services and seasonal air conditioning coolant replacement services. The VIOC technology, tools and processes allow our team members to provide a preventive maintenance service recommendation for each vehicle and track services that have historically been performed. VIOC team members utilize these tools to confidently make service recommendations based primarily on the recommendations of vehicle manufacturers. Through the use of these tools and our highly talented teams, VIOC has been able to increase its oil changes per day to levels meaningfully above industry averages.
The VIOC network is growing through a combination of new company-owned stores, increased number of franchisees and opportunistic acquisitions, such as the recent acquisition of Oil Can Henrys in February 2016. Today, VIOC operates approximately 335 company-owned stores and has 715 franchised stores across 44 states. Company-owned stores generally achieve high returns on investment due to their strong number of oil changes per day, penetration of premium branded products, higher margin extra services and vertical leverage achieved through the distribution of Valvoline products. In addition to strong returns, company-owned stores also provide us with critical knowledge and experience, which we then transfer to our franchise operators.
We have developed strong relationships with our franchisees, who leverage VIOCs proven business model and tools, thereby supporting store performance. The VIOC franchise model includes the use of our proprietary technology platform and SuperPro service process, as well as access to innovative and proven digital and direct response marketing platforms. We provide franchisees with in-field support and training from our experienced operators. In addition, we support franchised store growth via acquisition leads, a ground up development platform and financial assistance. On a combined basis, our franchise platform provides a robust level of support to VIOC franchise owners. These relationships are mutually beneficial; franchisees receive our products and business management expertise and we receive franchise fees and product sales. Franchised stores require minimal capital investment and generate significant cash flow for us. We believe there is a significant opportunity to grow the number of both company-owned and franchised VIOC locations.
The Express Care platform has been designed to support smaller (typically single store) operators that do not fit our franchised model and typically offer other non-quick lube services such as auto repair and car washes. The Express Care model has generated consistent store growth, which we expect to continue. This program is flexible and can support both the core quick lube operator as well as an operator that has a broader automotive business model.
Our Quick Lubes business segment generated approximately $394 million in sales and $111 million in Adjusted EBITDA in 2015, contributing 20% of our overall sales and 27% of our Adjusted EBITDA. We believe the success of our Quick Lubes operations stems from an enhanced customer experience, our superior marketing and operations, our proactive cost management and our relentless focus on developing the best talent in the industry.
International
Our International business segment sells Valvoline and our other branded products in approximately 140 countries. Our key international markets include China, India, EMEA, Latin America and Australia Pacific. We
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have significant overall market share in India and Australia and a growing presence in a number of markets, with primary growth targets being China, India and select countries within Latin America, including Mexico. Our International business segment sells products for both consumer and commercial vehicles and equipment, and is served by company-owned manufacturing facilities in the United States, Australia and the Netherlands, a joint venture-owned facility in India and third-party warehouses and toll manufacturers in other regions.
Our heavy duty products are used in a wide variety of heavy duty equipment, including on-road trucks and buses, agricultural equipment, construction and mining equipment and power generation equipment. These products are sold either directly to key customers, or through distributors. We have leveraged our long-term relationships with leading OEMs, such as Cummins, to build a solid base in the commercial and industrial lubricants markets. In these markets, OEM endorsements provide credibility. We add value by helping to reduce the cost of operating equipment, extend drain intervals, improve fuel economy and enhance equipment durability. We also sell a variety of lubricants, coolants and automotive chemicals directly to OEMs, at both a regional and global level. This ability to sell value-added products and aftermarket programs globally is a competitive advantage.
Our passenger car, motorcycle and light duty truck products are sold internationally mostly through distributors in DIFM sales channels to installer customers, including independent garages, car and motorcycle dealers and small parts retailers. In these channels, Valvolines position as the oldest and one of the most successful motor oil brands in the United States provides credibility in most markets. We add further value by working with our installer customers to provide a range of value-added products, product and sales training and marketing assistance. Through these partnerships, our installer customers leverage our insights to improve their sales model, which solidifies our relationship with them.
We go to market in our International business in three ways: (1) through our own local sales, marketing and back office support teams, which we refer to as our wholly owned affiliate markets; (2) through joint ventures; and (3) through independent distributors. In our wholly owned affiliate markets, we have a direct presence and maintain the sales and marketing teams required to build effective channels. We have 50/50 joint ventures with Cummins in India and China. We also have smaller joint ventures in select countries in Latin America. In other countries, we go to market via independent distributors, which provide access to these geographies with limited capital investment.
We believe that our geographic position, growing international platform, value-added products and services, OEM alliances and strong brand equity provide the opportunity to build on our historic growth and increase penetration in key markets. We intend to evaluate future international growth and expansion opportunities, including continued investments in brand and channel development, supply chain development and bolt-on acquisitions.
Our International business segment generated approximately $512 million in sales and $84 million in Adjusted EBITDA in 2015, contributing 26% of our overall sales and 20% of our Adjusted EBITDA. The success of our International business has been based in part upon the strength of our brand, strong channel partners and distributors and our ability to customize a portfolio of products to meet varying market needs of different regions around the world.
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OUR PRODUCTS
We offer a wide variety of branded, co-branded and private label products to meet the needs of light-duty and heavy duty engine and automotive maintenance customers in approximately 140 countries around the world. Our portfolio is designed to deliver quality product solutions to meet the needs of our wide variety of customers with varying needs.
Product Line |
% Sales * |
Description |
Product Examples |
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Lubricants | Passenger Car / Light Duty | Comprehensive assortment meeting the needs of passenger car, motorcycle and other light duty engines, including motor oil, transmission fluid, greases and gear oil |
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Heavy Duty | 86% | Lubricating solutions for a wide range of heavy duty applications ranging from on-road (Class 4 Class 8 vehicles) to off-road construction, mining and power generation equipment |
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Antifreeze |
Antifreeze / Coolants |
5% | Antifreeze/coolants for OEMs; full assortment of additive technologies and chemistries to meet virtually all light-duty and heavy duty engine applications and heat transfer requirements of batteries and fuel cells used to power todays electric vehicles |
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Chemicals
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Maintenance Chemicals |
5%
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Functional and maintenance chemicals ranging from brake fluids and power steering fluids to chemicals specifically designed to clean and maintain optimal performance of fuel, cooling and drive train systems |
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Coatings | Specialty coatings designed to target rust prevention, sound absorption and release agents for automotive and industrial applications |
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Filters | Filters | 3% | Oil and air filters meeting the needs of light-duty vehicles |
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Other | Other Complementary Products | 1% | Windshield wiper blades, light bulbs, serpentine belts and drain plugs |
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In addition to our branded offerings, we sell private-label products to OEMs, lubricant marketers and aftermarket retailers. Our private label products include lubricants, coolants and chemicals bearing the brand names of some of the worlds most recognized marketers.
* | For the nine months ended June 30, 2016 |
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OUR MARKET
We participate in the global finished lubricants market, which had demand of over 11.7 billion gallons, or $60 billion, in 2015. For the same period, demand for passenger car motor oil and motorcycle oil accounted for slightly over 24% of global lubricant demand, while the remaining 76% of demand was for commercial and industrial products. The United States has historically accounted for the largest amount of lubricant demand, followed by China and India. The lubricants market is impacted by the following key drivers and trends:
| Shift in Demand for High Performance Products: Global lubricants market demand is shifting towards higher performance finished lubricants, largely driven by advancements in vehicle/equipment design and OEM requirements for improved efficiency, reduced carbon footprints and optimized fuel consumption. This shift in customer demand requires high-end formulations from lubricant manufacturers and leads to ongoing investment in top tier base stocks (Group II/II+ and Group III/III+ base oils) to support synthetics growth in developed markets, like the United States. Establishing strong product lines of synthetic and bio-based lubricants have become key competitive aspects to attract OEMs focused on equipment efficiency and environmental sustainability. In many non-U.S. markets, older engine technologies remain more prevalent. We believe there will be an opportunity for increased sales of our high performance products as these engines are replaced by newer technology engines. |
| Environmental Health and Safety Regulations : There has been increasingly stringent regulation, particularly in North America and Europe aimed at reducing toxic emissions, which has led to a continuous drive for innovation given changing specifications for lubricants. Recent regulatory trends include: European Commission Regulations; Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH); Euro Regulations; The Clean Air Act; and more stringent vehicle emission requirements. |
The Core North America, Quick Lubes and International markets in which we participate have experienced the following trends:
Core North America
The overall passenger car motor oil market is undergoing a shift in product mix to higher margin synthetics. Valvoline currently possesses a #3 position by volume in the U.S. DIY market and intends to drive profitability by increasing its premium mix and pursuing digital marketing initiatives and campaigns. Brand strength is important in both DIY and DIFM markets. Based on our research, brand matters to 90% of DIY consumers, with only 10% believing that motor oils are all the same. In addition, 82% of DIFM consumers claim using a well-known motor oil brand is important to them.
Between 2007 and 2012, the North American transport lubes market experienced average annual volume declines of 2.7% per annum, due in part to an increase in oil change intervals, which have resulted from changing OEM recommendations and advancements in engine technology. Our focus on premium markets, such as synthetics and high-mileage lubricants, which continue to experience significant growth, has helped us maintain profitability despite declines in overall volume. Over the past two years, market volume has increased, largely due to the increase in the number of cars on the road and miles driven. Going forward, we expect that our increasing sales of higher margin, premium products, coupled with the increase in miles driven and cars on the road, will help mitigate the impact of longer oil change intervals.
Quick Lubes
DIFM service providers collectively perform about 450 million oil changes in the United States annually. The quick lube industry performed approximately 22%, or 100 million, of those oil changes in 2015. There are currently over 9,000 known quick lube stores in the United States, with our VIOC company-owned and franchised stores comprising approximately 11% of those units. Of the approximately 100 million oil changes
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performed in the quick lube industry in 2015, about 13 million were part of our quick lube network, with approximately 11 million performed through our VIOC network and another 2 million performed through our Express Care network.
International
A surge in the number of cars on the road has led to rapid expansion of passenger vehicle lubricant sales in developing regions. For example, the number of passenger cars on the road in China grew from 59 million in 2010 to 121 million in 2014, representing a compound annual growth rate of 21%. Asia Pacific accounted for 44% of global lubricant demand in 2015, with China and India being the second and third largest markets in terms of lubricant volume consumed. South America accounted for 8% of demand in 2015, with Brazil being the sixth largest global country market.
In the heavy duty engine oil market, China accounted for the largest amount of heavy duty lubricant demand in 2015, comprising approximately 23% of global heavy duty demand, followed by North America at 17% and Asia Pacific at 21%. In 2015, total heavy duty lubricant volume was about 2.6 billion gallons, with a total market value of over $22 billion. Our market share in the heavy duty market is currently less than 1% in China, approximately 3% in North America and just over 2% in Asia Pacific, leaving substantial room for growth. Our highest market share in the heavy duty market is in Australia, where we believe we account for 11% of the market.
OUR COMPETITIVE STRENGTHS
We believe the following strengths differentiate us from our competitors and are important to our success:
Iconic Brand with Premium Products
Valvoline is a highly recognized and respected premium consumer brand. According to our research, we have a total awareness rate of 90% with consumers in the United States, and in many countries around the globe the Valvoline trademark is a symbol of high quality, which helps us to command premium prices. We are known for our high quality products, market leading technology and superior levels of service.
The consistent application of the Valvoline brand across all channels provides us with a significant marketing advantage. We use a variety of marketing techniques to build awareness of our brand, including social and |
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digital media, search, direct marketing, radio and television. In addition, we selectively sponsor teams in high performance racing series, including a current sponsorship of Hendrick Motorsports, featuring drivers Dale Earnhardt Jr., Chase Elliott, Jimmie Johnson and Kasey Kahne. We believe our iconic brand and strong customer awareness support our ability to grow our retail base in existing and new markets.
Unique Multi-Channel Presence
We operate through multiple automotive maintenance outlets and are committed to delivering an outstanding customer experience against a diverse set of customer expectations, leveraging our strong channel partner and quick lube network. Whether the customer is a consumer driving in for a differentiated VIOC quick lube experience, an installer looking to improve the performance of its business, a heavy duty customer looking to effectively service on-road and off-road vehicles or a DIY consumer looking for high quality products to service their vehicles, we leverage our Hands on Expertise to provide a solution to their unique and individual needs.
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Within our DIY and DIFM sales channels, we have been successful in driving premium lubricants growth through effective consumer marketing and strong retailer relationships, resulting in Valvoline holding a #3 position by volume in the United States DIY market in 2015. Within our Quick Lubes business, our Hands on Expertise approach is a differentiating factor and has led to nine consecutive years of VIOC company-owned same-store sales growth and resulted in VIOC being the #2 quick lube chain by store count in 2015. Internationally, we sell our products in approximately 140 countries and our relationships with leading OEMs have provided us with the opportunity to leverage the Valvoline brand to increase global growth and awareness in key markets. In particular, we have a strong partnership with Cummins, a leading global designer, manufacturer and distributor of engines, filtration and power generation products, that includes joint ventures in India and China and global marketing and product co-branding arrangements.
Industry-Leading, Valvoline-Branded Quick Lube Business
With over 335 company-owned VIOC stores and another 715 franchised locations, we are the largest franchisor of quick lube stores that owns and operates its own oil change centers. VIOC is committed to providing our customers with a quick, easy and trusted oil change experience. We believe that our ability to deliver an outstanding customer experience is based on the quality of our teams and their focus on execution and customer satisfaction. Our proprietary point-of-sale system allows us to leverage data, understand our customers needs and customize service recommendations for each of our customers. SuperPro, our proprietary service process that sets forth rigorous protocols for both the steps that must be followed in the service of vehicles and for interactions with customers, is designed to deliver a consistently outstanding customer experience.
Operating our own stores allows us to continually improve all aspects of our business model, from store operations to marketing tactics, which enhances the profitability of our company-owned and franchised operations. In addition, our company-owned VIOC locations provide us with first-hand knowledge of the customer experience. We use this knowledge to improve the speed and quality of our services, resulting in performance improvements at our own stores, as well as the stores of our franchisees. Our focus on the total customer experience has resulted in consistently high customer satisfaction rates. We have had nine consecutive years of same-store sales growth, due in part to improved customer service experience and an increase in the number of oil changes per day. In addition, the visibility of approximately 1,050 VIOC and 340 Express Care stores across the United States further strengthens our brand in the markets in which our quick lube stores operate. As seen below, our company-owned VIOC stores have outperformed the competition in oil changes per day since 2009. Our franchisees have also enjoyed strong performance by executing the same business model.
Oil Changes Per Day, Per Store
Note: Represents fiscal years.
Source: National Oil and Lube News.
We believe our vertical integration through our Quick Lubes business is an additional competitive advantage. By selling our own, high-quality motor oil and family of products to our owned stores, our franchisees and other quick lube channel partners, we generate value for the overall enterprise, as well as an additional profit pool.
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Strong History of Innovation
We believe that innovation is central to the successful performance of our business. As a result, we invest significant resources in our research and development programs and in developing relationships with OEMs, with a goal of developing new and innovative products to meet the current and future needs of our customers. We have an established track record of pioneering new product categories, such as synthetic blends, high mileage motor oil and racing motor oil. The introduction of MaxLife TM and Full Synthetic High Mileage has driven significant trade-up to our higher performing synthetic and other premium products, contributing to both retailer and installer profitability.
Innovations in our sales and marketing efforts have been a cornerstone of our success. We place a high priority on sales and marketing, with a focus on the following areas, which we believe yield the highest benefits:
| targeted innovative digital marketing, which has allowed us to more efficiently reach our consumers with relevant messaging; |
| consumer relationship marketing and social media platforms, which provide forums for ongoing dialogue with consumers to increase brand commitment; and |
| selective investment in national advertising and sponsorships, including our current sponsorship of Hendrick Motorsports, featuring drivers Dale Earnhardt Jr., Chase Elliott, Jimmie Johnson and Kasey Kahne, which builds on our brands strong equity with racing fans. |
Independent, Focused Organization
Under the leadership of our Chief Executive Officer, Samuel J. Mitchell, Jr., our management team has extensive experience in the consumer products and lubricants industry in the areas of commercial operations, sales, marketing and research and development. Our leadership team has instituted a strong, unified corporate culture focused on speed and Hands On customer service. Our efficient global network of businesses and technical, supply chain and product support groups allow us to bring solutions to the market quickly. Our entire business, unlike our largest competitors, is focused on lubricants and automotive maintenance, enabling us to stay customer focused.
Our separation from Ashland will provide us the flexibility to invest in Valvolines growth initiatives and to act quickly in making decisions for the benefit of the business, our channel partners, customers and shareholders. We will enhance our strategic focus by aligning corporate support functions, such as information technology, human resources and finance, to the distinct needs of our business, providing greater control over both strategy and execution. As a standalone public company, we will be able to more effectively pursue our distinct operating priorities and strategies and our management will be able to solely focus on our opportunities for long-term growth and profitability.
Strong Financial Performance and Free Cash Flow Generation
Our high margin business is able to generate significant free cash flow. Our premium mix improvements, VIOC same-store sales growth, international volume and profit growth and proactive approach to changes in the base oil market resulted in fiscal 2015 Adjusted EBITDA of $422 million and Adjusted EBITDA margin of 21.5%. Adjusted EBITDA and Adjusted EBITDA margin for the nine months ended June 30, 2016 were $346 million and 24.1%, respectively. Strong earnings combined with efficient working capital management have led to high free cash flow, which grew from $133 million in fiscal 2014 to $285 million in fiscal 2015. We generated free cash flow of $154 million for the nine months ended June 30, 2016. This strong free cash flow provides us with significant financial flexibility.
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OUR BUSINESS AND GROWTH STRATEGY
We are building the worlds leading engine and automotive maintenance business
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We intend to achieve sustainable growth and profitability by executing the following strategies:
Grow and Strengthen Quick Lube Network
We are committed to growing the footprint of our profitable quick lube network. We expect this growth to be driven by both organic store expansion and opportunistic, high-quality acquisitions in both core and new markets within the VIOC system, as well as strong sales efforts to partner with new Express Care operators. In addition, we plan to continue delivering same-store sales growth within our existing stores.
VIOC Geographic Footprint as of June 30, 2016
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Organic Store Expansion: We currently operate 335 company-owned and have an additional 715 franchised quick lube centers across 44 states. Given the strength of our brand and new unit economics, we believe we can continue growing our network in both new and existing company and franchise markets. Independently owned Express Care locations display Valvoline branding in exchange for a contractual obligation to purchase Valvoline motor oil and other products. We believe that continued |
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expansion of our Express Care program will continue to provide wider exposure to our brand by penetrating channels, primarily smaller (typically single store) operators, which do not fit our franchised model and typically offer other non-quick lube services such as auto repair and car washes. |
| Opportunistic Acquisitions: There are over 9,000 known quick lube stores in the United States, the ownership of which, excluding the few largest networks of service centers, is largely fragmented. We believe that the large and fragmented nature of the North American quick lube market creates an opportunity for us to grow. Our distribution relationships in the DIFM installer space can be leveraged along with VIOCs proprietary modeling tools to execute an acquisition strategy for both the larger, known systems, as well as smaller operators. VIOCs acquisition of Oil Can Henrys in February 2016 added 89 stores to our Quick Lube portfolio in the Pacific Northwest, Colorado, Arizona and southern California. We expect to continue to opportunistically look at acquisitions as a way of supplementing our organic store growth. |
| Continue to Drive Additional Growth and Profitability from Existing Stores: We have generated nine consecutive years of VIOC same-store sales growth. We plan to continue delivering growth through the following strategies: |
¡ | Attract New Customers and Increase Customer Satisfaction and Loyalty: We strive to attract new customers through our targeted digital marketing efforts, which allows us to be more efficient and effective in reaching our prospective new customers. Our existing VIOC customers value our proposition as a quick, easy and trusted operator. Our proprietary point-of-sale system allows us to better understand our customers needs and develop performance drivers that enhance the productivity of our company-owned and franchised operations. Following the introduction of our enhanced SuperPro 10 in 2006, we have been able to deliver quicker and more consistent service times, and have seen improvements in both our overall customer satisfaction scores and retention. Our Hands on Expertise culture and approach has been essential in unifying our 10,000 member team across our approximately 1,050 VIOC company-owned and franchised stores towards delivering a preferred customer experience. |
¡ | Increase Average Ticket Size: Between 2007 and 2015, average net ticket at our company-owned VIOC stores increased from $53.22 to $69.07. Given our focus on customer experience, our proprietary point-of-sale system, and our ability to pilot new concepts in our stores, we believe we can continue to strengthen average net ticket through improvements within our selling of premium oils, penetration of extra services, discount efficiency and pricing opportunities. |
Company-Owned Store Sales, 2007 2015
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Franchisee Store Sales, 2007-2015
Accelerate International Growth across Key Markets
We also plan to expand our presence in the heavy duty lubricant space, which is an important channel in our targeted international markets, by developing products that will lower the total cost of ownership for fleet operators and users of other heavy duty equipment, leveraging our existing relationships with leading OEMs and building and strengthening other OEM relationships. These long-term relationships provide credibility to our International business, and we believe they will allow us to leverage the Valvoline brand to increase growth in key markets globally.
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Leverage Innovation to Drive Market Share and Profitability in Core North America
Innovations in product development, packaging and marketing have driven improvements in our product mix, with United States premium-branded lubricant sales volume increasing to approximately 40% of total sales volume in 2015, up from approximately 31% in 2011.
We believe that our focus on innovation will continue to drive premium lubricant mix improvement in addition to increasing sales of our broader product portfolio, such as Valvoline Professional Series service chemicals, coolants, filters and other non-lubricant products. We plan to continue to grow higher margin synthetic sales, consistent with increased customer demand for these products due to OEM requirements.
We intend to leverage our expertise to continue to add significantly more value to our installer customers than our more cost-driven competitors. We do this by sharing our knowledge in sales, marketing and supply chain management to help them grow their businesses through improvements in customer acquisition, retention and sales volume. We believe that our differentiated service approach will allow us to continue to charge premium prices while growing our overall business.
We are also investing in e-commerce solutions with our existing business partners and a new digital infrastructure that will be used across our enterprise. We believe that this digital infrastructure will improve the speed, innovation and efficiency of our business, and also drive more effective customer engagement, acquisition and retention. Being able to interact with our customers when they need information will provide accurate real time access to training, marketing programs, product recommendations and order status and will differentiate us from our competition by building a more efficient customer-facing organization.
SALES AND MARKETING
We place a high priority on sales and marketing and focus our marketing efforts on areas we believe will yield the highest rate of return. We have dedicated marketing resources in each of our business segments, which we believe are well qualified to reach their target customers. The majority of our large customers are supported by our own direct sales representatives with a number of key customers having dedicated Valvoline teams. Consistent with our firm belief and value that it all starts with our people, we also have a keen focus on sales force effectiveness, with a cross functional team regularly evaluating the recruiting, compensation, performance management and employee development of our sales teams.
We use a variety of marketing techniques to build awareness of, and create demand for, our products and services. We advertise through social and digital media, as well as traditional media outlets such as television, print and radio. In addition, we selectively sponsor teams in high performance racing series, including a current sponsorship of Hendrick Motorsports, featuring drivers Dale Earnhardt Jr., Chase Elliott, Jimmie Johnson and Kasey Kahne.
We have also embarked on a digital infrastructure initiative that will enable the use of technology across our entire enterprise. We believe our digital marketing infrastructure will drive more effective engagement to deliver growth, customer retention and acquisition as a strategic business partner.
Core North America
The sales organization within our Core North America business is structured around four channels: mid to large regional and national installers, DIY retail, distributors and company-operated direct markets. We place significant emphasis on our large customers. We have approximately 140 third-party distributors that represent our products.
In the installer sales channel, we assist our customers in leveraging our value proposition to help them improve their customer acquisition and retention and premium mix by giving them targeted marketing and
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promotional tools, which drive their customers to trade up to our higher performing synthetic and other premium products, and purchase additional products. These efforts help improve the return on investment for our installer customers, driving our own revenue and creating a sustainable growth model.
Our marketing campaigns are generally centered on building our brand and communicating the superior performance of our products. These marketing efforts target both consumers and influencers such as countermen, vocational and technical students and grass roots racers. Social media has allowed us to more efficiently reach and engage with our target demographics. For our installer and retail customers, we provide marketing tools that allow them to effectively market our higher margin products to consumers.
Quick Lubes
Our Quick Lubes business uses information stored in our proprietary point-of-sale system to market to VIOC customers, generally through direct marketing, such as mail, e-mail and text messages. We also utilize digital platforms such as Facebook as an overlay to these direct marketing programs. In addition, we conduct post-visit surveys and encourage customers to leave reviews on third-party sites, which boost consumer trust and loyalty. In the future, we expect to use mobile technologies to reach current and potential VIOC customers on a targeted basis at a lower cost.
In addition to marketing targeted at VIOC customers, which helps drive store profitability, the sales organization within our Quick Lubes business plays a critical role in expanding our network of company-owned and franchised VIOC stores and Express Care operators. The team uses proprietary modeling tools to identify organic and external growth opportunities with attractive attributes, working with our store development team to execute growth strategies.
International
In our wholly owned affiliate and joint venture markets, we maintain the sales and marketing teams required to build effective channels in our target markets. For example, in India we have complete teams focused on the commercial and industrial, DIFM and OEM sales channels, with specialists in major sub-markets, such as power generation. This approach lets us build local expertise in local channels and drive for meaningful penetration in our targeted markets. In distributor markets, we rely extensively on the distributors local sales capabilities, and provide effective and efficient sales and marketing support, including training, promotions and brand building assistance. In both cases, our global platform, global account and product management organizations help us to leverage our global product knowledge and other capabilities.
MANUFACTURING, SUPPLY CHAIN AND FACILITIES
We have a large manufacturing and distribution footprint in the United States, with additional facilities in various other jurisdictions. In the United States, we have four lubricant blending and packaging plants, three bulk blending and distribution facilities and two distribution centers. We have additional lubricant blending and packaging plants in Australia and the Netherlands. We also have a bulk blending and distribution facility in Canada, a distribution center in the U.K. and leased distribution centers in Australia and the Netherlands. In addition to our owned and leased facilities, we also use numerous toll manufacturers and third-party warehouses.
The key raw materials used by our business are base oils, additives, packaging materials (high density polyethylene bottles and steel drums) and ethylene glycol. We continuously monitor global supply and cost trends of these key raw materials. We obtain these raw materials from a diversified network of large global suppliers and regional providers. Our sourcing strategy is to ensure supply through contracting a diversified supply base while leveraging market conditions to take advantage of spot opportunities whenever such conditions are available. We leverage our worldwide spend to obtain favorable contract terms from the global suppliers and use the regional providers to ensure market competitiveness and reliability in our supply chain. For materials that must be customized for us, we work with market leaders with global footprints and well developed business
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continuity plans. We also utilize our research and development resources to develop alternative product formulations, which provide flexibility in the event of supply interruptions. We closely monitor our supply chain and conduct annual supply risk assessments of our critical suppliers to reduce risk.
We own or lease approximately 40 facilities throughout the United States, Australia, Brazil, Canada, China, Croatia, India, Indonesia, the Netherlands, New Zealand, the Philippines, Russia, Singapore, the U.K. and Vietnam that comprise over 2,000,000 square feet of blending, packaging, distribution, warehouse and office space. In addition, we own or lease the property associated with approximately 335 quick lubes stores under the VIOC and Oil Can Henrys brands throughout the United States. The properties leased by us have expiration dates ranging from less than one year to more than 25 years (including certain renewal options). We lease approximately 247,000 square feet for our corporate headquarters in Lexington, Kentucky pursuant to a lease that expires March 31, 2017. We have already entered into a long term lease for a new 162,500 square foot facility in Lexington, Kentucky, which is currently under construction, and we plan to relocate our corporate headquarters to that facility in conjunction with the expiration of our current lease.
The following table provides a summary of our major facilities:
Location |
Approx. Area
(Sq. Ft.) |
Principal Use |
|||||
Leased Properties: |
|||||||
Sydney, Australia |
60,000 | Blending & Packaging | |||||
Lexington, Kentucky |
247,000 | Current Corporate Headquarters | |||||
West Chester, Ohio |
320,000 | Warehouse & Distribution | |||||
Leetsdale, Pennsylvania |
125,000 | Warehouse & Distribution | |||||
Willow Springs, Illinois |
95,000 | Blending & Packaging | |||||
Dordrecht, Netherlands |
150,000 | Blending, Packaging & Warehouse | |||||
Owned Properties: |
|||||||
Mississauga, Canada |
63,000 | Warehouse & Distribution | |||||
Santa Fe Springs, California |
100,000 | Blending & Packaging | |||||
St. Louis, Missouri |
78,000 | Blending & Packaging | |||||
Cincinnati, Ohio |
140,000 | Blending, Packaging & Warehouse | |||||
Freedom (Rochester), Pennsylvania |
88,000 | Blending & Packaging | |||||
Deer Park, Texas |
87,000 | Blending & Packaging |
In addition, throughout North America, we contract with third parties to provide blending and packaging and warehousing and distribution services. Lastly, we are part of a joint venture that operates a blending and packaging facility in Ambarnath, India and warehouses and distributes products throughout India via numerous facilities around the country.
RESEARCH AND DEVELOPMENT
We believe that innovation is central to the successful performance of our business. As a result, we continually focus on our research and development programs, which are focused on developing new and innovative products to meet the current and future needs of our customers. These products are developed through our Hands on Expertise innovation approach, which begins with the mathematical modeling of critical product design elements and extends through field testing. In addition, our technology centers, located in the Americas,
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Europe and Asia Pacific regions, develop solutions for existing and emerging on and off-road equipment. Our research and development team also leverages our strong relationships with customers and suppliers to incorporate their feedback into the research and development process. In addition to our own research and development initiatives, we also conduct limited testing for other entities, which builds our expertise and partially offsets our own research and development costs.
COMPETITION
We operate in highly competitive markets and face competition in each of our product categories and subcategories. In the United States and Canada, our principal competitors for retail customers are global integrated oil brands, such as Shell, which produces Pennzoil and Quaker State, BP, which produces Castrol, and Exxon Mobil, the producer of Mobil1, mid-tier brands, and private label producers. With respect to installer customers in the United States and Canada, we compete with these major integrated oil brands and regional private label companies.
Our Quick Lubes business competes with other major franchised brands that offer a turn-key operations management system, such as Jiffy Lube (owned by Shell), Grease Monkey and Express Oil Change, as well as national branded companies that offer a professional signage program with limited business model support, similar to our Express Care network, and regional players such as Super-Lube and American Lube Fast that are not directly affiliated with a major brand. We also compete to some degree with automotive dealerships and service stations, which provide quick lube and other preventative maintenance services. We believe there are over 9,000 existing quick lube stores currently operating in the U.S. market. Jiffy Lube is currently the largest player, with just over 1,900 stores, all of which are owned and operated by franchisees.
The major competitors of our International business vary by region. We generally face strong competition from global integrated oil brands, as these companies have a particularly strong presence in Europe and Asia. In certain markets we also compete with regional brands, including brands produced by national oil companies, such as Sinopec in China and Indian Oil in India.
Competitive factors in all of these markets include price, product or service technology, brand awareness and loyalty, customer service and sales and marketing. Our Core North America and International businesses also compete on the basis of shelf space and product packaging. We believe that we compete effectively with respect to each of these factors.
INTELLECTUAL PROPERTY
We are continually seeking to develop new technology and enhance our existing technology. As of May 2, 2016, we have been issued 33 U.S. and 59 international patents, and we have 11 U.S. and 37 international patent applications pending or published. We also hold approximately 2,450 trademarks in various countries around the world, which we believe are some of our most valuable assets, and we dedicate significant resources to protecting them. These trademarks include the Valvoline trademark and our famous V brand logo trademark, which are registered in over 150 countries. We also own over 700 domain names that we use to promote our products and services and provide information about our company.
EMPLOYEES
As of March 31, 2016, we employed approximately 5,050 people, with approximately 4,300 of those employees located in the United States. As of March 31, 2016, approximately 5% of our employees are unionized or have works council representation. We have had no labor-related work stoppages and believe the relationships with our employees to be good.
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ENVIRONMENTAL, HEALTH AND SAFETY
We are subject to numerous foreign, federal, state and local EHS laws and regulations. These laws and regulations govern matters such as safe working conditions; product stewardship; air emissions; discharges to the land and surface waters; generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste materials; and the registration and evaluation of chemicals. We maintain policies and procedures to control EHS risks and monitor compliance with applicable EHS laws and regulations. These laws and regulations also require us to obtain, and comply with, permits, registrations or other authorizations issued by governmental authorities. These authorities can modify or revoke our permits, registrations or other authorizations and can enforce compliance through fines and injunctions.
We expect to incur ongoing costs to comply with existing and future EHS requirements, including the cost of a dedicated EHS group that will be responsible for ensuring our business maintains compliance with applicable laws and regulations. This responsibility will be carried out through training; widespread communication of EHS policies; formulation of policies, procedures and work practices; design and implementation of EHS management systems; internal auditing by a separate auditing group; monitoring legislative and regulatory developments that may affect our operations; and incident response planning.
LEGAL PROCEEDINGS
From time to time we are involved in claims and legal actions that arise in the ordinary course of business. We do not have any currently pending claims or litigation which we believe, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.
GOVERNMENT REGULATION
We are subject to regulation by various U.S. federal regulatory agencies and by the applicable regulatory authorities in countries in which our products are manufactured and sold. Such regulations principally relate to the ingredients, labeling, packaging, advertising and marketing of our products. In addition, as a result of our commercial operations overseas, we are subject to the Foreign Corrupt Practices Act and other countries anti-corruption and anti-bribery regimes, such as the U.K. Bribery Act.
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Executive Officers
The following table sets forth the ages, as of June 30, 2016, and names of the individuals who are expected to constitute our executive officers immediately prior to the completion of this offering.
Name |
Age |
Position(s) |
||
Samuel J. Mitchell, Jr. |
55 | Chief Executive Officer and Director | ||
Mary E. Meixelsperger |
55 | Chief Financial Officer | ||
Thomas A. Gerrald II |
51 | Senior Vice President, Core North America | ||
Frances E. Lockwood |
66 | Chief Technology Officer | ||
Heidi J. Matheys |
43 | Chief Marketing Officer | ||
Craig A. Moughler |
58 | Senior Vice President, International & Product Supply | ||
Julie M. ODaniel |
49 | General Counsel & Corporate Secretary | ||
Anthony R. Puckett |
53 | President, Quick Lubes | ||
Sara K. Stensrud |
48 | Chief People and Communications Officer |
Samuel J. Mitchell, Jr. has served as Senior Vice President of Ashland since 2011 and President of Valvoline since 2002. Mr. Mitchell was appointed as a director and our Chief Executive Officer in May 2016 and September 2016, respectively. As our Chief Executive Officer, Mr. Mitchells significant experience and knowledge in the areas of finance, accounting, business operations, management, manufacturing, safety, risk oversight and corporate governance, as well as his experience in the lubricants industry, provide him with the qualifications and skills to serve as a director on our board of directors.
Mary E. Meixelsperger has served as Chief Financial Officer of Valvoline since June 2016. Prior to joining Valvoline, Ms. Meixelsperger was Senior Vice President and Chief Financial Officer of DSW Inc. from April 2014 to June 2016 and held the roles of Chief Financial Officer, Controller and Treasurer at Shopko Stores from 2006 to 2014. Ms. Meixelsperger also served as Chief Financial Officer for two non-profit organizations from 1993 to 2004 and for Worldmark Group, a private equity firm, from 1986 to 1991. Ms. Meixelsperger started her career in public accounting at Arthur Young and Company.
Thomas A. Gerrald II has served as Senior Vice President, US Installer Channel, of Valvoline since June 2012. Prior to that, Mr. Gerrald served as Vice President, Supply Chain Order-To-Cash, of Ashland from October 2010 to June 2012. Immediately prior to the completion of this offering, Mr. Gerrald will be appointed as Senior Vice President, Core North America.
Frances E. Lockwood has served as Senior Vice President, Technology, of Valvoline since May 1994. Immediately prior to the completion of this offering, Ms. Lockwood will be appointed as our Chief Technology Officer.
Heidi J. Matheys has served as Senior Vice President, Do-It-Yourself Channels, of Valvoline since August 2013. Ms. Matheys previously served as Vice President, Global Brands, of Valvoline from September 2012 to August 2013. From May 2012 to September 2012, Ms. Matheys was the owner of Empatico LLC, a marketing and consulting firm, and from March 2008 to June 2012, she served as Global Marketing Director at Novartis (Alcon & Cibavision). Immediately prior to the completion of this offering, Ms. Matheys will be appointed as our Chief Marketing Officer.
Craig A. Moughler has served as Senior Vice President and Managing Director, International, of Valvoline since October 2002. Immediately prior to the completion of this offering, Mr. Moughler will be appointed as Senior Vice President, International & Product Supply.
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Julie M. ODaniel has served as Lead Commercial Counsel of Valvoline since April 2014. Ms. ODaniel previously served as Litigation Counsel of Valvoline from July 2007 to April 2014. In September 2016, Ms. ODaniel was appointed as our General Counsel and Corporate Secretary.
Anthony R. Puckett has served as President of Valvoline Instant Oil Change since August 2007. Immediately prior to the completion of this offering, Mr. Puckett will be appointed as President, Quick Lubes.
Prior to joining Valvoline, Ms. Stensrud was Executive Vice President Chief Human Resources Officer of Chicos FAS, Inc. from 2010 to 2016 and was Senior Vice President of Human Resources of Shopko Stores from 2006 to 2010. Immediately prior to the completion of this offering, Ms. Stensrud will become our Chief People and Communications Officer.
Board of Directors
The following table sets forth the ages, as of June 30, 2016, and names of the individuals who are expected to constitute our directors immediately prior to the completion of this offering.
Name |
Age |
Position(s) |
||||
William A. Wulfsohn |
54 | Non-Executive Chairman and Director | ||||
Samuel J. Mitchell, Jr. |
55 | Chief Executive Officer and Director | ||||
Mary J. Twinem |
55 | Director | ||||
Richard J. Freeland |
59 | Director | ||||
Stephen F. Kirk |
67 | Director | ||||
Vada O. Manager |
54 | Director | ||||
Stephen E. Macadam |
56 | Director | ||||
Charles M. Sonsteby |
63 | Director |
William A. Wulfsohn has served as a director and Non-Executive Chairman of Valvoline since May 2016 and September 2016, respectively. Mr. Wulfsohn has also served as Chairman and Chief Executive Officer of Ashland since January 2015. Prior to joining Ashland, Mr. Wulfsohn served as President and Chief Executive Officer of Carpenter Technology Corp., a manufacturer of stainless steel, titanium, and other specialty metals and engineered products, from July 2010 to December 2014. Mr. Wulfsohn also served as a director for Carpenter Technology Corp. from April 2009 to December 2014.
As the Chairman and Chief Executive Officer of Ashland, Mr. Wulfsohns experience and knowledge in the areas of finance, accounting, business operations, management, manufacturing, safety, risk oversight and corporate governance provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of other companies.
Immediately prior to the completion of this offering, Mary J. Twinem will be appointed to our board of directors. Ms. Twinem served as Executive Vice President and Chief Financial Officer of Buffalo Wild Wings, Inc., a restaurant operations and franchising company, from July 1996 to February 2016. Ms. Twinem has over 30 years of experience in accounting, financial reporting and income tax preparation. As the former Chief Financial Officer of Buffalo Wild Wings, Inc., Ms. Twinems experience and knowledge in the areas of financial reporting, financial planning and analysis, investor relations and supply chain provide her with the qualifications and skills to serve as a director on our board of directors.
Immediately prior to the completion of this offering, Richard J. Freeland will be appointed to our board of directors. Mr. Freeland has served as the President and Chief Operating Officer of Cummins Inc., a diesel engine and components manufacturer, since July 2014. Mr. Freeland previously served as Vice President and President of the Engine Business of Cummins Inc. from 2010 until 2014 and served in various other roles since joining Cummins Inc. in 1979. Mr. Freeland also served as a director for Sauer-Danfoss, Inc. from 2010 to April 2013.
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As the President and Chief Operating Officer of Cummins Inc., Mr. Freelands experience and knowledge in the areas of product development, manufacturing, marketing and sales provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of Sauer-Danfoss.
Immediately prior to the completion of this offering, Stephen F. Kirk will be appointed to our board of directors. Mr. Kirk has also served as a director of Ashland since 2013. Mr. Kirk served as Senior Vice President and Chief Operating Officer of The Lubrizol Corporation, a specialty chemicals company, from September 2008 to December 2011. Mr. Kirk also served as a director of Robbins & Myers, Inc. from 2006 to 2013. As the former Senior Vice President and Chief Operating Officer of The Lubrizol Corporation, Mr. Kirks experience and knowledge in the areas of operations and corporate leadership provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of other companies.
Immediately prior to the completion of this offering, Vada O. Manager will be appointed to our board of directors. Mr. Manager has also served as a director of Ashland since 2008. Mr. Manager has served as the President and Chief Executive Officer of Manager Global Consulting Group, a consulting firm, since 2009. Mr. Manager has also served as Senior Counselor to APCO Worldwide, a global public affairs and strategic communication consultancy, since 2010. As the President and Chief Executive Officer of Manager Global Consulting Group and as Senior Counselor to APCO Worldwide, Mr. Managers experience and knowledge in the areas of strategic communication and global management consulting provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of Ashland.
Immediately prior to the completion of this offering, Stephen E. Macadam will be appointed to our board of directors. Mr. Macadam has served as President and Chief Executive Officer of EnPro Industries, Inc., a manufacturing company, since April 2008. Mr. Macadam served as a director for Axiall Corporation, a chemicals manufacturer, from 2010 to 2014. Mr. Macadam also served as a director for BlueLinx Inc., a building products wholesaler, from 2004 to 2008. As the President and Chief Executive Officer of EnPro Industries, Inc., Mr. Macadams experience and knowledge in the areas of corporate governance, industrial products manufacturing, product distribution and procurement provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of other companies.
Immediately prior to the completion of this offering, Charles M. Sonsteby will be appointed to our board of directors. Mr. Sonsteby has served as Vice Chairman of The Michaels Companies, an arts and crafts retail chain, since March 2016 and previously served as Chief Financial Officer and Chief Administrative Officer of The Michaels Companies from October 2010 to August 2016. Mr. Sonsteby also served as Chief Financial Officer of Brinker International, a hospitality industry company, from 2001 until October 2010. Mr. Sonsteby has also served as a director and Chairman of the board of directors of Darden Restaurants, a restaurant operator, since September 2014. As the Vice Chairman and former Chief Financial Officer and Chief Administrative Officer of The Michaels Companies, Mr. Sonstebys experience and knowledge in the areas of finance, accounting, tax, treasury and investor relations provide him with the qualifications and skills to serve as a director on our board of directors. He also brings significant experience gained from service on the board of directors of Darden Restaurants.
Composition of the Board of Directors
Our board of directors will consist of eight members, six of whom qualify as independent under NYSE rules. One of our directors, William A Wulfsohn, is the Chairman and Chief Executive Officer of Ashland, and two others who will be appointed as directors, Stephen E. Kirk and Vada O. Manager, are also independent directors of Ashland.
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Our directors will be elected at each annual meeting of shareholders and will hold office until the next annual meeting of shareholders and until each of their successors has been duly elected and qualified. The vote required for any election of directors, other than in a contested election of directors, will be the affirmative vote of a majority of the votes cast with respect to a director nominee. In any contested election of directors, the persons receiving the greatest number of votes cast, up to the number of directors to be elected in such election, will be deemed elected. Our amended and restated by-laws will provide that the authorized number of directors may only be changed by a resolution adopted by a majority of our board of directors; provided, however, that a shareholder vote will be required to increase or decrease the number of directors by more than 30% from the number of directors last fixed by the shareholders.
Status as a Controlled Company under NYSE Listing Standards
We have applied to list our common stock on the NYSE. Because Ashland controls a majority of our outstanding voting power, we are a controlled company under the NYSE corporate governance rules. As a controlled company, we will be eligible for exemptions from some of the requirements of these rules, including:
| the requirement that a majority of our board of directors consist of independent directors; |
| the requirement that our governance and nominating committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; |
| the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
| the requirement for an annual performance evaluation of our nominating and governance and compensation committees. |
Consistent with these exemptions, upon listing with the NYSE we do not intend to have (i) a majority of independent directors on our board of directors; (ii) a fully independent compensation committee; or (iii) a fully independent nominating and governance committee.
Committees of the Board of Directors
The standing committees of our board of directors are as described below.
Audit Committee
The Audit Committee will initially be composed of Charles M. Sonsteby, Vada O. Manager and Mary J. Twinem. The Audit Committee will perform the duties set forth in its written charter, which will be available at our website upon consummation of this offering. The primary responsibilities of the Audit Committee will include:
| overseeing managements establishment and maintenance of adequate systems of internal accounting and financial controls; |
| reviewing the effectiveness of our legal and regulatory compliance programs; |
| overseeing our financial reporting process, including the filing of financial reports; and |
| selecting independent auditors, evaluating their independence and performance and approving audit fees and services performed by them. |
The Audit Committee will be comprised of three directors, all of whom will be independent under the listing standards of the NYSE, and meet the requirements of Rule 10A-3 under the Exchange Act. The Audit Committee will be comprised of at least one financial expert as prescribed under the Exchange Act. We intend to appoint these directors to serve on our board of directors and the Audit Committee immediately prior to the completion of this offering.
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Compensation Committee
The Compensation Committee will initially be composed of Stephen F. Kirk, Richard J. Freeland, Stephen E. Macadam, Vada O. Manager, Charles M. Sonsteby and Mary J. Twinem. The Compensation Committee will perform the duties set forth in its written charter, which will be available at our website upon consummation of this offering. The primary responsibilities of the Compensation Committee will include:
| ensuring our executive compensation programs are appropriately competitive, support organizational objectives and shareholder interests and emphasize pay for performance linkage; |
| evaluating and approving compensation and setting performance criteria for compensation programs for our chief executive officer and other executive officers; and |
| overseeing the implementation and administration of our compensation plans. |
As a controlled company, we will not be required to have a compensation committee comprised entirely of independent directors.
Governance and Nominating Committee
The Governance and Nominating Committee will initially be composed of Vada O. Manager, Richard J. Freeland, Stephen F. Kirk, Stephen E. Macadam, Charles M. Sonsteby and Mary J. Twinem. The Governance and Nominating Committee will perform the duties set forth in its written charter, which will be available at our website upon consummation of this offering. The primary responsibilities of the Governance and Nominating Committee will include:
| recommending nominees for our board of directors and its committees; |
| recommending the size and composition of our board of directors and its committees; |
| reviewing our corporate governance guidelines, corporate charters and proposed amendments to our articles of incorporation and by-laws; and |
| reviewing and making recommendations to address shareholder proposals. |
As a controlled company, we will not be required to have a governance and nominating committee comprised entirely of independent directors.
Director Compensation
Following this offering, we intend to provide competitive compensation to our non-employee directors that will enable us to attract and retain high quality directors, provide them with compensation at a level that is consistent with our compensation objectives and encourage their ownership of our stock to further align their interests with those of our stockholders. Our directors who are also our employees will receive no additional compensation for service as a member of our board of directors. Following this offering, our non-employee directors annual compensation will consist of the following:
| annual retainer for each non-employee director of $100,000; |
| annual restricted stock unit grant for each non-employee director with a grant-date value of $110,000; and |
| annual retainers for the Lead Independent Director (if any), the Audit Committee Chair and the other committee chairs of $25,000, $20,000 and $15,000, respectively. |
Non-employee directors may elect to receive all or a portion of each retainer in cash or in shares of Valvoline common stock. They may also elect to defer payment of all or a portion of their retainers until their termination of service as a director. The directors who make an election to defer their retainers may have the deferred amounts held as common stock units (share equivalents) in a hypothetical Valvoline common stock fund or invested under other available investment alternatives.
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Following this offering, we intend to grant an initial one-time award of restricted shares of Valvoline common stock to each of our non-employee directors. The number of restricted shares of Valvoline common stock granted will equal 1,000 multiplied by a fraction representing the relative trading prices of Ashland common stock and Valvoline common stock following the completion of this offering.
Corporate Governance Principles
We are committed to adhering to sound corporate governance practices. We have adopted Corporate Governance Guidelines, which include our Related Party Transactions Policy. These guidelines provide the framework for the board of directors governance of Valvoline and include a general description of the board of directors purpose, director qualification standards and responsibilities. The Corporate Governance Guidelines require that two-thirds of our directors be independent, as defined by our Corporate Governance Guidelines, NYSE rules and other applicable laws and regulations. Our Related Party Transaction Policy requires our directors and executive officers to identify annually and on an as needed basis potential transactions with related persons or their firms that meet certain criteria set forth in our Related Party Transaction Policy.
We also require compliance with our code of business conduct entitled Global Standards of Business Conduct, which applies to all of our directors and employees, including the principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions, as well as Valvoline-managed joint venture employees.
The committees of our board of directors have all adopted charters defining their respective purposes and responsibilities. Only independent directors may serve on the Audit, Governance and Nominating and Compensation Committees of the board of directors. The board of directors, and each committee of the board of directors, has the authority to engage independent consultants and advisors.
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Background
We currently operate as a business unit of Ashland and not as an independent company, and our Compensation Committee is not expected to begin meeting until after this offering. As a result, Ashland has determined the compensation of those individuals who are expected to be designated as our executive officers, and will continue to do so until the completion of this offering. In compliance with SEC rules, the information included in this section is historical. We may implement changes to our executive compensation policies and programs in connection with or following this offering. For more information, see Compensation Program of Valvoline Following the Spin-Off.
For purposes of this Compensation Discussion and Analysis and the tabular executive compensation disclosures that follow, the individuals listed below are collectively referred to as Valvolines named executive officers. They include Samuel J. Mitchell, Jr., Senior Vice President and President of Valvoline, who will serve as our Chief Executive Officer following this offering, and, of the other individuals who are expected to be designated as our executive officers, the three most highly compensated individuals (other than Mr. Mitchell), based on fiscal 2015 reported compensation from Ashland.
Samuel J. Mitchell, Jr., Senior Vice President of Ashland and President of Valvoline;
Craig A. Moughler, Senior Vice President & Managing Director International of Valvoline;
Frances E. Lockwood, Senior Vice President, Technology of Valvoline; and
Heidi J. Matheys, Senior Vice President, DIY Channels of Valvoline
In May 2016, Ashland entered into a letter agreement with Mary Meixelsperger, pursuant to which Ms. Meixelsperger began serving as our Chief Financial Officer prior to this offering. Since Ms. Meixelsperger was not employed by Ashland or us in 2015, she was not a named executive officer for 2015; however, the material terms of her offer letter are summarized in the section entitled Compensation Program of Valvoline Following the Spin-Off Valvoline Chief Financial Officer Letter Agreement. Additional information regarding the other members of our management who are expected to be designated as executive officers is set forth in the section of this prospectus titled ManagementExecutive Officers.
As described above, this Compensation Discussion and Analysis generally discusses the historical compensation practices of Ashland. Since Mr. Mitchell is an executive officer of Ashland, his fiscal 2015 compensation was determined by the Personnel & Compensation Committee of Ashlands board of directors (the P&C Committee). The fiscal 2015 compensation of Mr. Moughler and Mses. Lockwood and Matheys was generally determined by Mr. Mitchell with the review and approval of the Chief Executive Officer of Ashland, as discussed further in this Compensation Discussion and Analysis.
Executive Summary
Ashlands executive compensation program is designed to attract, motivate and retain individuals with the skills required to formulate and drive Ashlands strategic direction and achieve short-term and long-term performance goals necessary to create shareholder value. The program seeks to align executive compensation with shareholder value on an annual and long-term basis through a combination of the following types of compensation: base pay, short-term incentive compensation awards and long-term incentive equity compensation awards which are composed primarily of stock appreciation rights (SARs), restricted stock (RS), performance units (Performance Units) and, beginning in fiscal 2016, restricted stock units (RSUs) in lieu of RS.
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Key Executive Compensation Objectives
Ashland aligns executive compensation and shareholder value by providing competitive incentives composed of time-based and performance-based incentives to achieve short-term and long-term performance goals. Indicative of this alignment is the mix of at-risk compensation (annual incentive, SARs, RS/RSUs and Performance Units) for Mr. Mitchell. Assuming target performance, 69% of Mr. Mitchells fiscal 2015 Total Direct Compensation (as defined in Pay Mix of Ashland Executive Compensation Program) is at risk, allocated as follows: (i) 41% to long-term incentives (SARs, RS/RSUs and Performance Units), (ii) 28% to short-term incentives and (iii) 31% to base salary. Additional pay mix information is also shown below in Pay Mix of Ashlands Executive Compensation Program.
The metrics used in the short-term and long-term performance based incentives are as follows:
Annual Incentive Compensation Plan . The Annual Incentive Compensation Plan is composed of two financial components, Operating Income and Working Capital Efficiency (as each is defined in Annual Cash Compensation-Annual Incentive Compensation), and a safety modifier. These performance measures are company-wide and/or specific to the business segment to which an executive is assigned. These financial performance measures are structured so that the cash compensation of most Ashland employees, including Valvoline named executive officers, is aligned with key Ashland objectives.
Long-Term Incentive Plan (LTIP) . The LTIP, granted as Performance Units, has two financial performance measures, Return on Investment (ROI) and Total Shareholder Return (TSR) (as each is defined in Long-Term Equity Incentive Plan2015-2017 LTIP Performance Units). For eligible executives, these performance measures apply at the Ashland level, not at the business segment levels. This provides a strong alignment between long-term executive compensation and shareholder value.
Ashland also has several governance practices in place to align executive compensation with shareholder interests and mitigate risks in its plans. These practices include: stock ownership guidelines, limited perquisites, tally sheets, an anti-hedging policy, an anti-pledging policy and a clawback policy. Tally sheets have not been utilized with respect to the Valvoline named executive officers.
Compensation Decisions for Fiscal 2015
Base Pay . Ashland utilizes merit increase guidelines based on an individuals performance and his or her position relative to the market competitive benchmarking to formulate merit increase recommendations. All employees, including the Valvoline named executive officers, are subject to the same merit increase guidelines.
Annual Incentive Compensation Plan . The fiscal 2015 target incentive opportunities for all Valvoline named executive officers remained the same as fiscal 2014. The P&C Committee established performance targets for two financial performance measures and the safety modifier at the beginning of the fiscal year. Based on Ashlands performance in fiscal 2015 compared to the performance goals established at the beginning of the fiscal year, the P&C Committee approved incentive compensation payouts at 123.90%, 123.68%, 123.90% and 139.40% of the target incentive opportunity for Mr. Mitchell, Mr. Moughler, Ms. Lockwood and Ms. Matheys, respectively.
Long-Term Incentive Plan . The Performance Units paid under the LTIP for the performance period of fiscal 2013 through fiscal 2015 were approved by the P&C Committee in November 2015. This LTIP performance plan paid out at a weighted score of 97.8% of Performance Units granted, with the ROI portion scoring at 50.4% and the TSR portion scoring at 145.2%.
Long-Term Incentive Equity Grants . For fiscal 2015, the long-term incentive equity grant was composed of SARs, RS and Performance Units. The number of SARs granted was determined using a Black-Scholes methodology. The number of RS and Performance Units granted was determined by using the average closing
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stock price for the 20 business days ending on September 30 of the prior fiscal year. For Valvolines named executive officers, total long-term incentive equity grant target values have an allocation of 25% to SARs, 25% to RS and 50% to Performance Units. Beginning in fiscal 2016, Ashland began offering RSUs in lieu of RS grants.
In connection with being named to Ashlands Executive Committee on May 1, 2015, Mr. Mitchell received an RS award of 8,000 shares ($957,600 approximate grant date fair value) on July 15, 2015.
Principles and Objectives of Ashlands Executive Compensation Program
The core principles of Ashlands approach to executive compensation design and evaluation are as follows:
| Programs should create alignment between the interests of the executives and the shareholders by providing compensation opportunities for executives that are linked to building long-term shareholder value through the achievement of the financial and strategic objectives of Ashland. |
| Programs should provide competitive, market-driven compensation to attract and retain executive talent for the long term. |
| Compensation should generally be targeted at the median of the market when compared to the compensation of individuals in similar-sized organizations in the chemical industry as well as in the general industry. |
| The concept of opportunity is important. Individuals should have the opportunity to do well when Ashland does well and total compensation should vary in relation to Ashlands performance. |
| There should be a balance between fixed and variable compensation, with variable compensation constituting a larger portion of an executives total compensation the more senior the executive. The targeted pay mix for an executive should also be aligned with market competitive practices. |
| Programs should promote ownership of Ashland stock to further align the interests of management and shareholders. |
| Incentive compensation should not promote unreasonable or excessive risk taking that could threaten the short- or long-term value of Ashland. |
The P&C Committee is responsible for the approval and administration of compensation programs for executive officers and certain other employees of Ashland. The P&C Committee frequently reviews Ashlands compensation practices, and its decisions take into consideration, among other things, Ashlands compensation philosophy, its financial and operating performance, individual performance, practices and compensation levels of peer companies and the voting guidelines of certain proxy advisory firms and shareholders. See ManagementCommittees of the Board of DirectorsCompensation Committee for a discussion of our Compensation Committees role in the executive compensation process.
The Chief Executive Officer of Ashland (and, in certain instances, the other members of the Ashland Executive Committee), in consultation with the P&C Committees independent executive compensation consultant and Ashlands Chief Human Resources and Communications Officer, develops compensation recommendations for the P&C Committees consideration, including:
| business performance targets and objectives that are tied to Ashlands annual and long-term incentive plans; |
| plan design changes based on competitive analysis of executive pay practices; |
| individual performance evaluations; |
| recommendation of base salary and target bonus opportunities; |
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| the mix of RS/RSUs, SARs and Performance Units grants; |
| recommendation of adjustments to the reported financial results for purposes of determining annual and long-term incentive payments; and |
| recommendation of adjustments to awards. |
The Chief Executive Officer of Ashland takes various factors into consideration when making individual compensation recommendations including: the relative importance of the executives position within the organization; the individual tenure and experience of the executive; and the executives individual performance and contributions to Ashlands financial and operating results.
Independent Executive Compensation Consultants Role
The P&C Committee directly engages Deloitte Consulting LLP (Deloitte or the compensation consultant) to serve as the outside advisor on executive compensation matters and to review Ashlands executive compensation program. The assessment consists of reviews of:
| the competitiveness of compensation provided to Ashlands key executives; |
| Ashlands benchmark group for pay and performance comparisons; |
| Ashlands executive stock ownership guidelines; |
| Ashlands executive change in control agreements for key executives; |
| Ashlands incentive compensation programs for risk; |
| the degree of difficulty of the performance targets under the incentive compensation plan; and |
| the alignment of pay for performance by analyzing the targets to actual compensation. |
Deloittes engagement includes the following ongoing work on behalf of the P&C Committee: review of competitive pay practices for outside board members; as needed, reviews of other components of Ashlands compensation programs including: benefits, perquisites, deferred compensation plans, severance policies and change in control provisions; updates regarding trends in executive and outside board compensation practices; and updates regarding changes in regulatory and legislative developments. Deloittes aggregate fees for Ashland executive and director compensation services in fiscal 2015 were $319,676.
In addition to the compensation services provided by Deloitte to the P&C Committee, Deloitte affiliates provided certain services to Ashland at the request of management consisting of (i) tax services and other tax-related services, and (ii) auditing services. Ashland paid $6.5 million to Deloitte in fiscal 2015 for these other services. The P&C Committee believes that, given the nature and scope of these projects, these additional services did not raise a conflict of interest and did not impair Deloittes ability to provide independent advice to the P&C Committee concerning Ashland executive compensation matters. In making this determination, the P&C Committee considered, among other things, the following factors: (i) the types of non-compensation services provided by Deloitte, (ii) the amount of fees for such non-compensation services, noting in particular that such fees are negligible when considered in the context of Deloittes total revenues for the period, (iii) Deloittes policies and procedures concerning conflicts of interest, (iv) Deloitte representatives who advise the P&C Committee do not provide any non-compensation related services to Ashland, (v) there are no other business or personal relationships between Ashland management or members of the P&C Committee, on the one hand, and any Deloitte representatives who provide compensation services to Ashland, on the other hand, and (vi) neither Deloitte nor any of the Deloitte representatives who provide compensation services to Ashland own any common stock or other securities of Ashland.
On January 27, 2016, the P&C Committee approved the engagement of Deloitte compensation consultants to serve as an outside advisor on the design of compensation programs for Valvoline in connection with the separation of Ashland into two independent, publicly traded companies.
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Factors Considered in Determining Executive Compensation
Competitive Benchmarking
The P&C Committee annually reviews competitive compensation information in order to evaluate if executive pay levels are market competitive and consistent with Ashlands stated compensation philosophy. Competitive compensation information is composed of both industry-specific and general industry company data because Ashland competes for executive talent among a broad array of companies, both within and outside of the chemical industry. The competitive data is size-adjusted based on revenues and a statistical regression analysis that is consistent with the corporate or business segment responsibilities for each executive. The general industry and industry specific data are weighted equally in developing the competitive market data for each position. The competitive pay data has been gathered from the Towers Watson 2014 CDB General Industry Executive Compensation Survey. The industry specific companies that participated in the survey, which had revenues ranging from $0.8 billion to $14.2 billion in calendar year 2014, are set forth below:
Air Products & Chemicals Inc. |
Ecolab Inc. |
|
Americas Styrenics LLC |
EMD Millipore |
|
Arkema Inc. |
Huntsman Corporation |
|
Axiall Corporation |
International Flavors & Fragrances Inc. |
|
Cabot Corporation |
Platform Specialty Products Corporation |
|
Celanese Corporation |
PolyOne Corporation |
|
CF Industries Holdings, Inc. |
Praxair, Inc. |
|
Chemtura Corporation |
The Mosaic Company |
|
Dow Corning Corporation |
Westlake Chemical Corporation |
|
Eastman Chemical Company |
W.R. Grace and Company |
Given the differences between the expected revenues of Valvoline and Ashland, as well as other relevant factors that impact executive compensation, we expect that the group of peer companies selected by our Compensation Committee following completion of this offering may differ from Ashlands peer group, although some of Ashlands peer companies may continue to serve as peer companies for us.
Individual Performance Evaluations
At the beginning of each fiscal year, Mr. Mitchell jointly sets his annual, individual performance objectives with the Chief Executive Officer of Ashland. Mr. Mitchells performance against his objectives is reviewed throughout the year on a quarterly basis. At the end of each fiscal year, the Chief Executive Officer of Ashland conducts a final review with Mr. Mitchell and rates his performance using a scale that ranges between Greatly Exceeds Expectations and Does Not Meet Expectations. In January 2015, the Chief Executive Officer of Ashland submitted a performance assessment and compensation recommendation for Mr. Mitchell to the Ashland P&C Committee for review and approval. The performance evaluations were based on factors such as achievement of company and individual objectives, as well as contributions to the financial and EHS performance of Ashland. Individual performance of Mr. Mitchell is used by the Chief Executive Officer of Ashland in consideration of individual merit-based salary increases.
At the beginning of each fiscal year, the Valvoline named executives officers (other than Mr. Mitchell) jointly set their annual, individual performance objectives with Mr. Mitchell. Each Valvoline named executive officers performance against his or her objectives is reviewed throughout the year on a quarterly basis. At the end of each fiscal year, Mr. Mitchell conducts a final review with each Valvoline named executive officer and rates his or her performance using a scale that ranges between Greatly Exceeds Expectations and Does Not Meet Expectations. In March 2015, Mr. Mitchell submitted a performance assessment and compensation recommendation for each of the Valvoline named executive officers (other than himself) to the Chief Executive Officer of Ashland for review and approval. The performance evaluations were based on factors such as
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achievement of company and individual objectives, as well as contributions to the financial and EHS performance of Valvoline. Individual performance of the Valvoline named executive officers (other than his own) is used by Mr. Mitchell in consideration of individual merit-based salary increases.
Elements of Ashlands Executive Compensation Program
Ashlands executive compensation program includes the following elements:
| Annual Cash Compensation |
¡ | Base Salary |
¡ | Annual Incentive Compensation |
| Long-Term Incentive Equity Compensation |
¡ | Performance Units |
¡ | Stock Appreciation Rights |
¡ | Restricted Stock/Restricted Stock Units |
| Retirement Benefits |
| Health and Welfare Benefits |
| Executive Perquisites |
| Severance Pay Plan |
| Change in Control Agreements |
Pay Mix of Ashlands Executive Compensation Program
For fiscal 2015, Total Direct Compensation* was generally targeted at the 50th percentile of similarly sized companies in the specialty chemical and general industries. For instance, base salary represented 31% of Mr. Mitchells target Total Direct Compensation. The following charts show the fiscal 2015 total direct compensation mix (based on targeted compensation) for Mr. Mitchell and the average mix for Valvolines other named executive officers.
Mr. Mitchell
Total Direct Compensation Mix
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Other Valvoline Named Executive Officers
Total Direct Compensation Mix
* | Total Direct Compensation represents the sum of base salary, target annual incentive and target long-term incentive. Base salary is the only fixed compensation component. |
Annual Cash Compensation
Annual cash compensation consists of market competitive base salary and short-term incentive compensation.
Base Salary
Base salaries are the foundation for the compensation programs provided to the Valvoline named executive officers, as short-term incentive payments, long-term incentive grants and most employee benefits are linked to base salary. Base salary is designed to compensate executives for services rendered during the fiscal year and for their sustained performance. Base salaries are targeted at the 50th percentile of salaries paid to individuals having similar jobs in similarly sized companies in the specialty chemical and general industries.
Ashland believes that base salary is within the range of competitive practice if it is 20% above or below the desired target.
Base salary increases are a reflection of an individuals performance and pay relative to the base salary range midpoint for his or her position. The merit increase process (merit guideline) that is used for most employees, including the Valvoline named executive officers, provides for greater increases to the highest-performing employees, up to the salary range maximum. The merit guideline also provides for greater increases to employees who are below their base salary range midpoint and are meeting acceptable performance levels. For fiscal 2015, the merit guideline provided for increases between 0% and 6%, depending on an individuals performance and their position relative to the base salary range midpoint for their job.
The Chief Executive Officer of Ashland used the merit guideline as the basis for his base salary increase recommendations for Mr. Mitchell. The Chief Executive Officer of Ashland has the discretion to adjust merit increase recommendations from the merit guideline suggested amount based upon such factors as internal equity and individual performance. The P&C Committee reviews the market data provided by the compensation consultant and the individual performance evaluations and merit increase recommendations submitted by the Chief Executive Officer of Ashland to approve base salary increases for the Ashland named executive officers and other corporate officers.
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The Chief Executive Officer of Ashland recommended a 3.5% base salary increase for Mr. Mitchell, effective April 2015. In accordance with the merit guidelines, Mr. Mitchell recommended base salary increases of 2.0%, 2.5% and 2.5%, respectively, for Mr. Moughler and Mses. Lockwood and Matheys, effective April 2015.
Annual Incentive Compensation
The annual cash incentive is designed to compensate executives, including the Valvoline named executive officers, for the achievement of annual, primarily short-term performance goals. The plan provides an opportunity for each participant to earn a targeted percentage of base salary based on achievement of company-wide or business unit performance targets. The table below reflects targeted annual incentive opportunity for fiscal 2015.
Named Executive Officer |
Annual Incentive
Target as a Percentage of Base Salary |
Target Annual
Incentive |
||||||
Mr. Mitchell |
90 | % | $ | 392,040 | ||||
Mr. Moughler |
50 | % | $ | 141,835 | ||||
Ms. Lockwood |
50 | % | $ | 131,330 | ||||
Ms. Matheys |
50 | % | $ | 131,330 |
In November 2014, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2015 Annual Incentive Compensation Plan. The approved performance measures were Operating Income and Working Capital Efficiency. The Operating Income measurement is an indication of the profitability of Ashland and each business unit. Operating Income may be adjusted by the P&C Committee for unplanned or one-time items, such as gains or losses on the disposition of assets, impairment or restructuring charges or gain on divestitures of major businesses. The Working Capital Efficiency measurement focused on three key cash flow drivers (accounts receivable, inventory and accounts payable) and was measured as a percentage of sales. This measurement was chosen because Working Capital Efficiency, like Operating Income, was viewed as an important measure of Ashlands ability to optimize cash flow and value.
The P&C Committee believes the use of both of these measures helps balance management decision-making on both profit growth and working capital management. The P&C Committee also believes that these objectives represent measures that are important to Ashlands shareholders. The weighting and business unit focus of the measures for Mr. Mitchell and Ms. Lockwood for fiscal 2015 was 20% weight on Ashlands Operating Income Performance, 70% weight on Valvolines Operating Income Performance and 10% weight on Valvolines Working Capital Efficiency Performance. The weighting and business unit focus of the measures for Mr. Moughler for fiscal 2015 was 10% weight on Ashlands Operating Income Performance, 40% weight on Valvolines Operating Income Performance, 40% weight on Valvolines International & OEM Operating Income Performance and 10% weight on Valvolines Working Capital Efficiency Performance. The weighting and business unit focus of the measures for Ms. Matheys for fiscal 2015 was 10% weight on Ashlands Operating Income Performance, 40% weight on Valvolines Operating Income Performance, 40% weight on Valvolines Do-It Yourself Operating Income Performance and 10% weight on Valvolines Working Capital Efficiency Performance.
For each of the measures described above, the P&C Committee established a minimum (hurdle), target and maximum performance level. For fiscal 2015, the target annual incentive opportunity was positioned at approximately the 50th percentile in order to drive financial performance and align compensation with market competitive practices. To assess the rigors of the goals under the 2015 Annual Incentive Plan, the P&C Committee compared Ashlands 2015 performance targets to actual fiscal 2014 results, to the fiscal 2015 operating plan and to EBITDA goals. The targets may be less than the prior year targets due to the sale of the Water Technologies business unit in fiscal 2014. Based on this review, the P&C Committee confirmed that Ashlands targeted level of performance required high levels of performance in order to achieve target-level incentive award payouts.
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Consistent with past practice and based on a core set of principles and adjustment criteria established at the beginning of the performance period, the P&C Committee adjusted the results on which fiscal 2015 operating income incentives were determined to account for key items and management adjustments such as the effect of foreign exchange, pension actuarial gain, restructuring severance costs, integration expenses and the sale of the Elastomers division. These adjustments are consistent with established policy. The adjustments were structured so that award payments represent the underlying performance of the business and are not artificially inflated or deflated due to such items. Adjustments are reviewed thoroughly as soon as practical after they are identified. Working Capital Efficiency was adjusted for the effect of foreign currency fluctuations.
On an adjusted basis, Operating Income performance for fiscal 2015 relative to target was as follows:
Operating Income Performance and Incentive Compensation Scores
FY2015Adjusted
($, Thousands)
Operating Unit |
Hurdle
(20% Payout) |
Target
(100% Payout) |
Maximum
(155.5% Payout)* |
Adjusted
Operating Income |
Operating
Income Component Percent of Target Award Earned |
|||||||||||||||
Valvoline |
$ | 267,671 | $ | 356,894 | $ | 428,273 | $ | 380,832 | 118.6 | % | ||||||||||
Ashland Inc. |
$ | 623,436 | $ | 815,082 | $ | 968,411 | $ | 827,610 | 104.5 | % |
* | The maximum payout for Operating Income is 155.5% because the maximum payout for Working Capital Efficiency is 100% (see below). If Ashland or a business unit achieved maximum performance for both measures, the maximum payout would be 150%. |
For fiscal 2015, the Working Capital Efficiency measure was limited to a 100% payout. The 100% payout level is both the targeted performance level and maximum payout of the component. Working Capital Efficiency performance for fiscal 2015 relative to target was as follows:
Working Capital Efficiency (WCE) Performance and Incentive Compensation Scores
FY2015Adjusted
Operating Unit |
Hurdle
(20% Payout) |
Target and
Maximum (100% Payout) |
WCE |
WCE
Component Percent of Target Award Earned |
||||||||||||
Valvoline |
15.50 | % | 14.90 | % | 13.60 | % | 100.0 | % | ||||||||
Ashland Inc. |
19.34 | % | 18.60 | % | 19.08 | % | 48.4 | % |
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To reflect the importance of safety matters within Ashland, a safety modifier may be added or deducted up to 10 percentage points based on a combination of the Operating Units Total Recordable Rate (TRR) and safety activity based performance by the executive. The safety modifier may not increase the incentive paid above 150% of target. The safety modifier adjusted the incentive compensation earned by the Valvoline named executive officers as follows:
Named Executive Officer |
Positive 10
Percentage Points added if TRR was less than |
No
adjustment if TRR is between |
Negative 10
Percentage Points added if TRR was more than |
TRR
Achieved |
Safety
Modifier Percentage Points Earned |
|||||||||||||||
Mr. Mitchell |
1.83 | 1.84-2.35 | 2.36 | 1.80 | 10pts | |||||||||||||||
Mr. Moughler |
1.83 | 1.84-2.35 | 2.36 | 1.80 | 10pts | |||||||||||||||
Ms. Lockwood |
1.83 | 1.84-2.35 | 2.36 | 1.80 | 10pts | |||||||||||||||
Ms. Matheys |
1.83 | 1.84-2.35 | 2.36 | 1.80 | 10pts |
Based on these results, the annual incentives earned for fiscal 2015 performance under the 2015 Annual Incentive Plan were as follows:
Named Executive
|
Annual Incentive
Target as a Percentage of Base Salary |
Target Annual
Incentive |
Percent of Target
Annual Incentive Earned* |
Actual Annual
Incentive Paid |
||||||||||||
Mr. Mitchell |
90 | % | $ | 392,040 | 123.90 | % | $ | 485,816 | ||||||||
Mr. Moughler |
50 | % | $ | 141,835 | 123.68 | % | $ | 175,436 | ||||||||
Ms. Lockwood |
50 | % | $ | 131,330 | 123.90 | % | $ | 162,745 | ||||||||
Ms. Matheys |
50 | % | $ | 131,330 | 139.40 | % | $ | 183,088 |
* | Includes safety modifier for all named executive officers. |
The actual payout levels for the annual incentive compensation plan vary from year to year and have averaged 75% at the Ashland Inc. level for the last five years as shown in the chart below. The P&C Committee believes the variability in actual payouts demonstrates the degree of rigor built into the annual performance targets.
Incentive Compensation (Fiscal Year) |
Weighted Score as a % of Target
(100% Payout) at Ashland Level* |
|||
2015 |
98.9 | % | ||
2014 |
105.4 | % | ||
2013 |
7.2 | % | ||
2012 |
91.2 | % | ||
2011 |
72.1 | % |
* | Weighted Score as a % of target includes the safety modifier discussed above, if earned. |
Long-Term Incentive Equity Compensation
Ashlands long-term incentive equity compensation is designed to reward key employees for achieving and exceeding long-term goals and driving shareholder return. It is also designed to foster stock ownership among executives. The performance measures used in Ashlands long-term program are different than those used in the annual incentive program. This is an intentional design element. The P&C Committee believes that shareholders interests are best served by balancing the focus of executives decisions between short-term and longer-term measures. Long-term incentive equity compensation is composed primarily of three elements: SARs, RS/RSUs and Performance Units. Additional RS/RSUs can also be granted on a selective basis, for example, in connection with recruitment, retention and promotions.
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An overall long-term incentive equity target opportunity is established based on competitive data, current base salaries and pay band or position. The total long-term incentive equity target guideline for Mr. Mitchell for fiscal 2015 was 135% of base salary. The target long-term incentive opportunity for each of Mr. Moughler and Mses. Lockwood and Matheys was $142,000. The total long-term incentive equity target is allocated 25% to SARs, 25% to RS/RSUs and 50% to Performance Units.
Performance Units - LTIP
The LTIP for certain Ashland key employees, including the Valvoline named executive officers, is a long-term equity incentive plan tied to Ashlands overall financial and total shareholder return performance. It is designed to encourage and reward executives for achieving long-term performance that meets or exceeds absolute and/or relative financial and total shareholder return performance targets.
Grants under the LTIP are made annually, with each grant subject to a three-year performance cycle. The number of units granted is based on a fixed dollar amount or the greater of targeted percentage of the employees base salary and a market competitive benchmark and valued by the average of the closing prices of Ashland common stock for the last 20 business days of the prior fiscal year. Grants under the LTIP are not adjusted for, nor entitled to receive, cash dividends during the performance period.
2015-2017 LTIP Performance Units
The following calculation showing how Mr. Mitchells target fiscal 2015-2017 LTIP grant was determined is illustrative of the overall grant determination process:
Mr. Mitchells market competitive benchmark determined as of November 12, 2014 |
$ | 426,294 | ||
LTIP target as a percent of salary: |
67 | % | ||
|
|
|||
Target fiscal 20152017 LTIP value: |
$ | 285,617 | ||
Target fiscal 20152017 grant: $285,617/$107.10* = 2,700 Performance Units (rounded up to the next increment of 50) |
* | Average of closing prices of Ashland common stock for the 20 business days ended September 30, 2014. The 20 business day average is used to reduce stock volatility and better represents Ashlands stock price. |
Actual grants under the fiscal 2015-2017 LTIP to the Valvoline named executive officers were as follows:
Named Executive Officer |
LTIP Target
($ or % of Salary) |
Number of
LTIP Units Granted |
||||||
Mr. Mitchell |
67.0 | % | 2,700 | |||||
Mr. Moughler |
$ | 71,000 | 700 | |||||
Ms. Lockwood |
$ | 71,000 | 700 | |||||
Ms. Matheys |
$ | 71,000 | 700 |
In November 2014, the P&C Committee reviewed and approved measures and target performance levels for the fiscal 2015-2017 LTIP. The performance period for this LTIP began on October 1, 2014 and ends on September 30, 2017. For all participants, including the Valvoline named executive officers, the performance measures are Ashlands ROI and Ashlands TSR performance. Each of the performance measures in the LTIP is weighted equally and evaluated separately. In choosing these measures, the P&C Committee considered the performance measures used in the other components of Ashlands executive compensation programs. The P&C Committee believes that ROI and TSR represent an appropriate balance to the shorter-term operating income and working capital efficiency measures used in the annual incentive plan. By balancing the performance measures used, the overall program design encourages management to focus on the overall performance of Ashland and on value creation for Ashlands shareholders.
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ROI is an absolute performance measurement of the effective use of capital, and it is generally determined by dividing net income over a specified performance period (excluding certain key items as disclosed in Ashlands financial statements and management exceptions) by the average equity and debt outstanding over such period. Consistent with past practice and based on a core set of principles and adjustment criteria established at the beginning of the performance period, the P&C Committee adjusted the results on which fiscal 2014 and 2015 operating income incentives were determined to account for the effect of foreign exchange, pension actuarial gain, restructuring severance costs, integration expenses and the sale of the Elastomers division. These adjustments are consistent with established policy. The adjustments were intended to ensure that award payments represent the underlying performance of the business and are not artificially inflated or deflated due to such items. Adjustments are reviewed thoroughly as soon as practical after they are identified.
TSR is a measure of shareholder value creation, defined as the change in Ashlands stock price plus aggregate dividend payments over a specified performance period divided by the stock price at the beginning of the performance period. Ashlands TSR performance for the fiscal 2015-2017 LTIP grant is measured against the entire S&P MidCap 400 and the S&P 500 Materials Group (the Performance Peer Group). Ashland believes that the use of these indices better represents shareholder interests and reduces the volatility of the TSR calculation. Ashland must achieve median performance relative to the Performance Peer Group for eligible executives to earn a target award for the TSR portion of the award. Prior Performance Unit grants that have not yet vested continue to use their Performance Peer Groups established at the time of grant. No adjustments are made to TSR.
Each of the performance measures has a minimum performance hurdle that must be achieved to earn a payout under the stated objectives. For the fiscal 2015 2017 LTIP, the TSR hurdle was set at the 35th percentile. If Ashlands performance is below the 35th percentile of the Performance Peer Group, no TSR award is earned. To earn the target award, Ashlands TSR performance must be at the 50th percentile (median) relative to the Performance Peer Group. The performance maximum represents a level of performance that is at the 90th percentile or above, relative to the respective Performance Peer Group. The P&C Committee has established the same internal hurdle, target and maximum performance goals for the ROI portion of the LTIP awards. If the maximum performance is achieved for both ROI and TSR, the award earned is 200% of the award opportunity at target.
The following chart illustrates these award percentages based on performance levels:
Performance Level |
Percent of Target
Award Earned |
|||
Hurdle |
25 | % | ||
Target |
100 | % | ||
Maximum |
200 | % |
In the event performance falls between hurdle and target or target and maximum, the Performance Units are calculated on a linear basis. The earned Performance Units under the LTIP are generally paid in Ashland common stock.
2013-2015 LTIP Performance Unit Award Results and Payment
The fiscal 2013-2015 LTIP was paid in November 2015 for the performance period of October 1, 2012 to September 30, 2015. The following chart illustrates these award levels and the corresponding relative TSR and ROI performance required:
Performance
|
Percentile Performance
Relative to Performance Peer Group (TSR) or Internal Target (ROI) |
Percent of Target Award
Earned |
||||||
Hurdle |
35th percentile | 25 | % | |||||
Target |
50th percentile | 100 | % | |||||
Maximum |
90th percentile | 200 | % |
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For this performance period, relative TSR performance was at the 68th percentile of the applicable performance peer group, which resulted in a payout of 145.2% for the TSR performance. ROI as measured against internal goals yielded a score of 50.4%. This results in a total weighted average of 97.8%. The chart below provides the actual 2013-2015 LTIP payout amounts:
Named Executive
|
Number of LTIP
Units Granted |
LTIP Award as a %
of Target |
Number of Shares
Paid |
|||||||||
Mr. Mitchell |
3,500 | 97.8 | % | 3,423 | ||||||||
Mr. Moughler |
1,000 | 97.8 | % | 978 | ||||||||
Ms. Lockwood |
1,000 | 97.8 | % | 978 | ||||||||
Ms. Matheys |
500 | 97.8 | % | 489 |
The LTIP is a performance-based plan. Actual payout levels have averaged 115.0% of target the last five years, which the P&C Committee believes reflect the rigor of the goals set during these performance periods and Ashlands strong relative TSR. The chart below reflects the LTIP weighted scores for each of the last five years:
LTIP Plan Year |
Date of Payment |
Weighted Score as a % of Target
|
||
2013-2015 |
November, 2015 | 97.81% | ||
2012-2014 |
December, 2014 | 117.25% | ||
2011-2013 |
November, 2013 | 128.55% | ||
2010-2012 |
November, 2012 | 111.75% | ||
2009-2011 |
December, 2011 | 119.65% |
Stock Appreciation Rights
Ashlands SARs program is a long-term equity incentive plan designed to link executive compensation with increased shareholder value over time. The grants of SARs typically occur annually in November. SARs are awarded using a variable approach based on a target value determined as a fixed dollar amount or the greater of a percentage of the employees base salary and a market competitive benchmark. The actual number of SARs granted is then determined by taking the target value for each participant and dividing by the Black-Scholes value for SARs using the average of the closing prices of Ashland common stock for the last twenty business days of the prior fiscal year.
The following calculation showing how Mr. Mitchells target fiscal 2015 SAR grant was determined is illustrative of the overall grant determination process:
Mr. Mitchells market competitive benchmark determined as of November 12, 2014 |
$ | 426,294 | ||||
x |
Target SAR value as a percent of salary: | 34.0 | % | |||
|
|
|||||
= |
Target fiscal 2015 SAR value: | $ | 144,940 | |||
Target SAR grant: $144,940/$24.59* = 5,900 SARs (rounded up to the next increment of 50) |
* | Black-Scholes value using the average of closing prices of Ashland common stock for the 20 business days ended September 30, 2014. The 20-day average is used to reduce stock volatility and better represents Ashlands stock price. |
Actual SAR grants for fiscal 2015 to the Valvoline named executive officers were as follows:
Named Executive Officer |
SARs Target
($ or % of Salary) |
Number of SARs
Granted |
||||||
Mr. Mitchell |
34.0 | % | 5,900 | |||||
Mr. Moughler |
$ | 35,500 | 1,450 | |||||
Ms. Lockwood |
$ | 35,500 | 1,450 | |||||
Ms. Matheys |
$ | 35,500 | 1,450 |
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All SARs are based on an exercise price equal to the closing price of Ashland common stock on the NYSE on the date of grant and are not re-valued if the stock price declines below the exercise price. SARs expire on the tenth anniversary plus one month from the date of grant. SARs vest over a three-year period as follows: 50% vest on the first anniversary of the grant date; an additional 25% vest on the second anniversary of the grant date; and the final 25% vest on the third anniversary of the grant date.
Restricted Stock/Restricted Stock Units
Ashlands RS program is a long-term equity incentive plan designed to link executive compensation with increased shareholder value over time. The grants of RS typically occur annually in November. Beginning in fiscal 2016, Ashland began issuing RSUs instead of RS for administrative convenience.
The number of shares awarded is based on a fixed dollar amount or the greater of a targeted percentage of the employees base salary and a market competitive benchmark. The actual number of RS granted is then determined by taking the target value for each participant and dividing by the average of the closing prices of Ashland common stock for the last 20 business days of the prior fiscal year. RS are adjusted for whole shares dividends. Fractional shares are cancelled.
The following calculation showing how Mr. Mitchells target fiscal 2015 RS grant was determined is illustrative of the overall grant determination process:
Mr. Mitchells market competitive benchmark determined as of November 12, 2014 |
$ | 426,294 | ||||
x |
Target RS value as a percent of salary: | 34.00 | % | |||
|
|
|||||
= |
Target fiscal 2015 RS value: | $ | 144,940 | |||
Target RS grant: $144,940/$107.10* = 1,400 RS (rounded up to the next increment of 50) |
* | Average of closing prices of Ashland common stock for the 20 business days ended September 30, 2014. The 20 business day average is used to reduce stock volatility and better represents Ashlands stock price. |
Actual RS annual grants for fiscal 2015 to the Valvoline named executive officers were as follows:
Named Executive Officer |
RS Target
($ or % of Salary) |
Number of RS
Granted |
||||||
Mr. Mitchell |
34.00 | % | 1,400 | |||||
Mr. Moughler |
$ | 35,500 | 350 | |||||
Ms. Lockwood |
$ | 35,500 | 350 | |||||
Ms. Matheys |
$ | 35,500 | 350 |
In connection with being named to Ashlands Executive Committee on May 1, 2015, Mr. Mitchell received an RS award of 8,000 shares ($957,600 approximate grant date fair value) on July 15, 2015.
Stock Ownership Guidelines
Equity compensation encourages executives to have a long-term shareholders perspective in managing Ashland. Consistent with this philosophy, the P&C Committee has established stock ownership guidelines for Ashlands executive officers and designated key employees, including the Valvoline named executive officers. Employees are subject to the stock ownership requirements if they are eligible to participate in Ashlands LTIP. Under these guidelines, each employee has five years from the date he or she becomes subject to a particular guideline to reach the minimum levels of Ashland common stock ownership identified by the P&C Committee.
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The current ownership guidelines are the lesser of the following two metrics:
Named Executive Officer |
Dollar Value of Ashland
Common Stock |
or |
Number of Shares of
Ashland Common Stock |
|||||||||
Mr. Mitchell |
3 x salary | 25,000 | ||||||||||
Mr. Moughler and Mses. Lockwood and Matheys |
1 x salary | 4,000 | ||||||||||
Range for other LTIP participants |
1 x salary | 3,500 |
Ashland common stock ownership includes the following: shares held in Ashlands 401(k) plan and LESOP; equivalent shares held in the non-qualified deferred compensation plan; unvested RS/RSUs that will vest within five years of the ownership guidelines date; and shares held by employees outside of Ashland plans.
The P&C Committee reviews progress toward achieving the ownership guidelines for the covered employees on an annual basis. If an executive officer has not reached his or her ownership requirement under the guidelines, the P&C Committee has discretion to reduce or to not make future award grants until ownership guidelines are reached. All of the Valvoline named executive officers have met their stock ownership requirements.
Risk Assessment of Ashlands Executive Compensation Program
Ashlands compensation program is designed to motivate and reward employees and executive officers for their performance during the fiscal year and over the long-term and for taking appropriate business risks. The P&C Committee asked its compensation consultant to conduct a risk assessment of Ashlands incentive compensation plans in May 2015. Based on its review of the risk assessment, a review of Ashlands internal controls and the risk mitigating components of Ashlands compensation programs, the P&C Committee determined that Ashlands compensation programs do not encourage executives or other employees to take inappropriate risks that are reasonably likely to have a material adverse effect on Ashland.
Executive Compensation Recovery Clawback Policy of Ashlands Executive Compensation Program
Ashland has an Executive Compensation Recovery Policy (Clawback Policy) effective for plan years beginning on or after October 1, 2009, for executive officers, including the Valvoline named executive officers. This policy further strengthens the risk mitigation program by defining the economic consequences that misconduct has on the executive officers incentive-related compensation. In the event of a financial restatement due to fraudulent activity or intentional misconduct as determined by the board of directors, the culpable executive officer is required to reimburse Ashland for incentive-related compensation paid to him or her. In addition, the board of directors has the discretion to determine whether any of the Valvoline named executive officers will be required to repay incentive-related compensation, whether or not such named executive officer was involved in the fraudulent activity or misconduct. Ashland has a period of three years after the payment or award is made to seek reimbursement.
Anti-Hedging Policy of Ashlands Executive Compensation Program
Ashlands insider trading policy prohibits any director or officer from purchasing any financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of equity securities of Ashland: (i) granted to such person by Ashland as part of the persons compensation or (ii) held, directly or indirectly, by such person.
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Anti-Pledging Policy of Ashlands Executive Compensation Program
Ashland prohibits all its directors and officers from directly or indirectly pledging equity securities of Ashland. Under the policy, the term pledging includes the intentional creation of any form of pledge, security interest, deposit, lien or other hypothecation, including the holding of shares in a margin account, that entitles a third party to foreclose against, or otherwise sell, any equity securities, whether with or without notice, consent, default or otherwise. The equity securities attributable to a director or officer for these purposes shall include equity securities attributable to the director or officer under applicable securities laws.
Retirement Benefits
The combination of tax-qualified and non-qualified retirement plans is designed to assist the Valvoline named executive officers in building savings for retirement over the term of their employment.
Ashlands pension and 401(k) plans are tax-qualified vehicles to provide retirement benefits to the Valvoline named executive officers and their families. The benefits in these plans are available to most U.S.-based employees. The benefits are funded through trusts and are separate from the assets of Ashland and by law are protected from Ashlands creditors.
The benefits that may be provided under the tax-qualified plans are limited by the Code. These plans, standing alone, do not provide sufficient retirement income to the Valvoline named executive officers when compared to their pay as an active employee. To make up for this gap in potential replacement income in retirement, Ashland offers the Valvoline named executive officers non-qualified retirement plans that complement each other and the tax-qualified plans. A detailed description of the non-qualified plans, and a description of recent amendments to such plans, for the applicable Valvoline named executive officers is included in the Pension Benefits section of this prospectus.
The 401(k) plan contributions are also limited by law, which means their potential matching contributions from Ashland are also limited. The Ashland match that could not be made to the 401(k) plan is paid to the Valvoline named executive officers (as well as any affected employee) as additional compensation.
Ashland also has employee deferral plans that allow the Valvoline named executive officers to annually make a separate deferral election so that the Valvoline named executive officers can save amounts from their own pay in addition to amounts they are allowed to save in the savings plans.
Health and Welfare Benefits of Ashlands Executive Compensation Program
The health of all employees is important to Ashland as is the need to provide for financial security to the families of employees who may become ill, disabled or die during active employment. To these ends, Ashland provides a wide variety of health and welfare benefit plans to a majority of its active U.S. workforce. These same plans are offered to the Valvoline named executive officers for the same reasons as they are offered to the majority of the rest of the active workforce. These plans include medical, dental, vision, life, accidental death and dismemberment, business travel and accident coverage and long-term care insurance. These benefits are targeted at median competitive levels.
Executive Perquisites of Ashlands Executive Compensation Program
Ashland provides its named executive officers and other selected executives with financial planning services (including tax preparation). Messrs. Mitchell and Moughler and Ms. Matheys participated in the financial planning program.
The P&C Committee reviews the perquisites provided to executive officers as part of their overall review of executive compensation. The P&C Committee has determined the perquisites to be within the appropriate range of compensation practices.
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Severance Pay Plan
The Valvoline named executive officers are covered by the Severance Pay Plan that provides benefits in the event of a covered termination in the absence of a change in control. A covered termination is the direct result of the permanent closing of a facility, job discontinuance or other termination action of Ashlands initiative as determined by Ashland. The plan excludes certain terminations such as, but not limited to, termination for cause and voluntary resignation.
A detailed description of this plan is included in the Potential Payments upon Termination or Change in Control for Fiscal 2015 section of this prospectus.
Change in Control Agreements of Ashlands Executive Compensation Program
Mr. Mitchell has a change in control agreement that sets forth the economic consequences and entitlements for termination without cause or for good reason after a change in control. The primary purpose of these protections is to align executive and shareholder interests by enabling Mr. Mitchell to assess possible corporate transactions without regard to the effect such transactions could have on their employment.
A detailed description of Mr. Mitchells agreement is included in the Potential Payments upon Termination or Change in Control for Fiscal 2015 section of this prospectus.
On October 5, 2015, the P&C Committee approved new executive change in control agreements for certain of the Ashland executive officers, including Mr. Mitchell. The new change in control agreements narrow the circumstances in which the executives will have good reason to resign and become entitled to receive severance following a change in control. Also, Mr. Mitchells change in control agreement entitled him to a tax gross-up for excise taxes payable on certain payments made to him in connection with a change in control of Ashland. The new change in control agreements exclude all excise tax gross-up provisions and instead provide for a best-after-tax cutback. Except for the modifications described above, the new change in control agreements are substantially the same as the prior change in control agreements.
None of the Valvoline named executive officers other than Mr. Mitchell have entered into a change in control agreement.
Double-Trigger Award Agreements of Ashlands Executive Compensation Program
On July 15, 2015, the P&C Committee approved an Amended and Restated 2015 Ashland Inc. Incentive Plan (the 2015 Incentive Plan), which permits the P&C Committee to grant awards under the 2015 Incentive Plan with double-trigger change in control provisions set forth in an award agreement. The default under the 2015 Incentive Plan is a single-trigger change in control provision. In connection with this amendment, the P&C Committee also approved forms of the award agreements containing the double-trigger change in control provision (the Double-Trigger Award Agreements). All awards granted under the 2015 Incentive Plan since this amendment have used the Double-Trigger Award Agreements.
Deductibility of Compensation
Ashland attempts to maximize the tax deductibility of the compensation paid to its executives. However, tax rules may limit the tax deductibility of certain types of non-performance based compensation paid to the Valvoline named executive officers.
Ashland considers the tax deductibility of compensation awarded to the Valvoline named executive officers, and weighs the benefits of awarding compensation that may be nondeductible against contingencies required by the tax laws. The P&C Committee believes that in certain circumstances the benefits of awarding nondeductible compensation exceed the benefits of awarding deductible compensation that is subject to contingencies derived from the tax laws.
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In addition, Ashland considers various other tax rules governing Valvoline named executive officer compensation including (but not limited to) tax rules relating to fringe benefits, qualified and non-qualified deferred compensation and compensation triggered by a change in control.
Executive Performance Incentive and Retention Program
In connection with the adoption of the new change in control agreements as described above, and in consideration of the previously announced intent to separate Ashland into two independent, publicly traded companies, on October 5, 2015, the P&C Committee approved the Executive Performance Incentive and Retention Program for certain Ashland executive officers and other key employees, including Mr. Mitchell.
The Executive Performance Incentive and Retention Program is designed to provide an additional incentive to remain employed by Ashland in the critical period up to the spin-off and by Valvoline following the spin-off, and to provide increased alignment between executives and shareholders by providing equity-based compensation that vests based on both relative TSR and the participants continued service.
On November 18, 2015, the P&C Committee approved a grant of 31,616 performance-based restricted shares to Mr. Mitchell at the maximum performance level. This grant represents two times his base salary and target incentive compensation (15,808 performance-based restricted shares) at the target performance level:
Name |
Dollar Value of Performance-
Based Restricted Stock at Target |
Number of Shares of
Performance-Based Restricted Stock at Target |
Grant Amount:
Number of Shares of Performance-Based Restricted Stock at Maximum |
|||||||
Mr. Mitchell |
2x base salary and target
incentive compensation |
15,808 | 31,616 |
In connection with the spin-off, a pro-rated portion of the performance-based restricted shares (such proration to be determined based on the period elapsed between October 1, 2015 and the closing of the spin-off, but in any event no less than two-thirds of the shares) will convert into a number of time-vesting restricted shares (TVRS) of Valvoline based on the combined weighted-average TSR of Ashland Global and Valvoline, relative to the TSR of a group of peer companies, over the period beginning October 1, 2015 and ending on the 120th day following the closing of the spin-off.
The performance-based restricted shares were granted at the Maximum performance level. Maximum performance is defined as 90th percentile or greater TSR performance relative to the peer group and will result in 100% of performance-based restricted shares subject to the performance goal converting into TVRS. Target performance is defined as 50th percentile TSR performance relative to the peer group and will result in 50% of the performance-based restricted shares subject to the performance goal converting into TVRS. Threshold performance is defined as 35th percentile TSR performance relative to the peer group and will result in 12.5% of the performance-based restricted shares subject to the performance goal converting into TVRS. TSR performance below the 35th percentile will result in 0% of the performance-based restricted shares that are subject to the performance goal converting into TVRS. Any performance-based restricted shares subject to the TSR performance goal that are not converted into TVRS will be forfeited.
As described above, the number of shares that are subject to the TSR performance goal will depend on the timing of the spin-off. The shares that are not subject to the TSR performance goal will convert into TVRS at Target level. In no event will more than one-sixth of the shares awarded convert into TVRS without being subject to the TSR performance goal.
The TVRS will generally cliff vest upon the third anniversary of the grant date, so long as the participant remains employed through the vesting date.
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Compensation Program of Valvoline Following the Spin-off
We are currently in the process of determining the compensation programs we anticipate implementing for our senior executives, including our named executive officers, following the spin-off.
Overview
As described above, we currently operate as a business unit of Ashland and not as an independent company, and our Compensation Committee is not expected to begin meeting until after this offering. Following this offering, our Compensation Committee will review each of the elements of our compensation programs.
Valvoline Chief Financial Officer Letter Agreement
In May 2016, Ms. Meixelsperger and Ashland entered into a letter agreement, pursuant to which Ms. Meixelsperger began serving as our Chief Financial Officer prior to this offering. Under the terms of the letter agreement, Ms. Meixelsperger will receive an annual base salary of $535,000 and will have an annual target incentive opportunity of 75% of her annual base salary. Ms. Meixelsperger participated in the Ashland long-term incentive equity program for 2016 at a target performance level of 140% of her annual base salary. In addition, Ms. Meixelsperger received a one-time grant of 4,500 restricted shares of Ashland common stock, which we refer to as the Sign-On Restricted Shares. The Sign-On Restricted Shares have a vesting schedule of 25% on the second anniversary of the grant date and 75% on the third anniversary of the grant date. In the event that the spin-off does not occur within 18 months of Ms. Meixelspergers start date and she chooses to resign within the 60-day period following such 18-month anniversary, she will be entitled to a cash payment equal to 78 weeks of her annual base salary and a cash payment equal to the product of the number of Sign-On Restricted Shares that remain outstanding and unvested at the time of such termination multiplied by the market price of Ashland common stock on the date the Sign-On Restricted Shares were granted.
2016 Valvoline Incentive Plan
Valvoline intends to adopt the 2016 Valvoline Incentive Plan, which we refer to as the 2016 Incentive Plan. The following is a summary of the principal terms of the 2016 Incentive Plan, which is qualified in its entirety by reference to the full text of the plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Purpose, Eligibility, Administration and Awards
The purpose of the 2016 Incentive Plan is to promote the interests of Valvoline and its shareholders by providing incentives to current and prospective directors, officers and employees. The 2016 Incentive Plan will be administered by our Compensation Committee. The plan administrator has the power to grant awards under the plan, to determine the terms and conditions of such awards, to construe and interpret the provisions of the plan and to take action as it deems necessary or advisable for the administration of the plan, among other authority provided in the plan. The 2016 Incentive Plan authorizes the plan administrator to grant stock options (or options), including non-qualified stock options and incentive stock options (or ISOs), stock appreciation rights (or SARs), restricted stock, restricted stock units (or RSUs), incentive awards, performance unit awards and recognition awards.
Number of Authorized Shares
The total number of shares of Valvoline common stock authorized and available under the 2016 Incentive Plan is 7,000,000, all of which may be subject to ISOs granted under the 2016 Incentive Plan. Awards granted under the 2016 Incentive Plan that are intended to qualify as performance-based compensation awards under Section 162(m) of the Code are subject to the following limitations: (i) the maximum aggregate number of shares of Valvoline common stock that may be subject to options or SARs granted in any calendar year to any one participant is shares; (ii) the maximum aggregate number of shares of restricted stock and shares of Valvoline common stock
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issuable or deliverable under RSUs granted in any calendar year to any one participant is 600,000 shares; and (iii) the maximum aggregate number of shares of Valvoline common stock issuable under performance unit awards granted in any calendar year to any one participant is 600,000 shares or, in the case of performance unit awards established in cash, an amount of cash equal to the fair market value (as of the date of grant) of 600,000 shares of Valvoline common stock. Additionally, the maximum aggregate number of shares of Valvoline common stock that may be issued or delivered under awards granted under the 2016 Valvoline Incentive Plan in any calendar year to any one non-employee director is 25,000 shares or, in the case of awards established in cash, an amount of cash equal to the fair market value (as of the date of grant) of 25,000 shares of Valvoline common stock. The 2016 Incentive Plan provides for appropriate adjustments in the number of shares available in the event of changes in capitalization, including stock dividends and splits or in the event of any distribution to common shareholders other than normal cash distributions. The Valvoline equity-based awards into which the Ashland equity-based awards are converted in connection with the spin-off and outstanding awards previously granted by a company acquired by Valvoline will be disregarded for purposes of these limitations (other than the limitation against the number of shares of Valvoline common stock which may be delivered with respect to ISOs).
The 2016 Incentive Plan provides for a fungible plan design that assigns a higher cost to full-value awards (all awards other than options and SARs) by reducing the share pool on a greater than one-for-one basis when full-value shares are granted. Any shares of Valvoline common stock underlying restricted stock awards, RSU awards, recognition awards, performance unit awards and dividend equivalents that are issued or that become available for issuance under the 2016 Incentive Plan will reduce or increase, respectively, the shares available under the plan by 4.5 shares for every one share of Valvoline common stock.
In the event that any award is paid solely in cash, no shares will be deducted from the number of shares available for issuance under the 2016 Incentive Plan by reason of such award. Shares of Valvoline common stock subject to awards that are forfeited, terminated, canceled or settled without the delivery of Valvoline common stock under the 2016 Incentive Plan will again be available for awards under the 2016 Incentive Plan. Notwithstanding the foregoing, the aggregate number of shares of Valvoline common stock that may be issued under the 2016 Incentive Plan may not be increased by: (i) shares of Valvoline common stock tendered in full or partial payment of the exercise price of an option, (ii) shares of Valvoline common stock withheld to satisfy a tax withholding obligation in connection with the vesting or exercise of an award and (iii) shares of Valvoline common stock that are repurchased by the company with option proceeds. In addition, all shares of Valvoline common stock covered by a SAR, to the extent that it is exercised and settled in shares, and whether or not shares are actually issued or delivered to the participant upon exercise of the SAR, will be considered issued or delivered pursuant to the 2016 Incentive Plan.
Performance Goals
Certain awards granted under the 2016 Incentive Plan may be based on the attainment of performance goals as established by our Compensation Committee. If an award is subject to the achievement of performance goals, no later than 120 days (90 days or such shorter period for awards intended to qualify as performance-based compensation under Section 162(m) of the Code) after the commencement of each performance period, the Compensation Committee will establish in writing one or more performance goals that must be reached by a participant in order to earn such award for such performance period. Except with respect to awards intended to qualify as performance-based compensation under Section 162(m) of the Code, the Compensation Committee will have the discretion to later revise the performance goals and the amount to be paid out upon the attainment of such goals for any reason including the reflection of promotions, transfers or other changes in a participants employment so long as such changes are consistent with the performance goals established for other participants in the same or similar positions. Performance goals established for awards intended to qualify as performance-based compensation under Section 162(m) of the Code may only be adjusted to reduce or eliminate the amount of compensation otherwise payable upon attainment of the performance goals. Such goals may be absolute in their terms or measured against or in relation to other companies comparably or otherwise situated. Performance goals may be relative to stock market indices or such other published or special indices as the Compensation
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Committee deems appropriate and/or may be based on the performance of the company generally or one or more of its subsidiaries, divisions, departments, units, functions, partnerships, joint ventures or minority investments, product lines or products and/or the performance of the individual participant.
The performance goals applicable to any award that is intended to qualify as performance-based compensation under Section 162(m) of the Code must be based on one or more of the following criteria:
(i) | earnings measures, including net earnings on either a LIFO, FIFO or other basis and including earnings, earnings before interest, earnings before interest and taxes, earnings before interest, taxes and depreciation or earnings before interest, taxes, depreciation and amortization; |
(ii) | operating measures, including operating income, operating earnings or operating margin; |
(iii) | income or loss measures, including net income or net loss, and economic profit; |
(iv) | cash flow measures, including cash flow or free cash flow; |
(v) | revenue measures; |
(vi) | reductions in expense measures; |
(vii) | operating and maintenance, cost management, and employee productivity measures; |
(viii) | company return measures, including return on assets, investments, equity or sales; |
(ix) | share price (including attainment of a specified per-share price during the performance period, growth measures, total return to shareholders or attainment of a specified price per share for a specified period of time); |
(x) | strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, business expansion targets, project milestones, production volume levels or cost targets; |
(xi) | accomplishment of, or goals related to, mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions; |
(xii) | achievement of business or operational goals such as market share, business development and/or customer objectives and debt ratings; or |
(xiii) | growth or rate of growth of any of the performance criteria set out above. |
Restricted Stock and Restricted Stock Unit Awards
Participants may receive one or more restricted stock awards or RSU awards as the administrator may from time to time determine. Except as otherwise provided in an award agreement, upon a termination of employment or pursuant to a change in control, a restricted stock award or RSU award will have a minimum restricted period of (i) one year in the case of restrictions that lapse based on the achievement of performance goals; and (ii) three years in the case of restrictions that lapse based solely on the passage of time, which period may, at the discretion of the administrator, lapse on a pro-rated, graded, or cliff basis. Notwithstanding the foregoing, in the administrators sole discretion, no more than 5% of the shares of Valvoline common stock available for issuance as restricted stock awards or pursuant to RSU awards may have a restricted period of less than three years.
Holders of restricted stock will be entitled to all rights incident to ownership of Valvoline common stock with respect to his or her restricted stock, including, but not limited to, the right to vote such shares of restricted stock and to receive dividends thereon when, as and if paid, in cash, shares of restricted stock or dividend equivalents, as set forth in the applicable award agreement or as determined by the administrator, in its discretion. Holders of RSU awards will not have any rights as a shareholder with respect to the shares of Valvoline common stock subject to such RSUs until such time, if any, that shares of Valvoline common stock are delivered to a participant pursuant to the terms of the applicable award agreement. Holders of RSU awards will have such rights, if any, to dividend equivalents as are set forth in the applicable award agreement or as
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determined by the administrator, in its discretion. Payment of earned RSUs (and dividend equivalents, if applicable) may be made in one or more installments and may be made wholly in cash, wholly in shares of Valvoline common stock or a combination thereof as determined by the administrator.
Except as otherwise provided in the award agreement or as determined by the administrator, in the event that a restricted stock award or RSU award has been made to participant whose employment or service as a director is subsequently terminated for any reason prior to the lapse of all restrictions thereon, such award will be forfeited in its entirety by such participant.
Incentive Awards
Any participant may receive one or more incentive awards, as the Compensation Committee may from time to time determine. The target incentive award will be a fixed percentage of a participants base salary paid during the year. For awards intended to qualify as performance-based compensation under Section 162(m) of the Code, the maximum aggregate compensation that can be paid pursuant to an incentive award granted in any calendar year to any one participant will be $10,000,000 or a number of shares of Valvoline common stock having an aggregate fair market value (as of the date of grant) not in excess of such amount. Payments may be made in one or more installments and may be made in cash, shares of Valvoline common stock or a combination thereof as determined by the Compensation Committee.
Unless otherwise provided in an award agreement or determined and directed by the Compensation Committee, an incentive award will terminate if the participant does not remain continuously employed and in good standing with Valvoline or any of its subsidiaries until the last business day of the month immediately preceding the month in which such incentive award is otherwise payable. Unless otherwise provided in an award agreement or determined and directed by the Compensation Committee, in the event a participants employment is terminated because of death, disability, retirement, or other employment termination event determined in the discretion of the Compensation Committee, the participant (or his or her beneficiaries or estate) will receive the prorated portion of the payment of an incentive award for which the participant would have otherwise been eligible based upon the portion of the performance period during which he or she was so employed so long as the performance goals are subsequently achieved.
Performance Unit Awards
Any participant may receive one or more performance unit awards, as the Compensation Committee will from time to time determine. Each performance unit award will be established in dollars or shares of Valvoline common stock, or a combination of both, as determined by the Compensation Committee. The amount of payment with respect to performance unit awards will be determined by the Compensation Committee and will be based on the original amount of such performance unit award (including any dividend equivalents with respect thereto) adjusted to reflect the attainment of the performance goals during the performance period. Payment may be made in one or more installments and may be made wholly in cash, wholly in shares of Valvoline common stock or a combination thereof as determined by the Compensation Committee.
Unless otherwise provided in an award agreement or determined and directed by the Compensation Committee, a performance unit award (including any dividend equivalents with respect thereto) will terminate for all purposes if the participant does not remain continuously employed and in good standing with Valvoline or any of its subsidiaries until the last business day of the month immediately preceding the month in which such performance unit award is otherwise payable. Unless otherwise provided in an award agreement or determined and directed by the Compensation Committee, a participant (or his or her beneficiaries or estate) whose employment was terminated because of death, disability, retirement or other employment termination event determined in the discretion of the Compensation Committee will receive a prorated portion of the payment of his or her performance unit award (including any dividend equivalents with respect thereto) based upon the portion of the performance period during which he or she was so employed so long as the performance goals are subsequently achieved.
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Recognition Awards
Any participant may receive a recognition award of shares of Valvoline common stock for such reasons and in such amounts as the Compensation Committee may from time to time determine.
Option and SAR Awards
Any participant may receive one or more option or SAR awards, as the administrator will from time to time determine. Any option may be granted as an ISO or as a nonqualified stock option (or NQSO) as designated by the administrator at the time of the grant of such option; provided that only employees of Valvoline and its subsidiaries may be granted ISOs. Every ISO will provide for a fixed expiration date of not later than ten years from the date such ISO is granted. Every NQSO and SAR will provide for a fixed expiration date of not later than ten years and one month from the date such NQSO or SAR is granted.
The exercise price of Valvoline common stock issued pursuant to each option or SAR will be fixed by the administrator at the time of the grant and may in no event ever be less than 100% of the fair market value of the Valvoline common stock on the date such award is granted, subject to adjustment upon changes in capitalization. The administrator may provide for options or SARs granted to be exercisable in whole or in part.
Except as otherwise provided in the 2016 Incentive Plan, the exercise price for the Valvoline common stock subject to an option must be paid in full when the option is exercised. Subject to such rules as the administrator may impose, the exercise price may be paid in whole or in part: (i) in cash; (ii) by tendering (either by actual delivery or attestation) unencumbered shares of Valvoline common stock previously acquired by the participant exercising such option having an aggregate fair market value at the time of exercise equal to the total exercise price; (iii) by a combination of such methods of payment; or (iv) by such other consideration as will constitute lawful consideration for the issuance of Valvoline common stock and approved by the administrator (including, without limitation, effecting a cashless exercise of the option with a broker) or by having Valvoline withhold shares of Valvoline common stock otherwise issuable pursuant to the exercise of the option.
A SAR will entitle the holder thereof, upon exercise, to surrender the SAR and receive in exchange therefore an amount equal to (i) the excess, if any, of (x) the fair market value of a share of Valvoline common stock at the time the SAR is exercised over (y) the exercise price specified in such SAR, (ii) multiplied by the number of shares of Valvoline common stock covered by such SAR, or portion thereof, which is so surrendered. Such amount will be paid to the holder in shares of Valvoline common stock the number of which will be determined by dividing such amount by the fair market value of the Valvoline common stock at the time the holder makes an effective exercise of the right to receive such amount; provided that the exercise of any SAR may be settled wholly in cash or a combination of cash and shares of Valvoline common stock as set forth in the award agreement or as determined by the administrator.
Unless otherwise provided in an award agreement or determined by the administrator, options and SARs granted under the 2016 Incentive Plan will not be exercisable prior to the first anniversary of the date of grant, or, in the case of options and SARs granted to non-employee directors, the next annual meeting of shareholders immediately following the date of grant if earlier than the first anniversary of grant. Unless otherwise provided in an award agreement or determined by the administrator, a participant (or his or her beneficiaries or estate) whose employment or service was terminated because of death, disability, retirement or other termination event determined in the discretion of the administrator will be entitled to exercise options or SARs exercisable at the time of such termination until the original expiration date set forth in the award agreement. In the event of other terminations of employment, vested options will be exercisable by the participant until the earlier of 90 days following such termination and the original expiration date set forth in the award agreement.
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Change in Control
Unless the award agreement specifies otherwise, awards may be assumed or replaced by the surviving entity in connection with a change in control of Valvoline as determined by the administrator and without the consent of the participant. In the event an award is assumed or replaced, it will continue to vest following the change in control in accordance with its terms subject to the participants continued employment or service. In the event the participants employment or service is terminated without cause (as defined in the 2016 Incentive Plan) within one year following the change in control, any portion of the award that is unvested as of the date of such termination will immediately vest and become free of all restrictions. In the event the surviving entity does not assume or replace outstanding awards in connection with a change in control, all such awards will immediately vest and become free of all other restriction as of the date of the change in control. Notwithstanding the foregoing, the administrator may, in its sole discretion, provide that, prior to a change in control, any outstanding award will be, as of the change in control, canceled in exchange for a cash payment equal to the fair market value of a share of Valvoline common stock subject to the award, less any applicable exercise price, which cash payment may be zero.
For purposes of the 2016 Incentive Plan, change in control is generally defined to mean (i) the consummation of a merger of Valvoline in which immediately thereafter the shareholders of Valvoline own less than 50% of the combined voting power of the surviving entity, (ii) the shareholders of Valvoline approve a plan of liquidation or dissolution of Valvoline, (iii) any person acquires securities of Valvoline representing 20% or more of the combined voting power of Valvoline or (iv) at any time during a period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of Valvoline cease for any reason to constitute a majority thereof, unless such directors were approved by a vote of at least two-thirds of the incumbent directors.
No Re-Pricing
The 2016 Incentive Plan prohibits the re-pricing of options or SARs without shareholder approval. That is, except for adjustments made to changes in capitalization or in the event of any distribution to common shareholders other than normal cash distributions, our board of directors or the administrator will not, without the further approval of our shareholders, authorize the amendment of any outstanding option or SAR to reduce the exercise price, and no option or SAR will be cancelled and replaced with cash or with another award except as provided in the event of a change in control. Further, no option or SAR will provide for the payment, at the time of exercise, of a cash bonus or grant or sale of another award without further approval of our shareholders.
Forfeiture
Unless the award agreement specifies otherwise, the administrator may, in its discretion, require a participant to forfeit all unexercised, unearned, unvested or unpaid awards if:
(i) | the participant, without written consent of Valvoline, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, employee or otherwise in any business or activity competitive with the business conducted by Valvoline or any of its subsidiaries, as determined by the administrator; |
(ii) | the participant performs any act or engages in any activity that is detrimental to the best interests of Valvoline or any of its subsidiaries, as determined by the administrator; or |
(iii) | the participant breaches any agreement or covenant with, or obligation or duty to, Valvoline or any subsidiary, including without limitation, any non-competition agreement, non-solicitation agreement, confidentiality or non-disclosure agreement, or assignment of inventions or ownership of works agreement, as determined by the administrator. |
Additionally, awards granted under the 2016 Incentive Plan will be subject to forfeiture or repayment pursuant to the terms of any applicable compensation recovery policy adopted by us as in effect from time to time.
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Foreign Awards
In order to comply with the laws in other countries in which we operate or have employees or otherwise to foster and promote achievement of the purposes of the 2016 Incentive Plan, the Compensation Committee, in its sole discretion, has authority, without amending the 2016 Incentive Plan, to: (i) determine which non-U.S. subsidiaries will be covered by the plan; (ii) determine which foreign nationals and employees outside the United States are eligible to participate; (iii) modify the terms and conditions of awards granted to foreign nationals who are employed outside the United States or are otherwise subject to the laws of one or more foreign jurisdictions; (iv) grant awards to participants who are foreign nationals, who are employed outside the United States or who are otherwise subject to the laws of one or more non-U.S. jurisdictions, on terms and conditions that are different from those specified in the 2016 Incentive Plan; (v) modify exercise procedures and other terms and procedures with respect to foreign participants; and (vi) take any action, before or after an award is made, that the Compensation Committee deems necessary or advisable to obtain approval or comply with any local government regulatory exemptions, approvals or requirements.
Amendment and Termination
Subject to any shareholder approval that may be required by law or the rules of the NYSE, our board of directors may amend, alter, suspend or terminate the 2016 Incentive Plan in whole or in part and at any time. Unless terminated earlier by our board of directors, the 2016 Incentive Plan will terminate on the tenth anniversary of the effective date of the 2016 Incentive Plan and no awards may be granted under the 2016 Incentive Plan after that date.
Summary Compensation Table
The following table is a summary of compensation information for the last three fiscal years, which ended September 30, 2015, 2014 and 2013 for the Valvoline named executive officers.
Name and Principal
|
Year
(b) |
Salary
($) (c) |
Bonus
($) (d) |
Stock
Awards (1) ($) (e) |
Option
Awards (2) ($) (f) |
Non-Equity
Incentive Compensation (3) ($) (g) |
Change in
Pension Value and Non-Qualified Deferred Compensation Earnings (4) ($) (h) |
All Other
Compensation (5) ($) (i) |
Total
($) (j) |
|||||||||||||||||||||||||||
Mr. Mitchell |
2015 | 427,652 | | 1,444,723 | 181,071 | 485,816 | 578,176 | 53,845 | 3,171,283 | |||||||||||||||||||||||||||
Sr Vice President of Ashland and President of Valvoline |
2014 | 411,078 | | 442,609 | 216,752 | 384,551 | 449,292 | 47,109 | 1,951,391 | |||||||||||||||||||||||||||
2013 | 388,522 | | 257,250 | 343,965 | 396,726 | 292,834 | 41,464 | 1,720,761 | ||||||||||||||||||||||||||||
Mr. Moughler |
2015 | 286,019 | | 124,828 | 44,501 | 175,436 | 118,295 | 21,446 | 770,524 | |||||||||||||||||||||||||||
Sr VP & Managing Director International of Valvoline |
2014 | 278,931 | | 106,212 | 52,440 | 138,300 | 252,653 | 14,005 | 842,541 | |||||||||||||||||||||||||||
2013 | 271,266 | | 73,500 | 92,721 | 163,674 | | 19,131 | 620,292 | ||||||||||||||||||||||||||||
Ms. Lockwood |
2015 | 259,209 | | 124,828 | 44,501 | 162,745 | 72,412 | 44,430 | 708,124 | |||||||||||||||||||||||||||
Sr VP Technology of Valvoline |
2014 | 251,626 | | 507,812 | 52,440 | 130,086 | 12,807 | 33,562 | 988,334 | |||||||||||||||||||||||||||
2013 | 242,853 | | 73,500 | 92,721 | 136,825 | 54,714 | 38,720 | 639,332 | ||||||||||||||||||||||||||||
Ms. Matheys |
2015 | 254,313 | | 124,828 | 44,501 | 183,088 | | 33,324 | 640,053 | |||||||||||||||||||||||||||
Sr VP DIY Channels of Valvoline |
2014 | 247,546 | | 106,212 | 52,440 | 125,127 | | 20,829 | 552,154 | |||||||||||||||||||||||||||
2013 | 224,618 | | 333,095 | 47,856 | 116,191 | | 29,395 | 755,155 |
(1) | The values in column (e) represent the aggregate grant date fair value of fiscal 2015-2017 LTIP Performance Units and RS computed in Accordance with FASB ASC Topic 718. The assumptions made when calculating the amounts for column (e) and the grant date fair values can be found in the footnotes to the Grants of Plan-Based Awards table. Assuming the maximum level of performance, the aggregate grant date fair value with respect to the fiscal 2015-2017. LTIP Performance Units awards assuming the maximum level of performance are as follows: Mr. Mitchell, $658,098; Mr. Moughler, $170,618; Ms. Lockwood, $170,618; and Ms. Matheys, $170,618. |
(2) | The values in column (f) represent the aggregate grant date fair value of SARs computed in accordance with FASB ASC Topic 718. The assumptions made when calculating the amounts for column (f) and the grant date fair values can be found in the footnotes to the Grants of Plan-Based Awards table. |
(3) | The values in column (g) represent the amounts earned with respect to annual incentive awards under the 2015 Annual Incentive Plan. |
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(4) | Ashlands non-qualified deferred compensation arrangements do not provide above-market or preferential earnings; therefore, for 2015 the amounts in column (h) represent only the one-year change between September 30, 2014 and September 30, 2015 in the present value of accrued benefits under Ashlands qualified and non-qualified defined benefit plans. These plans are more fully discussed in narrative to the Pension Benefits table in this prospectus. |
(5) | Amounts reported in column (i) for fiscal 2015 are composed of the following items: |
Mr. Mitchell | Mr. Moughler | Ms. Lockwood | Ms. Matheys | |||||||||||||
Ashland 401(k) Plan Match (a) |
$ | 36,138 | $ | 17,484 | $ | 38,072 | $ | 18,370 | ||||||||
Supplemental Ashland 401(k) Plan Match (b) |
$ | 3,817 | $ | 763 | $ | 2,760 | $ | 2,760 | ||||||||
Ashland Contribution to Non-Qualified Defined Contribution Plan (c) |
$ | 0 | $ | 0 | $ | 0 | $ | 10,260 | ||||||||
Life Insurance Premiums (d) |
$ | 1,344 | $ | 2,094 | $ | 3,599 | $ | 434 | ||||||||
Other (e) |
$ | 12,546 | $ | 1,105 | $ | 0 | $ | 1,500 | ||||||||
Total |
$ | 53,845 | $ | 21,446 | $ | 44,430 | $ | 33,324 |
(a) | The amounts in this row represent the contributions by Ashland to the accounts of each of the Valvoline named executive officers in the Ashland 401(k) plan. |
(b) | The amounts in this row represent payments by Ashland to the Valvoline named executive officers that would have been made as matching contributions to the Ashland 401(k) plan, but for the limitations placed on such contributions under the Code. |
(c) | The amounts in this row represent payments by Ashland to the Valvoline named executive officers pursuant to the Non-Qualified Defined Contribution Plan. |
(d) | The amounts in this row represent the value of life insurance premiums paid on behalf of the Valvoline named executive officers. |
(e) | In accordance with SEC rules, disclosure of perquisites and other personal benefits is omitted if the aggregate amount of such compensation for an executive officer is less than $10,000 for the given year. If the total amount exceeds $10,000, each perquisite or personal benefit must be identified by type, and if the amount of a perquisite or personal benefit exceeds the greater of $25,000 or 10% of total perquisites and personal benefits, its value must be disclosed. The amounts in this row represent the amount of aggregate incremental cost to Ashland with respect to any tax and financial planning services. |
Grants of Plan-Based Awards for Fiscal 2015
The following table sets forth certain information regarding the annual and long-term incentive awards, SARs and RS granted during fiscal 2015 to each of the Valvoline named executive officers.
Name
|
Grant
Date (b) |
Estimated Possible Payouts
|
Estimated Future Payouts
|
All Other
Stock Awards: Number of Shares of Stock or Units (#) (3) (i) |
All Other
Option Awards: Number of Securities Underlying Options (#) (4) (j) |
Exercise
or Base Price of Option Awards ($/Sh) (k) |
Grant
Date Fair Value of Stock And Option Awards ($) (5) (l) |
|||||||||||||||||||||||||||||||||||||
Threshold
($) (c) |
Target
($) (d) |
Maximum
($) (e) |
Threshold
(#) (f) |
Target
(#) (g) |
Maximum
(#) (h) |
|||||||||||||||||||||||||||||||||||||||
Mr. Mitchell |
78,408 | 392,040 | 588,060 | |||||||||||||||||||||||||||||||||||||||||
11/12/14 | 675 | 2,700 | 5,400 | 329,049 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 5,900 | $ | 112.91 | 181,071 | ||||||||||||||||||||||||||||||||||||||||
07/15/15 | 8,000 | 957,600 | ||||||||||||||||||||||||||||||||||||||||||
11/12/14 | 1,400 | 158,074 | ||||||||||||||||||||||||||||||||||||||||||
Mr. Moughler |
28,367 | 141,835 | 212,753 | |||||||||||||||||||||||||||||||||||||||||
11/12/14 | 175 | 700 | 1,400 | 85,309 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 1,450 | $ | 112.91 | 44,501 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 350 | 39,519 | ||||||||||||||||||||||||||||||||||||||||||
Ms. Lockwood |
26,266 | 131,330 | 196,995 | |||||||||||||||||||||||||||||||||||||||||
11/12/14 | 175 | 700 | 1,400 | 85,309 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 1,450 | $ | 112.91 | 44,501 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 350 | 39,519 | ||||||||||||||||||||||||||||||||||||||||||
Ms. Matheys |
26,266 | 131,330 | 196,995 | |||||||||||||||||||||||||||||||||||||||||
11/12/14 | 175 | 700 | 1,400 | 85,309 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 1,450 | $ | 112.91 | 44,501 | ||||||||||||||||||||||||||||||||||||||||
11/12/14 | 350 | 39,519 |
(1) | The dollar amounts in these columns represent the potential annual incentive payouts under the 2015 Annual Incentive Plan for fiscal 2015. The actual dollar amounts earned were paid in December 2015 and are included in column (g) in the fiscal 2015 row of the Summary Compensation Table. |
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(2) | The amounts in these columns represent potential payments under LTIP Performance Units for fiscal 2015-2017 performance period under the 2011 Incentive Plan. |
(3) | Grants made on November 12, 2014 were made in accordance with the 2015 Long-Term Equity Incentive Compensation program and vest one-third in each of the next three years. Mr. Mitchell received an RS grant of 8,000 shares pursuant to the 2015 Incentive Plan. The grant will vest in full on July 15, 2018. |
(4) | The amounts in column (j) represent the number of shares of Ashland common stock that may be issued to Valvoline named executive officers upon exercise of SARs granted under the 2011 Incentive Plan in fiscal 2015. All SARs were granted at an exercise price of $112.91 per share, the closing price of Ashland Stock as reported on the NYSE on November 12, 2014, the date of grant. |
(5) | The dollar amounts in column (l) are calculated in accordance with FASB ASC Topic 718 and assume (i) payment of Performance Units at target ($108.44 per unit for the ROI portion, based on the closing price of Ashland common stock on the date of grant, discounted for the dividends forgone during the vesting period of the three-year performance cycle, and $135.29 per unit for the TSR portion, based on a Monte Carlo simulation valuation using a risk-free interest rate of 0.1%-1.0%, an expected dividend yield of 1.4%, an expected volatility of 24.2% and an expected life of 3 years, for a weighted average price of $121.87 per unit); (ii) valuation of all SARs using the Black-Scholes valuation model ($30.69 per SAR granted on November 12, 2014, based on a risk-free interest rate of 1.7%, an expected dividend yield of 1.2%, expected volatility of 31.8% and an expected life of 5 years) and (iii) the grant date fair value of RS using the closing price of Ashland common stock of $112.91 on November 12, 2014, and $119.70 on July 15, 2015, all as reported on the NYSE. |
Narrative Summary
Annual Incentive Compensation
Incentive compensation for executives is primarily awarded annually, contingent upon meeting applicable targets. After the beginning of each fiscal year, performance hurdle, target and maximum objectives are established for the upcoming year. Awards for the Valvoline named executive officers are based upon overall Ashland performance as well as the performance of Valvoline.
This Executive Compensation section discusses the fiscal 2015 performance goals as well as other aspects of this program.
Long-Term Equity Incentive Plan
Performance Units
Performance Units, granted under the LTIP, are available to certain key employees. These awards are long-term incentives tied to Ashlands ROI and TSR over the performance period. Awards are granted annually, with each award covering a three-year performance period.
After the beginning of the performance period, performance hurdle, target and maximum objectives are established for the performance period. The initial number of Performance Units awarded is based on the employees salary or midpoint of salary band depending on salary band. This Executive Compensation section discusses fiscal 2015-2017 LTIP awards.
Stock Appreciation Rights
Ashlands employee SARs program is a long-term equity incentive plan designed to link executive compensation with increased shareholder value over time. In determining the amount of SARs to be granted annually to key employees, a target number of shares for each employee band level is established. All SARs are granted with an exercise price equal to the fair market value of Ashland common stock on the date of grant. Vesting of SARs occurs over a period of three years, as more fully described in footnote (1) of the Outstanding Equity Awards at Fiscal Year-End table in this prospectus. For accelerated vesting events, see the Potential Payments upon Termination or Change in Control for Fiscal 2015SARs/Stock Options, Incentive Compensation, Restricted Stock/Restricted Stock Units and Performance Units section in this prospectus. SARs are not re-valued if the stock price declines below the grant price. This Executive Compensation section discusses the aspects of this program.
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Restricted Stock/Restricted Stock Units
Ashlands RS program is a long-term incentive plan designed to link executive compensation with increased shareholder value over time. In determining the amount of RS to be granted annually to key employees, a target number of shares for each employee band level is established. All RS is granted with a price equal to the fair market value of Ashlands common stock on the date of grant. Vesting of the annual grant of RS occurs over a period of three years, as more fully described in footnote (2) of the Outstanding Equity Awards at Fiscal Year-End table in this prospectus.
The P&C Committee may award restricted shares of Ashland common stock and/or restricted share units to plan participants. RS are intended to reward superior performance and encourage continued employment with Ashland. For vesting periods applicable to restricted Ashland common stock granted to the Valvoline named executive officers, see footnote (2) of the Outstanding Equity Awards at Fiscal Year-End table in this prospectus.
RS may not be sold, assigned, transferred or otherwise encumbered during the restricted period. Dividends are paid on the restricted shares with additional shares of RS which are subject to the same vesting requirements. For accelerated vesting events, see the Potential Payments upon Termination or Change in Control for Fiscal 2015SARs/Stock Options, Incentive Compensation, Restricted Stock/Restricted Stock Units and Performance Units section in this prospectus. Beginning in fiscal 2016, Ashland began granting RSUs in lieu of RS. The terms of the RSUs are generally the same as RS, except RSUs will not have voting rights and will not be counted as outstanding shares.
Treatment of Outstanding Long-Term Incentive Equity Compensation in the Offering
No adjustments will be made to outstanding Ashland long-term incentive equity compensation awards in connection with this offering.
Outstanding Ashland long-term incentive equity compensation awards held by our employees at the time of the spin-off generally will be converted entirely into equivalent awards with respect to our common stock at the time of the spin-off, with adjustments to preserve the aggregate value of the award. Outstanding 2015-2017 LTIP performance units held by our employees at the time of the spin-off will be converted into time-based restricted stock units, based on performance achieved as of the spin-off. Any outstanding 2016-2018 LTIP performance units and any performance units granted following this offering that are held by our employees at the time of the spin-off will be converted into time-based restricted stock units, based on performance achieved through the end of the applicable performance period, in accordance with the terms of the award. Outstanding 2014-2016 LTIP performance units will vest in November 2016 and will be settled in Ashland common stock in accordance with their terms. Long-term incentive awards granted outside of the U.S. will generally be treated as described above, except to the extent otherwise required by local law.
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Outstanding Equity Awards at Fiscal 2015 Year-End
The following table sets forth certain information regarding SARs, Performance Units and RS held by each of the Valvoline named executive officers as of September 30, 2015.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name
|
Number of
Securities Underlying Unexercised Options Exercisable (1) (#) (b) |
Number of
Securities Underlying Unexercised Options Unexercisable (1) (#) (c) |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) |
Option
Exercise Price ($) (e) |
Option
Expiration Date (f) |
Number
of Shares or Units of Stock That Have Not Vested (2) (#) (g) |
Market
Value of Shares or Units of Stock That Have Not Vested (2) ($) (h) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (3) (#) (i) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (3) ($) (j) |
|||||||||||||||||||||||||||
S.J. Mitchell |
0 | 5,900 | (4) | 0 | 112.91 | 12/12/2024 | ||||||||||||||||||||||||||||||
3,100 | 3,100 | (5) | 0 | 89.69 | 12/13/2023 | |||||||||||||||||||||||||||||||
8,625 | 2,875 | (6) | 0 | 70.37 | 12/14/2022 | |||||||||||||||||||||||||||||||
9,700 | 0 | 0 | 55.56 | 01/02/2022 | ||||||||||||||||||||||||||||||||
9,300 | 0 | 0 | 51.86 | 12/17/2020 | ||||||||||||||||||||||||||||||||
12,300 | 0 | 0 | 65.78 | 12/15/2016 | ||||||||||||||||||||||||||||||||
14,015 | 1,411,397 | 6,000 | 603,720 | |||||||||||||||||||||||||||||||||
C.A. Moughler |
0 | 1,450 | (4) | 0 | 112.91 | 12/12/2024 | ||||||||||||||||||||||||||||||
750 | 750 | (5) | 0 | 89.69 | 12/13/2023 | |||||||||||||||||||||||||||||||
275 | 775 | (6) | 0 | 70.37 | 12/14/2022 | |||||||||||||||||||||||||||||||
1,200 | 0 | 0 | 55.56 | 01/02/2022 | ||||||||||||||||||||||||||||||||
5,500 | 0 | 0 | 10.72 | 12/20/2018 | ||||||||||||||||||||||||||||||||
1,602 | 161,193 | 1,500 | 150,930 | |||||||||||||||||||||||||||||||||
F.E. Lockwood |
0 | 1,450 | (4) | 0 | 112.91 | 12/12/2024 | ||||||||||||||||||||||||||||||
750 | 750 | (5) | 0 | 89.69 | 12/13/2023 | |||||||||||||||||||||||||||||||
2,325 | 775 | (6) | 0 | 70.37 | 12/14/2022 | |||||||||||||||||||||||||||||||
2,700 | 0 | 0 | 55.56 | 01/02/2022 | ||||||||||||||||||||||||||||||||
5,673 | 570,817 | 1,500 | 150,930 | |||||||||||||||||||||||||||||||||
H.J. Matheys |
0 | 1,450 | (4) | 0 | 112.91 | 12/12/2024 | ||||||||||||||||||||||||||||||
750 | 750 | (5) | 0 | 89.69 | 12/13/2023 | |||||||||||||||||||||||||||||||
0 | 400 | (6) | 0 | 70.37 | 12/14/2022 | |||||||||||||||||||||||||||||||
1,113 | 111,990 | 1,500 | 150,930 |
(1) | The numbers in columns (b) and (c) relate to SARs, 50% of which vest on the first anniversary of the grant date and 25% of which vest on each of the second and third anniversaries of the grant date. |
(2) | The numbers in column (g) and the dollar values in column (h) represent the number of shares earned for the fiscal 2013-2015 LTIP performance period (which is payable in stock or cash) and/or unvested RS. The number of shares of Ashland common stock earned for the fiscal 2013-2015 LTIP awards was determined by the P&C Committee in November 2015 and became vested when paid in November 2015. For Messrs. Mitchell and Moughler and Mses. Lockwood and Matheys, the amount reported in columns (g) and (h) represent 3,423; 978; 978; and 489 shares of Ashland common stock, respectively. |
The following paragraphs list the unvested RS as of September 30, 2015 for each named executive officer. Unless otherwise noted, the RS vests 33.3% at the end of year one, 33.3% at the end of year two and 33.4% at the end of year three.
For Mr. Mitchell, the amounts reported in columns (g) and (h) include the following: (a) 1,133 RS remaining from a grant of 1,700 RS granted November 13, 2013, and 30 RS earned from dividends; (b) 1,400 RS granted on November 12, 2014 and 12 RS earned from dividends; and (c) 8,000 RS granted on July 15, 2015, that will vest 100% on July 15, 2018, and 29 RS earned from dividends.
For Mr. Moughler, the amounts reported in columns (g) and (h) include the following: (a) 267 RS remaining from a grant of 400 RS granted November 13, 2013, and 5 RS earned from dividends; and (b) 350 RS granted on November 12, 2014 and 2 RS earned from dividends.
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For Ms. Lockwood, the amounts reported in columns (g) and (h) include the following: (a) 267 RS remaining from a grant of 400 RS granted November 13, 2013, and 5 RS earned from dividends; (b) 4,000 RS granted on April 1, 2014, that will vest 50% on April 1, 2016 and 50% on April 1, 2017, and 71 RS earned from dividends; and (c) 350 RS granted on November 12, 2014 and 2 RS earned from dividends.
For Ms. Matheys, the amounts reported in columns (g) and (h) include the following: (a) 267 RS remaining from a grant of 400 RS granted November 13, 2013, and 5 RS earned from dividends; and (b) 350 RS granted on November 12, 2014 and 2 RS earned from dividends.
(3) | The numbers in column (i) represent the estimated units granted through September 30, 2015, under the LTIP for the fiscal 2014-2016 and the fiscal 2015-2017 performance periods. The estimated number is computed assuming that the target performance goals are achieved. The dollar amounts in column (j) correspond to the units identified in column (i). The dollar value is computed by converting the units to shares of Ashland common stock on a one-for-one basis. The number of shares is then multiplied by the closing price of Ashland common stock of $100.62 as reported on the NYSE on September 30, 2015. Payment, if any, under the LTIP will generally be made in Ashland common stock for the fiscal 2014-2016 and the fiscal 2015-2017 performance periods. |
(4) | These numbers relate to SARs granted on November 12, 2014 that vest over the three-year period referenced in footnote (1) above. |
(5) | These numbers relate to SARs granted on November 13, 2013 that vest over the three-year period referenced in footnote (1) above. |
(6) | These numbers relate to SARs granted on November 14, 2012 that vest over the three-year period referenced in footnote (1) above. |
Option Exercises and Stock Vested for Fiscal 2015
The following table sets forth certain information regarding the value realized by each Valvoline named executive officer during fiscal 2015 upon the exercise of SARs and Performance Units and the vesting of RS.
Option Awards | Stock Awards | |||||||||||||||
Name
|
Number of
Shares Acquired on Exercise (1) (#) (b) |
Value Realized
on Exercise (1) ($) (c) |
Number of
Shares Acquired on Vesting (2)(3) (#) (d) |
Value Realized
on Vesting (2)(3) ($) (e) |
||||||||||||
S.J. Mitchell |
0 | 0 | 6,669 | 776,314 | ||||||||||||
C.A. Moughler |
1,500 | 112,625 | 1,775 | 206,696 | ||||||||||||
F.E. Lockwood |
2,500 | 187,050 | 1,775 | 206,696 | ||||||||||||
H.J. Matheys |
1,200 | 59,736 | 3,760 | 409,699 |
(1) | The amounts in column (b) represent the gross number of shares acquired on exercise of SARs. The amounts in column (c) represent the value realized on exercise. |
(2) | For Messrs. Mitchell and Moughler and Ms. Lockwood, the amounts in column (d) represent the shares of Ashland common stock received in settlement of the fiscal 2012-2014 LTIP. The dollar amounts in column (e) represent the value of the fiscal 2012-2014 LTIP (computed by multiplying the number of shares awarded by $116.74, the closing price of Ashland common stock as reported on December 2, 2014, the date the P&C Committee approved the payment). The weighted score for the 2012-2014 LTIP was 117.3%. |
(3) | The amounts in column (d) also include the following RS vestings: (i) Mr. Mitchell received 572 shares, with the value included in column (e) using the Ashland common stock closing price of $112.85 on November 13, 2014; (ii) Mr. Moughler received 133 shares, with the value included in column (e) using the Ashland common stock closing price of $112.85 on November 13, 2014; (iii) Ms. Lockwood received 133 shares, with the value included in column (e) using the Ashland common stock closing price of $112.85 on November 13, 2014; and (iv) Ms. Matheys received 133 shares, with the value included in column (e) using the Ashland common stock closing price of $112.85 on November 13, 2014 and she received 3,627 shares, with the value included in column (e) using the Ashland common stock closing price of $108.82 on September 24, 2015. |
147
Pension Benefits for Fiscal 2015
The following table shows the actuarial present value of the Valvoline named executive officers (other than Ms. Matheys) accumulated benefits under each of Ashlands qualified and non-qualified pension plans, calculated as of September 30, 2015. Ms. Matheys is not eligible to participate in the Pension Plan, the Excess Plans or the SERP.
Name
|
Plan Name
(1)
|
Number
Years
Service
(2)
|
Present Value of
Accumulated Benefit ($) (d) |
Payments
During Last Fiscal Year ($) (e) |
||||||||
S.J. Mitchell |
Ashland Hercules Pension Plan |
17 years 5 months |
217,612 | 0 | ||||||||
Ashland Inc. Excess Benefit Pension Plan |
17 years 5 months |
83,009 | 0 | |||||||||
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees |
18 years 5 months |
3,404,221 | 0 | |||||||||
C.A. Moughler |
Ashland Hercules Pension Plan |
26 years 6 months |
1,184,254 | 0 | ||||||||
Ashland Inc. Excess Benefit Pension Plan | 26 years 6 months | 131,220 | 0 | |||||||||
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees | 20 years | 872,047 | 0 | |||||||||
F.E. Lockwood |
Ashland Hercules Pension Plan | 20 years 5 months | 482,632 | 0 | ||||||||
Ashland Inc. Excess Benefit Pension Plan | 20 years 5 months | 1,567 | 0 | |||||||||
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees | 20 years | 788,472 | 0 |
(1) | The Ashland Hercules Pension Plan (the Pension Plan) is a tax-qualified plan under Section 401(a) of the Code. The Ashland Inc. Excess Benefit Pension Plan (the Ashland Excess Plan) is a non-qualified plan that is coordinated with the tax-qualified plan. The Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (the SERP) is a non-qualified plan. The material terms of each of these plans are described in the narrative below. |
(2) | The maximum number of years of credited service under the SERP is 20 years. The number of years of service for the SERP is measured from the date of hire. The number of years of service under the Pension Plan and the Excess Plans is measured from the date the named executive officer began participating in the Pension Plan. |
Assumptions
The present values of the accumulated benefits were calculated as of September 30, 2015, based on the earliest age a participant could receive an unreduced benefit under the qualified Pension Plan and the non-qualified Ashland Excess Plan because his or her qualified Pension Plan benefits are calculated under the cash balance pension formula.
The SERP provides an umbrella (or gross) benefit that is subject to certain reductions. The amount in the Pension Benefits table for the SERP benefit for applicable Valvoline named executive officers is the net benefit under the SERP, after applicable reductions. The reductions referred to in this paragraph are described in the Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP) section below.
148
Under the SERP, the earliest age a Valvoline named executive officer could receive a benefit is the earlier of age 55 or when the sum of the officers age and service equals at least 80, provided that the officer has at least 20 years of service under the plan.
The following material assumptions were used to quantify the present value of the named executive officers accumulated benefits: (i) for the Pension Plan, a 4.31% discount rate and the RP-2014 mortality table, adjusted to include the MP2015 mortality improvement projection scale; (ii) for the Ashland Excess Plan, an 8.00% lump sum rate, a 4.19% discount rate and the mortality assumptions prescribed under the Pension Protection Act of 2006; (iii) for the Pension Plan offset to the SERP, an 8.00% lump sum rate, a 4.29% discount rate and the GATT mortality table and (iv) for the Ashland Excess Plan offset to the SERP, an 8.00% lump sum rate, a 4.29% discount rate and the mortality assumptions prescribed under the Pension Protection Act of 2006.
Ashland Hercules Pension Plan (Pension Plan)
The Pension Plan is a tax-qualified defined benefit pension plan under Code Section 401(a). The Pension Plan provides retirement income for eligible participants. Beginning in January 2011, the Pension Plan was closed to new participants and to additional credits in the retirement growth account.
The Pension Plan has two benefit formulasa traditional formula, referred to as the annuity benefit, and a cash balance formula, referred to as the retirement growth account. The traditional formula produces an annuity benefit at retirement based on a percentage of final average compensation multiplied by years of plan service (see the description in the Traditional Benefit/Annuity Formula section below). The cash balance formula produces a hypothetical account balance based on the sum of contribution credits and interest on those contribution credits (see the description in the Retirement Growth Account Benefit/Cash Balance Formula section below). In general, participants who were actively employed by Ashland on June 30, 2003, with at least 10 years of service remained in the annuity benefit formula. All other participants moved to the retirement growth account formula. The formula under which a participants benefit is computed is a matter of plan design and not participant election.
If a participant has a benefit payable from the LESOP, then the participants LESOP offset account reduces the amount payable to the participant, regardless of the formula under which the participants benefit is paid. At termination from employment, the participant may elect to transfer the LESOP offset account to the Pension Plan and receive an unreduced Pension Plan benefit.
Years of service in addition to what is actually incurred under the Pension Plan cannot be granted. However, in the case of an acquisition, prior service with the acquired business is often counted for purposes of vesting and eligibility, but not for purposes of benefit accrual under the annuity benefit formula. These same rules apply equally to the Excess Plans.
Traditional Benefit/Annuity Formula
Under this formula, for certain highly compensated employees, compensation only includes base compensation, up to the maximum allowed under Code Section 401(a)(17). For all other participants, compensation includes bonus amounts. This applies to both the annuity formula and the cash balance formula.
The final average compensation formula is the average for a 48 consecutive month period producing the highest average for the last 120 months of credited service. For participants who were employees of Hercules prior to the acquisition, the final average compensation is the average for the 60 consecutive month period producing the highest average for the last 120 months of credited service.
The annual annuity benefit formula is:
(1.08% x final average compensation up to $10,700) + (1.5% x final average compensation exceeding $10,700)
x
(years of credited service, which means years as a participant in the plan up to a maximum of 35 years)
149
For participants who were employees of Hercules prior to the acquisition, the annual annuity benefit formula is:
(1.2% x final average compensation up to $53,400) + (1.6% x final average compensation exceeding $53,400)
x
(years of credited service)
The normal form of benefit payment under the annuity benefit is a single life annuity. However, as required by federal law, the normal form of benefit for a married participant is a joint and survivor annuity, unless the spouse consents to a different benefit distribution. A participant may also elect a non-spousal joint and survivor annuity or a 10-year term certain annuity. All payment forms are actuarially equivalent.
The normal retirement age is 65, but an unreduced benefit is paid for retirement at age 62. A participant may retire early once the participant is either at least age 55 or when the sum of the participants age and service equals at least 80.
Retirement Growth Account Benefit/Cash Balance Formula
Under this formula, contribution credits are accumulated in a notional account. Interest credits are allocated to each participants account monthly. The interest rate is from a minimum of 4.0% to a maximum of 7.0% and is set at the beginning of each plan year. The interest rate for fiscal 2015 was 4.0%.
The accrued benefit under this formula is the balance in the retirement growth account. The benefit is payable in the same forms that apply to the annuity benefit formula or may be paid as a single lump sum.
The normal retirement age under the retirement growth account formula is also age 65. The earliest that a participant can receive an unreduced benefit is at age 55 with at least five years of service.
Non-Qualified Excess Defined Benefit Pension Plans (Excess Plans) and Non-Qualified Supplemental Defined Contribution Plan (NQDC Plan)
The Excess Plans are unfunded, non-qualified plans providing a benefit payable, based on the applicable named executive officers pension plan eligibility, equal to the difference between the benefit under the Pension Plan in the absence of the Code limits (the gross benefit) and the actual benefit that would be payable under the Pension Plan.
The Excess Plans cover employees (i) who are eligible for the Pension Plan and whose benefit under the Pension Plan is limited because of either Code Section 401(a)(17) or Section 415(b) and (ii) who are not terminated for cause as defined in the Excess Plans. For purposes of computing the Excess Plans benefits, a participants compensation is defined the same as it is for the Pension Plan. However, the limits on the compensation under the Pension Plan that are imposed by the Code do not apply under the Excess Plans.
The benefit under the Excess Plans is payable in a lump sum and may be transferred to the Employees Deferral Plan. A benefit payable to certain highly compensated participants cannot be paid for six months following separation from service. Messrs. Mitchell and Moughler and Ms. Lockwood participate in an Excess Plan.
The Non-Qualified Supplemental Defined Contribution Plan (the NQDC Plan) is an unfunded, non-qualified plan that provides a contribution equivalent to Ashland match and supplemental company contributions on annual incentive compensation paid and eligible earnings in excess of limits established under Code Section 401(a)(17) not permitted in the qualified 401(k) plan. The account balance may be invested in the mutual funds available in the Employees Deferral Plan (see Ashland Inc. Employees Deferral Plan). The benefit
150
payable under the NQDC Plan will be made in installments or as a lump sum based on distribution elections. Named executive officers and certain other highly compensated participants cannot begin to receive distributions for six months following separation from service. Ms. Matheys participates in the NQDC Plan. The NQDC Plan was amended on May 13, 2015 to fix the Substitute Contribution at four percent of Participants Incentive Compensation, Excess Base Compensation and Excess Base Compensation Deferrals for the Plan Year (each as defined in the NQDC Plan). In addition, the one-year service requirement was removed from the NQDC Plan allowing immediate participation in the NQDC Plan upon hire.
Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (SERP)
The SERP is an unfunded, non-qualified plan allowing designated employees to retire prior to their sixty-fifth birthday without an immediate substantial loss of income. The SERP is a supplemental retirement arrangement for a select group of management participating in the SERP as of December 31, 2010. Beginning January 1, 2011, the eligibility for this program was restricted to employees participating in the Pension Plan who were subsequently promoted into an executive level position, on or after January 1, 2011. Employees not eligible for the Pension Plan who would have otherwise been eligible to participate in the SERP will now participate only in the NQDC Plan.
The SERP benefit formula covering the applicable named executive officers and certain other designated executive level participants provides a benefit of 25% of final average compensation multiplied by the participants years of service up to 20 years. For this purpose, the final average compensation formula is total compensation (base plus incentive compensation) for the 36 months out of the 84 months before retirement that produces the highest average.
The applicable named executive officers may retire on the earlier of age 55 with three years of service or when the sum of the executives age and service equals at least 80. The benefit produced by the above described formula is subject to proportionate reduction for each year of service credited to the participant that is less than 20 years of service. Additionally, the benefit is reduced by the sum of the following:
| the participants qualified Pension Plan benefit (assuming the LESOP offset account is transferred to the Pension Plan); |
| the participants Excess Plans benefit; and |
| 50% of any shares of Ashland common stock that could not be allocated to the participants account in the LESOP due to Code limits. |
SERP benefits become vested upon attaining three years of service. Messrs. Mitchell and Moughler and Ms. Lockwood are vested in the SERP. Ms. Matheys is not eligible to participate in the SERP.
The SERP benefit is payable in a lump sum and may be transferred to the Employees Deferral Plan. Distributions to certain highly compensated participants cannot begin until six months after separation from service.
The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach in the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.
Ordinarily, years of service in addition to what is actually incurred are not granted. However, in the case of an acquisition, prior service with the acquired business is counted for purposes of vesting but not for calculating benefits under the SERP.
151
The SERP was amended on July 15, 2015 to stipulate designated employees participating in the SERP as of December 30, 2010 shall continue to have their benefit calculated on 36 months out of the 84 months before retirement that produces the highest average. Designated employees entering the SERP on or after January 1, 2011 shall have their benefit calculated on 60 months out of 120 months before retirement that produces the highest average. On November 18, 2015, the P&C Committee took action to close the SERP to those participating in the Pension Plan who receive an executive level promotion. The SERP is now closed to all new participants.
Non-Qualified Deferred Compensation for Fiscal 2015
The following table sets forth certain information for each of the Valvoline named executive officers regarding non-qualified deferred compensation for fiscal 2015.
Name
|
Executive
Contributions in Last FY (1) ($) (b) |
Registrant
Contributions in Last FY (2) ($) (c) |
Aggregate
Earnings/ (Investment Change) in Last FY (3) ($) (d) |
Aggregate
Withdrawals/ Distributions in Last FY ($) (e) |
Aggregate
Balance at September 30, 2015 ($) (f) |
|||||||||||||||
S.J. Mitchell |
85,530 | 0 | (130,597 | ) | 0 | 6,364,231 | ||||||||||||||
C.A. Moughler |
0 | 0 | (8,697 | ) | (3,816 | ) | 528,563 | |||||||||||||
F.E. Lockwood |
0 | 0 | 6,240 | 0 | 725,584 | |||||||||||||||
H.J. Matheys |
0 | 9,462 | (33 | ) | 0 | 14,848 |
(1) | The value for Mr. Mitchell included in column (b) relates to the deferral of a portion of his salary in fiscal 2015 and is included in column (c) of the Summary Compensation Table in this prospectus. |
(2) | The value in column (c) for Ms. Matheys relates to a contribution equivalent to the company match and supplemental company contributions on annual incentive compensation and base pay in excess of limits established under Code Section 401(a)(17) and not permitted in the qualified 401(k) plan. This amount is reported in column (i) of the Summary Compensation Table (inclusive of taxes) in this prospectus. |
(3) | Aggregate earnings are composed of interest, dividends, capital gains and appreciation/depreciation of investment results. These earnings are not included in the Summary Compensation Table in this prospectus. |
Ashland Inc. Employees Deferral Plan
The Employees Deferral Plan is an unfunded, non-qualified deferred compensation plan for a select group of highly compensated employees. Participants may elect to have up to 50% of base pay and up to 100% of their incentive compensation and/or Performance Units contributed to the plan. Elections to defer compensation must be made in the calendar year prior to the calendar year in which payment is received.
Participants elect how to invest their account balances from among a diverse set of mutual fund offerings and a hypothetical Ashland common stock fund. No guaranteed interest or earnings are available and there are no above market rates of return on investments in the plan. Beginning October 1, 2000, investments in Ashland common stock units must remain so invested and must be distributed as Ashland common stock. Beginning with January 2016, LTIP deferrals paid in stock must be invested in Ashland common stock and must remain unchanged. In all other events, participants may freely elect to change their investments. Withdrawals are allowed for an unforeseeable emergency (single sum payment sufficient to meet the emergency), disability (lump sum payment), upon separation from employment (payable as lump sum or installments per election) and at a specified time (paid as single sum). In addition, for pre-2005 contributions, participants may elect to have withdrawals paid in a lump sum (subject to a penalty of up to 10%).
A description of the NQDC Plan is included in the narrative to the Pension Benefits table in this prospectus.
152
Potential Payments upon Termination or Change in Control for Fiscal 2015
The following table summarizes the estimated amounts payable to each Valvoline named executive officer in the event of a termination from employment or change in control as of September 30, 2015. A narrative description follows the table. Different termination events are identified in columns (b)-(g). Column (a) enumerates the types of potential payments for each Valvoline named executive officer. As applicable, each payment or benefit is estimated across the table under the appropriate column or columns.
These estimates are based on the assumption that the various triggering events occur on September 30, 2015, the last day of the 2015 fiscal year. The equity incentive-based components are based on the closing price of Ashlands common stock as of September 30, 2015 ($100.62). Other material assumptions used in calculating the estimated compensation and benefits under each triggering event are noted below. The actual amounts that would be paid to a Valvoline named executive officer upon certain terminations of employment or upon a change in control can only be determined at the time an actual triggering event occurs.
Name/Kinds of
Payments
|
Termination
prior to a Change in Control of Company without Cause ($) (b) |
Disability
(6) ($) (c) |
Voluntary
Resignation or Involuntary Termination for Cause (7) ($) (d) |
Retirement
(8) ($) (e) |
Change in
Control without Termination (9) ($) (f) |
Termination
after Change in Control of Company without Cause or by Executive for Good Reason (10) ($) (g) |
||||||||||||||||||
S. J. Mitchell |
||||||||||||||||||||||||
Cash severance |
705,337 | 0 | 0 | 0 | 0 | 1,707,217 | ||||||||||||||||||
Accelerated SARs (1)(12) |
120,852 | 0 | 0 | 0 | 120,852 | 0 | ||||||||||||||||||
Restricted stock (11)(12) |
211,403 | 0 | 0 | 0 | 262,014 | 804,960 | ||||||||||||||||||
LTIP (2) |
656,347 | 656,347 | 0 | 656,347 | 948,142 | 7,748 | ||||||||||||||||||
Incentive compensation (3) |
485,816 | 485,816 | 0 | 485,816 | 485,816 | 0 | ||||||||||||||||||
Welfare benefit |
10,403 | 0 | 0 | 0 | 0 | 32,284 | ||||||||||||||||||
Outplacement |
7,000 | 0 | 0 | 0 | 0 | 7,000 | ||||||||||||||||||
Financial planning |
5,000 | 0 | 0 | 0 | 0 | 5,000 | ||||||||||||||||||
280G excise tax gross-up (4) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Present value of retirement benefits (5) |
0 | 0 | 0 | 0 | 0 | 418,254 | ||||||||||||||||||
Total |
2,202,158 | 1,142,163 | 0 | 1,142,163 | 1,816,824 | 2,982,463 | ||||||||||||||||||
C.A. Moughler |
||||||||||||||||||||||||
Cash severance |
319,947 | 0 | 0 | 0 | 0 | 319,947 | ||||||||||||||||||
Accelerated SARs (1)(12) |
27,543 | 0 | 0 | 0 | 31,641 | 0 | ||||||||||||||||||
Restricted stock (11)(12) |
25,457 | 0 | 0 | 0 | 62,787 | 0 | ||||||||||||||||||
LTIP (2) |
175,548 | 175,548 | 0 | 175,548 | 249,336 | 0 | ||||||||||||||||||
Incentive compensation (3) |
175,436 | 175,436 | 0 | 175,436 | 175,436 | 0 | ||||||||||||||||||
Welfare benefit |
12,028 | 0 | 0 | 0 | 0 | 12,028 | ||||||||||||||||||
Outplacement |
7,000 | 0 | 0 | 0 | 0 | 7,000 | ||||||||||||||||||
Financial planning |
1,500 | 0 | 0 | 0 | 0 | 1,500 | ||||||||||||||||||
280G excise tax gross-up (4) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Present value of retirement benefits (5) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total |
744,459 | 350,984 | 0 | 350,984 | 519,200 | 340,475 | ||||||||||||||||||
F.E. Lockwood |
||||||||||||||||||||||||
Cash severance |
298,776 | 0 | 0 | 0 | 0 | 298,776 | ||||||||||||||||||
Accelerated SARs (1)(12) |
27,543 | 0 | 0 | 0 | 31,641 | 0 | ||||||||||||||||||
Restricted stock (11)(12) |
230,219 | 0 | 0 | 0 | 472,411 | 0 | ||||||||||||||||||
LTIP (2) |
175,548 | 175,548 | 0 | 175,548 | 249,336 | 0 | ||||||||||||||||||
Incentive compensation (3) |
162,745 | 162,745 | 0 | 162,745 | 162,745 | 0 | ||||||||||||||||||
Welfare benefit |
10,693 | 0 | 0 | 0 | 0 | 10,693 | ||||||||||||||||||
Outplacement |
7,000 | 0 | 0 | 0 | 0 | 7,000 | ||||||||||||||||||
Financial planning |
1,500 | 0 | 0 | 0 | 0 | 1,500 | ||||||||||||||||||
280G excise tax gross-up (4) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Present value of retirement benefits (5) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total |
914,023 | 338,293 | 0 | 338,293 | 916,134 | 317,969 |
153
Name/Kinds of
Payments
|
Termination
prior to a Change in Control of Company without Cause ($) (b) |
Disability
(6) ($) (c) |
Voluntary
Resignation or Involuntary Termination for Cause (7) ($) (d) |
Retirement
(8) ($) (e) |
Change in
Control without Termination (9) ($) (f) |
Termination
after Change in Control of Company without Cause or by Executive for Good Reason (10) ($) (g) |
||||||||||||||||||
H.J. Matheys |
||||||||||||||||||||||||
Cash severance |
291,199 | 0 | 0 | 0 | 0 | 291,199 | ||||||||||||||||||
Accelerated SARs (1) |
0 | 0 | 0 | 0 | 20,298 | 0 | ||||||||||||||||||
Restricted stock (11) |
0 | 0 | 0 | 0 | 62,787 | 0 | ||||||||||||||||||
LTIP (2) |
126,345 | 126,345 | 0 | 126,345 | 200,133 | 0 | ||||||||||||||||||
Incentive compensation (3) |
183,088 | 183,088 | 0 | 183,088 | 183,088 | 0 | ||||||||||||||||||
Welfare benefit |
1,945 | 0 | 0 | 0 | 0 | 1,945 | ||||||||||||||||||
Outplacement |
7,000 | 0 | 0 | 0 | 0 | 7,000 | ||||||||||||||||||
Financial planning |
1,500 | 0 | 0 | 0 | 0 | 1,500 | ||||||||||||||||||
280G excise tax gross-up (4) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Present value of retirement benefits (5) |
0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||
Total |
611,077 | 309,433 | 309,433 | 466,306 | 301,644 |
(1) | A change in control without termination results in unvested SARs becoming immediately vested for SARs granted under the 2011 Incentive Plan. See the Outstanding Equity Awards at Fiscal Year-End table in this prospectus for the number of SARs outstanding for each named executive officer. As discussed below and in footnote 11, grants of SARs for fiscal 2016 under the 2015 Incentive Plan after the July 15, 2015 amendment have been made using the Double-Trigger Award Agreements. |
(2) | The LTIP amounts identified in all of the columns except for columns (f) and (g) are based on the actual results for the fiscal 2013-2015 performance period and pro-rata payments under the LTIP for the fiscal 2014-2016 and fiscal 2015-2017 performance periods at their respective targets (to the extent the named executive officer received a grant). If one of the events represented by columns (b), (c) or (e) occurred, the pro-rata payments would be based on actual results, rather than target. |
Pursuant to the 2011 Incentive Plan and the related award agreements, in the event of a change in control without termination as of September 30, 2015, as reported in column (f), the calculation would be based on the actual results for the fiscal 2013-2015 performance period. The fiscal 2014-2016 and fiscal 2015-2017 performance periods would be accelerated and payment would be made based on actual results up to the date of the change in control. For purposes of this table, column (f) is calculated based on achievement of target for the fiscal 2014-2016 and fiscal 2015-2017 performance periods.
Pursuant to the executive change in control agreements, the amount identified in column (g) of this table for Mr. Mitchell represents the LTIP Performance Units that are outstanding being paid at target, reduced by the amount the executive would receive as a result of a change in control identified in column (f).
As discussed below and in footnote 11, grants of performance units in fiscal 2016 to named executive officers were made pursuant to Double-Trigger Award Agreements under the 2015 Incentive Plan.
(3) | The amounts identified in the Incentive Compensation row of columns (b), (c) and (e) represent a payment of the fiscal 2015 annual incentive compensation based on actual results for the entire performance period. Upon a change in control, the performance period relating to any incentive award will be accelerated and payment will be made based upon achievement of the performance goals up to the date of the change in control. The amounts identified in the Incentive Compensation row of column (f) reflect this payment, based on actual results for the fiscal year. |
(4) | Section 280G of the Code applies if there is a change in control of Ashland, compensation is paid to a named executive officer as a result of the change in control (parachute payments), and the present value of the parachute payments is 300% or more of the executives base amount, which equals the average W-2 income for the five-calendar-year period immediately preceding the change in control. If Section 280G applies, then the named executive officer is subject to an excise tax, under Section 4999(a) of the Code, equal to 20% of the amount of the parachute payments in excess of the base amount (the excess parachute payments), in addition to income and employment taxes. Moreover, Ashland is denied a federal income tax deduction for the excess parachute payments. The amounts in the 280G Excise Tax Gross-Up row of columns (f) and (g) reflect a tax gross-up, if any, for the excise and related taxes, as required under the terms of the executive change in control agreements described below, which was effective on September 30, 2015. The calculations are based on the following assumptions: (i) an excise tax rate of 20% and a combined federal, state and local income and employment tax rate of 51%, (ii) a discount rate of 0.43%, and (iii) no amounts were allocated to the non-solicitation of non-competition covenants contained in the executive change in control agreements. See below for a discussion of the 2015 change in control agreements, which eliminate all legacy gross-up provisions in Ashlands change in control agreements. |
(5) | The present value of each applicable named executive officers retirement benefits as of September 30, 2015 (absent a change in control), is in the Pension Benefits table to this prospectus. The account balances for each named executive officer as of September 30, 2015 in the Employees Deferral Plan are identified in the Non-Qualified Deferred Compensation table to this prospectus. |
A change in control results in an additional three years each of age and service being credited to the calculation of Mr. Mitchells benefit under the SERP. The present value of this incremental additional benefit is identified in the Present Value of Retirement Benefits row of
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this table in column (f) for the applicable named executive officers. Mr. Mitchell gains a benefit from the additional age and service because he has less than the 20 years necessary for a full SERP benefit, therefore, the additional service credit brings him closer to a full SERP benefit.
(6) | For purposes of column (c), it is assumed that the named executive officer incurred a disabling event and termination on September 30, 2015. No pre-retirement mortality assumption applies and the interest rate used is 8.01%. Subject to coordination with other income received while disabled, the Long Term Disability Plan provides a benefit equal to 60% of base compensation. The compensation covered by the plan is limited in 2015 to $10,000 per month. If the named executive officer died, his beneficiaries would receive the same accelerated vesting of the Performance Unit as the named executive officer would in the event of disability. The named executive officers also participate in a group variable universal life plan that is available to certain highly compensated employees. In the event of death, the executive receives the same benefits as identified with regard to disability in addition to the face amount of the policy plus their own invested amounts. For Messrs. Mitchell and Moughler and Mses. Matheys and Lockwood, the death benefits as of September 30, 2015 would be: $500,124, $1,077,187, $500,018, and $564,048, respectively. |
(7) | Ashland does not maintain any plans or arrangements that would provide additional or enhanced benefits to the named executive officers solely as a result of a voluntary termination. |
(8) | The requirements for retirement and receiving benefits under the retirement plans are described under the Pension Benefits table to this prospectus. |
(9) | Under the Employees Deferral Plan, in an event of a change in control, the named executive officers will receive an automatic lump sum distribution of the benefit for deferrals made before January 1, 2005. Deferrals made on or after January 1, 2005 will not be automatically distributed upon a change in control, but rather will be distributed pursuant to each employees election and valued at the time of the distribution. To the extent that an executives account is invested in hypothetical shares of Ashland common stock, those shares would be valued at the highest price for which Ashland common stock closed during the 30 days preceding the change in control. |
(10) | A termination after a change in control assumes a termination at September 30, 2015 and the change in control occurring at an earlier time. Therefore, column (f) would have already been received by the named executive officer. |
(11) | As described below, the P&C Committee approved Double-Trigger Award Agreements that can be used under the 2015 Incentive Plan and provide benefits upon a change in control and qualifying termination. |
(12) | Because Messrs. Mitchell and Moughler and Ms. Lockwood are retirement eligible, under the Severance Pay Plan they would be eligible for payroll continuation. As such, during the payroll continuation period, their SARs would continue to vest and any RS that would have vested during that time would be accelerated pursuant to authorization of the P&C Committee. |
Severance Pay Plan
The Valvoline named executive officers are covered by the Severance Pay Plan that provides benefits in the event of a covered termination from employment in the absence of a change in control. A termination for which benefits under the plan will be considered include those directly resulting from the permanent closing of a facility, job discontinuance, or other termination at Ashlands initiative for which Ashland elects to provide benefits. Certain terminations are excluded from coverage by the Severance Pay Plan (for example, refusal to sign a severance agreement and release; discharge for less than effective performance, absenteeism or misconduct; or voluntary resignation).
In order for any executive to receive benefits and compensation payable under the Severance Pay Plan, the executive must agree to a general release of liability which relates to the period of employment and the termination. In addition, the executive must agree to refrain from engaging in competitive activity against Ashland and refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashlands business for a stated period of time following the termination. The executive must also agree not to disclose Ashlands confidential information.
The benefit payable under the Severance Pay Plan to the Valvoline named executive officers is 52 weeks of base pay. Payments will be made as payroll continuation in bi-weekly increments if the executive is retirement eligible (or would be at the end of the payroll continuation period). If the executive is not retirement eligible or paying the benefit as payroll continuation will not make the executive retirement eligible, the benefit is paid as a lump sum. Payment of such amounts may be subject to a six-month deferral in order to comply with Section 409A of the Code.
Any executive who receives payroll continuation may also remain in the medical, dental, vision, group life and pension plans for the executives benefit continuation period. The benefit continuation period in that case is two weeks for each completed year of service, with a maximum of 52 weeks. Any executive who receives a lump sum severance benefit will be eligible to elect COBRA continuation of coverage at active employee rates for a period of three months and at full cost thereafter.
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Executive Change in Control Agreements
Mr. Mitchell has a change in control agreement with Ashland. This agreement describes the payments and benefits to which an executive is entitled if terminated after a change in control. The agreements in effect as of September 30, 2015 are described below.
If within two years after a Change in Control (as defined in the Definitions section below) Mr. Mitchells employment is terminated without Cause or the executive terminates employment for Good Reason (each as defined in the Definitions section below), he will be entitled to the following:
| payment of two times the sum of his highest annual base compensation and highest target percentage annual incentive compensation in respect of the prior three fiscal years preceding the fiscal year in which the termination occurs in a lump sum paid in the seventh month following termination; |
| continued participation in Ashlands medical, dental and group life plans through December 31 of the second calendar year following the calendar year in which he was terminated; |
| full payment at target in cash of any Performance Units granted under LTIP outstanding as of his termination (less any amounts already paid under the LTIP because of the change in control); |
| payment in cash of all prior existing incentive compensation not already paid and pro-rata payment of any incentive compensation for the fiscal year in which he terminates at target level; |
| outplacement services and financial planning services for one year after termination; |
| payment of all unused, earned and accrued vacation in a lump sum in the seventh month following termination; and |
| immediate vesting of all outstanding RS/RSUs, SARs and stock options. |
As a condition to receiving the benefits and compensation payable under the agreement, Mr. Mitchell has agreed for a period of 24 months following the termination, absent prior written consent of Ashlands General Counsel, to refrain from engaging in competitive activity against Ashland; and to refrain from soliciting persons working for Ashland, soliciting customers of Ashland or otherwise interfering with Ashlands business relationships. Pursuant to the agreement, Mr. Mitchell has also agreed not to disclose confidential information. If Mr. Mitchell breaches the agreement, Ashland has the right to recover benefits that have been paid to him. Finally, Mr. Mitchell may recover legal fees and expenses incurred as a result of Ashlands unsuccessful legal challenge to the agreement or Mr. Mitchells interpretation of the agreement.
Definitions
Cause is any of the following:
| willfully failing to substantially perform duties after a written demand for such performance (except in the case of disability); |
| willfully engaging in gross misconduct demonstrably injurious to Ashland after a written request to cease such misconduct; or |
| conviction or plea of nolo contendere for a felony involving moral turpitude. |
| To be terminated for cause, the board of directors must pass a resolution by three quarters vote finding that the termination is for cause. |
Good reason includes any of the following that occurs after a change in control:
| adverse change in position, duties or responsibilities; |
| reduction to base salary; |
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| relocation exceeding 50 miles; |
| failure to continue incentive plans, whether cash or equity, or any other plan or arrangement to receive Ashland securities; or |
| material breach of the executive change in control agreement or a failure to assume such agreement. |
Change in control is a complex definition, but may be summarized to include any of the following:
| the consolidation or merger of Ashland into an unrelated entity in which the former Ashland shareholders own less than 50% of the outstanding shares of the new entity, except for a merger under which the shareholders before the merger have substantially the same proportionate ownership of shares in the entity immediately after the merger; |
| the sale, lease, exchange or other transfer of 80% or more of Ashlands assets; |
| a shareholder approved liquidation or dissolution; |
| the acquisition of 25% or more of the outstanding shares of Ashland by an unrelated person without approval of the board of directors; or |
| changes to the Ashland board of directors during two consecutive years that result in a majority of the Ashland board of directors changing from its membership at the start of such two consecutive year period, unless two-thirds of the remaining directors at the start of such two consecutive year period voted to approve such changes. |
On October 5, 2015, the P&C Committee approved new executive change in control agreements for certain Ashland named executive officers, including Mr. Mitchell. The new change in control agreements narrow the circumstances in which the executive will have good reason to resign and become entitled to receive severance following a change in control. Also, Mr. Mitchells change in control agreement entitled him to a tax gross-up for excise taxes payable on certain payments made to him in connection with a change in control of Ashland. The new change in control agreements exclude all excise tax gross-up provisions and instead provide for a best-after-tax cutback. Except for the modifications described above, the new change in control agreements are substantially the same as the prior change in control agreements.
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SARs/Stock Options, Incentive Compensation, Restricted Stock/Restricted Stock Units and Performance Units
The following table summarizes what may happen to SARs, stock options, incentive compensation, RS/RSUs and Performance Units granted under LTIP upon termination from employment; death; disability or retirement; or in the event of a change in control under the 2011 Incentive Plan and the 2015 Incentive Plan, absent Double-Trigger Award Agreements.
Termination from
|
Death, Disability or
|
Change in Control |
||||
SARs/Stock Options |
Termination within one year of grant results in forfeiture; otherwise lesser of 30 days or the exercise period within which to exercise the vested SARs/stock options | May exercise vested SARs/stock options during the remainder of the exercise period | Immediately vest | |||
Incentive Compensation |
In general, termination before payment results in forfeiture. Pro-rata payment based on actual achievement for entire performance period if terminated prior to a change in control without cause | Pro-rata payment based on actual achievement for entire performance period | Accelerate the performance period and pay based on actual achievement through the date of the change in control | |||
Restricted Stock/Restricted Stock Units |
Termination before vesting results in forfeiture | Occurrence of event before payment results in forfeiture | Immediately vest | |||
Performance Units |
In general, termination before payment results in forfeiture. Pro-rata payment based on actual achievement for entire performance period if terminated prior to a change in control without cause | Pro-rata payment based on actual achievement for entire performance period | Accelerate the performance period and pay based on actual achievement for the period through the date of the change in control |
* | P&C Committee has discretion to accelerate vesting of these benefits. |
For purposes of the above table, the term change in control is defined in the applicable plan and has substantially the same meaning as it does in the executive change in control agreements. In addition, the award agreements and incentive plans provide for forfeiture and clawbacks in the event the participant breaches certain non-compete, non-solicitation and confidentiality (subject to whistleblower protections) covenants.
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Double-Trigger Award Agreements under the 2015 Incentive Plan
On July 15, 2015, the P&C Committee approved the 2015 Incentive Plan, which provides for the P&C Committee to have the option to grant awards under the 2015 Incentive Plan with double-trigger change in control provisions set forth in an award agreement. The default under the 2015 Incentive Plan is a single-trigger change in control provision. In connection with this amendment, the P&C Committee also approved forms of the award agreements containing the double-trigger change in control provision. All awards granted to the named executive officers under the 2015 Incentive Plan since this amendment have used the Double-Trigger Award Agreements.
In November 2015, the P&C Committee approved new form of award agreements that also exclude the plan to separate Ashland into two independent, publicly traded companies from the definition of Change in Control. Other than these changes, the Double-Trigger Agreements are substantially similar to the prior award agreements discussed above.
SERP, Excess Plans, Qualified Pension Plan and Employees Deferral Plan
For payments and benefits under the SERP, the Excess Plans and the qualified Pension Plan, except in the event of a change in control, see the Pension Benefits table and the narrative thereunder in this prospectus. For payments and benefits under the Employees Deferral Plan, except in the event of a change in control, see the Non-Qualified Deferred Compensation table and the narrative thereunder in this prospectus.
The SERP contains a non-compete provision. Any executive who, within a period of five years after his or her termination of employment, accepts a consulting or employment engagement that is in direct and substantial conflict with the business of Ashland will be deemed to have breached the SERP provisions. A breach of the SERP provisions requires the executive to reimburse Ashland for any distributed benefits and to forfeit benefits that have not yet been paid under the plan.
After a Change in Control
The term change in control is defined in the applicable plan and has substantially the same meaning as it does in the executive change in control agreements.
The occurrence of a change in control under the SERP for the applicable named executive officers has the following consequences:
| accelerates vesting; |
| nullifies the non-compete; |
| distributes benefits upon a participants termination from employment without cause or resignation for good reason; and |
| adds three years each to age and service computation. |
For the qualified Pension Plan and the Excess Plans, no enhanced benefit results from a change in control. Under the Employees Deferral Plan, a change in control results in an automatic lump sum distribution of the benefit for deferrals made before January 1, 2005. Deferrals made on and after January 1, 2005, will not be automatically distributed upon a change in control, but rather will be distributed pursuant to each employees election and valued at the time of the distribution.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Prior to this offering, we have operated as a business segment of Ashland. Immediately following this offering, Ashland will continue to own 85% of our common stock. If the underwriters exercise their overallotment option in full, immediately following this offering, Ashland will own approximately 83% of our common stock. Ashland will continue to have the power acting alone to approve any action requiring the affirmative vote of a majority of the votes entitled to be cast and to elect all our directors.
Prior to completion of this offering, we intend to enter into certain agreements with Ashland relating to this offering and our relationship with Ashland after this offering. The material terms of such agreements with Ashland relating to our historical relationship, this offering and our relationship with Ashland after this offering are described below. We do not currently expect to enter into any additional agreements or other transactions with Ashland, outside the ordinary course, or any of our directors, officers or other affiliates other than those specified below. Any transactions with directors, officers or other affiliates will be subject to requirements of Sarbanes-Oxley and SEC rules and regulations.
Relationship with Ashland
Historical Relationship with Ashland
We have operated as a business segment of Ashland since 1950. As a result, Ashland provides certain corporate services to us, and costs associated with these functions have been allocated to us. These allocations include costs related to corporate services, such as executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services, as well as stock-based compensation expense attributable to our employees and an allocation of stock-based compensation attributable to employees of Ashland. 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 sales, relative percentage of headcount or specific identification. The total amount of these allocations from Ashland was approximately $41.1 million in the six months ended March 31, 2016 and approximately $79.5 million in the year ended September 30, 2015. These cost allocations are primarily reflected within corporate expense allocation in the combined statements of operations and comprehensive income. 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 completion of this offering, we expect Ashland to continue to provide some services related to these functions on a transitional basis for a fee. These services will be provided under the transitional services agreement described below. Upon completion of this offering, we will assume responsibility for all our standalone public company costs, including the costs of corporate services currently provided by Ashland.
Ashland as Our Controlling Shareholder
Ashland currently owns 100% of our common stock. Upon completion of this offering, Ashland will hold 85% of our outstanding common stock (or approximately 83% if the underwriters exercise their overallotment option in full). For as long as Ashland continues to control more than 50% of our common stock, Ashland or its successor-in-interest will be able to direct the election of all the members of our board of directors and exercise control over our business and affairs, including any determinations with respect to mergers or other business combinations involving us, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities and the payment of dividends with respect to our common stock. Similarly, Ashland will have the power to determine matters submitted to a vote of our shareholders without the consent of our other shareholders, will have the power to prevent a change in control of us and will have the power to take other actions that might be favorable to Ashland.
Ashland has agreed not to sell or otherwise dispose of any of our common stock for a period of 180 days from the date of this prospectus without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
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Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC. See Underwriting (Conflicts of Interest). However, there can be no assurance concerning the period of time during which Ashland will maintain its ownership of our common stock following this offering.
Beneficial ownership of at least 80% of the total voting power and value of our outstanding stock is required in order for Ashland to continue to include us in its consolidated group for U.S. federal income tax purposes, and beneficial ownership of at least 80% of the total voting power of our classes of voting stock and 80% of each class of our non-voting stock is required in order for Ashland to effect the spin-off of us or certain other tax-free transactions. Ashland announced on April 13, 2016 that it plans to distribute its shares of our common stock approximately six months after the closing of this offering. It is intended that we will be included in Ashlands consolidated group for U.S. federal income tax purposes immediately following this offering until the spin-off. Ashland may abandon or change the structure of the spin-off if it determines, in its sole discretion, that the spin-off is not in the best interest of Ashland or its shareholders.
Separation Steps
No later than the completion of this offering, Ashland will transfer to us substantially all of the assets and liabilities related to our business. Except for the nominal assets that we currently hold, Ashland holds all of the historical assets and liabilities related to the business that we will acquire pursuant to such contribution. We and Ashland will enter into the Separation Agreement, which provides for the separation of our business from Ashland to take effect no later than the completion of this offering. In addition, we and Ashland will enter into transition services agreements governing Ashlands provision of various services to us, and our provision of various services to Ashland, on a transitional basis and several ancillary agreements in connection with the separation. The material agreements we expect to enter into with Ashland are summarized below.
The Separation Agreement will take effect no later than the effectiveness of this offering and will contain the key provisions related to our separation from Ashland, this offering and the spin-off or other disposition. The other agreements that will be referenced in the Separation Agreement govern various interim and ongoing relationships between Ashland and us following the completion of this offering. These agreements, each of which is summarized below, include the:
| transition services agreement; |
| reverse transition services agreement; |
| Tax Matters Agreement; |
| registration rights agreement; |
| employee matters agreement; and |
| shared environmental liabilities agreement. |
Separation Agreement
We intend to enter into the Separation Agreement with Ashland before the completion of this offering. The Separation Agreement will set forth our agreements with Ashland regarding the principal actions to be taken in connection with the separation. It will also set forth other agreements that govern aspects of our relationship with Ashland following the separation and the completion of this offering.
Transfer of Assets and Assumption of Liabilities
The Separation Agreement will identify certain transfers of assets and assumptions of liabilities that are necessary in advance of our separation from Ashland so that we and Ashland retain the assets of, and the liabilities associated with, our respective businesses. However, certain liabilities that are not associated with our
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respective businesses will be allocated regardless of which business they are associated with (if any). For example, Ashland will retain, or assume from us, substantially all liabilities arising from or relating to the exposure of any person to asbestos from the manufacture, production, sale, distribution, conveyance or placement in the stream of commerce on or prior to the date of the separation of any product or other item, as well as from repair, use, abatement or disposal on or prior to the date of the separation of any building material or equipment containing asbestos, regardless of whether related to Ashlands business or our business. In addition, Ashland will retain, or assume from us, all environmental liabilities, known or unknown, arising from or relating to the Ashland business or any other historical business of Ashland, other than our business, arising or relating to events, conduct or conditions occurring prior to, or after, the date of the separation.
The Separation Agreement will also provide for the settlement or extinguishment of certain liabilities and other obligations between us and Ashland.
Internal Transactions
The Separation Agreement will provide for certain internal transactions related to our separation from Ashland that will occur prior to the separation.
Intercompany Arrangements
All agreements, arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between us, on the one hand, and Ashland, on the other hand, will terminate effective as of the separation, except specified agreements and arrangements that are intended to survive the separation.
Shared Liabilities
The Tax Matters Agreement, employee matters agreement and shared environmental liabilities agreement will describe certain liabilities that will be shared between us and Ashland following the separation. These agreements will respectively specify the portion of the economic costs of such liabilities between us and Ashland and will establish a process for managing, defending and resolving, as well as sharing the costs related to, such liabilities between us and Ashland.
Credit Support
We will agree to use reasonable best efforts to arrange, prior to the separation, for the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances of credit support currently provided by or through Ashland or any of its affiliates for the benefit of our business.
Representations and Warranties
In general, neither we nor Ashland will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forth in the Separation Agreement, all assets will be transferred on an as is, where is basis.
Further Assurances
The parties will use reasonable best efforts to affect any transfers contemplated by the Separation Agreement that have not been consummated prior to the separation as promptly as practicable following the closing of this offering. In addition, the parties will use reasonable best efforts to affect any transfer or re-transfer of any asset or liability that was improperly transferred or retained as promptly as practicable following the separation.
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The Initial Public Offering
The Separation Agreement will govern our and Ashlands respective rights and obligations regarding this offering. Prior to the completion of this offering, we will take all actions reasonably requested by Ashland in connection with this offering. Ashland will have the sole and absolute discretion to determine the terms of, and whether to proceed with, this offering and any subsequent spin-off or other disposition of our stock by Ashland.
Conditions
The Separation Agreement will also provide that several conditions must be satisfied or waived by Ashland in its sole and absolute discretion before the separation can occur. Ashland has the right not to complete the separation if, at any time, the Ashland board of directors determines, in its sole and absolute discretion, that the separation is not in the best interests of Ashland or its shareholders or is otherwise not advisable.
Exchange of Information
We and Ashland will agree to provide each other with information reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and to satisfy audit, accounting, regulatory, litigation and other similar requests. We and Ashland will also agree to use reasonable best efforts to retain such information in accordance with Ashlands record retention policies as in effect on the date of the Separation Agreement. Each party will also agree to use its reasonable best efforts to assist the other with its financial reporting and audit obligation for an agreed period of time.
Termination
The Ashland board of directors, in its sole and absolute discretion, may terminate the Separation Agreement at any time prior to the separation.
Release of Claims
We and Ashland will each agree to release the other and its affiliates, successors and assigns, and all persons that prior to the separation have been the others shareholders, directors, officers, agents and employees, and their respective heirs, executors, administrators, successors and assigns, from any claims against any of them that arise out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the separation. These releases will be subject to exceptions set forth in the Separation Agreement.
Indemnification
We and Ashland will each agree to indemnify the other and each of the others current and former directors, officers and employees, and each of the heirs, executors, successors and assigns of any of them, against certain liabilities incurred in connection with the separation and our and Ashlands respective businesses. The amount of either Ashlands or our indemnification obligations will be reduced by any insurance proceeds the party being indemnified receives. The Separation Agreement will also specify procedures regarding claims subject to indemnification.
Transition Services Agreement
In order to help ensure an orderly transition, we intend to enter into a transition services agreement pursuant to which Ashland will, for a limited time following the completion of this offering, provide us with various corporate support services, including certain accounting, human resources, information technology, office and building, risk, security, tax and treasury services. Ashland may also provide us with additional services that we
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and Ashland may identify from time to time in the future. In general, the services will begin following the completion of this offering and cover a period not expected to exceed 24 months.
Ashland will agree to perform the services with the same standard of quality and care as it uses in servicing its own business, and in any event with at least the same level of quality and care as such services were provided to the Valvoline business during the preceding year. We and Ashland will agree to cooperate in connection with the performance of the services, provided that such cooperation does not unreasonably disrupt Ashlands or our operations, and Ashland will agree to use commercially reasonable efforts, at our expense, to obtain any third-party consents required for the performance of the services.
The services will be provided by Ashland without representation or warranty of any kind. Ashland will have no liability with respect to its furnishing of the services except to the extent occasioned by its bad faith, willful misconduct, fraud, gross negligence or willful breach of the agreement.
Under the transition services agreement, we and Ashland will each be obligated to maintain the confidentiality of the others confidential information for five years following the termination of the transition services agreement, subject to certain exceptions. We and Ashland will retain all rights, title and interest in and to our respective intellectual property used in the provision of services under the agreement.
The transition services agreement will specify the costs to us for the services. These costs will be consistent with expenses that Ashland has historically allocated or incurred with respect to such services, plus a mark-up of five percent.
Reverse Transition Services Agreement
In order to help ensure an orderly transition, we intend to enter into a reverse transition services agreement pursuant to which we will, for a limited time following the completion of this offering, provide Ashland with various corporate support services, including certain human resources, information technology, office and building, security and tax services, as well as certain regulatory compliance services required during the period in which we remain a majority-owned subsidiary of Ashland. We may also provide Ashland with additional services that we and Ashland may identify from time to time in the future. In general, the services will begin following the completion of this offering and cover a period not expected to exceed 24 months.
We will agree to perform the services with the same standard of quality and care as we use in servicing our own business, and in any event with at least the same level of quality and care as such services were provided to the Chemicals business during the preceding year. We and Ashland will agree to cooperate in connection with the performance of the services, provided that such cooperation does not unreasonably disrupt Ashlands or our operations, and we will agree to use commercially reasonable efforts, at Ashlands expense, to obtain any third-party consents required for the performance of the services.
The services will be provided by us without representation or warranty of any kind. We will have no liability with respect to its furnishing of the services except to the extent occasioned by our bad faith, willful misconduct, fraud, gross negligence or willful breach of the agreement.
Under the transition services agreement, we and Ashland will each be obligated to maintain the confidentiality of the others confidential information for five years following the termination of the transition services agreement, subject to certain exceptions. We and Ashland will retain all rights, title and interest in and to our respective intellectual property used in the provision of services under the agreement.
The transition services agreement will specify the costs to Ashland for the services. These costs will be consistent with expenses that Ashland has historically allocated or incurred with respect to such services, plus a mark-up of five percent.
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Tax Matters Agreement
We intend to enter into a tax matters agreement with Ashland that will govern the rights, responsibilities and obligations of Ashland and us after the closing of this offering with respect to all tax matters (including tax liabilities, tax attributes, tax returns and tax contests).
We will be included in Ashland Group Returns for the Interim Period. Under the Tax Matters Agreement, Ashland will generally make all necessary tax payments to the relevant tax authorities with respect to Ashland Group Returns, and we will make tax sharing payments to Ashland. The amount of our tax sharing payments will generally be determined as if we and each of our relevant subsidiaries included in the Ashland Group Returns filed our own consolidated, combined or separate tax returns for the Interim Period that include only us and/or our relevant subsidiaries, as the case may be.
For taxable periods that begin on or after the day after the date of the spin-off, we will no longer be included in any Ashland Group Returns and will file tax returns that include only us and/or our subsidiaries, as appropriate. We will not be required to make tax sharing payments to Ashland for those taxable periods. Nevertheless, we have (and will continue to have following the spin-off) joint and several liability with Ashland to the IRS for the consolidated U.S. federal income taxes of the Ashland consolidated group for the taxable periods in which we were part of the Ashland consolidated group.
The Tax Matters Agreement will also generally provide that we will indemnify Ashland for the following taxes:
| Taxes of Valvoline for all taxable periods that begin on or after the day after the date of the spin-off; |
| Taxes of Valvoline for the Interim Period that are not attributable to Ashland Group Returns; |
| Taxes for the Pre-IPO Period that arise on audit or examination and are directly attributable to the Valvoline business; |
| Certain U.S. federal, state or local taxes for the Pre-IPO Period of Ashland and/or its subsidiaries for that period that arise on audit or examination and are directly attributable to neither the Valvoline business nor the Chemicals business; and |
| Transaction Taxes (as described below) that are allocated to us under the Tax Matters Agreement. |
The Tax Matters Agreement will also provide that we will indemnify Ashland for any taxes (and reasonable expenses) resulting from the failure of the spin-off to qualify for non-recognition of gain and loss or certain reorganization transactions related to the separation or the spin-off to qualify for their intended tax treatment (Transaction Taxes), where the taxes result from (1) breaches of covenants that we will agree to in connection with these transactions (including covenants containing the restrictions described below that are designed to preserve the tax-free nature of the spin-off), (2) the application of certain provisions of U.S. federal income tax law to the spin-off with respect to acquisitions of our common stock or (3) any other actions that we know or reasonably should expect would give rise to such taxes. The Tax Matters Agreement will also require us to indemnify Ashland for a portion of certain other Transaction Taxes allocated to us based on our market capitalization relative to the market capitalization of Ashland.
We will generally have either sole control, or joint control with Ashland, over any audit or examination related to taxes for which we are required to indemnify Ashland.
The Tax Matters Agreement will impose certain restrictions on us and our subsidiaries (including restrictions on share issuances or repurchases, business combinations, sales of assets and similar transactions) that will be designed to preserve the tax-free nature of the spin-off. These restrictions will apply for the two-year period after the spin-off. However, we will be able to engage in an otherwise restricted action if we obtain an appropriate opinion from counsel or ruling from the IRS.
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Registration Rights Agreement
Prior to the completion of this offering, we intend to enter into a registration rights agreement with Ashland pursuant to which we will grant Ashland registration rights with respect to shares of our common stock. Ashland may transfer these rights to any Ashland entity, or, in connection with an equity-for-debt exchange, to a third-party lender or any transferee that acquires at least 5% of the issued and outstanding shares of our common stock and executes an agreement to be bound by the registration rights agreement.
Demand Registration Rights . The registration rights agreement will provide that, after completion of this offering, Ashland and its transferees have the right to require us to use our commercially reasonable efforts to effect an unlimited number of registrations of our common stock; however, we will not be obligated to effect any registration unless it covers shares of our common stock with an aggregate fair market value of at least $75 million.
The registration rights agreement will require us to pay the registration expenses in connection with each demand registration (other than any underwriting discounts and commissions and the fees, disbursements and expenses of the selling shareholders counsel and accountants). We will not be required to honor any of these demand registrations if we have effected a registration within the preceding 60 days. In addition, if our general counsel determines, and our board of directors confirms, that in the good faith judgment of our general counsel, filing a registration statement would be significantly disadvantageous to us (because such registration would require disclosure of material information for which we have a bona fide business purpose to preserve as confidential and the disclosure of which would have a material adverse effect on us or we are unable to comply with securities law requirements for effectiveness of such registration), we will be entitled to delay filing such registration statement until the earlier of seven business days after the disadvantageous condition no longer exists and 75 days after we make such determination.
Piggyback Registration Rights . In addition to our obligations with respect to demand registrations, if we propose to register any of our securities, other than a registration (1) on Form S-8 or Form S-4, (2) relating to equity securities in connection with employee benefit plans, or (3) in connection with an acquisition of or an investment in another entity by us, we will give each shareholder party to the registration rights agreement the right to participate in such registration. We will be required to pay the registration expenses in connection with each of these registrations (other than any underwriting discounts and commissions and the fees, disbursements and expenses of the selling shareholders counsel and accountants). If the managing underwriters in a piggyback registration advise us that the number of securities offered to the public needs to be reduced, the Company shall include securities in such registration in accordance with the following priorities (1) the securities the Company proposes to sell, (2) up to the number of shares requested to be included in such registration by Ashland, (3) up to the number of shares requested to be included in such registration, pro rata among the selling holders (other than Ashland) and (4) up to the number of any other securities requested to be included in such registration.
Holdback Agreements . If any registration of common stock is in connection with an underwritten public offering, each holder of unregistered common stock party to the registration rights agreement will agree not to effect any public sale or distribution of any common stock during the seven days prior to, and during the 90-day period beginning on, the effective date of such registration statement.
A form of the registration rights agreement is filed as an exhibit to the registration statement of which this prospectus is a part.
Employee Matters Agreement
We intend to enter into an employee matters agreement with Ashland that will address employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to our employees and the compensation and benefit plans and programs in which our employees participate prior to the spin-off, as well as other human resources, employment and employee benefit matters.
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Employment-Related Liabilities. On or prior to the closing of this offering, we generally will assume responsibility for all employment-related liabilities of or relating to our current and former employees, former employees who were employed by a terminated, divested or discontinued Valvoline business, former U.S. employees of any other terminated, divested or discontinued business and former U.S. employees of a shared resource group.
Benefit and Welfare Plans. Following the closing of this offering and prior to the spin-off, we will establish benefit plans for our employees that generally will recognize all service, compensation and other factors affecting benefit determinations to the same extent recognized under the corresponding Ashland benefit plan. Until such time, claims incurred by our employees will continue to be covered under Ashlands benefit plans, and we will reimburse Ashland for such costs if they are not otherwise charged to us in the ordinary course.
Pension and Retirement Plans. Prior to the closing of this offering, we will assume responsibility for certain Ashland qualified and nonqualified pension and retirement plans as well as a portion of the trusts or other funding vehicles that have been established to fund such plans. Specifically, prior to the initial public offering, we will assume all liabilities and assets relating to the Pension Plan, other than liabilities and assets relating to active employees who are covered by the Hopewell collective bargaining agreement. In addition, we will assume responsibility for certain excess and supplemental pension plans and, following the completion of this offering but prior to the spin-off, we will assume responsibility for the portions of the Ashland nonqualified deferred compensation plans that relate to our employees and our non-employee directors. Following the initial public offering and prior to the spin-off, we will establish one or more defined contributions plans that will accept a trust-to-trust transfer of our employees account balances from the Ashland Global 401(k) plan.
Labor Matters . We will assume and comply with any collective bargaining arrangements that cover our employees.
For a summary of the treatment of outstanding Ashland equity awards held by our employees, please see Executive CompensationLong-Term Incentive Equity CompensationTreatment of Outstanding Long-Term Incentive Equity Compensation in the Offering.
Other Arrangements
Related Party Transactions
William A. Wulfsohn, Stephen Kirk and Vada Manager, all of whom will be members of our board of directors following the completion of this offering, also serve on Ashlands board of directors. The fact that Mr. Wulfsohn, Mr. Kirk and Mr. Manager hold positions with both Ashland and us could create, or appear to create, potential conflicts of interest for these directors when they face decisions that may affect both Ashland and us. These members of our board of directors may be required to recuse themselves from deliberations relating to arrangements between us and Ashland. Mr. Wulfsohn may also face conflicts of interest with regard to the allocation of his time between Ashland and us.
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The following table sets forth information regarding the beneficial ownership of our common stock as of August 31, 2016, after giving effect to the separation and contribution transactions (in the case of the Percentage Prior to this Offering column, other than the sale of the shares of our common stock in this offering and the receipt and application of the proceeds in connection therewith) and assuming the underwriters do not exercise their overallotment option, by:
| each of our directors; |
| each of our named executive officers; |
| all of our directors and executive officers as a group; and |
| each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock. |
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if they have or share the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or have the right to acquire such powers within 60 days. Accordingly, the following table does not include options to purchase our common stock that are not exercisable within the next 60 days. This table does not reflect any shares of common stock that our directors and executive officers may purchase in this offering. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Ashland, 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, KY 41012.
Name and Address of
|
Beneficial
Ownership of our Common Stock |
Percentage Prior
to this Offering |
Percentage After
this Offering |
|||||||||
5% Shareholders |
||||||||||||
Ashland (1) |
170,000,000 | 100 | % | 85 | % | |||||||
Directors and Named Executive Officers |
||||||||||||
Richard J. Freeland |
| * | * | |||||||||
Thomas A. Gerrald |
| * | * | |||||||||
Stephen F. Kirk |
| * | * | |||||||||
Frances E. Lockwood |
| * | * | |||||||||
Stephen E. Macadam |
| * | * | |||||||||
Vada O. Manager |
| * | * | |||||||||
Heidi J. Matheys |
| * | * | |||||||||
Mary E. Meixelsperger |
| * | * | |||||||||
Samuel J. Mitchell, Jr. |
| * | * | |||||||||
Craig A. Moughler |
| * | * | |||||||||
Julie M. ODaniel |
| * | * | |||||||||
Anthony R. Puckett |
| * | * | |||||||||
Charles M. Sonsteby |
| * | * | |||||||||
Sara K. Stensrud |
| * | * | |||||||||
Mary J. Twinem |
| * | * | |||||||||
William A. Wulfsohn |
| * | * | |||||||||
All directors and executive officers as a group (16 persons) |
| * | * |
* | Less than 1% |
(1) | The address of Ashland is 50 E. RiverCenter Boulevard, P.O. Box 391, Covington, KY 41012. |
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Following the closing of this offering, we expect to have the following indebtedness and other facilities:
| a senior secured term loan facility in an aggregate principal amount of $375.0 million; |
| senior unsecured notes in an aggregate principal amount of $375.0 million; |
| a senior secured revolving credit facility with a borrowing capacity of $450.0 million; and |
| a trade receivable securitization facility with a borrowing capacity of approximately $150.0 million. |
During July 2016, Valvoline Finco One and Valvoline Finco Two completed the following financing transactions as further described below. Both Valvoline Finco One and Valvoline Finco Two are wholly owned finance subsidiaries of Ashland Inc. and its subsidiaries. Following the transfer by Ashland to us of substantially all of the Valvoline business, as well as other assets and liabilities, and subject to the satisfaction of certain conditions, Valvoline Finco One and Valvoline Finco Two will merge with and into Valvoline. We expect to assume all of their respective obligations under the financing agreements described below.
Credit Facility
Valvoline Finco One as initial borrower, has entered into a credit agreement (the Credit Agreement) providing for senior secured credit facilities consisting of a senior secured revolving credit facility and a senior secured term loan facility, which are further described below and are referred to herein, collectively, as the Credit Facility. The initial funding under the Credit Facility is subject to certain conditions precedent, including (i) execution of the guaranty and security agreements, (ii) satisfaction of certain collateral requirements, (iii) delivery of a certificate by us that Ashland Global expects to or has received certain tax opinions related to the Ashland Reorganization (as defined in the Credit Agreement) and the spin-off of Valvoline, (iv) payment of fees and expenses to the administrative agent, the arrangers and lenders, (v) the transfer of the Valvoline business to us, (vi) the liabilities of the Valvoline business not exceeding $200 million in the aggregate other than certain specified liabilities, (vii) the merger of Valvoline Finco One with and into Valvoline, (viii) the Valvoline business having, on a pro forma basis, at least $350 million of unrestricted cash and unused revolving credit commitments in the aggregate (under both the revolving credit facility and the trade receivables securitization facility), (ix) after giving effect to the initial funding, the ratio of our total consolidated indebtedness (less unrestricted cash) to consolidate EBITDA not exceeding 3.50 to 1.00, (x) any Dispositions (as defined in the Credit Agreement) of assets of the Valvoline business complying with certain covenants set forth in the Credit Agreement and (xi) certain other conditions set forth in the Credit Agreement. Upon consummation of the merger of Valvoline Finco One with and into Valvoline, Valvoline will be the borrower under the Credit Facility and will assume all of the rights and obligations of Valvoline Finco One thereunder.
Senior Secured Revolving Credit Facility
The senior secured revolving credit facility will provide us with up to $450.0 million of borrowing capacity and includes a sublimit of $100.0 million for the issuance of standby and commercial letters of credit, and a sublimit of $10.0 million for swingline loans. Our revolving credit facility matures on the fifth anniversary of the date of the initial funding under the Credit Facility, subject to certain adjustments to such maturity date if the initial funding does not occur by a certain date. By the initial funding date, the revolving credit facility will be secured by substantially all of our assets, including the assets of certain of our direct wholly owned material domestic subsidiaries. Loans thereunder (other than swingline loans) bear interest at our option at (i) LIBOR (defined as the ICE LIBOR rate, or if such rate is not available, a rate determined by the administrative agent by reference to the rate offered by the administrating agents London branch to major banks in the London interbank eurodollar market) plus the applicable rate, which ranges between 1.50% and 2.50% (based on a pricing grid determined by the better of our corporate credit rating and a ratio of our consolidated first lien senior secured
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indebtedness (less unrestricted cash) to consolidated EBITDA (the Pricing Grid)) or (ii) the alternate base rate (defined as the highest of (x) the administrative agents prime rate, (y) the federal funds rate plus 0.50% and (z) one-month LIBOR plus 1.00%) plus the applicable rate, which ranges between 0.50% and 1.50% (based the Pricing Grid). Swingline loans thereunder bear interest at the alternate base rate plus the applicable rate. Commitment fees for the undrawn portion of the commitments under the senior secured revolving credit facility range from 0.200% to 0.500% (based on the Pricing Grid).
Senior Secured Term Loan Facility
The senior secured term loan facility will provide us with up to $875.0 million of borrowings on the date of the initial funding under the Credit Facility and will mature on the fifth anniversary of such date (the Final Maturity Date), subject to certain adjustments to such maturity date if the initial funding does not occur by a certain date. It is subject to amortization in equal quarterly installments, with 5% of the aggregate original principal amount of the term loan facility payable in each of the first and second years after initial funding, 10% of the aggregate original principal amount of the term loan facility payable in the third and fourth years after initial funding, 15% of the aggregate original principal amount of the term loan facility payable in the fifth year after initial funding, and the remainder payable on the Final Maturity Date. By the initial funding date, the term loan facility will be secured by substantially all of our assets, including the assets of certain of our direct wholly owned material domestic subsidiaries, and the loans thereunder bear interest at the same rates as are applicable to loans under the revolving credit facility. Under certain circumstances we may pay a ticking fee on the commitment of each lender in respect of the senior secured term loan facility at a rate of 0.375% per annum, commencing 90 days after the execution of such agreement. We expect to transfer the net proceeds of the senior secured term loan facility to Ashland through intercompany transfers.
Restrictive Covenants and Other Matters
The Credit Facility contains various customary covenants and restrictive provisions that limit our (and certain of our subsidiaries) ability to incur additional indebtedness; to consolidate or merge with another entity or sell, transfer or otherwise dispose of certain property and assets; to incur liens and engage in certain types of transactions with affiliates; to make loans, acquisitions, joint ventures and certain other investments; to pay dividends and other distributions and to redeem or repurchase equity interests; to enter into restrictive agreements on making dividends, granting liens and providing guarantees; to change the nature of our business; to amend organizational documents; and to change accounting and reporting policies or our fiscal year. If we fail to perform our obligations under these and other covenants, the Credit Facility could be declared immediately due and payable, subject to in the case of breaches of certain covenants, customary cure periods. The Credit Facility also has, in addition to customary events of default, cross default provisions that apply to any other indebtedness we may have with an outstanding principal amount in excess of $100.0 million in the aggregate. The Credit Facility provides that we will have the right at any time to request up to $300 million (or an additional amount in excess of $300 million subject to pro forma compliance with a ratio of our consolidated first lien senior secured indebtedness (less unrestricted cash) to consolidated EBITDA of not greater than 2.00 to 1.00) of incremental commitments under one or more incremental term loan tranches and/or revolving credit facility tranches (or increases to the size of the existing senior secured term loan facility and/or the senior secured revolving credit facility). The lenders under these facilities are not under any obligation to provide any such incremental commitments and any such addition of or increase in commitments will be subject to certain customary conditions precedent, including a 50 basis points most favored nations pricing provision with respect to incremental term loan commitments incurred during the first 12 months after the date of the initial funding under the Credit Facility. Our ability to obtain extensions of credit under these incremental commitments is also subject to substantially similar conditions as extensions of credit under the Credit Facility, subject to certain exceptions for extensions of credit the proceeds of which will be used to finance permitted acquisitions the consummation of which is not conditioned on the availability of third-party financing. The Credit Facility also contains financial covenants that provide that (i) the ratio of our total consolidated indebtedness (less unrestricted cash) to consolidated EBITDA shall not exceed 4.50 to 1.00 and (ii) the ratio of our consolidated EBITDA to consolidated interest expense shall not be less than 3.00 to 1.00.
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Senior Unsecured Notes
Valvoline Finco Two has completed its issuance of 5.500% senior unsecured notes due 2024 (the 2024 Notes) with an aggregate principal amount of $375 million. The 2024 Notes are unsecured obligations of Valvoline Finco Two and are initially guaranteed on an unsubordinated unsecured basis by Ashland (the Ashland Guarantee). The Ashland Guarantee will automatically be released upon the merger of Valvoline Finco Two with and the assumption by Valvoline of the obligations of Valvoline Finco Two under the 2024 Notes and the indenture governing the 2024 Notes (the Assumption). Certain of Valvolines subsidiaries will guarantee the 2024 Notes on an unsubordinated unsecured basis. The guarantees may be released without the consent of holders of the 2024 Notes in certain circumstances. Valvoline Finco Two has transferred the net proceeds of the offering of $370 million (after deducting initial purchasers discounts and other fees and expenses) to Ashland.
The 2024 Notes contain customary events of default for similar debt securities, which if triggered may accelerate payment of principal, premium, if any, and accrued but unpaid interest on the 2024 Notes. Such events of default include but are not limited to non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, and bankruptcy or insolvency. If a change of control occurs, Valvoline Finco Two may be required to offer to purchase the 2024 Notes from the holders thereof. In addition, if the contribution, the Assumption and either (1) this offering or (2) the distribution by Ashland of all of its shares of Valvoline Inc. common stock to the holders of Ashland common stock have not occurred on or before June 30, 2017, or if Ashland notifies the trustee for the 2024 Notes that either the contribution or the Assumption will not occur (or, if the contribution and the Assumption have occurred, that neither this offering nor the distribution by Ashland of all of its shares of Valvoline Inc. common stock to the holders of Ashland common stock will occur), Valvoline Finco Two will be required to redeem the 2024 Notes at a redemption price equal to (a) 100% of the principal amount of the 2024 Notes if the redemption occurs on or before December 31, 2016 or (b) 101% of the principal amount of the 2024 Notes otherwise, in each case, plus accrued and unpaid interest to, but excluding, the redemption date. The 2024 Notes are not otherwise required to be repaid prior to maturity, although they may be redeemed at the option of Valvoline Finco Two at any time prior to their maturity at the redemption price specified in the indenture.
Trade Receivables Securitization Facility
As an additional source of liquidity following the Separation, we also intend to enter into a trade receivables securitization facility with an aggregate principal amount of approximately $150.0 million.
In addition to indebtedness described above, immediately prior to the closing of this offering we expect to incur approximately $105.0 million of short-term indebtedness under either our senior secured revolving credit facility or a new short-term loan facility and transfer the net proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We plan to repay all such short-term indebtedness in full from the net proceeds of the offering, with any remaining proceeds going to reduce our obligations under our senior secured term loan facility such that there will be no more than approximately $375.0 million outstanding under the secured term loan facility and no borrowings outstanding under our senior secured revolving credit facility and any such short-term facility.
Certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under our senior secured credit facilities and Ashlands senior unsecured credit facilities and, if we opt to enter into a new short-term loan facility, are expected to become lenders under any such short-term loan facility. To the extent an underwriter or one of its affiliates is a lender under our senior secured credit facilities and/or any such short-term loan facility or Ashlands senior unsecured credit facilities, they may receive a portion of the proceeds from this offering. See Underwriting (Conflicts of Interest).
This summary of certain financing arrangements does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying agreements which are filed as exhibits to the registration statement of which this prospectus is a part.
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The following description summarizes the most important terms of our capital stock, as they are expected to be in effect upon the consummation of this offering. We expect to adopt amended and restated articles of incorporation and amended and restated by-laws in connection with this offering, and this description summarizes the provisions that are expected to be included in such documents. This description is not complete and is qualified by reference to the full text of our amended and restated articles of incorporation and amended and restated by-laws, the forms of which will be filed as exhibits to the registration statement of which this prospectus is a part, as well as the applicable provisions of Kentucky law. Our amended and restated articles of incorporation and our amended and restated by-laws will contain provisions intended to enhance the likelihood of continuity and stability in the composition of our board of directors and that could make it more difficult to acquire control of us by means of a tender offer, open market purchases, a proxy contest or otherwise. For additional information, see Risk FactorsAnti-takeover provisions in our charter documents and under Kentucky law could discourage, delay or prevent a change in control of our company and may result in an entrenchment of management and diminish the value of our common stock and Risk FactorsOur board of directors will have the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.
General
Upon completion of this offering, our authorized capital stock will consist of:
| 400,000,000 shares of common stock, par value $0.01; and |
| 40,000,000 shares of preferred stock, no par value, in one or more series. |
Upon completion of this offering, there will be 200,000,000 outstanding shares of common stock (204,500,000 shares if the underwriters exercise their overallotment option in full) and no outstanding shares of preferred stock.
Common Stock
Voting Rights
Each share of common stock will entitle its holder to one vote in the election of directors and other matters properly submitted to a vote of the holders of our common stock; provided, however, that, except where required by law, holders of our common stock will not be entitled to vote on any amendment relating to the creation of any series of blank check preferred stock.
Dividend Rights
Subject to the rights of the holders of any preferred stock that may be outstanding, holders of common stock will be entitled to receive, on a pro rata basis, such dividends and distributions, if any, as may be lawfully declared from time to time by our board of directors. Declaration and payment of dividends are subject to the discretion of our board of directors, and the holders of outstanding shares of our common stock will be entitled to receive dividends only when declared by our board of directors. If declared, dividends may be paid in cash, in property or, in certain instances and in accordance with applicable law, in shares of our capital stock.
Liquidation Rights
In the event of our liquidation, dissolution or winding up, either voluntary or involuntary, subject to the rights of the holders of any preferred stock that may be outstanding, the holders of our common stock will be entitled to share, ratably according to the number of shares of common stock held by them, in our assets legally available for distribution to our shareholders after payment of all of our prior obligations.
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Other
The holders of our common stock will not have preemptive or other subscription rights. All of the outstanding shares of our common stock are, and the shares of our common stock to be sold in this offering when issued and paid for will be, fully paid and nonassessable. There are no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
Our board of directors may, by a majority vote and without shareholder approval, designate and issue, out of our unissued authorized shares of preferred stock, shares of preferred stock from time to time in one or more series. Each such series will have such distinctive designation as shall be stated and expressed in the resolution or resolutions adopted by our board of directors providing for the initial issuance of shares of such series. Our board of directors may fix and determine the preferences, limitations and relative rights of each series of preferred stock, including voting rights (if any).
It is not possible to state the actual effect of the issuance of any shares of our preferred stock on the rights of holders of our common stock until our board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include, among other things, restricting dividends on our common stock, diluting the voting power of our common stock or providing that holders of preferred stock have the right to vote on matters as a class, impairing the liquidation rights of our common stock, or delaying or discouraging a change in control of us or the removal of our existing management. There are no present plans to issue any shares of preferred stock.
Board of Directors
Size of the Board of Directors
Under the KBCA, the board of directors must have at least one director, with the number specified in or fixed in accordance with the articles of incorporation or bylaws. The number of directors initially shall be eight and will be fixed from time to time by resolution of our board of directors. Our amended and restated by-laws will also provide that the authorized number of directors may only be changed by a resolution adopted by a majority of our board of directors; provided, however, that a shareholder vote will be required to increase or decrease the number of directors by more than 30% from the number of directors last approved by the shareholders.
Election of Directors
Our directors will be elected at each annual meeting of shareholders and will hold office until the next annual meeting of shareholders and until each of their successors has been duly elected and qualified. The vote required for any election of directors by shareholders, other than in a contested election of directors, will be the affirmative vote of a majority of the votes cast with respect to a director nominee. In any contested election of directors, the nominees receiving the greatest number of votes cast for their election, up to the number of directors to be elected in such election, will be deemed elected.
Vacancies
Our amended and restated articles of incorporation will provide that, subject to the rights of any preferred stock then outstanding, any newly created directorships resulting from any increase in the number of directors may be filled by our board of directors, and any vacancy occurring on our board of directors resulting from death, resignation, removal or other cause can be filled only by the affirmative vote of a majority of the directors then in office, whether or not a quorum, or by a sole remaining director. A director appointed to fill such a vacancy will hold office for the remainder of the full term of our board of directors and until the directors successor is elected and qualified.
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Removal
Under the KBCA, a director may be removed with or without cause, unless the articles of incorporation provide that directors may be removed only with cause, if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director. Under the KBCA, a director may be removed by the shareholders only at a meeting called for that purpose. The meeting notice must state that removal is the purpose, or one of the purposes, of the meeting.
Our amended and restated articles of incorporation will provide for the removal of directors without cause, but will require the affirmative vote of the holders of shares representing at least 80% of our then outstanding voting power, voting together as a single class. The provisions of our amended and restated articles of incorporation will narrowly define cause as the willful and continuous failure of a director to substantially perform such directors duties to the Company (other than any failure resulting from incapacity due to physical or mental illness) or the willful engagement by a director in gross misconduct materially and demonstrably injurious to the Company.
No Cumulative Voting
Under the KBCA, the right to vote cumulatively in director elections does not exist unless a corporations articles of incorporation specifically authorize cumulative voting. Our amended and restated articles of incorporation will not grant shareholders the right to vote cumulatively.
Ability to Call Special Meetings of Shareholders
In accordance with the KBCA, special meetings of our shareholders may only be called by a majority vote of our board of directors or by our secretary upon a proper written request of holders of at least 33 1/3% of all shares entitled to vote at such meeting.
Shareholder Action by Written Consent
Under the KBCA, any action required or permitted to be taken at a meeting of shareholders may be taken without a meeting, and without prior notice (except as noted below), if one or more written consents describing the action taken is signed by all of the shareholders entitled to vote on the action. If the KBCA requires that notice of the proposed action be given to nonvoting shareholders and the action is to be taken by consent of voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least 10 days before the action is taken.
Our amended and restated articles of incorporation will provide that any action required or permitted to be taken by our shareholders may be effected by the unanimous written consent of our shareholders.
Notice of Shareholders Meetings
Our amended and restated by-laws require notice to shareholders of the place, date and time of each annual and special shareholders meeting at least 10 days, but no more than 60 days, before the meeting date. Notice of a special meeting must also state the purpose for which the meeting is being called. Under our amended and restated by-laws, notice of adjournment of a meeting of the shareholders need not be given if the place, date and time to which the meeting is adjourned are announced at such meeting, unless, as required by the KBCA, a new record date is fixed for the adjourned meeting. Under the KBCA, our board of directors must fix a new record date if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
Advance Notice Requirements for Shareholder Nominations and Proposals
Our amended and restated by-laws will contain advance notice procedures for shareholders seeking to nominate persons for election as directors at an annual or special meeting of shareholders or to bring other business before an annual or special meeting. These procedures will require shareholders to provide timely notice, in proper written form, to our corporate secretary. To be timely in the case of an annual meeting, a
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shareholders notice generally must be received between 90 and 120 days prior to the first anniversary of the date of the immediately preceding annual meeting; provided, however, if the annual meeting of shareholders is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting and the 10th day following the day on which public announcement of such meeting is first made. To be timely in the case of a special meeting, a shareholders notice must be received no earlier than the 90th day prior to such special meeting and no later than the close of business on the later of the 60th day prior to such special meeting and the 10th day following the date on which public announcement of such meeting is first made.
Such notice must be in proper written form and must set forth certain information described in our amended and restated by-laws related to the shareholder giving the notice, any other beneficial owner of our capital stock owned by such shareholder, certain affiliates of the foregoing and the proposed nominees.
Dividends
The KBCA permits a corporation to declare and pay dividends and make other distributions to shareholders, unless after giving effect to the distribution:
| the corporation would be unable to pay its debts as they became due in the usual course of business; or |
| the corporations total assets would be less than the sum of its total liabilities plus, unless the articles of incorporation permit otherwise, the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. |
Our amended and restated articles of incorporation will provide that, subject to applicable law and any preference of any outstanding series of preferred stock, dividends may be declared and paid on the common stock at such times and in such amounts as our board of directors in its discretion shall determine.
Amendment to Our Articles of Incorporation
The KBCA provides that, unless a corporations articles of incorporation require a greater vote, amendments to the corporations articles of incorporation generally require the board of directors to adopt a resolution recommending to the shareholders the approval of the proposed amendment, which must then be approved by shareholders representing a majority of the voting power of each voting group entitled to vote on the amendment.
In addition to any vote required by law, our amended and restated articles of incorporation will require the affirmative vote of holders of at least 80% of our then outstanding voting power, voting together as a single class, to amend, alter, change or repeal any provision of, or to adopt any provision inconsistent with, the provisions of our amended and restated articles of incorporation regarding (i) the board size or the vacancies, terms of office, removal, election or nomination of directors; (ii) the adoption, amendment or repeal of our by-laws; (iii) shareholder action by unanimous written consent; or (iv) the 80% vote required to amend the provisions described in clauses (i), (ii) and (iii).
Our amended and restated articles of incorporation will also provide that, except as otherwise required by law, holders of common stock, as such, shall not be entitled to vote on any amendment to our articles of incorporation relating to the creation of any series of blank check preferred stock.
Amendment to Our By-laws
Under the KBCA, a corporations board of directors may adopt, amend or repeal by-laws, except to the extent that the articles of incorporation or the KBCA reserve the power exclusively to the shareholders or the shareholders, in amending or repealing a particular by-law, provide expressly that the board of directors may not amend or repeal that bylaw. Under the KBCA, a by-law provision originally adopted by the shareholders that fixes a greater quorum or voting requirement for the board of directors may only be amended or repealed by the shareholders.
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Our amended and restated articles of incorporation will expressly authorize our board of directors to adopt, repeal, alter or amend our by-laws by the vote of a majority of the entire board of directors or such greater vote as shall be specified in our by-laws.
Our amended and restated articles of incorporation will expressly provide that for shareholders to adopt, alter, amend or repeal by-laws, the affirmative vote of the holders of at least 80% of our then outstanding voting power, voting as a single class, is required.
Mergers, Consolidations or Certain Dispositions
Under the KBCA, specified actions such as mergers, share exchanges and sales or any other disposition of all or substantially all of a corporations assets not in the ordinary course of business, must be generally proposed and recommended by the board of directors and, unless the KBCA, the corporations articles of incorporation or the board of directors requires a greater vote, approved by each voting group entitled to vote separately on the transaction by a majority of the votes entitled to be cast on the transaction by that voting group.
However, the KBCA generally does not require that a merger be approved by the shareholders of the corporation surviving the merger if (i) the articles of incorporation of the surviving corporation will not differ from its articles before the merger; (ii) each shareholder of the surviving corporation will hold the same number of shares after the merger as before; and (iii) the number of voting and participating shares outstanding immediately after the merger, plus the number of shares issuable as a result of the merger will not exceed by more than 20% the total number of voting and participating shares of the surviving corporation outstanding immediately prior to the merger.
Appraisal Rights
Under the KBCA, a shareholder is entitled to dissent from, and obtain payment of the fair value of his or her shares in the event of consummation of a plan of merger that requires shareholder approval, plan of share exchange where the corporations shares are being acquired, a sale of all or substantially all of the corporations assets, a plan of conversion, an amendment to the articles of incorporation that materially and adversely affects certain rights of the shareholder, certain business combinations, or any action which results in the entitlement to dissenters rights pursuant to the articles of incorporation, by-laws or board resolution.
A shareholder entitled to dissent and obtain payment for his, her or its shares under the KBCA shall not challenge the corporate action creating his, her or its entitlement, except by an application for injunctive relief prior to the consummation of the corporate action. If a proposed corporate action creating dissenters rights is submitted to a vote at a meeting of shareholders, the meeting notice must state that shareholders are or may be entitled to assert dissenters rights and the corporation must undertake to provide a copy of the statutes governing the shareholders dissenter rights to any shareholder entitled to vote at the meeting of shareholders upon request of that shareholder. Before the vote is taken, a shareholder who wishes to assert dissenters rights must deliver to the corporation a written notice of intent to demand payment for his or her shares if the action is effectuated and the shareholder must not vote the shareholders shares in favor of the proposed action.
If corporate action creating dissenters rights is taken without a vote of shareholders, the corporation must notify in writing all shareholders entitled to assert dissenters rights that the action was taken and send them the dissenters notice no later than 10 days after the proposed action was authorized.
The shareholder then has a duty to demand payment within the requisite time stated in the dissenters notice. The shares of a shareholder who perfects his, her or its dissenters rights by demanding payment and depositing his, her or its share certificates within the requisite times shall retain all rights, other than restrictions on transfer of uncertificated shares that the corporation may place on uncertified shares, from the date the demand for payment is received until these rights are cancelled or modified by the taking of the proposed corporate action, and, as soon as
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the proposed corporate action is taken, or upon receipt of the payment demand, we will be entitled to pay such shareholders the amount that we estimate to be the fair value of the shares, plus accrued interest. If such dissenting shareholder is unsatisfied with our estimate or we fail to make payment within 60 days after the date we set for demanding payment, the shareholder may object not later than 30 days after we made or offered payment for the shareholders shares, and if the shareholder and we cannot settle on an estimate within 60 days of us receiving such objection, we must commence a proceeding and petition a court in Kentucky to determine the fair value of the shares and accrued interest. If we fail to commence the proceeding within the 60 day time period after we receive such objection, we are required to pay the dissenting shareholder the amount demanded by the dissenting shareholder.
Anti-Takeover Effects under Certain Kentucky Laws
Section 271B.12 of the KBCA generally prohibits a corporation from engaging in a business combination with an interested shareholder (generally defined as a beneficial owner of 10% or more of the voting power of the corporations outstanding voting stock) for a period of five years following the date such interested shareholder became an interested shareholder unless the business combination is approved by a majority of the independent members of the board of directors of such corporation prior to the date on which such shareholder became an interested shareholder. In this context, business combination generally includes certain mergers, asset or stock sales, liquidations or distributions and other transactions resulting in a financial benefit to an interested shareholder. In addition, absent an exemption and in addition to any vote otherwise required by law or a corporations articles of incorporation, a business combination by a corporation with an interested shareholder shall be rendered void unless approved by (i) a majority of the independent, continuing members of the corporations board of directors or (ii) the affirmative vote of at least (a) 80% of the votes entitled to be cast by the corporations outstanding voting stock and (b) 66 2/3% of the votes entitled to be cast by holders of the corporations outstanding voting stock other than voting stock beneficially owned by the interested shareholder or by affiliates or associates of such interested shareholder, in each case, voting together as a single class. The voting requirements of Section 271B.12 do not apply, however, to business combinations that satisfy certain conditions relating to the consideration that will be received by shareholders, the corporations dividend practices and policies and the interested shareholders beneficial ownership of the stock of the corporation.
As a Kentucky corporation, we will be subject to these KBCA provisions regarding business combinations.
These provisions of the KBCA may delay or discourage a change in control by allowing a minority of our shareholders to prevent a transaction favored by the majority of our shareholders.
Duties of Directors
The KBCA requires a director to discharge such directors duties as a director, including such directors duties as a member of a committee, in good faith, on an informed basis and in a manner in which the director honestly believes is in the best interests of the corporation. A director is considered to discharge his or her duties on an informed basis if he or she makes, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, inquiry into the business and affairs of the corporation, or into a particular action to be taken or decision to be made.
In performing the directors duties, unless a director has knowledge concerning the matter in question that makes reliance unwarranted, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by:
| one or more officers or employees of the corporation whom the director honestly believes to be reliable and competent in the matters presented; |
| legal counsel, public accountants or other persons as to matters that the director believes are within the professional or expert competence of that person; or |
| a committee of the board of which the director is not a member, which committee the director honestly believes to merit confidence. |
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Limitations on Directors Liability
Our amended and restated articles of incorporation will include a provision limiting the liability of our directors to the fullest extent permitted by Kentucky law. Under Section 271B.2-020 of the KBCA, such a provision does not eliminate or limit the liability of our directors for (i) transactions in which the directors personal financial interest is in conflict with the financial interests of us or our shareholders, (ii) acts or omissions which are not taken in good faith, involve intentional misconduct or are known to the director to be a violation of law, (iii) any vote for or assent to certain unlawful distributions to shareholders; or (iv) any transaction from which the director derived an improper personal benefit.
Indemnification
The KBCA permits a corporation to indemnify an individual who is made a party to a proceeding because the individual is or was a director or officer of the corporation as long as the individual conducted himself or herself in good faith, reasonably believed, in the case of conduct in his or her official capacity with the corporation, that the conduct was in the best interest of the corporation or, in all other cases, was at least not opposed to its best interest, and in a criminal proceeding, had no reasonable cause to believe that the conduct was unlawful.
The KBCA does not, however, permit indemnification in connection with a proceeding by or in the right of the corporation in which the director is held liable to the corporation or in connection with any other proceeding where the director is adjudged to have received an improper personal benefit, in each case, unless the applicable court determines that indemnification is appropriate then such director would only be entitled to indemnification for the reasonable expenses that the director incurred.
A determination that indemnification is permitted by the terms of the KBCA must first be made before a director or officer can be indemnified.
The KBCA provides that, unless limited by the articles of incorporation, a corporation shall indemnify any director or officer who is wholly successful in the defense of any proceeding to which the individual was a party because he or she is or was a director or officer of the corporation against reasonable expenses incurred in connection with the proceeding.
Our amended and restated articles of incorporation will permit, and our amended and restated by-laws will generally require, that we indemnify our directors and officers, to the fullest extent permitted under Kentucky or other applicable law. The right to be indemnified will, unless determined by us not to be in our best interests, include the right of a director or officer to be paid expenses, including attorneys fees, in advance of the final disposition of any proceeding; provided that, if required by law or by us in our discretion, we receive an undertaking to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified.
We also expect to maintain directors and officers insurance.
Exclusive Forum
Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for the county within the Commonwealth of Kentucky in which we maintain our principal office shall be the exclusive forum for any derivative action, any action asserting a claim for breach of fiduciary duty owed to us or our shareholders, any action asserting a claim arising pursuant to any provision of the KBCA or any action asserting a claim governed by the internal affairs doctrine.
Stock Exchange Listing Symbol
We have applied to list our common stock on the NYSE under the symbol VVV.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Wells Fargo Shareowner Services.
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SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict with certainty the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price prevailing from time to time. We also cannot predict with certainty whether or when the spin-off or other disposition will occur or if Ashland will otherwise sell its remaining shares of our common stock. The sale of substantial amounts of our common stock in the public market or the perception that such sales could occur could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 200,000,000 shares of our common stock (204,500,000 shares of our common stock if the underwriters exercise their overallotment option in full). This includes 30,000,000 shares of common stock (34,500,000 shares of our common stock if the underwriters exercise their overallotment option in full) that we are selling in this offering, which shares may be resold in the public market immediately following this offering unless purchased by our affiliates.
The 170,000,000 shares of common stock that are not offered in this offering, as well as shares reserved for future issuance under our stock plans, will be restricted securities, as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, and these restricted securities will not be available for sale in the public market until 181 days after the date of this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, each of our affiliates or persons selling shares on behalf of each of our affiliates are entitled to sell upon the expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
| 1% of the number of shares of common stock then outstanding, which will equal approximately 2,000,0000 shares immediately after our initial public offering, or |
| the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Directed Share Program
At our request, the underwriters have reserved for sale at the initial public offering price up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our and Ashlands respective directors and officers, certain of our and Ashlands employees and VIOC franchise owners. We do not
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know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock. Any shares purchased by our directors and officers in the directed share program will be subject to a 180-day lock-up period, and any shares purchased by other persons in the directed share program will be subject to a 90-day lock-up period. See Underwriting (Conflicts of Interests).
Lock-Up Agreements
We, our officers, directors and Ashland have agreed with the underwriters not to dispose of any of our common stock or securities convertible into or exchangeable for shares of our common stock for 180 days after the date of this prospectus, except with the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, except for sales of common stock to our parent company, Ashland, to the extent necessary to enable it to maintain ownership of at least 81.00% of our outstanding common stock until the occurrence of the spin-off. See Certain Relationships and Related Party TransactionsRelationship with Ashland. Any such shares acquired by Ashland would be subject to Ashlands lock-up agreement described above. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, on behalf of the underwriters may, at any time, waive these restrictions.
See Underwriting (Conflicts of Interest) for a more detailed description of the lock-up agreements that we and our directors, executive officers, and Ashland have entered into with the underwriters.
Registration Rights
Upon the closing of this offering, Ashland will be entitled to rights with respect to the registration of the sale of our common stock under the Securities Act. Registration of the sale of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See Certain Relationships and Related Party TransactionsRelationship with AshlandRegistration Rights Agreement.
Registration Statement
We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of our common stock reserved for future issuance under our stock plans. We expect to file this registration statement as soon as practicable after this offering. However, none of the shares registered on Form S-8 will be eligible for resale until the expiration of the lock-up agreements to which they are subject.
The Spin-off
Following this offering, Ashland will own 170,000,000 shares of our common stock, representing 85% of the total outstanding shares of our common stock (or approximately 83% if the underwriters exercise their overallotment option in full). Ashland announced on April 13, 2016 that it intends to effect a tax-free spin-off of its remaining ownership interest in us to its shareholders approximately six months after the closing of this offering. Ashland has no obligation to effect the tax-free spin-off and it may retain its ownership interest in us indefinitely or dispose of all or a portion of its ownership interest in us in a sale or other disposition. Any such spin-off or other disposition by Ashland would be subject to various conditions, including receipt of an opinion of counsel, receipt of any necessary regulatory or other approvals and the existence of satisfactory market conditions. The conditions to a spin-off or other disposition by Ashland may not be satisfied. Ashland has no obligation to pursue or consummate any further disposition of its ownership interest in us by any specified date or at all, whether or not these conditions are satisfied.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of our common stock by a beneficial owner that is a non-U.S. holder, other than a non-U.S. holder that owns, or has owned, actually or constructively, more than 5% of our common stock. A non-U.S. holder is a person or entity that, for U.S. federal income tax purposes, is:
| a non-resident alien individual, other than certain former citizens and residents of the United States subject to tax as expatriates; |
| a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of a jurisdiction other than the United States or any state or political subdivision thereof or the District of Columbia; or |
| an estate or trust, other than an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
A non-U.S. holder does not include an individual who is present in the United States for 183 days or more in the taxable year of the disposition of such individuals common stock and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the disposition of our common stock.
This discussion is based on the Code and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein, potentially retroactively. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to non-U.S. holders in light of their particular circumstances, and it does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are such an entity or arrangement holding our common stock, or a partner in such an entity or arrangement, you should consult your tax advisors regarding the ownership and disposition of our common stock.
Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of our common stock, including the consequences under the laws of any state, local or foreign jurisdiction.
Dividends
As described under Dividend Policy, we intend to pay quarterly cash dividends to holders of our common stock. If we make any distributions of cash or other property (other than certain pro rata distributions of our common stock or rights to acquire our common stock) with respect to shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, as determined under U.S. federal income tax principles, the excess will be treated first as a tax-free return of the non-U.S. holders adjusted tax basis in our common stock and thereafter as capital gain, subject to the tax treatment described below in Gain on Taxable Disposition of Our Common Stock. Dividends paid to a non-U.S. holder of our common stock generally will be subject to U.S. federal withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide documentation (generally IRS Form W-8BEN or W-8BEN-E) certifying its entitlement to benefits under an applicable income tax treaty. Additional certification requirements apply if a non-U.S. holder holds our common stock through a foreign partnership or a foreign intermediary.
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The withholding tax does not apply to dividends paid to a non-U.S. holder who provides an IRS Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States). Instead, the effectively connected dividends will be subject to U.S. federal income tax in substantially the same manner as if the non-U.S. holder were a U.S. person. A non-U.S. holder treated as a corporation for U.S. federal income tax purposes receiving effectively connected dividends may also be subject to an additional branch profits tax imposed at a rate of 30% (or a lower treaty rate) with respect to its effectively connected earnings and profits attributable to such dividends.
If you are a non-U.S. holder, you may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the specific manner of claiming the benefits of the treaty.
The foregoing discussion is subject to the discussion below under FATCA Withholding and Information Reporting and Backup Withholding.
Gain on Taxable Disposition of Our Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other taxable disposition of our common stock unless:
| such gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by the non-U.S. holder in the United States), in which event such non-U.S. holder generally will be subject to U.S. federal income tax on such gain in substantially the same manner as a U.S. person and, if such non-U.S. holder is treated as a corporation for U.S. federal income tax purposes, may also be subject to a branch profits tax at a rate of 30% (or a lower rate if it is provided by an applicable income tax treaty); or |
| we are or have been a U.S. real property holding corporation, as defined in the Code, at any time within the five-year period preceding the disposition or the non-U.S. holders holding period, whichever period is shorter, and our common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs. |
Generally, a corporation is a U.S. real property holding corporation if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We believe that we are not, and we do not anticipate becoming, a U.S. real property holding corporation.
The foregoing discussion is subject to the discussion below under FATCA Withholding and Information Reporting and Backup Withholding.
FATCA Withholding
Under the provisions of the Code and related U.S. Treasury guidance commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, a withholding tax of 30% will be imposed in certain circumstances on payments of (i) dividends on our common stock and (ii) beginning after December 31, 2018, gross proceeds from the sale or other disposition of our common stock. In the case of payments made to a foreign financial institution (such as a bank, a broker or an investment fund), as a beneficial owner or as an intermediary, this tax generally will be imposed, subject to certain exceptions, unless such institution (i) has agreed to (and does) comply with the requirements of an agreement with the United States, or an FFI Agreement, or (ii) is required by (and does comply with) applicable foreign law enacted in connection with an intergovernmental agreement
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between the United States and a foreign jurisdiction, or an IGA, in either case to, among other things, collect and provide to the U.S. tax authorities or other relevant tax authorities certain information regarding U.S. account holders of such institution. In the case of payments made to a foreign entity that is not a financial institution, the tax generally will be imposed, subject to certain exceptions, unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owner (generally, any specified U.S. person that directly or indirectly owns more than a specified percentage of such entity) or that identifies its substantial U.S. owners. If our common stock is held through a foreign financial institution that has agreed to comply with the requirements of an FFI Agreement, such foreign financial institution (or, in certain cases, a person paying amounts to such foreign financial institution) generally will be required, subject to certain exceptions, to withhold tax on payments of dividends and proceeds described above made to (i) a person (including an individual) that fails to comply with certain information requests or (ii) a foreign financial institution that has not agreed to comply with the requirements of an FFI Agreement, unless such foreign financial institution is required by (and does comply with) applicable foreign law enacted in connection with an IGA. Each non-U.S. holder should consult its own tax advisor regarding the application of FATCA to the ownership and disposition of our common stock.
Information Reporting and Backup Withholding
Amounts treated as payments of dividends on our common stock paid to a non-U.S. holder and the amount of any U.S. federal tax withheld from such payments generally must be reported annually to the IRS and to such non-U.S. holder by the applicable withholding agent.
The additional information reporting and backup withholding rules that apply to payments of dividends to certain U.S. persons generally will not apply to payments of dividends on our common stock to a non-U.S. holder if such non-U.S. holder certifies under penalties of perjury that it is not a U.S. person (generally by providing an IRS Form W-8BEN or W-8BEN-E to the applicable withholding agent) or otherwise establishes an exemption.
Proceeds from the sale, exchange or other disposition of our common stock by a non-U.S. holder effected outside the United States through a non-U.S. office of a non-U.S. broker generally will not be subject to the information reporting and backup withholding rules that apply to payments to certain U.S. persons provided that the proceeds are paid to the non-U.S. holder outside the United States. However, proceeds from the sale, exchange or other disposition of our common stock by a non-U.S. holder effected through a non-U.S. office of a non-U.S. broker with certain specified U.S. connections or a U.S. broker generally will be subject to these information reporting rules (but generally not to these backup withholding rules), even if the proceeds are paid to such non-U.S. holder outside the United States, unless such non-U.S. holder certifies under penalties of perjury that it is not a U.S. person (for instance, by providing an IRS Form W-8BEN or W-8BEN-E to the applicable withholding agent) or otherwise establishes an exemption. Proceeds from the sale, exchange or other disposition of our common stock by a non-U.S. holder effected through a U.S. office of a broker generally will be subject to these information reporting and backup withholding rules unless such non-U.S. holder certifies under penalties of perjury that it is not a U.S. person (for instance, by providing an IRS Form W-8BEN or W-8BEN-E to the applicable withholding agent) or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a non-U.S. holder will be allowed as a credit against such holders U.S. federal income tax liability, if any, and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Federal Estate Tax
Individual non-U.S. holders and entities the property of which is potentially includible in such an individuals gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers) should note that, absent an applicable treaty benefit, our common stock generally will be treated as U.S. situs property subject to U.S. federal estate tax.
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UNDERWRITING (CONFLICTS OF INTEREST)
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.
Underwriter |
Number
of Shares |
|||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
||||
Citigroup Global Markets Inc. |
||||
Morgan Stanley & Co. LLC |
||||
Deutsche Bank Securities Inc. |
||||
Goldman, Sachs & Co. |
||||
J.P. Morgan Securities LLC |
||||
Scotia Capital (USA) Inc. |
||||
BTIG, LLC |
||||
Mizuho Securities USA Inc. |
||||
PNC Capital Markets LLC |
||||
SunTrust Robinson Humphrey, Inc. |
||||
|
|
|||
Total |
30,000,000 | |||
|
|
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
At our request, the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our and Ashlands respective directors and officers, certain of our and Ashlands employees and VIOC franchise owners. The sales will be made by Morgan Stanley & Co. LLC, an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock. Any shares purchased by our directors and officers in the directed share program will be subject to a 180-day lock-up period, and any shares purchased by other persons in our directed share program will be subject to a 90-day lock-up period.
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Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.
Per Share |
Without
Option |
With Option | ||||||||||
Public offering price |
$ | $ | $ | |||||||||
Underwriting discount |
$ | $ | $ | |||||||||
Proceeds, before expenses, to Valvoline Inc. |
$ | $ | $ |
The expenses of the offering, not including the underwriting discount, are estimated at $8.0 million and are payable by us. We have also agreed to reimburse the underwriters for certain of their expenses, in an amount of up to $75,000, as set forth in the underwriting agreement, including up to $60,000 in connection with the qualification of the offering with the Financial Industry Regulatory Authority, or FINRA, by counsel to the underwriters.
Overallotment Option
We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to 4,500,000 additional shares at the public offering price, less the underwriting discount, solely to cover over allotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriters initial amount reflected in the above table.
No Sales of Similar Securities
We, our executive officers and directors and Ashland have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly:
| offer, pledge, sell or contract to sell any common stock; |
| sell any option or contract to purchase any common stock; |
| purchase any option or contract to sell any common stock; |
| grant any option, right or warrant for the sale of any common stock; |
| lend or otherwise dispose of or transfer any common stock; |
| request or demand that we file a registration statement related to the common stock; or |
| enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock.
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New York Stock Exchange Listing
We have applied for listing of our common stock on the NYSE under the symbol VVV. In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are
| the valuation multiples of publicly traded companies that the representatives believe to be comparable to us; |
| our financial information; |
| the history of, and the prospects for, our company and the industry in which we compete; |
| an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues; |
| the present state of our development; and |
| the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
In accordance with Rule 5121, none of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Morgan Stanley & Co, LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and PNC Capital Markets LLC will confirm sales to discretionary accounts without the prior written approval of the customer.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters overallotment option described above. The underwriters may close out any covered short position by either exercising their overallotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option granted to them. Naked short sales are sales in excess of such overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
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The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. Some of the underwriters are lenders in Valvoline Finco Ones credit facility and were initial purchases in Valvoline Finco Twos issuance of senior unsecured notes.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
As described in the Use of Proceeds, immediately prior to the closing, we expect to borrow approximately $875.0 million under our senior secured term loan and approximately $105.0 million under either our senior secured revolving credit facility or a new short-term loan facility and transfer the proceeds to Ashland. If we expect the net proceeds from this offering to exceed $605.0 million, we may incur additional short-term indebtedness under either our senior secured revolving credit facility or any such short-term loan facility and also transfer the net proceeds to Ashland. We intend to use the net proceeds from this offering to reduce our obligations under our senior secured term loan facility and either our senior secured revolving credit facility or any such short-term loan facility. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank N.A., an affiliate of Citigroup Global Markets Inc., Morgan Stanley Bank, N.A., an affiliate of Morgan Stanley & Co, LLC, Deutsche Bank AG New York Branch, an affiliate of Deutsche Bank Securities Inc., Goldman Sachs Bank USA, an affiliate of Goldman, Sachs & Co., J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities LLC, The Bank of Nova Scotia, an affiliate of Scotia Capital (USA) Inc., Mizuho Bank, Ltd., an affiliate of Mizuho Securities USA Inc., PNC Bank, National Association, an affiliate of PNC Capital Markets LLC and SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc. are lenders and agents under our senior secured credit facilities, and, if we opt to enter into a new short-term loan facility, are expected to become lenders under any such short-term loan facility. Because Bank of America, N.A., Citibank N.A., Morgan Stanley Bank, N.A., Deutsche Bank AG New York Branch, Goldman Sachs Bank USA, J.P. Morgan Chase
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Bank, N.A., The Bank of Nova Scotia and PNC Bank, National Association are expected to receive 5% or more of the net proceeds of this offering, not including underwriting compensation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Morgan Stanley & Co, LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and PNC Capital Markets LLC, as underwriters participating in this offering, are deemed to have a conflict of interest within the meaning of Rule 5121. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121, which requires that a QIU participate in the preparation of this prospectus and perform the usual standards of due diligence with respect thereto. BTIG, LLC has agreed to act as the QIU for this offering. BTIG, LLC will not receive any additional compensation for acting as the QIU. We have agreed to indemnify BTIG, LLC against certain liabilities incurred in connection with acting as a QIU, including liabilities under the Securities Act. In accordance with Rule 5121, none of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Morgan Stanley & Co, LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and PNC Capital Markets LLC will confirm sales to discretionary accounts without the prior written approval of the customer. See Use of Proceeds for additional information.
Ashland has informed us that it currently expects to use any amounts from borrowings or other debt incurrences by us prior to the closing of this offering that are transferred by us to Ashland to repay borrowings under the Ashland Credit Facilities. Certain of the underwriters or their affiliates are lenders, or agents or managers for the lenders, under Ashland Credit Facilities. To the extent an underwriter or one of its affiliates is a lender under the Ashland Credit Facilities, they will indirectly receive a portion of the proceeds from this offering. See Use of Proceeds.
European Economic Area
In relation to each member state of the European Economic Area, no offer of ordinary shares which are the subject of the offering has been, or will be made to the public in that Member State, other than under the following exemptions under the Prospectus Directive:
(a) | to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
(b) | to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Representatives for any such offer; or |
(c) | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of ordinary shares referred to in (a) to (c) above shall result in a requirement for the Company or any Representative to publish a prospectus pursuant to Article 3 of the Prospectus Directive, or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each person located in a Member State to whom any offer of ordinary shares is made or who receives any communication in respect of an offer of ordinary shares, or who initially acquires any ordinary shares will be deemed to have represented, warranted, acknowledged and agreed to and with each Representative and the Company that (1) it is a qualified investor within the meaning of the law in that Member State implementing Article 2(1)(e) of the Prospectus Directive; and (2) in the case of any ordinary shares acquired by it as a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, the ordinary shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the Representatives has been given to the offer or resale; or where ordinary shares have been acquired by it on behalf of persons in any Member State other than qualified investors, the offer of those ordinary shares to it is not treated under the Prospectus Directive as having been made to such persons.
The Company, the Representatives and their respective affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgments and agreements.
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This prospectus has been prepared on the basis that any offer of shares in any Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the Representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the Representatives have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the Representatives to publish a prospectus for such offer.
For the purposes of this provision, the expression an offer of ordinary shares to the public in relation to any ordinary shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the ordinary shares to be offered so as to enable an investor to decide to purchase or subscribe the ordinary shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (as amended) and includes any relevant implementing measure in each Member State.
The above selling restriction is in addition to any other selling restrictions set out below.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers . The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the shares to the public in France. |
Such offers, sales and distributions will be made in France only:
| to qualified investors ( investisseurs qualifiés ) and/or to a restricted circle of investors ( cercle restreint dinvestisseurs ), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier ; |
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations ( Règlement Général ) of the Autorité des Marchés Financiers , does not constitute a public offer ( appel public à lépargne ). |
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The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
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This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, Japanese Person shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
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securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
(d) | as specified in Section 276(7) of the SFA; or |
(e) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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The validity of the common stock offered hereby will be passed upon for us by Dinsmore & Shohl LLP, Lexington, Kentucky and certain legal matters will be passed on for us by Cravath, Swaine & Moore LLP, New York, New York. Certain legal matters will be passed on for the underwriters by Shearman & Sterling LLP, New York, New York.
The combined financial statements of Valvoline, an unincorporated commercial unit of Ashland Inc., as of September 30, 2014 and for each of the two years in the period ended September 30, 2014 included in this registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
Ernst & Young LLP, independent registered public accounting firm, has audited the combined financial statements of Valvoline, an unincorporated commercial unit of Ashland Inc., at September 30, 2015, and for the year then ended, as set forth in their report. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent registered public accounting firm, has audited the balance sheet of Valvoline Inc. at May 13, 2016 (date of formation), as set forth in their report. We have included this financial statement in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the SEC regarding this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement, and you should refer to the registration statement and its exhibits to read that information. References in this prospectus to any of our contracts or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. Following the completion of this offering, we will be subject to the information reporting requirements of the Exchange Act and we will file reports, proxy statements and other information with the SEC.
You may read and copy the registration statement and the related exhibits, and the reports, proxy statements and other information we will file with the SEC, at the SECs public reference room maintained at 100 F Street N.E., Room 1580, Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The sites Internet address is www.sec.gov.
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Audited Financial Statements of Valvoline Inc. | ||||
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Audited Combined Financial Statements of Valvoline | ||||
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Audited Combined Financial Statements of Valvoline: |
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F-7 | ||||
F-8 | ||||
Combined Statements of Invested Equity for the years ended September 30, 2015, 2014, and 2013 |
F-9 | |||
Combined Statements of Cash Flows for the years ended September 30, 2015, 2014, and 2013 |
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F-11 | ||||
F-40 | ||||
Unaudited Interim Condensed Combined Financial Statements of Valvoline | ||||
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Unaudited Interim Condensed Combined Financial Statements of Valvoline: |
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F-42 | ||||
Condensed Combined Balance Sheets at June 30, 2016 and September 30, 2015 |
F-43 | |||
Combined Statements of Invested Equity for the nine months ended June 30, 2016 and 2015 |
F-44 | |||
Condensed Combined Statements of Cash Flows for the nine months ended June 30, 2016 and 2015 |
F-45 | |||
F-46 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Ashland Inc.
We have audited the accompanying balance sheet of Valvoline Inc. as of May 13, 2016 (date of formation). This financial statement is the responsibility of the Companys management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit 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 statement is free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit 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 statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Valvoline Inc. as of May 13, 2016 (date of formation), in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
May 31, 2016
F-2
Valvoline Inc.
May 13,
2016 |
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Assets |
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Cash |
$ | 10 | ||
|
|
|||
Total assets |
$ | 10 | ||
|
|
|||
Liabilities and stockholders equity |
||||
Total liabilities |
$ | | ||
Stockholders equity |
||||
Common stock ($.01 par value per share, 1,000 shares authorized, 1,000 shares issued and outstanding) |
10 | |||
|
|
|||
Total stockholders equity |
10 | |||
|
|
|||
Total liabilities and stockholders equity |
$ | 10 | ||
|
|
F-3
Valvoline Inc.
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Valvoline Inc. (the Company), a Kentucky corporation, was formed on May 13, 2016. The Company has nominal assets, no liabilities and has conducted no operations. At May 13, 2016, the Company is a wholly owned subsidiary of Ashland Inc. Ashland Inc. intends to enter into agreements and take certain actions to transfer to the Company substantially all of the assets and liabilities related to Valvoline, an unincorporated commercial unit of Ashland Inc.
The accompanying financial statement of the Company is prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and U.S. Securities and Exchange Commission regulations.
The Company has authorized 1,000 shares of $0.01 par value per share common stock. All of these shares are issued and outstanding as of May 13, 2016.
Cash includes cash on hand, including any deposits in transit, and highly liquid investments maturing within three months after purchase.
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Ashland Inc.
We have audited the accompanying combined balance sheet of Valvoline, an unincorporated commercial unit of Ashland Inc., as of September 30, 2015, and the related combined statements of operations and comprehensive income, invested equity and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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. Our audit 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, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Valvoline, an unincorporated commercial unit of Ashland Inc., as of September 30, 2015, and the combined results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
May 31, 2016
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Ashland Inc.:
In our opinion, the combined balance sheet as of September 30, 2014 and the related combined statements of operations and comprehensive income, of invested equity and of cash flows for each of the two years in the period ended September 30, 2014 present fairly, in all material respects, the financial position of Valvoline, an unincorporated commercial unit of Ashland Inc., at September 30, 2014 and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2014, in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Cincinnati, OH
May 31, 2016
F-6
Combined Statements of Operations and Comprehensive Income
Years Ended September 30
(In millions) |
2015 | 2014 | 2013 | |||||||||
Sales |
$ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | ||||||
Cost of sales |
1,281.8 | 1,408.9 | 1,338.3 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
685.1 | 632.4 | 657.9 | |||||||||
Selling, general and administrative expense |
290.8 | 302.8 | 213.4 | |||||||||
Corporate expense allocation Note N |
79.5 | 95.0 | 88.2 | |||||||||
Equity and other income Note E |
8.3 | 30.1 | 24.3 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
323.1 | 264.7 | 380.6 | |||||||||
Net loss on divestiture Note C |
(26.3 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
296.8 | 264.7 | 380.6 | |||||||||
Income tax expense Note J |
100.7 | 91.3 | 134.5 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||
|
|
|
|
|
|
|||||||
COMPREHENSIVE INCOME (LOSS) |
||||||||||||
Net income |
$ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||
Other comprehensive income (loss), net of tax |
||||||||||||
Unrealized translation loss |
(34.1 | ) | (12.0 | ) | (10.9 | ) | ||||||
Pension obligation adjustment |
0.1 | 0.4 | 0.2 | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive loss |
(34.0 | ) | (11.6 | ) | (10.7 | ) | ||||||
|
|
|
|
|
|
|||||||
Comprehensive income |
$ | 162.1 | $ | 161.8 | $ | 235.4 | ||||||
|
|
|
|
|
|
See Notes to Combined Financial Statements.
F-7
Combined Balance Sheets
At September 30
(In millions) |
2015 | 2014 | ||||||
Assets |
||||||||
Current assets |
||||||||
Accounts receivable (a) |
$ | 334.6 | $ | 388.0 | ||||
Inventories Note B |
125.6 | 133.0 | ||||||
Other assets |
17.1 | 23.7 | ||||||
|
|
|
|
|||||
Total current assets |
477.3 | 544.7 | ||||||
Noncurrent assets |
||||||||
Property, plant and equipment Note F |
||||||||
Cost |
627.8 | 663.0 | ||||||
Accumulated depreciation |
374.3 | 390.6 | ||||||
|
|
|
|
|||||
Net property, plant and equipment |
253.5 | 272.4 | ||||||
Goodwill Note G |
169.4 | 167.9 | ||||||
Intangibles Note G |
1.6 | 6.4 | ||||||
Equity method investments Note E |
28.9 | 44.0 | ||||||
Other assets Note H |
47.2 | 47.1 | ||||||
|
|
|
|
|||||
Total noncurrent assets |
500.6 | 537.8 | ||||||
|
|
|
|
|||||
Total assets |
$ | 977.9 | $ | 1,082.5 | ||||
|
|
|
|
|||||
Liabilities and Invested Equity |
||||||||
Current liabilities |
||||||||
Trade and other payables |
$ | 173.3 | $ | 177.5 | ||||
Accrued expenses and other liabilities Note H |
125.3 | 116.0 | ||||||
|
|
|
|
|||||
Total current liabilities |
298.6 | 293.5 | ||||||
Noncurrent liabilities |
||||||||
Employee benefit obligations Note K |
13.0 | 14.8 | ||||||
Deferred income taxes Note J |
23.8 | 18.2 | ||||||
Other liabilities Note H |
25.4 | 31.2 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
62.2 | 64.2 | ||||||
Commitments and contingencies Notes I and L |
||||||||
Invested equity Notes M and N |
||||||||
Ashlands net investment in Valvoline |
677.7 | 751.4 | ||||||
Accumulated other comprehensive loss |
(60.6 | ) | (26.6 | ) | ||||
|
|
|
|
|||||
Total invested equity |
617.1 | 724.8 | ||||||
|
|
|
|
|||||
Total liabilities and invested equity |
$ | 977.9 | $ | 1,082.5 | ||||
|
|
|
|
(a) | Accounts receivable includes an allowance for doubtful accounts of $3.8 million in 2015 and $4.8 million in 2014. |
See Notes to Combined Financial Statements.
F-8
Combined Statements of Invested Equity
(In millions) |
Ashlands Net
Investment in Valvoline |
Accumulated
Other Comprehensive Loss (a) |
Total | |||||||||
Balance at September 30, 2012 |
$ | 674.2 | $ | (4.3 | ) | $ | 669.9 | |||||
Total comprehensive income (loss) |
246.1 | (10.7 | ) | 235.4 | ||||||||
Equity returned to Ashland, net |
(221.6 | ) | | (221.6 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2013 |
698.7 | (15.0 | ) | 683.7 | ||||||||
Total comprehensive income (loss) |
173.4 | (11.6 | ) | 161.8 | ||||||||
Equity returned to Ashland, net |
(120.7 | ) | | (120.7 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2014 |
751.4 | (26.6 | ) | 724.8 | ||||||||
Total comprehensive income (loss) |
196.1 | (34.0 | ) | 162.1 | ||||||||
Equity returned to Ashland, net |
(269.8 | ) | | (269.8 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at September 30, 2015 |
$ | 677.7 | $ | (60.6 | ) | $ | 617.1 | |||||
|
|
|
|
|
|
(a) | At September 30, 2015 and 2014, the accumulated other comprehensive loss of $60.6 million and $26.6 million, respectively, was comprised of unrecognized prior service costs as a result of certain employee benefit plan amendments of $0.3 million and $0.4 million, respectively, and net unrealized translation losses of $60.3 million and $26.2 million, respectively. |
See Notes to Combined Financial Statements.
F-9
Combined Statements of Cash Flows
Years Ended September 30
(In millions) |
2015 | 2014 | 2013 | |||||||||
Cash flows provided (used) by operating activities |
||||||||||||
Net income |
$ | 196.1 | $ | 173.4 | $ | 246.1 | ||||||
Adjustments to reconcile income to cash flows from operating activities |
||||||||||||
Depreciation and amortization |
38.0 | 37.1 | 35.7 | |||||||||
Deferred income taxes |
(9.1 | ) | (16.0 | ) | 37.7 | |||||||
Equity income from affiliates |
(12.1 | ) | (10.2 | ) | (12.8 | ) | ||||||
Distributions from equity affiliates |
17.9 | 7.5 | 7.7 | |||||||||
Net loss on divestiture Note C |
26.3 | | | |||||||||
Impairment of equity method investment Note C |
14.3 | | | |||||||||
Loss (gain) on Valvoline stand-alone pension plan remeasurements |
2.0 | 1.0 | (2.5 | ) | ||||||||
Change in assets and liabilities (a) |
||||||||||||
Accounts receivable |
53.4 | (31.3 | ) | (1.3 | ) | |||||||
Inventories |
(6.4 | ) | 8.2 | (18.9 | ) | |||||||
Trade and other payables |
(7.3 | ) | (7.8 | ) | 12.0 | |||||||
Accrued expenses and other liabilities |
9.3 | (11.3 | ) | 8.8 | ||||||||
Other assets and liabilities |
7.4 | 20.0 | (39.6 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total cash flows provided by operating activities |
329.8 | 170.6 | 272.9 | |||||||||
Cash flows provided (used) by investing activities |
||||||||||||
Additions to property, plant and equipment |
(45.0 | ) | (37.2 | ) | (40.9 | ) | ||||||
Proceeds from disposal of property, plant and equipment |
0.9 | 0.8 | 0.5 | |||||||||
Purchase of operations net of cash acquired |
(4.7 | ) | (1.9 | ) | (0.2 | ) | ||||||
Proceeds from sale of operations |
22.8 | | | |||||||||
|
|
|
|
|
|
|||||||
Total cash flows used by investing activities |
(26.0 | ) | (38.3 | ) | (40.6 | ) | ||||||
Cash flows provided (used) by financing activities |
||||||||||||
Net transfers to Ashland |
(303.8 | ) | (132.3 | ) | (232.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Total cash flows used by financing activities |
(303.8 | ) | (132.3 | ) | (232.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Change in cash and cash equivalents Notes A and B |
| | | |||||||||
Cash and cash equivalents beginning of year |
| | | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents end of year |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
(a) | Excludes changes resulting from operations acquired or sold. |
See Notes to Combined Financial Statements.
F-10
Notes to Combined Financial Statements
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Proposed Distribution
On September 22, 2015, Ashland Inc. (Ashland) announced that its Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprised of Ashland Global Holdings Inc. (Ashland Global), consisting of its specialty chemicals businesses, and Valvoline. Valvoline will focus on building the worlds leading engine and automotive maintenance business by providing Hands on Expertise to customers in each of its primary market channels. Immediately prior to the closing of Valvolines initial public offering, Ashland and Valvoline will become subsidiaries of Ashland Global. Ashland intends for the spin-off, which is subject to final board approval prior to completion, to be tax-free for Ashland shareholders. Immediately following the spin-off, Ashland shareholders will own shares of both Ashland Global and Valvoline. The spin-off is expected to be completed approximately six months after the completion of the initial public offering of Valvoline.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction or waiver by Ashland of a number of conditions. Additionally, Ashland may determine not to complete the internal reorganization or the distribution if, at any time, the Board of Directors of Ashland determines, in its sole and absolute discretion, that the distribution is not in the best interest of Ashland or its stockholders or is otherwise not advisable.
Valvoline is a premium consumer brand in the global automotive lubricant industry. In the United States, Valvoline operates in all of the key lubricant sales channels, and also has an international presence with products sold in approximately 140 countries. Valvoline provides a wide array of lubricants used in commercial and industrial equipment and machinery, and automotive chemicals designed to help engines run better and longer. Valvoline also operates a retail quick lube service chain through Valvoline Instant Oil Change (VIOC), which provides service through over 1,000 franchised and company-owned stores.
Basis of presentation
The accompanying Combined Financial Statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Ashland. For the periods presented, Valvoline was an unincorporated commercial unit of Ashland Inc. These Combined Financial Statements reflect the historical results of operations, financial position and cash flows of Valvoline as it was historically managed and adjusted to conform with accounting principles generally accepted in the United States of America (U.S. GAAP). These Combined Financial Statements are presented as if Valvoline had operated on a stand-alone basis for all periods presented. For the years ended September 30, 2015, 2014 and 2013, Valvoline is comprised of a combination of unincorporated commercial units of Ashland and its various subsidiary companies and, in certain jurisdictions, separate legal entities.
All significant intercompany transactions within Valvoline have been eliminated. The assets and liabilities in the stand-alone financial statements are wholly owned by Ashland and are being transferred to Valvoline at carry-over (historical cost) basis. As a result, the Combined Financial Statements included herein may not necessarily be indicative of Valvolines financial position, results of operations, or cash flows had it operated as a stand-alone entity during the periods presented. All significant transactions between Valvoline and Ashland have been included in the Combined Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Combined Statement of Cash Flows as a financing activity and in the Combined Balance Sheets as Ashlands net investment in Valvoline in lieu of stockholders equity. In the Combined Statements of Invested Equity, the Invested Equity returned to Ashland is the net of a variety of intercompany transactions including collection of trade receivables, payment of trade payables and accrued liabilities, settlement of charges for
F-11
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)
allocated corporate costs, and payment of taxes by Ashland on Valvolines behalf. The Combined Financial Statements reflect the assets, liabilities and operations of the Valvoline business. Investments in joint ventures where Valvoline has the ability to exert significant influence are accounted for under the equity method.
The Combined Financial Statements also include the recognition of certain assets and liabilities that have historically been recorded at the Ashland corporate level but which are specifically identifiable or otherwise attributable to Valvoline. Valvoline utilizes centralized functions of Ashland to support its operations, and in return, Ashland allocates certain of its expenses to Valvoline. Such expenses represent costs related, but not limited to, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. These costs, together with an allocation of Ashland overhead costs, are included within the Corporate expense allocation caption in the Combined Statements of Operations and Comprehensive Income. Where it is possible to specifically attribute such expenses to activities of Valvoline, these amounts have been charged or credited directly to Valvoline without allocation or apportionment. Allocation of all other such expenses is based on a reasonable reflection of the utilization of service provided or benefits received by Valvoline during the periods presented on a consistent basis, such as headcount, square footage, tangible assets or sales.
Management believes the assumptions underlying the stand-alone financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Valvoline during the periods presented. However, these shared expenses may not represent the amounts that would have been incurred had Valvoline operated autonomously or independently from Ashland. Actual costs that would have been incurred if Valvoline had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, including information technology and infrastructure. For an additional discussion of expense allocations see Note N of the Notes to Combined Financial Statements.
Ashland uses a centralized approach to cash management. Accordingly, cash and cash equivalents are held by Ashland at the corporate level and were not attributed to Valvoline for any of the periods presented. Transfers of cash, both to and from Ashlands centralized cash management system, are reflected as a component of Ashlands net investment in Valvoline on the Combined Balance Sheets and as a financing activity within the accompanying Combined Statement of Cash Flows. Debt obligations of Ashland have not been included in the Combined Financial Statements of Valvoline, because Valvoline is not a party to the obligation between Ashland and the debt holders.
The income tax provision in the Combined Statements of Operations and Comprehensive Income has been calculated as if Valvoline was operating on a stand-alone basis and filed separate tax returns in the jurisdiction in which it operates. Valvolines operations have historically been included in the Ashland U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. Ashlands global tax model has been developed based on its entire portfolio of businesses. Therefore cash tax payments and items of current and deferred taxes may not be reflective of Valvolines actual tax balances prior to or subsequent to Valvoline operating as a stand-alone company.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
Valvolines significant accounting policies, which conform to U. S. GAAP and are applied on a consistent basis in all years presented, except as indicated, are described below.
Use of estimates, risks and uncertainties
The preparation of Valvolines Combined Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
F-12
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill), sales deductions, and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
Valvolines results are affected by domestic and international economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations. Political actions may include changes in the policies of the Organization of Petroleum Exporting Countries or other developments involving or affecting oil-producing countries, including military conflicts, embargoes, internal instability or actions or reactions of the U.S. government in anticipation of, or in response to, such actions. While Valvoline maintains reserves for anticipated liabilities and, through Ashland, carries various levels of insurance, Valvoline could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.
Cash and cash equivalents
Valvoline participates in Ashlands centralized cash management and financing programs. As such, no cash is reported in the Combined Balance Sheets for any period presented.
Accounts receivable and allowance for doubtful accounts
A progression of activity in the allowance for doubtful accounts is presented in the following table.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Allowance for doubtful accounts beginning of year |
$ | 4.8 | $ | 4.9 | $ | 7.9 | ||||||
Adjustments to provision |
(0.3 | ) | 0.2 | (2.7 | ) | |||||||
Reserves utilized |
(0.7 | ) | (0.3 | ) | (0.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Allowance for doubtful accounts end of year |
$ | 3.8 | $ | 4.8 | $ | 4.9 | ||||||
|
|
|
|
|
|
Valvoline records an allowance for doubtful accounts as a best estimate of the amount of probable credit losses for accounts receivable. Each month, Valvoline reviews this allowance and considers factors such as customer credit, past transaction history with the customer and changes in customer payment terms when determining whether the collection of a receivable is reasonably assured. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. The allowance for doubtful accounts is adjusted when it becomes probable a receivable will not be recovered.
As part of the centralized cash management program with Ashland, Valvoline began participating in an accounts receivable securitization facility in 2012 that allowed Ashland to sell, on an ongoing basis, certain of its qualifying accounts receivable, certain related assets and the right to the collections on those accounts receivable to CVG Capital III, LLC (CVG), a wholly-owned special purpose subsidiary of Ashland. Valvolines participation is a result of Ashlands centralized approach to cash management, and transfers under the facility are recorded as secured borrowings by Ashland with the receivables sold pursuant to the facility included in the Combined Balance Sheets as accounts receivable. At September 30, 2015 and 2014 the outstanding amount of accounts receivable sold by Ashland to CVG for Valvolines participating receivables in the facility was $234.7 million and $284.9 million, respectively. These amounts are included in the accounts receivable caption of the Combined Balance Sheets.
F-13
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
During 2014, Ashland entered into an agreement to sell accounts receivable for a Valvoline customer in the form of drafts or bills of exchange to a financial institution. Each draft constitutes an order to pay for obligations of the customer to Ashland arising from the sale of goods by Ashland to the customer. As the intention of the arrangement is to decrease the amount of time accounts receivable is outstanding and increase cash flows for Ashland through its centralized cash management function. At September 30, 2015 the outstanding amount of drafts sold by Ashland to the financial institution was $41.4 million. No receivables were sold as of September 30, 2014.
Inventories
Inventories are carried at the lower of cost or market value. Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain lubricants with a replacement cost of $63.2 million at September 30, 2015 and $63.3 million at September 30, 2014 are valued at cost using the last-in, first-out (LIFO) method.
The following summarizes Valvolines inventories as of the Combined Balance Sheet dates.
(In millions) |
2015 | 2014 | ||||||
Finished products |
$ | 134.3 | $ | 149.7 | ||||
Raw materials, supplies and work in process |
22.5 | 26.1 | ||||||
LIFO reserves |
(31.2 | ) | (42.8 | ) | ||||
|
|
|
|
|||||
$ | 125.6 | $ | 133.0 | |||||
|
|
|
|
A progression of activity in the inventory reserves, which reduce or increase the amounts of finished products and raw materials, supplies and work in process reported, is presented in the following table.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Inventory reserves beginning of year |
$ | 5.7 | $ | 6.0 | $ | 4.7 | ||||||
Adjustments to provision |
(0.3 | ) | (1.2 | ) | (0.2 | ) | ||||||
Reserves utilized |
(0.6 | ) | 0.9 | 1.5 | ||||||||
|
|
|
|
|
|
|||||||
Inventory reserves end of year |
$ | 4.8 | $ | 5.7 | $ | 6.0 | ||||||
|
|
|
|
|
|
Property, plant and equipment
The cost of property, plant and equipment is depreciated by the straight-line method over the estimated useful lives of the assets. Buildings are depreciated principally over 5 to 35 years and machinery and equipment principally over 5 to 15 years. Such costs are periodically reviewed for recoverability when impairment indicators are present and are conducted at the lowest identifiable level of cash flows. Such indicators could include, among other factors, operating losses, unused capacity, market value declines and technological obsolescence. Recorded values of asset groups of property, plant and equipment, that are not expected to be recovered through undiscounted future net cash flows, are written down to current fair value, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale).
Goodwill and other intangibles
Valvoline tests goodwill for impairment annually as of July 1 or when events and circumstances indicate an impairment may have occurred. This annual assessment consists of Valvoline determining each reporting units current fair value compared to its current carrying value. Valvolines reporting units for the allocation of goodwill include the Core North America, Quick Lubes, and International operating segments.
F-14
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
With respect to goodwill, Valvoline performs either a qualitative or quantitative evaluation for each of its reporting units. Factors considered in the qualitative test include reporting unit specific operating results as well as new events and circumstances impacting the operations of the reporting units. For the quantitative test, the Company assesses goodwill for impairment by comparing the carrying value of its reporting units to their respective fair values and reviewing the Companys market value of invested capital. The Company determines the fair value of its reporting units under the income-based approach and incorporates assumptions it believes marketplace participants would utilize.
Valvolines assessment of an impairment charge on goodwill could change in future periods if any or all of the following events were to occur with respect to a particular reporting unit: a significant change in projected business results, a divestiture decision, increase in Valvolines weighted-average cost of capital rates, decrease in growth rates or other assumptions, economic deterioration that is more severe or of a longer duration than anticipated, or another significant economic event.
Finite-lived intangible assets principally consist of certain trademarks and trade names, intellectual property, and customer lists. These intangible assets are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 15 to 25 years, intellectual property over 10 years and customer relationships over 10 to 20 years. Valvoline reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Valvoline monitors these changes and events on at least a quarterly basis. For further information on goodwill and other intangible assets, see Note G.
Equity method investments
Investments in joint ventures where Valvoline has the ability to exert significant influence are accounted for under the equity method of accounting. As of September 30, 2015 and 2014 Valvolines investments in these assets were $28.9 million and $44.0 million, respectively.
Revenue recognition
Sales generally are recognized when persuasive evidence of an arrangement exists, products are received or services are provided to customers, the sales price is fixed or determinable and collectability is reasonably assured. Valvoline reports all sales net of tax assessed by qualifying governmental authorities. Certain shipping and handling costs paid by the customer are recorded in sales, while those costs paid by Valvoline are recorded in cost of sales. Franchise revenue is also included within sales and was $22.2 million, $19.8 million, and $17.8 million during 2015, 2014, and 2013, respectively.
Sales rebates and discounts, consisting primarily of promotional rebates and customer pricing discounts, are offered through various programs to customers. Sales are recorded net of these rebates and discounts totaling $344.8 million, $321.7 million and $300.4 million in the Combined Statements of Operations and Comprehensive Income for September 30, 2015, 2014 and 2013, respectively. Sales rebates and discounts are recognized as incurred, generally at the time of the sale, or over the term of the sales contract. Valvoline bases its estimates on historical rates of customer discounts and rebates as well as the specific identification of discounts and rebates that have not been received.
Expense recognition
Cost of sales include material and production costs, as well as the costs of inbound and outbound freight, purchasing and receiving, inspection, warehousing, internal transfers and all other distribution network costs. Selling, general and administrative expense includes sales and marketing costs, advertising, customer support, environmental remediation, and administrative costs, other than allocated corporate charges from Ashland, which
F-15
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
have been separately identified in the corporate overhead allocation within the Combined Statements of Operations and Comprehensive Income. Advertising costs ($55.6 million in 2015, $56.2 million in 2014 and $61.0 million in 2013) and research and development costs ($11.4 million in both 2015 and 2014 and $11.3 million in 2013) are expensed as incurred.
Income taxes
The provision for income taxes includes current income taxes as well as deferred income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. The effect of changes in tax rates on deferred taxes is recognized in the period in which the enactment date changes. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized.
Valvoline income taxes as presented are calculated on a separate return basis, although Valvolines operations have historically been included in Ashlands U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. As Valvoline operations in many jurisdictions are unincorporated commercial units of Ashland and its subsidiaries, stand-alone tax returns have not been filed for the operations in these jurisdictions. Accordingly, Valvolines tax results as presented are not necessarily reflective of the results that Valvoline would have generated on a stand-alone basis.
Valvolines Combined Balance Sheets reflect assumptions regarding the expected manner of the spin-off of the company that would result in Ashland retaining certain tax attributes in a number of jurisdictions. As a result, the tax attributes that Ashland would retain in these jurisdictions have been eliminated from the Valvoline Combined Balance Sheets. The income tax expense of these items has been reflected in the Combined Statements of Operations and Comprehensive Income, with a corresponding offset to Total Invested Equity. For additional information on income taxes, see Note J.
A progression of activity in the tax valuation allowances is presented in the following table.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Tax Valuation Allowance beginning of year |
$ | 0.2 | $ | 0.2 | $ | 0.4 | ||||||
Dispositions and other changes |
0.2 | | (0.2 | ) | ||||||||
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|
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|
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|
|||||||
Tax Valuation Allowance end of year |
$ | 0.4 | $ | 0.2 | $ | 0.2 | ||||||
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Retirement Plans and Other Postretirement Benefits
Qualifying employees participate in specific Valvoline or Ashland sponsored defined-benefit pension plans, which typically provide pension payments based on an employees length of service and compensation during the years immediately preceding retirement or have a cash balance design. The majority of U.S. pension plans have been closed to new participants since January 1, 2011. In addition, most foreign pension plans are closed to new participants while those that remain open relate to areas where local laws require plans to operate within the applicable country. Pension obligations for applicable employees of non-U.S. consolidated subsidiaries are provided for in accordance with local practices and regulations of the respective countries.
Valvoline recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. The remaining components of pension and other postretirement benefits expense are recorded ratably on a quarterly basis. Pension and other postretirement benefits adjustments charged directly to cost of sales that are applicable to inactive participants are excluded from inventoriable costs. The service cost component of pension and other
F-16
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
postretirement benefits costs has been allocated to Valvoline on a ratable basis; while the remaining components of pension and other postretirement benefits costs are historically held at the Ashland corporate level. For purposes of the stand-alone financial statements of Valvoline, Valvolines portion of these costs has been reflected in the Combined Statements of Operations and Comprehensive Income within cost of sales or selling, general and administrative expenses.
Valvoline Stand-alone Defined Benefit Pension Plans
Valvoline has certain defined benefit pension plans that are specifically designated only for Valvoline employees. The net funded status of these Valvoline defined benefit pension plans is recognized in the Combined Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at September 30, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation (PBO). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of the benefit obligation is based on estimates and actuarial valuations. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain key assumptions that require significant judgment, including, but not limited to, estimates of discount rates, expected return on plan assets, rate of compensation increases, interest rates and mortality rates.
Valvoline Participation in Ashland Sponsored Plans
Valvoline also has employees that are eligible to participate in certain defined contribution or defined benefit and postretirement benefit plans, that are sponsored by Ashland or its subsidiary companies. Valvoline has accounted for its participation in the Ashland sponsored defined benefit pension and other postretirement plans as a participation in a multi-employer plan within the Combined Financial Statements. Under this method of accounting, Valvoline recognized its allocated portion of net periodic benefit but did not report a liability beyond the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities relative to these retirement plans have been included in the Combined Balance Sheets. Amounts recognized in the Combined Statements of Operations and Comprehensive Income for multi-employer defined benefit and postretirement benefit plans include an allocation to Valvoline on a ratable basis of the net actuarial gains and losses on an annual basis or whenever a plan is determined to qualify for a remeasurement.
For further information on expense, assets and liabilities related to these plans, see Note K.
Commitments, Contingencies and Environmental Costs
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
Valvoline partially insures its workers compensation claims and other general business insurance needs through Ashland. Ashland charges for the applicable portion of costs of third-party insurance and the costs of self-insured claims are recorded in the Combined Statements of Operations and Comprehensive Income.
Fair Value Measurements
As required by U.S. GAAP, Valvoline uses applicable guidance for defining fair value, the initial recording and periodic remeasurement of certain assets and liabilities measured at fair value and related disclosures for instruments measured at fair value. Fair value accounting guidance establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1)
F-17
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
and the lowest priority to unobservable inputs (Level 3). An instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instruments fair value measurement. Valvoline measures assets and liabilities using inputs from the following three levels of fair value hierarchy:
Level 1 Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect Valvolines own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include Valvolines own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.
For assets that are measured using quoted prices in active markets (Level 1), the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs (Level 2) are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability. For all other assets and liabilities for which unobservable inputs are used (Level 3), fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models that Valvoline deems reasonable.
Foreign currency translation
Operations outside the United States are measured primarily using the local currency as the functional currency. Upon consolidation, the results of operations of the subsidiaries and affiliates whose functional currency is other than the U.S. dollar are translated into U.S. dollars at the average exchange rates for the year while assets and liabilities are translated at year-end exchange rates. Adjustments to translate assets and liabilities into U.S. dollars are recorded in the invested equity section of the Combined Balance Sheets as a component of accumulated other comprehensive loss and are included in net earnings only upon sale or substantial liquidation of the underlying foreign subsidiary or affiliated company. The Combined Balance Sheets do not reflect derivative instruments entered into by Ashland to hedge variations in foreign currency for Valvoline results. This is due to the centralized treasury function utilized by Ashland on behalf of its subsidiaries.
New accounting pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to lease transactions. The main objective of this guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. The presentation of the Combined Statements of Operations and Comprehensive Income and the Combined Statement of Cash Flows is largely unchanged under this guidance. This guidance retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The guidance will become effective for Valvoline on October 1, 2019. Valvoline is currently evaluating the impact this guidance will have on Valvolines Combined Financial Statements.
F-18
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
In November 2015, the FASB issued accounting guidance requiring all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The guidance will become effective for Valvoline on October 1, 2017, with early adoption permitted. Valvoline adopted this accounting standard on a retrospective basis and the impact of this new guidance is reflected within Valvolines Combined Financial Statements.
In July 2015, the FASB issued accounting guidance to simplify the subsequent measurement of certain inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. This guidance will become effective prospectively for Valvoline on October 1, 2017, with early adoption permitted. Valvoline is currently evaluating the new accounting standard and the impact this new guidance will have on Valvolines Combined Financial Statements.
In May 2014, the FASB issued accounting guidance outlining a single comprehensive five step model for entities to use in accounting for revenue arising from contracts with customers (ASC 606 Revenue from Contracts with Customers). The new guidance supersedes most current revenue recognition guidance, in an effort to converge the revenue recognition principles within U.S. GAAP. This new guidance also requires entities to disclose certain quantitative and qualitative information regarding the nature, amount, timing and uncertainty of qualifying revenue and cash flows arising from contracts with customers. Entities have the option of using a full retrospective or a modified retrospective approach to adopt the new guidance. During 2015, the FASB delayed the effective date of this standard by one year. As a result, this guidance now becomes effective for Valvoline on October 1, 2018. Valvoline is currently evaluating the new accounting standard and the available implementation options the standard allows as well as the impact this new guidance will have on Valvolines Combined Financial Statements.
In April 2014, the FASB issued accounting guidance amending the requirements for reporting discontinued operations (ASC 205 Presentation of Financial Statements and ASC 360 Property, Plant and Equipment). This guidance limits the requirement for discontinued operations treatment to the disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has (or will have) a major effect on an entitys operations and financial results. Additionally, this new guidance no longer precludes discontinued operations presentation based on continuing involvement or cash flows following the disposal. Valvoline adopted this guidance on October 1, 2014, which is applicable only to divestitures subsequent to the adoption date, and has evaluated each divestiture subsequent thereto under this new guidance.
NOTE C ACQUISITIONS AND DIVESTITURES
Morgan Acres
During 2015, Valvoline acquired three locations within the Quick Lubes reportable segment. The purchase price of $4.7 million was allocated primarily to property, plant and equipment and goodwill.
Car Care Products
During 2015, Ashland entered into a definitive sale agreement to sell Valvolines car care product assets within the Core North America reportable segment for $24.0 million, which included Car Brite and Eagle One automotive appearance products. Prior to the sale, Valvoline recognized a loss of $26.3 million before tax in 2015 to recognize the assets at fair value less cost to sell, using Level 2 nonrecurring fair value measurements. The loss is reported within the net loss on divestiture caption within the Combined Statements of Operations and Comprehensive Income. The transaction closed on June 30, 2015 and Valvoline received net proceeds of $19.3 million after adjusting for certain customary closing costs and final working capital amounts.
F-19
NOTE C ACQUISITIONS AND DIVESTITURES (continued)
The sale of Valvolines car care product assets did not qualify for discontinued operations treatment since it did not represent a strategic shift that had or will have a major effect on Valvolines operations and financial results.
Venezuela Equity Method Investment
During 2015, Valvoline sold the equity method investment in Venezuela within the International reportable segment. Prior to the sale, Valvoline recognized a $14.3 million impairment in 2015, for which there was no tax effect, using Level 2 nonrecurring fair value measurements within the equity and other income caption of the Combined Statements of Operations and Comprehensive Income.
Valvolines decision to sell the equity investment and the resulting charge recorded during 2015 is reflective of the continued devaluation of the Venezuelan currency (bolivar) based on changes to the Venezuelan currency exchange rate mechanisms during the fiscal year. In addition, the continued lack of exchangeability between the Venezuelan bolivar and U.S. dollar had restricted the equity method investees ability to pay dividends and obligations denominated in U.S. dollars. These exchange regulations and cash flow limitations, combined with other recent Venezuelan regulations and the impact of declining oil prices on the Venezuelan economy, had significantly restricted Valvolines ability to conduct normal business operations through the joint venture arrangement. Valvoline determined this divestiture does not represent a strategic shift that had or will have a major effect on Valvolines operations and financial results, and thus it does not qualify for discontinued operations treatment.
NOTE D RESTRUCTURING ACTIVITIES
Ashland periodically implements company-wide restructuring programs related to acquisitions, divestitures and other cost reduction programs in order to enhance profitability through streamlined operations and an improved overall cost structure for each business.
During 2014, Ashland announced a global restructuring program to streamline the resources used across the organization. As part of this global restructuring program, Ashland announced a voluntary severance offer (VSO) to certain U.S. employees. During 2014, an involuntary program for employees was also initiated as part of the global restructuring program. Substantially all payments related to the VSO and involuntary programs were paid by the end of fiscal year 2015.
The VSO and involuntary programs, included within the Unallocated and other segment, resulted in expense relating to Valvoline of $0.4 million and $6.3 million being recognized during 2015 and 2014, respectively, and recorded within the selling, general and administrative expense caption of the Combined Statements of Operations and Comprehensive Income. As of September 30, 2015 and 2014, the remaining restructuring reserve for the global restructuring program was zero and $1.0 million, respectively.
(In millions) |
Severance | |||
Balance as of September 30, 2013 |
$ | | ||
Restructuring reserves |
6.3 | |||
Utilization (cash paid) |
(5.3 | ) | ||
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Balance as of September 30, 2014 |
1.0 | |||
Restructuring adjustments |
0.4 | |||
Utilization (cash paid) |
(1.4 | ) | ||
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Balance as of September 30, 2015 |
$ | | ||
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F-20
NOTE E EQUITY METHOD INVESTMENTS
Summarized financial information for companies accounted for on the equity method is presented in the following table, along with a summary of the amounts recorded in the Combined Financial Statements. The results of operations and amounts recorded by Valvoline as of and for the years ended September 30, 2015, 2014 and 2013 only include results for the Valvoline equity method investment within Venezuela prior to its divestiture in 2015. See Note C for further information on this divestiture in 2015.
At September 30, 2015 and 2014, Valvolines retained earnings included $30.0 million and $49.5 million, respectively, of undistributed earnings from affiliates accounted for on the equity method. The summarized financial information for all companies accounted for on the equity method by Valvoline is as of and for the years ended September 30, 2015, 2014 and 2013, respectively.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Financial position |
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Current assets |
$ | 80.2 | $ | 138.3 | ||||||||
Current liabilities |
(48.4 | ) | (86.2 | ) | ||||||||
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Working capital |
31.8 | 52.1 | ||||||||||
Noncurrent assets |
25.3 | 28.0 | ||||||||||
Noncurrent liabilities |
(1.1 | ) | (1.4 | ) | ||||||||
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Stockholders equity |
$ | 56.0 | $ | 78.7 | ||||||||
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Results of operations |
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Sales |
$ | 275.0 | $ | 299.9 | $ | 324.8 | ||||||
Income from operations |
48.2 | 40.4 | 48.1 | |||||||||
Net income |
24.1 | 21.7 | 27.3 | |||||||||
Amounts recorded by Valvoline |
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Investments and advances |
$ | 28.9 | $ | 44.0 | $ | 40.3 | ||||||
Equity income (loss) (a) |
(2.2 | ) | 10.2 | 12.8 | ||||||||
Distributions received |
17.9 | 7.5 | 7.7 |
(a) | 2015 includes a $14.3 million impairment of the equity method investment in Venezuela as further discussed in Note C. |
NOTE F PROPERTY, PLANT AND EQUIPMENT
The following table describes the various components of property, plant and equipment within the Combined Balance Sheets.
(In millions) |
2015 | 2014 | ||||||
Land |
$ | 47.0 | $ | 42.0 | ||||
Buildings (a) |
199.9 | 211.2 | ||||||
Machinery and equipment |
362.0 | 392.5 | ||||||
Construction in progress |
18.9 | 17.3 | ||||||
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Total property, plant and equipment (gross) |
627.8 | 663.0 | ||||||
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Accumulated depreciation (b) |
(374.3 | ) | (390.6 | ) | ||||
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Total property, plant and equipment (net) |
$ | 253.5 | $ | 272.4 | ||||
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(a) | Includes $5.1 million of capitalized leases as of September 30, 2015 and September 30, 2014. |
(b) | Includes $1.6 million and $1.3 million for capitalized leases as of September 30, 2015 and September 30, 2014, respectively. |
F-21
NOTE F PROPERTY, PLANT AND EQUIPMENT (continued)
The following table summarizes various property, plant and equipment charges included within the Combined Statements of Operations and Comprehensive Income.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Depreciation (includes capital leases) |
$ | 37.6 | $ | 36.5 | $ | 35.1 |
NOTE G GOODWILL AND OTHER INTANGIBLES
Goodwill
The performance of the annual impairment analysis did not result in any impairments of goodwill during 2015, 2014, and 2013. The estimated fair value of each reporting unit with a significant goodwill balance was substantially in excess of its carrying value.
The following is a progression of goodwill by reportable segment for the years ended September 30, 2015 and 2014.
(In millions) |
Core
North America |
Quick Lubes | International | Total | ||||||||||||
Balance at September 30, 2013 |
$ | 90.4 | $ | 36.7 | $ | 40.1 | $ | 167.2 | ||||||||
Acquisitions (a) |
| 0.8 | | 0.8 | ||||||||||||
Currency translation |
| | (0.1 | ) | (0.1 | ) | ||||||||||
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Balance at September 30, 2014 |
90.4 | 37.5 | 40.0 | 167.9 | ||||||||||||
Acquisitions (a) |
| 3.2 | | 3.2 | ||||||||||||
Divestitures (b) |
(1.3 | ) | | | (1.3 | ) | ||||||||||
Currency translation |
| | (0.4 | ) | (0.4 | ) | ||||||||||
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Balance at September 30, 2015 |
$ | 89.1 | $ | 40.7 | $ | 39.6 | $ | 169.4 | ||||||||
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(a) | Relates to the Morgan Acres acquisition in 2015 (see Note C for additional information) and other smaller Quick Lubes acquisitions in 2014. |
(b) | Divestiture caption represents the amount of goodwill related to car care products. See Note C for additional information. |
Other intangible assets
Intangible assets principally consist of trademarks and trade names, intellectual property and customer relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 15 to 25 years, intellectual property over 10 years and customer relationships over 10 to 20 years.
F-22
NOTE G GOODWILL AND OTHER INTANGIBLES (continued)
(In millions) |
2015 | 2014 | ||||||||||||||||||||||
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
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Definite-lived intangible assets |
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Trademarks and trade names (a) |
$ | 0.1 | $ | (0.1 | ) | $ | | $ | 6.8 | $ | (2.6 | ) | $ | 4.2 | ||||||||||
Intellectual property (b) |
| | | 0.6 | (0.5 | ) | 0.1 | |||||||||||||||||
Customer relationships (c) |
3.1 | (1.5 | ) | 1.6 | 4.2 | (2.1 | ) | 2.1 | ||||||||||||||||
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Total definite-lived intangible assets |
$ | 3.2 | $ | (1.6 | ) | $ | 1.6 | $ | 11.6 | $ | (5.2 | ) | $ | 6.4 | ||||||||||
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(a) | Divested trademarks and trade names during 2015 had gross carrying amounts of $6.7 million and accumulated amortization of $2.6 million for Valvoline car care products. |
(b) | Divested intellectual property during 2015 had gross carrying amounts and accumulated amortization of $0.6 million each for Valvoline car care products. |
(c) | Divested customer relationships during 2015 had gross carrying amounts of $1.1 million and accumulated amortization of $0.8 million for Valvoline car care products. |
Amortization expense recognized on intangible assets was $0.4 million for 2015, $0.6 million for 2014 and 2013, and is primarily included in the selling, general and administrative expense caption of the Combined Statements of Operations and Comprehensive Income. As of September 30, 2015, all of Valvolines intangible assets that had a carrying value were being amortized. Estimated amortization expense for future periods is $0.2 million in 2016, 2017, 2018, 2019 and 2020. The amortization expense for future periods is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.
NOTE H OTHER NONCURRENT ASSETS AND CURRENT AND NONCURRENT LIABILITIES
The following table provides the components of other noncurrent assets in the Combined Balance Sheets as of September 30.
(In millions) |
2015 | 2014 | ||||||
Customer incentive programs |
$ | 19.0 | $ | 20.3 | ||||
Notes receivable from customers |
16.6 | 13.1 | ||||||
Deferred income taxes |
7.8 | 8.1 | ||||||
Other |
3.8 | 5.6 | ||||||
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$ | 47.2 | $ | 47.1 | |||||
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The following table provides the components of accrued expenses and other liabilities in the Combined Balance Sheets as of September 30.
(In millions) |
2015 | 2014 | ||||||
Sales deductions |
$ | 44.1 | $ | 39.3 | ||||
Incentive compensation |
20.2 | 16.2 | ||||||
Accrued taxes (excluding income taxes) |
15.6 | 18.6 | ||||||
Accrued vacation |
14.9 | 14.1 | ||||||
Current income taxes payable |
10.4 | 5.5 | ||||||
Other |
20.1 | 22.3 | ||||||
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|
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$ | 125.3 | $ | 116.0 | |||||
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F-23
NOTE H OTHER NONCURRENT ASSETS AND CURRENT AND NONCURRENT LIABILITIES (continued)
The following table provides the components of other noncurrent liabilities in the Combined Balance Sheets as of September 30.
(In millions) |
2015 | 2014 | ||||||
Reserves related to workers compensation and general liability |
$ | 14.0 | $ | 19.7 | ||||
Accrued tax liabilities |
4.7 | 3.8 | ||||||
Capitalized lease obligations |
4.2 | 4.4 | ||||||
Other |
2.5 | 3.3 | ||||||
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$ | 25.4 | $ | 31.2 | |||||
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NOTE I LEASE COMMITMENTS
Valvoline and its subsidiaries are lessees of office buildings, retail outlets, transportation equipment, warehouses and storage facilities, other equipment, facilities and properties under leasing agreements that expire at various dates. Capitalized lease obligations are primarily included in other noncurrent liabilities while capital lease assets are included in property, plant and equipment. Future minimum rental payments for operating leases at September 30, 2015 were $12.6 million in 2016, $10.7 million in 2017, $8.9 million in 2018, $6.6 million in 2019, $5.2 million in 2020 and $18.7 million in 2021 and later years. Rental expense under operating leases for operations was as follows:
(In millions) |
2015 | 2014 | 2013 | |||||||||
Minimum rentals (including rentals under short-term leases) |
$ | 12.4 | $ | 13.5 | $ | 13.7 | ||||||
Contingent rentals |
2.4 | 2.9 | 2.9 | |||||||||
Sublease rental income |
(1.3 | ) | (1.1 | ) | (1.1 | ) | ||||||
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$ | 13.5 | $ | 15.3 | $ | 15.5 | |||||||
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NOTE J INCOME TAXES
A summary of the provision for income taxes related to operations follows.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Current |
||||||||||||
Federal |
$ | 80.9 | $ | 82.3 | $ | 71.3 | ||||||
State |
15.6 | 15.2 | 13.0 | |||||||||
Foreign |
13.3 | 9.8 | 12.5 | |||||||||
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|
|||||||
109.8 | 107.3 | 96.8 | ||||||||||
Deferred |
(9.1 | ) | (16.0 | ) | 37.7 | |||||||
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|
|||||||
Income tax expense |
$ | 100.7 | $ | 91.3 | $ | 134.5 | ||||||
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|
Deferred income taxes are provided for income and expense items recognized in different years for tax and financial reporting purposes. As of September 30, 2015, management intends to indefinitely reinvest approximately $26.2 million of foreign earnings. Because these earnings are considered indefinitely reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings, and it is not practicable to estimate the amount of U.S. tax that might be payable if these earnings were ever to be remitted.
F-24
NOTE J INCOME TAXES (continued)
Temporary differences that give rise to significant deferred tax assets and liabilities as of September 30 are presented in the following table.
(In millions) |
2015 | 2014 | ||||||
Deferred tax assets |
||||||||
Foreign net operating loss carryforwards (a) |
$ | 0.9 | $ | 0.2 | ||||
Employee benefit obligations |
4.5 | 4.4 | ||||||
Compensation accruals |
8.4 | 6.4 | ||||||
Other items |
4.9 | 13.3 | ||||||
Valuation allowances (b) |
(0.4 | ) | (0.2 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
18.3 | 24.1 | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Goodwill and other intangibles (c) |
9.8 | 7.3 | ||||||
Property, plant and equipment |
22.5 | 24.8 | ||||||
Unremitted earnings |
2.0 | 2.1 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
34.3 | 34.2 | ||||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (16.0 | ) | $ | (10.1 | ) | ||
|
|
|
|
(a) | Gross net operating loss carryforwards will expire in future years beyond 2017. |
(b) | Valuation allowances primarily relate to certain foreign net operating loss carryforwards. |
(c) | The total gross amount of goodwill as of September 30, 2015 expected to be deductible for tax purposes is $3.4 million. |
The U.S. and foreign components of income before income taxes and a reconciliation of the statutory federal income tax with the provision for income taxes follow.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Income before income taxes |
||||||||||||
United States (a) |
$ | 244.7 | $ | 230.4 | $ | 340.2 | ||||||
Foreign |
52.1 | 34.3 | 40.4 | |||||||||
|
|
|
|
|
|
|||||||
Total income before income taxes |
$ | 296.8 | $ | 264.7 | $ | 380.6 | ||||||
|
|
|
|
|
|
|||||||
Income taxes computed at U.S. statutory rate (35%) |
$ | 103.9 | $ | 92.7 | $ | 133.2 | ||||||
Increase (decrease) in amount computed resulting from |
||||||||||||
Uncertain tax positions |
0.9 | 2.1 | 1.5 | |||||||||
State taxes |
9.2 | 8.1 | 12.3 | |||||||||
International rate differential |
(7.8 | ) | (2.8 | ) | (1.8 | ) | ||||||
Permanent items (b) |
(5.2 | ) | (9.2 | ) | (10.6 | ) | ||||||
Other items |
(0.3 | ) | 0.4 | (0.1 | ) | |||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 100.7 | $ | 91.3 | $ | 134.5 | ||||||
|
|
|
|
|
|
(a) | A significant component of the fluctuations within this caption relates to the annual remeasurements of the U.S. pension and other postretirement plans. |
(b) | Permanent items in each year relate primarily to the domestic manufacturing deduction and income from equity affiliates. Further, 2015 includes adjustments related to the sale of the Venezuela joint venture of $5.5 million. |
Unrecognized tax benefits
U.S. GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires Valvoline to determine whether it is more likely than not
F-25
NOTE J INCOME TAXES (continued)
that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires Valvoline to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. Valvoline had $4.7 million and $3.8 million of unrecognized tax benefits at September 30, 2015 and 2014, respectively. As of September 30, 2015, the total amount of unrecognized tax benefits that, if recognized, would affect the tax rate was $4.7 million. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not have an impact on the effective tax rate.
Valvoline recognizes interest and penalties related to uncertain tax positions as a component of income tax expense in the Combined Statements of Operations and Comprehensive Income. Such interest and penalties totaled expense of $0.1 million in both 2015 and 2014 and none in 2013. Valvoline had $0.2 million and $0.1 million in interest and penalties related to unrecognized tax benefits accrued as of September 30, 2015 and 2014, respectively.
During the year ended September 30, 2015 and 2014, respectively, changes in unrecognized tax benefits were as follows:
(In millions) |
||||
Balance at September 30, 2013 |
$ | 1.8 | ||
Increases related to positions taken on items from prior years |
0.9 | |||
Decreases related to positions taken on items from prior years |
(0.2 | ) | ||
Increases related to positions taken in the current year |
1.3 | |||
|
|
|||
Balance at September 30, 2014 |
3.8 | |||
|
|
|||
Increases related to positions taken on items from prior years |
1.0 | |||
Settlement of uncertain tax positions with tax authorities |
(0.1 | ) | ||
|
|
|||
Balance at September 30, 2015 |
$ | 4.7 | ||
|
|
From a combination of statute expirations and audit settlements in the next twelve months, Valvoline expects no decrease in the amount of accrual for uncertain tax positions. For the remaining balance as of September 30, 2015, it is reasonably possible that there could be changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, or the expiration of applicable statute of limitations; however, Valvoline is not able to estimate the impact of these items at this time.
Valvoline or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions, or it is included in a consolidated return in these jurisdictions. Foreign taxing jurisdictions significant to Valvoline include Australia, Canada, Brazil, Mexico, China, Singapore, India and the Netherlands. Valvoline is subject to U.S. federal income tax examinations, either directly or as part of a consolidated return, by tax authorities for periods after September 30, 2009 and U.S. state income tax examinations by tax authorities for periods after September 30, 2009. With respect to countries outside of the United States, with certain exceptions, Valvolines foreign subsidiaries are subject to income tax audits for years after 2004.
NOTE K EMPLOYEE BENEFIT PLANS
Pension plans and other postretirement benefit plans
Qualifying employees participate in specific Valvoline or Ashland sponsored defined-benefit pension plans, which typically provide pension payments based on an employees length of service and compensation during the
F-26
NOTE K EMPLOYEE BENEFIT PLANS (continued)
years immediately preceding retirement or have a cash balance design. The majority of U.S. pension plans have been closed to new participants since January 1, 2011. In addition, most foreign pension plans are closed to new participants while those that remain open relate to areas where local laws require plans to operate within the applicable country. Pension obligations for applicable employees of non-U.S. consolidated subsidiaries are provided for in accordance with local practices and regulations of the respective countries.
During March 2016, Ashland announced that the majority of its defined benefit pension plans, accounted for as multi-employer plans for the Valvoline stand-alone financial statements, will freeze the accrual of benefits effective as of September 30, 2016. Additionally, during March 2016, Ashland announced that it will reduce retiree life and medical benefits effective October 1, 2016 and January 1, 2017, respectively.
Valvoline has certain defined benefit pension plans that are specifically designated only for Valvoline employees that are included within the Combined Balance Sheets. The majority of qualifying employees participate in Ashland-sponsored pension plans that are accounted for by Valvoline as multi-employer plans, which in accordance with U.S. GAAP, are not included within the Combined Balance Sheets.
For purposes of these Combined Financial Statements, costs for Valvolines participation in the Ashland sponsored defined benefit pension plans were allocated based on Valvoline employees relative participation in the plan. The amount of net pension cost allocated to Valvoline related to these multi-employer plans was expense of $42.8 million and $58.2 million during 2015 and 2014, respectively, and income of $69.7 million during 2013. Within the multi-employer adjustments are remeasurement gains and losses, including actuarial gains and losses, of $43.7 million and $58.4 million in losses during 2015 and 2014, respectively, and a gain of $68.2 million during 2013.
For Valvolines specific stand-alone pension plans, the amount of net pension costs for Valvoline specific stand-alone pension plans was expense of $3.3 million, $2.9 million and zero during 2015, 2014 and 2013, respectively. The net periodic benefit costs, obligations and plan assets for these stand-alone pension plans are disclosed in further detail within this Note K.
Certain of Valvolines U.S. and Canada retired or disabled employees participate in health care and life insurance plans sponsored by Ashland. There are no Valvoline specific postretirement benefit plans. The majority of qualifying employees participate in Ashland-sponsored postretirement plans that are accounted for by Valvoline as multi-employer plans within these Combined Financial Statements. Costs for Valvolines participation in the Ashland sponsored defined benefit postretirement plans were allocated based on Valvoline employees relative participation in the plan. The amount of cost allocated was income of $0.8 million and $4.7 million during 2015 and 2013, respectively, and expense of $0.7 million during 2014. Within the multi-employer adjustments are remeasurement gains and losses, including actuarial gains and losses, of $0.3 million and $1.7 million in losses during 2015 and 2014, respectively, and a gain of $3.3 million during 2013.
Components of net periodic benefit costs (income)
For segment reporting purposes, service cost for operations is proportionately allocated to each reportable segment, excluding the Unallocated and other segment, while all other costs for operations are recorded within the Unallocated and other segment.
F-27
NOTE K EMPLOYEE BENEFIT PLANS (continued)
The following table summarizes the components of pension benefit costs for operations and the assumptions used to determine net periodic benefit costs (income) for the plans included within the Combined Balance Sheets.
(In millions) |
Pension Benefits | |||||||||||
2015 | 2014 | 2013 | ||||||||||
Net periodic benefit costs (income) |
||||||||||||
Service cost |
$ | 1.3 | $ | 1.8 | $ | 2.0 | ||||||
Interest cost |
2.5 | 2.9 | 3.0 | |||||||||
Curtailment |
| (0.3 | ) | | ||||||||
Expected return on plan assets |
(2.6 | ) | (3.0 | ) | (2.7 | ) | ||||||
Amortization of prior service cost |
0.1 | 0.2 | 0.2 | |||||||||
Actuarial loss (gain) |
2.0 | 1.3 | (2.5 | ) | ||||||||
|
|
|
|
|
|
|||||||
$ | 3.3 | $ | 2.9 | $ | | |||||||
|
|
|
|
|
|
|||||||
Weighted-average plan assumptions |
||||||||||||
Discount rate |
4.08 | % | 4.61 | % | 4.48 | % | ||||||
Rate of compensation increase |
3.15 | % | 3.52 | % | 3.54 | % | ||||||
Expected long-term rate of return on plan assets |
5.34 | % | 5.97 | % | 5.52 | % |
The following table shows the amortization of prior service cost recognized in accumulated other comprehensive loss.
Pension Benefits | ||||||||
(In millions) |
2015 | 2014 | ||||||
Curtailment |
$ | | $ | (0.4 | ) | |||
Amortization of prior service cost |
(0.1 | ) | (0.2 | ) | ||||
|
|
|
|
|||||
Total |
$ | (0.1 | ) | $ | (0.6 | ) | ||
|
|
|
|
|||||
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss |
$ | 3.2 | $ | 2.3 |
The following table shows the amount of prior service cost in accumulated other comprehensive loss at September 30, 2015 that is expected to be recognized as a component of net periodic benefit cost (income) during the next fiscal year.
(In millions) |
Pension
Benefits |
|||
Prior service cost |
$ | (0.1 | ) |
As of September 30, 2015 and 2014, the amounts recognized within accumulated other comprehensive income are shown in the following table.
Pension Benefits | ||||||||
(In millions) |
2015 | 2014 | ||||||
Prior service cost |
$ | 0.5 | $ | 0.6 |
Obligations and funded status
Actuarial valuations are performed for the pension benefit plans to determine Valvolines obligation for each plan specific to Valvoline. In accordance with U.S. GAAP, Valvoline recognizes the unfunded status of
F-28
NOTE K EMPLOYEE BENEFIT PLANS (continued)
these plans as a liability in the Combined Balance Sheets. Summaries of the change in benefit obligations, plan assets, funded status of the plans, amounts recognized in the balance sheet, and assumptions used to determine the benefit obligations for 2015 and 2014 follow for the plans included within the Combined Balance Sheets.
Pension
Benefits |
||||||||
(In millions) |
2015 | 2014 | ||||||
Change in benefit obligations |
||||||||
Benefit obligations at October 1 |
$ | 67.9 | $ | 67.7 | ||||
Service cost |
1.3 | 1.8 | ||||||
Interest cost |
2.5 | 2.9 | ||||||
Participant contributions |
0.1 | 0.1 | ||||||
Benefits paid |
(2.9 | ) | (3.5 | ) | ||||
Actuarial loss |
2.2 | 5.3 | ||||||
Foreign currency exchange rate changes |
(11.7 | ) | (5.1 | ) | ||||
Other |
(0.2 | ) | (0.6 | ) | ||||
Curtailment |
| (0.7 | ) | |||||
|
|
|
|
|||||
Benefit obligations at September 30 |
$ | 59.2 | $ | 67.9 | ||||
|
|
|
|
|||||
Change in plan assets |
||||||||
Value of plan assets at October 1 |
$ | 53.0 | $ | 50.5 | ||||
Actual return on plan assets |
2.8 | 7.0 | ||||||
Employer contributions |
3.0 | 3.4 | ||||||
Participant contributions |
0.1 | 0.1 | ||||||
Benefits paid |
(2.9 | ) | (3.5 | ) | ||||
Foreign currency exchange rate changes |
(9.6 | ) | (3.9 | ) | ||||
Other |
(0.2 | ) | (0.6 | ) | ||||
|
|
|
|
|||||
Value of plan assets at September 30 |
$ | 46.2 | $ | 53.0 | ||||
|
|
|
|
|||||
Unfunded status of the plans |
$ | (13.0 | ) | $ | (14.9 | ) | ||
|
|
|
|
|||||
Amounts recognized in the balance sheet |
||||||||
Current benefit liabilities |
$ | | $ | (0.1 | ) | |||
Noncurrent benefit liabilities |
(13.0 | ) | (14.8 | ) | ||||
|
|
|
|
|||||
Net amount recognized |
$ | (13.0 | ) | $ | (14.9 | ) | ||
|
|
|
|
|||||
Weighted-average plan assumptions |
||||||||
Discount rate |
3.84 | % | 4.08 | % | ||||
Rate of compensation increase |
3.14 | % | 3.15 | % |
The accumulated benefit obligation for all pension plans was $55.7 million at September 30, 2015 and $64.2 million at September 30, 2014. Information for pension plans with an accumulated benefit obligation in excess of plan assets follows for the plans included within the Combined Balance Sheets:
2015 | 2014 | |||||||||||||||||||||||
(In millions) |
Qualified
plans |
Non-qualified
plans |
Total |
Qualified
plans |
Non-qualified
plans |
Total | ||||||||||||||||||
Projected benefit obligation |
$ | 43.5 | $ | 7.4 | $ | 50.9 | $ | 50.6 | $ | 7.4 | $ | 58.0 | ||||||||||||
Accumulated benefit obligation |
42.2 | 6.4 | 48.6 | 49.2 | 6.5 | 55.7 | ||||||||||||||||||
Fair value of plan assets |
38.7 | | 38.7 | 44.5 | | 44.5 |
F-29
NOTE K EMPLOYEE BENEFIT PLANS (continued)
Plan assets
The weighted average expected long-term rate of return on pension plan assets was 5.34% and 5.97% for 2015 and 2014, respectively. The basis for determining the expected long-term rate of return is a combination of future return assumptions for various asset classes in Ashlands investment portfolio, historical analysis of previous returns, market indices and a projection of inflation.
The following table for the plans included in the Combined Balance Sheets summarizes the various investment categories that the pension plan assets are invested in and the applicable fair value hierarchy that the financial instruments are classified as, within these investment categories as of September 30, 2015. For additional information and a detailed description of each level within the fair value hierarchy, see Note B.
(In millions) |
Total fair
value |
Quoted prices in
active markets for identical assets Level 1 |
Significant
other observable inputs Level 2 |
Significant
unobservable inputs Level 3 |
||||||||||||
Cash and cash equivalents |
$ | 2.8 | $ | 2.8 | $ | | $ | | ||||||||
Other government securities |
25.9 | | 25.9 | | ||||||||||||
Corporate stocks |
16.8 | | 16.8 | | ||||||||||||
Private equity and hedge funds |
0.7 | | | 0.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 46.2 | $ | 2.8 | $ | 42.7 | $ | 0.7 | ||||||||
|
|
|
|
|
|
|
|
The following table summarizes the various investment categories that the pension plan assets are invested in and the applicable fair value hierarchy that the financial instruments are classified within these investment categories as of September 30, 2014.
(In millions) |
Total fair
value |
Quoted prices in
active markets for identical assets Level 1 |
Significant
other observable inputs Level 2 |
Significant
unobservable inputs Level 3 |
||||||||||||
Cash and cash equivalents |
$ | 2.9 | $ | 2.9 | $ | | $ | | ||||||||
Other government securities |
25.2 | | 25.2 | | ||||||||||||
Corporate stocks |
24.1 | | 24.1 | | ||||||||||||
Private equity and hedge funds |
0.8 | | | 0.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value |
$ | 53.0 | $ | 2.9 | $ | 49.3 | $ | 0.8 | ||||||||
|
|
|
|
|
|
|
|
Valvoline stand-alone pensions plans hold a variety of investments designed to diversify risk. Assets are diversified across asset classes and among investment manager strategies. Investments classified as a Level 1 fair value measure represent marketable securities priced in active markets and would include publically traded equities and cash or cash equivalents. Investments classified as a Level 2 fair value measure principally represent fixed income securities invested in government, agency, investment grade corporates, other debt obligations or funds consisting of a variety of either bonds or equities.
F-30
NOTE K EMPLOYEE BENEFIT PLANS (continued)
Valvoline stand-alone pension plans also hold Level 3 investments within hedge funds and private equity funds with hedge funds accounting for all of the Level 3 investments. Investments in these funds are primarily valued using the net asset value per share of underlying investments as determined by the respective individual fund administrators on a daily, weekly or monthly basis, depending on the fund. Such valuations are reviewed by the portfolio managers who determine the estimated value of the collective funds based on these inputs. The following table provides a reconciliation of the beginning and ending balances for these Level 3 assets.
(In millions) |
Total Level 3
assets |
Private equity
and hedge funds |
||||||
Balance as of September 30, 2013 |
$ | 0.7 | $ | 0.7 | ||||
Purchases |
0.1 | 0.1 | ||||||
Sales |
| | ||||||
|
|
|
|
|||||
Balance as of September 30, 2014 |
0.8 | 0.8 | ||||||
Purchases |
0.1 | 0.1 | ||||||
Sales |
(0.1 | ) | (0.1 | ) | ||||
Actual return on plan assets |
(0.1 | ) | (0.1 | ) | ||||
|
|
|
|
|||||
Balance as of September 30, 2015 |
$ | 0.7 | $ | 0.7 | ||||
|
|
|
|
Investments and Strategy
In developing an investment strategy for its defined benefit plans, the following factors were considered: the nature of the plans liabilities, the allocation of liabilities between active, deferred and retired members, the funded status of the plans, the applicable investment horizon, the respective size of the plans and historical and expected investment returns. Valvolines pension plan assets are managed by outside investment managers, which are monitored against investment return benchmarks and Valvolines established investment strategy. Investment managers are selected based on an analysis of, among other things, their investment process, historical investment results, frequency of management turnover, cost structure and assets under management. Assets are periodically reallocated between investment managers to maintain an appropriate asset mix and diversification of investments and to optimize returns.
Fixed income securities primarily include long duration high grade corporate debt obligations. Risk assets include both traditional equity as well as a mix of non-traditional assets such as hedge funds and private equity. Investment managers may employ a limited use of derivatives to gain efficient exposure to markets. Lastly, certain Valvoline stand-alone pension plans assets are dictated by applicable regulations within the respective country.
The weighted-average asset allocations for Valvolines plans at September 30, 2015 and 2014 by asset category follow.
(In millions) |
Target | Actual at September 30, | ||||||||||
2015 | 2014 | |||||||||||
Plan assets allocation |
||||||||||||
Equity securities |
15-60 | % | 36 | % | 45 | % | ||||||
Debt securities |
40-85 | % | 62 | % | 53 | % | ||||||
Other |
0-20 | % | 2 | % | 2 | % | ||||||
|
|
|
|
|||||||||
100 | % | 100 | % | |||||||||
|
|
|
|
F-31
NOTE K EMPLOYEE BENEFIT PLANS (continued)
Cash flows
Expected contributions to the stand-alone Valvoline pension plans are approximately $3.2 million during 2016. These contributions will be paid by Ashland and accounted for through Ashlands net investment in Valvoline.
The following benefit payments for only the plans included within the Combined Balance Sheets, which reflect future service expectations, are projected to be paid in each of the next five years and in aggregate for five years thereafter.
(In millions) |
Pension
Benefits |
|||
2016 |
$ | 2.6 | ||
2017 |
3.0 | |||
2018 |
3.0 | |||
2019 |
3.3 | |||
2020 |
3.2 | |||
2021 2025 |
18.8 |
Other plans
Qualifying Valvoline employees are eligible to participate in Ashlands qualified savings plan that assists employees in providing for retirement or other future needs, Valvolines allocated expense related to these defined contributions was $11.2 million in 2015, $6.8 million in 2014 and $9.5 million in 2013.
NOTE L LITIGATION, CLAIMS AND CONTINGENCIES
There are various claims, lawsuits and administrative proceedings pending or threatened against Valvoline as a commercial unit of Ashland and its various subsidiary companies and, in certain jurisdictions, separate legal entities which are deemed insignificant. Such actions are with respect to commercial matters, product liability, toxic tort liability, and other environmental matters, which seek remedies or damages, some of which are for substantial amounts. While Valvoline cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of September 30, 2015 and 2014. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Valvoline believes that such potential losses were immaterial as of September 30, 2015 and 2014.
Commercial contract
During 2014, Valvoline received a favorable arbitration ruling on a commercial contract related to the International reportable segment. Collections from the settlement for $1.8 million and $9.5 million during 2015 and 2014, respectively, were recognized within the equity and other income caption of the Combined Statements of Operations and Comprehensive Income.
F-32
NOTE M ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive income (loss)
Components of other comprehensive loss recorded in the Combined Statements of Operations and Comprehensive Income are presented in the following table, before tax and net of tax effects.
(In millions) |
Before tax | Tax expense | Net of tax | |||||||||
Year ended September 30, 2015 |
||||||||||||
Other comprehensive income (loss) |
||||||||||||
Unrealized translation loss |
$ | (33.1 | ) | $ | (1.0 | ) | $ | (34.1 | ) | |||
Pension obligation adjustment: |
||||||||||||
Amortization of unrecognized prior service costs
|
0.1 | | 0.1 | |||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive loss |
$ | (33.0 | ) | $ | (1.0 | ) | $ | (34.0 | ) | |||
|
|
|
|
|
|
|||||||
Year ended September 30, 2014 |
||||||||||||
Other comprehensive income (loss) |
||||||||||||
Unrealized translation loss |
$ | (11.7 | ) | $ | (0.3 | ) | $ | (12.0 | ) | |||
Pension obligation adjustment: |
||||||||||||
Amortization of unrecognized prior service costs
|
0.6 | (0.2 | ) | 0.4 | ||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive loss |
$ | (11.1 | ) | $ | (0.5 | ) | $ | (11.6 | ) | |||
|
|
|
|
|
|
|||||||
Year ended September 30, 2013 |
||||||||||||
Other comprehensive income (loss) |
||||||||||||
Unrealized translation loss |
$ | (10.1 | ) | $ | (0.8 | ) | $ | (10.9 | ) | |||
Pension obligation adjustment: |
||||||||||||
Amortization of unrecognized prior service costs
|
0.2 | | 0.2 | |||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive loss |
$ | (9.9 | ) | $ | (0.8 | ) | $ | (10.7 | ) | |||
|
|
|
|
|
|
(a) | Amortization of unrecognized prior service costs are included in the calculation of net periodic benefit costs (income) for pension plans. For specific financial statement captions impacted by the amortization see the table below. |
In accordance with U.S. GAAP, as disclosed in the table above, certain pension costs are amortized from accumulated other comprehensive loss and recognized in net income. The captions in the Combined Statements of Operations and Comprehensive Income impacted by the amortization of unrecognized prior service costs for pension plans are disclosed below. See Note K for more information.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Cost of sales |
$ | | $ | 0.2 | $ | 0.1 | ||||||
Selling, general and administrative expense |
0.1 | 0.4 | 0.1 | |||||||||
|
|
|
|
|
|
|||||||
Total amortization of unrecognized prior service costs |
$ | 0.1 | $ | 0.6 | $ | 0.2 | ||||||
|
|
|
|
|
|
NOTE N RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT
Related party transactions
All significant intercompany transactions between Valvoline and Ashland have been included in the Combined Financial Statements and are considered to be effectively settled for cash in the Combined Financial Statements at the time the transaction is recorded. The total net effect of the settlement of these transactions between Valvoline and Ashland is reflected in the Combined Statements of Cash Flows as a financing activity
F-33
NOTE N RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT (continued)
and in the Combined Balance Sheets as Ashlands net investment in Valvoline in lieu of stockholders equity. In the Combined Statements of Invested Equity, the invested equity returned to Ashland is the net of a variety of intercompany transactions including, but not limited to, collection of trade receivables, payment of trade payables and accrued liabilities, settlement of charges for allocated corporate costs and payment of taxes by Ashland on Valvolines behalf.
Cash management and financing
Ashland uses a centralized approach to cash management. Accordingly, the cash and cash equivalents are held by Ashland at the corporate level and were not attributed to Valvoline for any of the periods presented. Transfers of cash, both to and from Ashlands centralized cash management system, are reflected as a component of Ashlands net investment in Valvoline on the Combined Balance Sheets and as a financing activity within the accompanying Combined Statement of Cash Flows. Debt obligations of Ashland have not been included in the Combined Financial Statements of Valvoline, because Valvoline is not a party to the obligation between Ashland and the debt holders.
Derivative instruments
Ashland regularly uses derivative instruments to manage its exposure to fluctuations in foreign currencies. Gains and losses related to a hedge are either recognized in income immediately, to offset the gain or loss on the hedged item, or deferred and recorded in the equity section of Ashlands Consolidated Balance Sheets as a component of accumulated other comprehensive loss and subsequently recognized in Ashlands Consolidated Statements of Operations and Comprehensive Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge is recognized in income immediately.
Valvoline participates in Ashlands centralized programs. As a result, no gains or losses on hedges reported as a component of the cumulative translation adjustment within accumulated other comprehensive loss are reported in the Combined Balance Sheets for any year presented.
Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or a hedge of a net investment in foreign operations. Expenses recognized in income have been allocated to Valvoline as part of the Corporate expense allocations.
Stock incentive plans
Valvoline has historically participated in Ashlands stock incentive plans for key employees and directors, primarily in the form of stock appreciation rights (SARs), restricted stock, performance shares and other non-vested stock awards. Equity-based compensation expense has been either directly reported by or allocated to Valvoline based on the awards and terms previously granted to Ashlands employees. Stock based compensation expense recorded by Valvoline during the fiscal years ended September 30, 2015, 2014 and 2013 were $9.0 million, $7.6 million, and $6.6 million, respectively. These costs were primarily included within the Corporate expense allocation caption of the Combined Statements of Operations and Comprehensive Income. Compensation expense for stock incentive plans is generally based on the grant-date fair value over the appropriate vesting period. Ashland utilizes several industry accepted valuation models to determine the fair value. Until the separation occurs, Valvoline will continue to participate in Ashlands equity-based compensation plans and record equity-based compensation expense based on the historical allocation of cost.
Corporate allocations and Ashlands net investment
Corporate allocations
Valvoline utilizes centralized functions of Ashland to support its operations, and in return, Ashland allocates certain of its expenses to Valvoline. Such expenses represent costs related, but not limited to, treasury, legal,
F-34
NOTE N RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT (continued)
accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. These costs, together with an allocation of Ashland overhead costs, are included within the Corporate expense allocation caption of the Combined Statements of Operations and Comprehensive Income. Where it is possible to specifically attribute such expenses to activities of Valvoline, these amounts have been charged or credited directly to Valvoline without allocation or apportionment. Allocation of all other such expenses is based on a reasonable reflection of the utilization of service provided or benefits received by Valvoline during the periods presented on a consistent basis, such as headcount, square footage, tangible assets or sales. Valvolines management supports the methods used in allocating expenses and believes these methods to be reasonable estimates.
Nevertheless, the Combined Financial Statements may not include all of the actual expenses that would have been incurred and may not reflect Valvolines combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. It is not practicable to estimate actual costs that would have been incurred had Valvoline been a stand-alone company during the periods presented. Actual costs that would have been incurred if Valvoline had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. General corporate expenses allocated to Valvoline during the fiscal years ended September 30, 2015, 2014 and 2013 were $79.5 million, $95.0 million, and $88.2 million, respectively.
The following table summarizes the centralized and administrative support costs of Ashland that have been allocated to Valvoline.
(In millions) |
2015 | 2014 | 2013 | |||||||||
Information technology |
$ | 16.9 | $ | 17.1 | $ | 16.4 | ||||||
Financial and accounting |
13.1 | 12.2 | 12.1 | |||||||||
Building services |
10.5 | 10.2 | 10.6 | |||||||||
Legal and environmental |
6.9 | 6.7 | 5.4 | |||||||||
Human resources |
4.4 | 4.8 | 4.4 | |||||||||
Shared services |
2.1 | | | |||||||||
Other general and administrative |
25.6 | 44.0 | 39.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 79.5 | $ | 95.0 | $ | 88.2 | ||||||
|
|
|
|
|
|
Ashland net investment
Disclosure of share capital or retained earnings for Valvoline has been determined to not be meaningful as the net assets are represented by Ashlands net investment in Valvoline after eliminating investments and transactions between Valvoline, Ashland or its subsidiaries.
NOTE O REPORTABLE SEGMENT INFORMATION
Valvoline determines its reportable segments based on how operations will be managed internally for the products and services sold to customers, including how the results will be reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Valvolines operating segments are identical to its reportable segments. Operating income is the primary measure reviewed by the chief operating decision maker in assessing each reportable segments financial performance. Valvolines businesses are managed within three reportable segments: Core North America, Quick Lubes, and International.
F-35
NOTE O REPORTABLE SEGMENT INFORMATION (continued)
Reportable segment business descriptions
The Core North America business segment sells Valvoline and other branded products in the United States and Canada to both consumers who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, as well as to installer customers who use Valvoline products to service vehicles owned by Do-It-For-Me or DIFM consumers. Valvoline sells to its DIY consumers through national retail auto parts stores, leading mass merchandisers and independent auto part stores. Valvoline sells to its DIFM consumers through installers in the United States and Canada. Installer customers include car dealers, general repair shops, and third-party quick lube chains. Valvoline directly serves these customers through a network of distributors. Valvolines installer channel also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies.
Through its Quick Lubes business segment, Valvoline operates Valvoline Instant Oil Change (VIOC), a quick-lube service chain involving both Company-owned and franchised stores. Valvoline also sells products and provides Valvoline branded signage to independent quick lube operators through its Express Care program.
The International business segment sells Valvoline and Valvolines other branded products in approximately 140 countries outside of the United States and Canada. Valvolines key international markets include China, India, EMEA, Latin America and Australia Pacific. The International business segment sells products for both consumer and commercial vehicles and equipment, and is served by company-owned plants in the United States, Australia and the Netherlands, a joint venture-owned plant in India and third-party warehouses and toll manufacturers in other regions. In most of the countries where Valvolines products are sold, Valvoline goes to market via independent distributors.
Unallocated and other generally includes items such as components of pension and other postretirement benefit plan expenses (excluding service costs, which are allocated to the reportable segments), certain significant company-wide restructuring activities and legacy costs or adjustments that relate to divested businesses, including the $26.3 million loss from the sale of car care products during 2015.
Valvoline had a single customer that represented 10% of combined net sales in 2013. Sales to this customer in 2013 were $201.5 million and were primarily included in the Core North America reportable segment.
International data
Information about Valvolines domestic and international operations follows. Valvolines foreign operations are primarily captured within the International reportable segment and Valvoline has no material operations in any individual international country.
Sales from external customers | Net assets |
Property,
plant and equipment net |
||||||||||||||||||||||||||
(In millions) |
2015 | 2014 | 2013 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||||||||
United States |
$ | 1,412.8 | $ | 1,440.4 | $ | 1,414.2 | $ | 491.9 | $ | 568.5 | $ | 218.8 | $ | 231.5 | ||||||||||||||
International |
554.1 | 600.9 | 582.0 | 125.2 | 156.3 | 34.7 | 40.9 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | $ | 617.1 | $ | 724.8 | $ | 253.5 | $ | 272.4 | |||||||||||||||
|
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|
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|
|
|
|
|
|
F-36
NOTE O REPORTABLE SEGMENT INFORMATION (continued)
Reportable segment results
The following tables present various financial information for each reportable segment for the years ended September 30, 2015, 2014 and 2013 and as of September 30, 2015, 2014 and 2013. Results of Valvolines reportable segments are presented based on how operations will be managed internally for the products and services sold to customers, including how the results will be reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. The structure and practices are specific to Valvoline; therefore, the financial results of Valvolines reportable segments are not necessarily comparable with similar information for other comparable companies. Valvoline allocates all costs to its reportable segments except for certain significant company-wide restructuring activities, such as the restructuring plans described in Note D, and/or other costs or adjustments that relate to former businesses that Valvoline no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded to Unallocated and other. Valvoline refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Revisions to Valvolines methodologies that are deemed insignificant are applied on a prospective basis.
Valvoline determined that disclosing sales by specific product was impracticable due to the highly customized and extensive portfolio of products offered to customers and since no one product could be aggregated together to represent a majority of revenue within a reportable segment. As such, the following table provides a summary of 2015 sales by product category for each reportable segment:
F-37
NOTE O REPORTABLE SEGMENT INFORMATION (continued)
The following table presents various financial information for each reportable segment. The operating results of divested assets during 2015 that did not qualify for discontinued operations accounting treatment are included in the financial information until the date of sale.
Valvoline
Reportable Segment Information
Years Ended September 30
(In millions) |
2015 | 2014 | 2013 | |||||||||
Sales |
||||||||||||
Core North America |
$ | 1,060.7 | $ | 1,114.0 | $ | 1,107.5 | ||||||
Quick Lubes |
394.4 | 369.9 | 343.7 | |||||||||
International |
511.8 | 557.4 | 545.0 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | |||||||
|
|
|
|
|
|
|||||||
Equity income (loss) |
||||||||||||
Core North America |
$ | | $ | (0.1 | ) | $ | (0.3 | ) | ||||
Quick Lubes |
| | | |||||||||
International |
(2.2 | ) | 10.3 | 13.1 | ||||||||
|
|
|
|
|
|
|||||||
(2.2 | ) | 10.2 | 12.8 | |||||||||
Other income |
||||||||||||
Core North America |
1.3 | 1.8 | 1.5 | |||||||||
Quick Lubes |
2.1 | 2.0 | 1.9 | |||||||||
International |
7.1 | 16.1 | 8.1 | |||||||||
|
|
|
|
|
|
|||||||
10.5 | 19.9 | 11.5 | ||||||||||
|
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|
|||||||
$ | 8.3 | $ | 30.1 | $ | 24.3 | |||||||
|
|
|
|
|
|
|||||||
Operating income (loss) |
||||||||||||
Core North America |
$ | 200.5 | $ | 165.0 | $ | 157.7 | ||||||
Quick Lubes |
94.8 | 79.7 | 70.1 | |||||||||
International |
64.7 | 78.4 | 67.8 | |||||||||
Unallocated and other (a) |
(36.9 | ) | (58.4 | ) | 85.0 | |||||||
|
|
|
|
|
|
|||||||
$ | 323.1 | $ | 264.7 | $ | 380.6 | |||||||
|
|
|
|
|
|
|||||||
Assets |
||||||||||||
Core North America |
$ | 475.6 | $ | 552.8 | $ | 529.6 | ||||||
Quick Lubes |
237.1 | 223.9 | 217.4 | |||||||||
International |
262.9 | 296.4 | 303.8 | |||||||||
Unallocated and other |
2.3 | 9.4 | 11.2 | |||||||||
|
|
|
|
|
|
|||||||
$ | 977.9 | $ | 1,082.5 | $ | 1,062.0 | |||||||
|
|
|
|
|
|
(a) | During 2015, 2014, and 2013, Unallocated and other also includes a loss of $46.0 million, a loss of $61.1 million, and a gain of $74.0 million, respectively, related to the actuarial remeasurements of pension and other postretirement benefit plans. |
F-38
NOTE O REPORTABLE SEGMENT INFORMATION (continued)
Valvoline
Reportable Segment Information (continued)
Years Ended September 30
(In millions) |
2015 | 2014 | 2013 | |||||||||
Equity method investments |
||||||||||||
Core North America |
$ | | $ | | $ | | ||||||
Quick Lubes |
| | | |||||||||
International |
28.9 | 44.0 | 40.3 | |||||||||
Unallocated and other |
| | | |||||||||
|
|
|
|
|
|
|||||||
$ | 28.9 | $ | 44.0 | $ | 40.3 | |||||||
|
|
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|
|
|
|||||||
Depreciation and amortization |
||||||||||||
Core North America |
$ | 16.6 | $ | 16.1 | $ | 15.3 | ||||||
Quick Lubes |
16.2 | 15.3 | 15.1 | |||||||||
International |
5.2 | 5.7 | 5.3 | |||||||||
|
|
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|
|
|
|||||||
$ | 38.0 | $ | 37.1 | $ | 35.7 | |||||||
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|
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|
|
|
|||||||
Property, plant and equipment net |
||||||||||||
Core North America |
$ | 86.6 | $ | 103.0 | $ | 104.0 | ||||||
Quick Lubes |
127.3 | 124.2 | 121.1 | |||||||||
International |
39.6 | 45.2 | 45.1 | |||||||||
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|
|||||||
$ | 253.5 | $ | 272.4 | $ | 270.2 | |||||||
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|
|||||||
Additions to property, plant and equipment |
||||||||||||
Core North America |
$ | 20.2 | $ | 15.2 | $ | 14.9 | ||||||
Quick Lubes |
19.2 | 16.4 | 19.5 | |||||||||
International |
5.6 | 5.6 | 6.5 | |||||||||
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|||||||
$ | 45.0 | $ | 37.2 | $ | 40.9 | |||||||
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|
NOTE P SUBSEQUENT EVENT
Oil Can Henrys
On December 11, 2015, Ashland announced that it signed a definitive agreement to acquire OCH International, Inc. (Oil Can Henrys), which was the 13th largest quick-lube network in the United States, servicing approximately 1 million vehicles annually with 89 quick-lube stores, consisting of 47 company-owned stores and 42 franchise locations, in Oregon, Washington, California, Arizona, Idaho and Colorado. On February 1, 2016, Ashland completed the acquisition.
The acquisition of Oil Can Henrys within the Quick Lubes reportable segment was valued at $72.0 million, which included acquired indebtedness of $10.5 million, working capital payments of $0.6 million and cash received of $2.4 million, for a total all-cash purchase price of $63.3 million.
F-39
Five-Year Selected Financial Information (a)
Years Ended September 30
(In millions) |
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Summary of operations |
||||||||||||||||||||
Sales |
$ | 1,966.9 | $ | 2,041.3 | $ | 1,996.2 | $ | 2,034.0 | $ | 1,971.1 | ||||||||||
Operating income |
323.1 | 264.7 | 380.6 | 171.5 | 162.3 | |||||||||||||||
Net income |
196.1 | 173.4 | 246.1 | 113.8 | 109.9 | |||||||||||||||
Balance sheet information (as of September 30) |
||||||||||||||||||||
Total assets |
$ | 977.9 | $ | 1,082.5 | $ | 1,062.0 | $ | 1,023.9 | $ | 993.1 |
(a) | During the periods presented, Valvoline experienced changes to its businesses affecting the comparability of financial information between years. These changes include, but are not limited to, the impact of immediately recognizing actuarial gain and loss remeasurements for defined benefit pension and other postretirement benefit plans. During the five years ended September 30 presented above, Valvoline recognized a loss of $46.0 million in 2015, a loss of $61.1 million in 2014, a gain of $74.0 million in 2013, a loss of $67.8 million in 2012 and a loss of $51.7 million in 2011. |
F-40
This page intentionally left blank
F-41
Combined Statements of Operations and Comprehensive Income
Nine months
ended June 30 |
||||||||
(In millions unaudited) |
2016 | 2015 | ||||||
Sales |
$ | 1,435.2 | $ | 1,483.1 | ||||
Cost of sales |
867.8 | 955.5 | ||||||
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|
|
|
|||||
Gross profit |
567.4 | 527.6 | ||||||
Selling, general and administrative expense |
210.6 | 194.5 | ||||||
Corporate expense allocation Note J |
60.2 | 58.6 | ||||||
Equity and other income |
16.2 | 3.7 | ||||||
|
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|
|||||
Operating income |
312.8 | 278.2 | ||||||
Net loss on acquisition and divestiture Note C |
(0.6 | ) | (26.3 | ) | ||||
|
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|
|||||
Income before income taxes |
312.2 | 251.9 | ||||||
Income tax expense Note F |
104.5 | 88.8 | ||||||
|
|
|
|
|||||
Net income |
$ | 207.7 | $ | 163.1 | ||||
|
|
|
|
|||||
COMPREHENSIVE INCOME (LOSS) |
||||||||
Net income |
$ | 207.7 | $ | 163.1 | ||||
Other comprehensive income (loss), net of tax |
||||||||
Unrealized translation loss |
(3.4 | ) | (25.4 | ) | ||||
Pension obligation adjustment |
| 0.1 | ||||||
|
|
|
|
|||||
Other comprehensive loss |
(3.4 | ) | (25.3 | ) | ||||
|
|
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|
|||||
Comprehensive income |
$ | 204.3 | $ | 137.8 | ||||
|
|
|
|
See Notes to Condensed Combined Financial Statements.
F-42
Condensed Combined Balance Sheets
(In millions unaudited) |
June 30
2016 |
September 30
2015 |
||||||
Assets |
||||||||
Current assets |
||||||||
Accounts receivable (a) |
$ | 338.3 | $ | 334.6 | ||||
Inventories Note D |
136.4 | 125.6 | ||||||
Other assets |
21.6 | 17.1 | ||||||
|
|
|
|
|||||
Total current assets |
496.3 | 477.3 | ||||||
Noncurrent assets |
||||||||
Property, plant and equipment |
||||||||
Cost |
674.4 | 627.8 | ||||||
Accumulated depreciation |
394.3 | 374.3 | ||||||
|
|
|
|
|||||
Net property, plant and equipment |
280.1 | 253.5 | ||||||
Goodwill Note E |
255.4 | 169.4 | ||||||
Intangibles Note E |
3.3 | 1.6 | ||||||
Equity method investments |
29.5 | 28.9 | ||||||
Other assets |
53.4 | 47.2 | ||||||
|
|
|
|
|||||
Total noncurrent assets |
621.7 | 500.6 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,118.0 | $ | 977.9 | ||||
|
|
|
|
|||||
Liabilities and Invested Equity |
||||||||
Current liabilities |
||||||||
Trade and other payables |
$ | 145.0 | $ | 173.3 | ||||
Accrued expenses and other liabilities |
150.3 | 125.3 | ||||||
|
|
|
|
|||||
Total current liabilities |
295.3 | 298.6 | ||||||
Noncurrent liabilities |
||||||||
Employee benefit obligations Note G |
11.3 | 13.0 | ||||||
Deferred income taxes Note F |
23.8 | 23.8 | ||||||
Other liabilities |
47.6 | 25.4 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
82.7 | 62.2 | ||||||
Commitments and contingencies Note H |
||||||||
Invested equity Notes I and J |
740.0 | 617.1 | ||||||
|
|
|
|
|||||
Total liabilities and invested equity |
$ | 1,118.0 | $ | 977.9 | ||||
|
|
|
|
(a) | Accounts receivable includes an allowance for doubtful accounts of $4.1 million at June 30, 2016 and $3.8 million at September 30, 2015. |
See Notes to Condensed Combined Financial Statements
F-43
Combined Statements of Invested Equity
(In millions unaudited) |
Ashlands Net
Investment in Valvoline |
Accumulated
Other Comprehensive Income (Loss) (a) |
Total | |||||||||
Balance at September 30, 2014 |
$ | 751.4 | $ | (26.6 | ) | $ | 724.8 | |||||
Total comprehensive income (loss) |
163.1 | (25.3 | ) | 137.8 | ||||||||
Equity returned to Ashland, net |
(237.0 | ) | | (237.0 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at June 30, 2015 |
$ | 677.5 | $ | (51.9 | ) | $ | 625.6 | |||||
Balance at September 30, 2015 |
$ | 677.7 | $ | (60.6 | ) | $ | 617.1 | |||||
Total comprehensive income (loss) |
207.7 | (3.4 | ) | 204.3 | ||||||||
Equity returned to Ashland, net |
(81.4 | ) | | (81.4 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at June 30, 2016 |
$ | 804.0 | $ | (64.0 | ) | $ | 740.0 | |||||
|
|
|
|
|
|
(a) | At June 30, 2016 and September 30, 2015, the accumulated other comprehensive loss of $64.0 million and $60.6 million, respectively, was comprised of unrecognized prior service costs as a result of certain employee benefit plan amendments of $0.3 million during each period and net unrealized translation losses of $63.7 million and $60.3 million, respectively. |
See Notes to Condensed Combined Financial Statements.
F-44
Condensed Combined Statements of Cash Flows
Nine months
ended June 30 |
||||||||
(In millions unaudited) |
2016 | 2015 | ||||||
Cash flows provided (used) by operating activities |
||||||||
Net income |
$ | 207.7 | $ | 163.1 | ||||
Adjustments to reconcile income to cash flows from operating activities |
||||||||
Depreciation and amortization |
28.6 | 27.9 | ||||||
Equity income from affiliates |
(10.6 | ) | (10.0 | ) | ||||
Distributions from equity affiliates |
10.7 | 14.4 | ||||||
Net loss on acquisition and divestiture Note C |
0.6 | 26.3 | ||||||
Impairment of equity method investment |
| 14.3 | ||||||
Change in operating assets and liabilities (a) |
(51.3 | ) | 32.5 | |||||
|
|
|
|
|||||
Total cash flows provided by operating activities |
185.7 | 268.5 | ||||||
Cash flows provided (used) by investing activities |
||||||||
Additions to property, plant and equipment |
(31.8 | ) | (26.1 | ) | ||||
Proceeds from disposal of property, plant and equipment |
0.6 | 0.7 | ||||||
Purchase of operations net of cash acquired |
(69.7 | ) | (4.7 | ) | ||||
Proceeds from sale of operations |
| 23.9 | ||||||
|
|
|
|
|||||
Total cash flows used by investing activities |
(100.9 | ) | (6.2 | ) | ||||
Cash flows provided (used) by financing activities |
||||||||
Net transfers to Ashland |
(84.8 | ) | (262.3 | ) | ||||
|
|
|
|
|||||
Total cash flows used by financing activities |
(84.8 | ) | (262.3 | ) | ||||
|
|
|
|
|||||
Change in cash and cash equivalents |
| | ||||||
Cash and cash equivalents beginning of period |
| | ||||||
|
|
|
|
|||||
Cash and cash equivalents end of period |
$ | | $ | | ||||
|
|
|
|
(a) | Excludes changes resulting from operations acquired or sold. |
See Notes to Condensed Combined Financial Statements.
F-45
Notes to Condensed Combined Financial Statements
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Proposed Distribution
On September 22, 2015, Ashland, Inc. (Ashland) announced that its Board of Directors approved proceeding with a plan to separate Ashland into two independent, publicly traded companies comprised of Ashland Global Holdings Inc. (Ashland Global), consisting of its specialty chemicals businesses, and Valvoline. Valvoline will focus on building the worlds leading engine and automotive maintenance business by providing Hands on Expertise to customers in each of its primary market channels.
Valvoline Inc., a Kentucky corporation, is a wholly owned subsidiary of Ashland. Ashland intends to enter into agreements and take certain actions to transfer to Valvoline Inc. substantially all of the assets and liabilities related to Valvoline, an unincorporated commercial unit of Ashland, prior to Valvoline Inc.s initial public offering of its common stock. The term Valvoline refers to the unincorporated commercial unit of Ashland and Valvoline Inc. refers to the Kentucky corporation.
Immediately prior to the closing of Valvoline Inc.s initial public offering, Ashland and Valvoline Inc. will become subsidiaries of Ashland Global. Ashland intends for the spin-off, which is subject to final board approval prior to completion, to be tax-free for Ashland shareholders. Immediately following the spin-off, Ashland shareholders will own shares of both the Ashland Global and Valvoline Inc. The spin-off is expected to be completed approximately six months after the completion of the initial public offering of Valvoline Inc.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction or waiver by Ashland of a number of conditions. Additionally, Ashland may determine not to complete the internal reorganization or the distribution if, at any time, the Board of Directors of Ashland determines, in its sole and absolute discretion, that the distribution is not in the best interest of Ashland or its stockholders or is otherwise not advisable.
Valvoline is a premium consumer brand in the global automotive industry. In the United States, Valvoline operates in all of the key lubricant sales channels, and also has an international presence with products sold in approximately 140 countries. In addition to Valvoline-branded passenger car motor oils and other automotive lubricants, Valvoline provides a wide array of lubricants used in heavy duty equipment, as well as automotive chemicals designed to improve engine performance and lifespan. Valvoline also operates a retail quick lube service chain through Valvoline Instant Oil Change (VIOC), which provides service through approximately 1,050 franchised and company-owned stores.
Basis of presentation
The accompanying unaudited Condensed Combined Financial Statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of Ashland. For the periods presented, Valvoline is an unincorporated commercial unit of Ashland Inc. These unaudited Condensed Combined Financial Statements reflect the historical results of operations, financial position and cash flows of Valvoline as it was historically managed and adjusted to conform with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and Securities and Exchange Commission regulations. These unaudited Condensed Combined Financial Statements are presented as if Valvoline had operated on a stand-alone basis for all periods presented. Valvoline is comprised of a combination of unincorporated commercial units of Ashland and its various subsidiary companies and, in certain jurisdictions, separate legal entities.
In the opinion of the management, all adjustments considered necessary for a fair presentation have been included. These statements omit certain information and footnote disclosures required for complete annual financial statements and, therefore, should be read in conjunction within the Combined Financial Statements and
F-46
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)
accompanying notes for the fiscal years ended September 30, 2015, 2014 and 2013 included elsewhere in this prospectus. Results of operations for the nine months ended June 30, 2016 are not necessarily indicative of the expected results for the remaining periods in the fiscal year.
All significant intercompany transactions within Valvoline have been eliminated. The assets and liabilities in the stand-alone financial statements are wholly owned by Ashland and are being transferred to Valvoline at carry-over (historical cost) basis. As a result, the Condensed Combined Financial Statements included herein may not necessarily be indicative of Valvolines financial position, results of operations, or cash flows had it operated as a stand-alone entity during the periods presented. All significant transactions between Valvoline and Ashland have been included in the Condensed Combined Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the Condensed Combined Statement of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as Ashlands net investment in Valvoline in lieu of stockholders equity. In the Combined Statements of Invested Equity, the Invested Equity returned to Ashland is the net of a variety of intercompany transactions including collection of trade receivables, payment of trade payables and accrued liabilities, settlement of charges for allocated corporate costs, and payment of taxes by Ashland on Valvolines behalf. The Condensed Combined Financial Statements reflect the assets, liabilities and operations of the Valvoline business. Investments in joint ventures where Valvoline has the ability to exert significant influence are accounted for under the equity method.
The Condensed Combined Financial Statements also include the recognition of certain assets and liabilities that have historically been recorded at the Ashland corporate level but which are specifically identifiable or otherwise attributable to Valvoline. Valvoline utilizes centralized functions of Ashland to support its operations, and in return, Ashland allocates certain of its expenses to Valvoline. Such expenses represent costs related, but not limited to, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. These costs, together with an allocation of Ashland overhead costs, are included within the Corporate expense allocation caption in the Combined Statements of Operations and Comprehensive Income. Where it is possible to specifically attribute such expenses to activities of Valvoline, these amounts have been charged or credited directly to Valvoline without allocation or apportionment. Allocation of all other such expenses is based on a reasonable reflection of the utilization of service provided or benefits received by Valvoline during the periods presented on a consistent basis, such as headcount, square footage, tangible assets or sales.
Management believes the assumptions underlying the stand-alone financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by Valvoline during the periods presented. However, these shared expenses may not represent the amounts that would have been incurred had Valvoline operated autonomously or independently from Ashland. Actual costs that would have been incurred if Valvoline had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, including information technology and infrastructure. For an additional discussion of expense allocations see Note J of the Notes to the Condensed Combined Financial Statements.
Ashland uses a centralized approach to cash management. Accordingly, the cash and cash equivalents are held by Ashland at the corporate level and were not attributed to Valvoline for any of the periods presented. Transfers of cash, both to and from Ashlands centralized cash management system, are reflected as a component of Ashlands net investment in Valvoline on the Condensed Combined Balance Sheets and as a financing activity within the accompanying Condensed Combined Statement of Cash Flows. Debt obligations of Ashland have not been included in the Condensed Combined Financial Statements of Valvoline, because Valvoline is not a party to the obligation between Ashland and the debt holders.
The income tax provision in the Combined Statements of Operations and Comprehensive Income has been calculated as if Valvoline was operating on a stand-alone basis and filed separate tax returns in the jurisdiction in
F-47
NOTE A DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (continued)
which it operates. Valvolines operations have historically been included in the Ashland U.S. federal and state tax returns or non-U.S. jurisdictions tax returns. Ashlands global tax model has been developed based on its entire portfolio of businesses. Therefore cash tax payments and items of current and deferred taxes may not be reflective of Valvolines actual tax balances prior to or subsequent to Valvoline operating as a stand-alone company.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
Valvolines significant accounting policies, which conform to U. S. GAAP and are applied on a consistent basis in all periods presented. These statements should be read in conjunction within the Combined Financial Statements and accompanying notes for the fiscal years ended September 30, 2015, 2014 and 2013 included elsewhere in this prospectus.
Use of estimates, risks and uncertainties
The preparation of Valvolines unaudited Condensed Combined Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets (including goodwill), sales deductions, and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions.
Valvolines results are affected by domestic and international economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, monetary exchange rates, government fiscal policies and changes in the prices of certain key raw materials, can have a significant effect on operations. Political actions may include changes in the policies of the Organization of Petroleum Exporting Countries or other developments involving or affecting oil-producing countries, including military conflicts, embargoes, internal instability or actions or reactions of the U.S. government in anticipation of, or in response to, such actions. While Valvoline maintains reserves for anticipated liabilities and, through Ashland, carries various levels of insurance, Valvoline could be affected by civil, criminal, regulatory or administrative actions, claims or proceedings relating to asbestos, environmental remediation or other matters.
Accounts receivable
During 2014, Ashland entered into an agreement to sell accounts receivable for a Valvoline customer in the form of drafts or bills of exchange to a financial institution. Each draft constitutes an order to pay for obligations of the customer to Ashland arising from the sale of goods by Ashland to the customer. As the intention of the arrangement is to decrease the amount of time accounts receivable is outstanding and increase cash flows for Ashland through its centralized cash management function. At June 30, 2016 and September 30, 2015 the outstanding amount of drafts sold by Ashland to the financial institution was $39.2 million and $41.4 million, respectively.
New accounting pronouncements
A description of new U.S. GAAP accounting standards issued and adopted during the current year is required in interim financial reporting. A detailed listing of all new accounting standards relevant to Valvoline is included in the Combined Financial Statements and accompanying notes for the fiscal years ended September 30, 2015, 2014 and 2013 included elsewhere in this prospectus. The following standards relevant to Valvoline were either issued or adopted in the current period, or will become effective in a subsequent period.
F-48
NOTE B SIGNIFICANT ACCOUNTING POLICIES (continued)
In February 2016, the Financial Accounting Standards Board (FASB) issued new accounting guidance related to lease transactions. The main objective of this guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. The presentation of the Combined Statements of Operations and Comprehensive Income and the Combined Statement of Cash Flows is largely unchanged under this guidance. This guidance retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The guidance will become effective for Valvoline on October 1, 2019. Valvoline is currently evaluating the impact this guidance will have on Valvolines Combined Financial Statements.
In November 2015, the FASB issued accounting guidance requiring all deferred tax assets and liabilities to be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Valvoline adopted this accounting standard on a retrospective basis and the impact of this new guidance is reflected within Valvolines Combined Financial Statements.
NOTE C ACQUISITIONS AND DIVESTITURES
Oil Can Henrys
On December 11, 2015, Ashland announced that it signed a definitive agreement to acquire OCH International, Inc. (Oil Can Henrys), which was the 13 th largest quick-lube network in the United States, servicing approximately 1 million vehicles annually with 89 quick-lube stores, 47 company-owned stores and 42 franchise locations, in Oregon, Washington, California, Arizona, Idaho and Colorado. On February 1, 2016, Ashland completed the acquisition.
The acquisition of Oil Can Henrys within the Quick Lubes reportable segment was valued at $72.0 million, which included acquired indebtedness of $10.5 million, working capital reimbursements of $0.5 million, cash received of $2.4 million and additional post-closing purchase price adjustments of $1.3 million, for a total all-cash purchase price of $64.7 million. Net of cash acquired, the total purchase price was $62.3 million. The following table summarizes the values of the assets acquired and liabilities assumed at the date of acquisition.
As of June 30, 2016, the purchase price allocation for the acquisition was preliminary and subject to completion. Adjustments to the current fair value estimates in the above table may occur as the process
F-49
NOTE C ACQUISITIONS AND DIVESTITURES (continued)
conducted for various valuations and assessments is finalized. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition of Oil Can Henrys. None of the goodwill is expected to be deductible for income tax purposes.
Morgan Acres
During June 2015, Valvoline acquired three locations within the Quick Lubes reportable segment. The purchase price of $4.7 million was allocated primarily to property, plant and equipment and goodwill.
Car Care Products
During March 2015, Ashland entered into a definitive sale agreement to sell Valvolines car care product assets within the Core North America reportable segment for $24.0 million, which included Car Brite and Eagle One automotive appearance products. Prior to the sale, Valvoline recognized a loss of $26.3 million before tax to recognize the assets at fair value less cost to sell, using Level 2 nonrecurring fair value measurements. The loss is reported within the net loss on divestiture caption within the Combined Statements of Operations and Comprehensive Income during the nine months ended June 30, 2015. The transaction closed on June 30, 2015 and Valvoline received net proceeds of $19.3 million after adjusting for certain customary closing costs and final working capital amounts during the June 2015 quarter.
The sale of Valvolines car care product assets did not qualify for discontinued operations treatment since it did not represent a strategic shift that had or will have a major effect on Valvolines operations and financial results.
Venezuela Equity Method Investment
During April 2015, Valvoline sold the equity method investment in Venezuela within the International reportable segment. Prior to the sale, Valvoline recognized a $14.3 million impairment during the nine months ended June 30, 2015, for which there was no tax effect, using Level 2 nonrecurring fair value measurements within the equity and other income (loss) caption of the Combined Statements of Operations and Comprehensive Income.
Valvolines decision to sell the equity investment and the resulting charge recorded during the nine months ended June 30, 2015 was reflective of the continued devaluation of the Venezuelan currency (bolivar) based on changes to the Venezuelan currency exchange rate mechanisms during the period. In addition, the continued lack of exchangeability between the Venezuelan bolivar and U.S. dollar had restricted the equity method investees ability to pay dividends and obligations denominated in U.S. dollars. These exchange regulations and cash flow limitations, combined with other recent Venezuelan regulations and the impact of declining oil prices on the Venezuelan economy, had significantly restricted Valvolines ability to conduct normal business operations through the joint venture arrangement. Valvoline determined this divestiture did not represent a strategic shift that had or will have a major effect on Valvolines operations and financial results, and thus it did not qualify for discontinued operations treatment.
NOTE D INVENTORIES
Inventories are carried at the lower of cost or market value. Inventories are primarily stated at cost using the weighted-average cost method. In addition, certain lubricants are valued at cost using the last-in, first-out (LIFO) method.
F-50
NOTE D INVENTORIES (continued)
The following summarizes Valvolines inventories as of the Condensed Combined Balance Sheet dates.
(In millions) |
June 30
2016 |
September 30
2015 |
||||||
Finished products |
$ | 137.7 | $ | 134.3 | ||||
Raw materials, supplies and work in process |
23.5 | 22.5 | ||||||
LIFO reserves |
(24.8 | ) | (31.2 | ) | ||||
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|
|||||
$ | 136.4 | $ | 125.6 | |||||
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NOTE E GOODWILL AND OTHER INTANGIBLES
Goodwill
Valvoline reviews goodwill for impairment annually or when events and circumstances indicate an impairment may have occurred. This annual assessment consists of Valvoline determining each reporting units current fair value compared to its current carrying value. Valvolines reporting units are identical to its operating and reportable segments: Core North America, Quick Lubes, and International. The performance of the annual impairment analysis during 2015 did not result in any impairment of goodwill, and no events or circumstances that would indicate an impairment may have occurred were noted during the nine months ended June 30, 2016. The estimated fair value of each reporting unit with a significant goodwill balance was substantially in excess of its carrying value.
The following is a progression of goodwill by reportable segment for the nine months ended June 30, 2016.
(In millions) |
Core North
America |
Quick Lubes | International | Total | ||||||||||||
Balance at September 30, 2015 |
$ | 89.1 | $ | 40.7 | $ | 39.6 | $ | 169.4 | ||||||||
Acquisitions (a) |
| 86.0 | | 86.0 | ||||||||||||
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Balance at June 30, 2016 |
$ | 89.1 | $ | 126.7 | $ | 39.6 | $ | 255.4 | ||||||||
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(a) | Relates to $82.9 million for the acquisition of Oil Can Henrys and $3.1 million for Valvoline Instant Oil Change SM center acquisitions during the nine months ended June 30, 2016. See Note C for more information on the acquisition of Oil Can Henrys. |
Other intangible assets
Intangible assets principally consist of trademarks and trade names and customer relationships. Intangible assets classified as finite are amortized on a straight-line basis over their estimated useful lives. The cost of trademarks and trade names is amortized principally over 3 to 15 years and customer relationships over 10 to 20 years. Intangible assets were comprised of the following as of June 30, 2016 and September 30, 2015.
(In millions) |
June 30, 2016 | |||||||||||
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
||||||||||
Definite-lived intangible assets |
||||||||||||
Trademarks, trade names and other (a) |
$ | 2.1 | $ | (0.3 | ) | $ | 1.8 | |||||
Customer relationships |
3.1 | (1.6 | ) | 1.5 | ||||||||
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|
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Total definite-lived intangible assets |
$ | 5.2 | $ | (1.9 | ) | $ | 3.3 | |||||
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(a) | Relates to $1.4 million for trademarks and trade names and $0.7 million for favorable leasehold interests during the nine months ended June 30, 2016 related to Oil Can Henrys. See Note C for more information on the acquisition of Oil Can Henrys. |
F-51
NOTE E GOODWILL AND OTHER INTANGIBLES (continued)
(In millions) |
September 30, 2015 | |||||||||||
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
||||||||||
Definite-lived intangible assets |
||||||||||||
Trademarks and trade names |
$ | 0.1 | $ | (0.1 | ) | $ | | |||||
Customer relationships |
3.1 | (1.5 | ) | 1.6 | ||||||||
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|
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Total definite-lived intangible assets |
$ | 3.2 | $ | (1.6 | ) | $ | 1.6 | |||||
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|
Amortization expense recognized on intangible assets was $0.3 million for each of the nine months ended June 30, 2016 and 2015 and is primarily included in the selling, general and administrative expense caption of the Combined Statements of Operations and Comprehensive Income. As of June 30, 2016, all of Valvolines intangible assets that had a carrying value were being amortized. Estimated amortization expense for future periods is $0.5 million in 2016 (includes nine months actual and three months estimated), $0.7 million in 2017, $0.7 million in 2018, $0.4 million in 2019 and $0.2 million in 2020. The amortization expense for future periods is an estimate. Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions and divestitures, potential impairment, accelerated amortization, or other events.
NOTE F INCOME TAXES
Current Fiscal year
Valvolines estimated annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ending September 30, 2016 is 34%. The effective tax rate in any interim period is subject to adjustments related to discrete items. The overall effective tax rate was 33% for the nine months ended June 30, 2016 and was impacted by a net favorable benefit primarily related to the reinstatement of research and development credit.
Prior Fiscal year
Valvolines annual effective income tax rate used to determine income tax expense in interim financial reporting for the year ended September 30, 2015 was 34%. The overall effective tax rate was 35% for the nine months ended June 30, 2015. The prior tax rate for the period was unfavorably impacted by the loss on the sale of Valvoline car care product and the impairment of the Venezuela equity method investment.
Unrecognized tax benefits
Changes in unrecognized tax benefits were as follows for the nine months ended June 30, 2016:
(In millions) |
||||
Balance at October 1, 2015 |
$ | 4.7 | ||
Increases related to positions taken on items from prior years |
0.1 | |||
Increases related to positions taken in the current year |
0.5 | |||
|
|
|||
Balance at June 30, 2016 |
$ | 5.3 | ||
|
|
From a combination of statute expirations and audit settlements in the next twelve months, Valvoline expects no decrease in the amount of accrual for uncertain tax positions. For the remaining balance as of June 30, 2016, it is reasonably possible that there could be material changes to the amount of uncertain tax positions due
F-52
NOTE F INCOME TAXES (continued)
to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, or the expiration of applicable statute of limitations; however, Valvoline is not able to estimate the impact of these items at this time.
NOTE G EMPLOYEE BENEFIT PLANS
Pension plans and other postretirement benefit plans
Qualifying employees participate in specific Valvoline or Ashland sponsored defined-benefit pension plans, which typically provide pension payments based on an employees length of service and compensation during the years immediately preceding retirement or have a cash balance design. The majority of U.S. pension plans have been closed to new participants since January 1, 2011. In addition, most foreign pension plans are closed to new participants while those that remain open relate to areas where local laws require plans to operate within the applicable country. Pension obligations for applicable employees of non-U.S. consolidated subsidiaries are provided for in accordance with local practices and regulations of the respective countries.
During March 2016, Ashland announced that the majority of its defined benefit pension plans, accounted for as multi-employer plans for the Valvoline stand-alone financial statements, will freeze the accrual of benefits effective as of September 30, 2016. Additionally, during March 2016, Ashland announced that it will reduce retiree life and medical benefits effective October 1, 2016 and January 1, 2017, respectively.
Valvoline has certain defined benefit pension plans that are specifically designated only for Valvoline employees that are included within the Condensed Combined Balance Sheets. The majority of qualifying employees participate in Ashland sponsored pension plans. Valvoline has accounted for its participation in the Ashland sponsored defined benefit pension and other postretirement plans as a participation in a multi-employer plan within the Condensed Combined Financial Statements. Under this method of accounting, Valvoline recognized its allocated portion of net periodic benefit costs but did not report a liability beyond the contributions currently due and unpaid to the plan.
For purposes of these financial statements, costs for Valvolines participation in the Ashland sponsored defined benefit pension plans were allocated based on Valvoline employees relative participation in the plan. The amount of net pension cost allocated to Valvoline related to these multi-employer plans was expense of $5.8 million and $1.4 million for the nine months ended June 30, 2016 and 2015, respectively. Within the multi-employer expense are remeasurement losses, including actuarial losses, of $9.8 million and $2.0 million during the nine months ended June 30, 2016 and 2015, respectively.
For Valvolines specific stand-alone pension plans, the amount of net pension costs for Valvoline specific stand-alone pension plans was expense of $0.8 million and $1.0 million during the nine months ended June 30, 2016 and 2015, respectively. The net periodic benefit costs for these stand-alone pension plans are disclosed in further detail within this Note G.
Contributions to the stand-alone Valvoline pension plans were approximately $2.5 million during the nine months ended June 30, 2016. Expected contributions to the stand-alone Valvoline pension plans for the remainder of 2016 are approximately $0.7 million, which will be paid by Ashland and accounted for through Ashlands net investment in Valvoline.
Certain of Valvolines U.S. and Canada retired or disabled employees participate in health care and life insurance plans sponsored by Ashland. There are no Valvoline specific postretirement benefit plans. The majority of qualifying employees participate in Ashland sponsored postretirement plans that are accounted for by Valvoline as multi-employer plans within these Condensed Combined Financial Statements. Costs for Valvolines participation
F-53
NOTE G EMPLOYEE BENEFIT PLANS (continued)
in the Ashland sponsored defined benefit postretirement plans were allocated based on Valvoline employees relative participation in the plan. The amount of income allocated was income of $6.1 million and $0.9 million for the nine months ended June 30, 2016 and 2015, respectively. Within the multi-employer income are remeasurement gains, including actuarial gains, of $5.1 million during the nine months ended June 30, 2016.
Components of net periodic benefit costs (income)
For segment reporting purposes, service cost for operations is proportionately allocated to each reportable segment, excluding the Unallocated and other segment, while all other costs for operations are recorded within the Unallocated and other segment.
The following table summarizes the components of pension benefit costs for operations and the assumptions used to determine net periodic benefit costs (income) for the plans included within the Condensed Combined Balance Sheets.
(In millions) |
Pension
Benefits |
|||||||
2016 | 2015 | |||||||
Nine Months ended June 30 |
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Service cost |
$ | 0.9 | $ | 1.0 | ||||
Interest cost |
1.4 | 2.0 | ||||||
Expected return on plan assets |
(1.6 | ) | (2.1 | ) | ||||
Amortization of prior service cost |
0.1 | 0.1 | ||||||
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$ | 0.8 | $ | 1.0 | |||||
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Change in Applying Discount Rate to Measure Benefit Costs
During 2015, Ashland changed the method used to estimate the service and interest cost components of net periodic benefit pension costs. This change compared to the previous method resulted in a decrease in the service and interest cost components for pension costs during the nine months ended June 30, 2016. Historically, Ashland estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Ashland has elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Ashland has made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of Ashlands total benefit obligations or annual net periodic benefit costs as the change in the service and interest costs will be offset in the actuarial gain or loss reported, which typically occurs during the fourth fiscal quarter. Ashland has accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly has accounted for it prospectively.
For defined benefit pension plans specific to Valvoline, the impact of this discount rate change compared to the previous method will decrease estimated pension service and interest cost by approximately $0.4 million for the full year 2016. The decrease is approximately $0.3 million for the nine months ended June 30, 2016, with substantially all of the decrease attributable to interest cost. Based on plan demographics, the majority of the incremental decrease will be reported in selling, general, and administrative expense on a full year and quarterly basis, within the Combined Statements of Operations and Comprehensive Income in the Unallocated and other segment. Service and interest cost, as well as the other components of net periodic benefit costs, are subject to change for such reasons as an event requiring a remeasurement. Valvolines total projected benefit obligations
F-54
NOTE G EMPLOYEE BENEFIT PLANS (continued)
related to these specific pension plans will not be impacted by these reductions in service and interest costs as the decrease will be substantially offset within the actuarial gain or loss caption when the plans are remeasured during the fiscal year.
For multi-employer plans the impact of this discount rate change compared to the previous method will decrease estimated pension and other postretirement benefits service and interest cost by approximately $5.7 million for the full year 2016. The decrease is approximately $4.3 million for the nine months ended June 30, 2016, with substantially all of the decrease attributable to interest cost. The impact on service cost is primarily due to the nature of Ashlands largest U.S. pension plan, which is closed to new entrants and has curtailed other benefits. Based on plan demographics, approximately $2.3 million of this incremental decrease will be reported in cost of sales and approximately $3.4 million will be reported in selling, general, and administrative expense on a full year basis, or approximately $1.7 million and $2.6 million for the nine months ended June 30, 2016, respectively, within the Combined Statements of Operations and Comprehensive Income in the Unallocated and other segment.
NOTE H LITIGATION, CLAIMS AND CONTINGENCIES
There are various claims, lawsuits and administrative proceedings pending or threatened against Valvoline as a commercial unit of Ashland and its various subsidiary companies and, in certain jurisdictions, separate legal entities which are deemed insignificant. Such actions are with respect to commercial matters, product liability, toxic tort liability, and other environmental matters, which seek remedies or damages, some of which are for substantial amounts. While Valvoline cannot predict with certainty the outcome of such actions, it believes that adequate reserves have been recorded and losses already recognized with respect to such actions were immaterial as of June 30, 2016 and September 30, 2015. There is a reasonable possibility that a loss exceeding amounts already recognized may be incurred related to these actions; however, Valvoline believes that such potential losses were immaterial as of June 30, 2016.
NOTE I ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss)
Components of other comprehensive income (loss) recorded in the Combined Statements of Operations and Comprehensive Income are presented in the following table, before tax and net of tax effects.
2016 | 2015 | |||||||||||||||||||||||
(In millions) |
Before
tax |
Tax
expense |
Net
of tax |
Before
tax |
Tax
expense |
Net
of tax |
||||||||||||||||||
Nine months ended June 30 |
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Other comprehensive income (loss) |
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Unrealized translation loss |
$ | (3.4 | ) | $ | | $ | (3.4 | ) | $ | (25.4 | ) | $ | | $ | (25.4 | ) | ||||||||
Pension obligation adjustment: |
||||||||||||||||||||||||
Amortization of unrecognized prior service costs included in net income (a) |
0.1 | (0.1 | ) | | 0.1 | | 0.1 | |||||||||||||||||
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Total other comprehensive loss |
$ | (3.3 | ) | $ | (0.1 | ) | $ | (3.4 | ) | $ | (25.3 | ) | $ | | $ | (25.3 | ) | |||||||
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(a) | Amortization of unrecognized prior service costs are included in the calculation of net periodic benefit costs (income) for pension plans. For specific financial statement captions impacted by the amortization see the table below. |
In accordance with U.S. GAAP, as disclosed in the table above, certain pension costs are amortized from accumulated other comprehensive loss and recognized in net income. The captions in the Combined Statements of Operations and Comprehensive Income impacted by the amortization of unrecognized prior service costs for pension plans are disclosed below. See Note G for more information.
F-55
NOTE I ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (continued)
Nine months ended
June 30 |
||||||||
(In millions) |
2016 | 2015 | ||||||
Cost of sales |
$ | | $ | | ||||
Selling, general and administrative expense |
0.1 | 0.1 | ||||||
|
|
|
|
|||||
Total amortization of unrecognized prior service costs |
$ | 0.1 | $ | 0.1 | ||||
|
|
|
|
NOTE J RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT
Related party transactions
All significant intercompany transactions between Valvoline and Ashland have been included in the Condensed Combined Financial Statements and are considered to be effectively settled for cash in the Condensed Combined Financial Statements at the time the transaction is recorded. The total net effect of the settlement of these transactions between Valvoline and Ashland is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as Ashlands net investment in Valvoline in lieu of stockholders equity. In the Combined Statements of Invested Equity, the invested equity returned to Ashland is the net of a variety of intercompany transactions including but not limited to, collection of trade receivables, payment of trade payables and accrued liabilities, settlement of charges for allocated corporate costs and payment of taxes by Ashland on Valvolines behalf.
Cash management and financing
Ashland uses a centralized approach to cash management. Accordingly, the cash and cash equivalents are held by Ashland at the corporate level and were not attributed to Valvoline for any of the periods presented. Transfers of cash, both to and from Ashlands centralized cash management system, are reflected as a component of Ashlands net investment in Valvoline on the Condensed Combined Balance Sheets and as a financing activity within the accompanying Condensed Combined Statement of Cash Flows. Debt obligations of Ashland have not been included in the Condensed Combined Financial Statements of Valvoline, because Valvoline is not a party to the obligation between Ashland and the debt holders.
Derivative instruments
Ashland regularly uses derivative instruments to manage its exposure to fluctuations in foreign currencies. Gains and losses related to a hedge are either recognized in income immediately, to offset the gain or loss on the hedged item, or deferred and recorded in the equity section of Ashlands Consolidated Balance Sheets as a component of accumulated other comprehensive loss and subsequently recognized in Ashlands Consolidated Statements of Operations and Comprehensive Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge is recognized in income immediately.
Valvoline participates in Ashlands centralized programs. As a result, no gains or losses on hedges reported as a component of the cumulative translation adjustment within accumulated other comprehensive loss are reported in the Condensed Combined Balance Sheets for any year presented.
Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows or a hedge of a net investment in foreign operations. Expenses recognized in income have been allocated to Valvoline as part of the Corporate expense allocations.
Stock incentive plans
Valvoline has historically participated in Ashlands stock incentive plans for key employees and directors, primarily in the form of stock appreciation rights (SARs), restricted stock, performance shares and other non-
F-56
NOTE J RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT (continued)
vested stock awards. Equity-based compensation expense has been either directly reported by or allocated to Valvoline based on the awards and terms previously granted to Ashlands employees. Stock based compensation expense recorded by Valvoline during the nine months ended June 30, 2016 and 2015 were $7.5 million and $6.6 million, respectively. These costs were primarily included within the Corporate expense allocation caption of the Combined Statements of Operations and Comprehensive Income. Compensation expense for stock incentive plans is generally based on the grant-date fair value over the appropriate vesting period. Ashland utilizes several industry accepted valuation models to determine the fair value. Until the separation occurs, Valvoline will continue to participate in Ashlands equity-based compensation plans and record equity-based compensation expense based on the historical allocation of cost.
Corporate allocations and Ashlands net investment
Corporate allocations
Valvoline utilizes centralized functions of Ashland to support its operations, and in return, Ashland allocates certain of its expenses to Valvoline. Such expenses represent costs related, but not limited to, treasury, legal, accounting, insurance, information technology, payroll administration, human resources, stock incentive plans and other services. These costs, together with an allocation of Ashland overhead costs, are included within the Corporate expense allocation caption of the Combined Statements of Operations and Comprehensive Income. Where it is possible to specifically attribute such expenses to activities of Valvoline, these amounts have been charged or credited directly to Valvoline without allocation or apportionment. Allocation of all other such expenses is based on a reasonable reflection of the utilization of service provided or benefits received by Valvoline during the periods presented on a consistent basis, such as headcount, square footage, tangible assets or sales. Valvolines management supports the methods used in allocating expenses and believes these methods to be reasonable estimates.
Nevertheless, the Condensed Combined Financial Statements may not include all of the actual expenses that would have been incurred and may not reflect Valvolines combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. It is not practicable to estimate actual costs that would have been incurred had Valvoline been a stand-alone company during the periods presented. Actual costs that would have been incurred if Valvoline had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. General corporate expenses allocated to Valvoline during the nine months ended June 30, 2016 and 2015 were $60.2 million and $58.6 million, respectively.
The following table summarizes the centralized and administrative support costs of Ashland that have been allocated to Valvoline.
(In millions) |
2016 | 2015 | ||||||
Nine months ended June 30 |
||||||||
Information technology |
$ | 15.1 | $ | 12.0 | ||||
Financial and accounting |
10.3 | 9.8 | ||||||
Building services |
8.3 | 7.9 | ||||||
Legal and environmental |
4.5 | 5.1 | ||||||
Human resources |
3.7 | 3.2 | ||||||
Shared services |
1.8 | 1.5 | ||||||
Other general and administrative |
16.5 | 19.1 | ||||||
|
|
|
|
|||||
Total |
$ | 60.2 | $ | 58.6 | ||||
|
|
|
|
F-57
NOTE J RELATED PARTY TRANSACTIONS AND ASHLAND NET INVESTMENT (continued)
Ashland net investment
Disclosure of share capital or retained earnings for Valvoline has been determined to not be meaningful as the net assets are represented by Ashlands net investment in Valvoline after eliminating investments and transactions between Valvoline, Ashland or its subsidiaries.
NOTE K REPORTABLE SEGMENT INFORMATION
Valvoline determines its reportable segments based on how operations will be managed internally for the products and services sold to customers, including how the results will be reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. Valvolines operating segments are identical to its reportable segments. Operating income is the primary measure reviewed by the chief operating decision maker in assessing each reportable segments financial performance. Valvolines businesses are managed within three reportable segments: Core North America, Quick Lubes, and International.
Reportable segment business descriptions
The Core North America business segment sells Valvoline and other branded products in the United States and Canada to both consumers who perform their own automotive maintenance, referred to as Do-It-Yourself or DIY consumers, as well as to installer customers who use Valvoline products to service vehicles owned by Do-It-For-Me or DIFM consumers. Valvoline sells to its DIY consumers through national retail auto parts stores, leading mass merchandisers and independent auto part stores. Valvoline sells to its DIFM consumers through installers in the United States and Canada. Installer customers include car dealers, general repair shops, and third-party quick lube chains. Valvoline directly serves these customers through a network of distributors. Valvolines installer channel also sells branded products and solutions to heavy duty customers such as on-highway fleets and construction companies.
Through its Quick Lubes business segment, Valvoline operates Valvoline Instant Oil Change (VIOC), a quick-lube service chain involving both company-owned and franchised stores. Valvoline also sells its products and provides Valvoline branded signage to independent quick lube operators through its Express Care program.
The International business segment sells Valvoline and Valvolines other branded products in approximately 140 countries outside of the United States and Canada. Valvolines key international markets include China, India, EMEA, Latin America and Australia Pacific. The International business segment sells products for both consumer and commercial vehicles and equipment, and is served by company-owned plants in the United States, Australia and the Netherlands, a joint venture-owned plant in India and third-party warehouses and toll manufacturers in other regions. In most of the countries where Valvolines products are sold, Valvoline goes to market via independent distributors.
Unallocated and other generally includes items such as components of pension and other postretirement benefit plan expenses or income (excluding service costs, which are allocated to the reportable segments), certain significant company-wide restructuring activities and legacy costs or adjustments that relate to divested businesses, including the $26.3 million pre-tax loss on the divestiture of car care products during the nine months ended June 30, 2015.
Reportable segment results
The following tables present various financial information for each reportable segment for the nine months ended June 30, 2016 and 2015. Results of Valvolines reportable segments are presented based on how operations will be managed internally for the products and services sold to customers, including how the results
F-58
NOTE K REPORTABLE SEGMENT INFORMATION (continued)
will be reviewed by the chief operating decision maker, which includes determining resource allocation methodologies used for reportable segments. The structure and practices are specific to Valvoline; therefore, the financial results of Valvolines reportable segments are not necessarily comparable with similar information for other comparable companies. Valvoline allocates all costs to its reportable segments except for certain significant company-wide restructuring activities, such as the restructuring plans and/or other costs or adjustments that relate to former businesses that Valvoline no longer operates. The service cost component of pension and other postretirement benefits costs is allocated to each reportable segment on a ratable basis; while the remaining components of pension and other postretirement benefits costs are recorded to Unallocated and other. Valvoline refines its expense allocation methodologies to the reportable segments from time to time as internal accounting practices are improved, more refined information becomes available and the industry or market changes. Revisions to Valvolines methodologies that are deemed insignificant are applied on a prospective basis.
The following table presents various financial information for each reportable segment.
(In millions) |
For the nine
months ended June 30 |
|||||||
2016 | 2015 | |||||||
Sales |
||||||||
Core North America |
$ | 739.6 | $ | 814.6 | ||||
Quick Lubes |
332.2 | 289.2 | ||||||
International |
363.4 | 379.3 | ||||||
|
|
|
|
|||||
$ | 1,435.2 | $ | 1,483.1 | |||||
|
|
|
|
|||||
Operating Income |
||||||||
Core North America |
$ | 170.2 | $ | 158.8 | ||||
Quick Lubes |
83.7 | 71.3 | ||||||
International |
52.7 | 43.3 | ||||||
Unallocated and other (a) |
6.2 | 4.8 | ||||||
|
|
|
|
|||||
$ | 312.8 | $ | 278.2 | |||||
|
|
|
|
(a) | During the nine months ended June 30, 2016 and 2015, Unallocated and other also includes a loss of $4.7 million and a loss of $2.0 million, respectively, related to the actuarial remeasurements of pension and other postretirement benefit plans. |
NOTE L SUBSEQUENT EVENTS
During July 2016, Valvoline Finco One LLC (Valvoline Finco One) and Valvoline Finco Two LLC (Valvoline Finco Two) completed certain financing transactions as further outlined below. Both Valvoline Finco One and Valvoline Finco Two are newly formed and wholly owned Delaware limited liability companies that are finance subsidiaries of Ashland Inc. and its subsidiaries. Following the transfer by Ashland to Valvoline Inc. of substantially all of the Valvoline business, as well as other assets and liabilities (the Contribution), Valvoline Finco One and Valvoline Finco Two plan to merge with and into Valvoline Inc. (the Assumption). Valvoline Inc. expects to assume all of the obligations under the financing agreements described below.
Financing Activity
Senior Credit Agreement
During July 2016, Valvoline Finco One entered into a Credit Agreement (the 2016 Senior Credit Agreement). The 2016 Senior Credit Agreement provides for an aggregate principal amount of $1,325 million in senior secured credit facilities (2016 Credit Facilities), comprised of (i) a five-year $875 million term loan A facility
F-59
NOTE L SUBSEQUENT EVENTS (continued)
and (ii) a five-year $450 million revolving credit facility (including a $100 million letter of credit sublimit). The 2016 Credit Facilities were undrawn at signing. The initial funding under the 2016 Credit Facilities is subject to certain conditions precedent, including the Contribution, the Assumption and the satisfaction of certain other conditions. Proceeds of borrowings under the 2016 Credit Facilities will be used, among other things, (i) to repay existing Ashland debt (intercompany transfers), (ii) to pay fees and expenses related to the 2016 Credit Facilities and (iii) for ongoing working capital and general corporate purposes. The 2016 Credit Facilities may be prepaid at any time without premium.
Effective at the time of the initial funding, the 2016 Credit Facilities will be guaranteed by Valvoline Inc.s existing and future subsidiaries (other than certain immaterial subsidiaries, joint ventures, special purpose financing subsidiaries, regulated subsidiaries, foreign subsidiaries and certain other subsidiaries), and will be secured by a first-priority security interest in substantially all the personal property assets, and certain real property assets, of Valvoline Inc. and the guarantors, including all or a portion of the equity interests of certain of Valvoline Inc.s domestic subsidiaries and first-tier foreign subsidiaries and, in certain cases, a portion of the equity interests of other foreign subsidiaries.
At Valvoline Finco Ones option, the loans issued under the 2016 Senior Credit Agreement will bear interest at either LIBOR or an alternate base rate, in each case plus the applicable interest rate margin. Loans will initially bear interest at LIBOR plus 2.375% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 1.375%, in the alternative, through and including the date of delivery of a quarterly compliance certificate and thereafter the interest rate will fluctuate between LIBOR plus 1.500% per annum and LIBOR plus 2.500% per annum (or between the alternate base rate plus 0.500% per annum and the alternate base rate plus 1.500% annum), based upon Valvoline Finco Ones corporate credit ratings or the consolidated first lien net leverage ratio (as defined in the 2016 Senior Credit Agreement) (whichever yields a lower applicable interest rate margin) at such time.
The 2016 Senior Credit Agreement contains usual and customary representations and warranties, and usual and customary affirmative and negative covenants, including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants (including maintenance of a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio) and other customary limitations. As of the end of any fiscal quarter, the maximum consolidated leverage ratio and minimum consolidated interest coverage ratio permitted under the 2016 Senior Credit Agreement are 4.5 and 3.0, respectively. The consolidated leverage ratio and consolidated interest coverage ratio are not required to be calculated until the 2016 Credit Facilities are drawn upon.
Senior notes
During July 2016, Valvoline Finco Two completed its issuance of 5.500% senior unsecured notes due 2024 (2024 Notes) with an aggregate principal amount of $375 million. The 2024 Notes are unsecured obligations of Valvoline Finco Two. The 2024 Notes are initially guaranteed on an unsubordinated unsecured basis by Ashland (Ashland Guarantee). The Ashland Guarantee will automatically be released upon the Assumption. Valvoline Finco Two transferred the net proceeds of the offering of $370 million (after deducting initial purchasers discounts and other fees and expenses) to Ashland.
The 2024 Notes contain customary events of default for similar debt securities, which if triggered may accelerate payment of principal, premium, if any, and accrued but unpaid interest on the 2024 Notes. Such events of default include non-payment of principal and interest, non-performance of covenants and obligations, default on other material debt, and bankruptcy or insolvency. If a change of control repurchase event occurs, Valvoline Finco Two may be required to offer to purchase the 2024 Notes from the holders thereof. In addition, if the Contribution, the Assumption and either (1) the proposed initial public offering of up to 20% of the shares of Valvoline Inc.s common stock or (2) the distribution by Ashland of all of its shares of Valvoline Inc. common
F-60
NOTE L SUBSEQUENT EVENTS (continued)
stock to the holders of Ashland common stock have not occurred on or before June 30, 2017, or if Ashland notifies the trustee for the 2024 Notes that either the Contribution or the Assumption will not occur (or, if the Contribution and the Assumption have occurred, that neither the proposed initial public offering of up to 20% of the shares of Valvoline Incs common stock or the distribution by Ashland of all of its shares of Valvoline Inc. common stock to the holders of Ashland common stock will occur), Valvoline Finco Two will be required to redeem the 2024 Notes at a redemption price equal to (a) 100% of the principal amount of the 2024 Notes if the redemption occurs on or before December 31, 2016 or (b) 101% of the principal amount of the 2024 Notes otherwise, in each case, plus accrued and unpaid interest to, but excluding, the redemption date. The 2024 Notes are not otherwise required to be repaid prior to maturity, although they may be redeemed at the option of Valvoline Finco Two at any time prior to their maturity in the manner specified in the indenture agreement.
F-61
VALVOLINE
INSTANT OIL CHANGE
QUICK. EASY. TRUSTED.
J-6541 ©2016 Valvoline Trademark, Valvoline or its
subsidiaries, registered in various countries
Through and including , 2016, (the 25th day after the date of this prospectus), all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
30,000,000 Shares
Common Stock
PROSPECTUS
Joint Book-Running Managers
BofA Merrill Lynch | Citigroup | Morgan Stanley | ||
Deutsche Bank Securities | Goldman, Sachs & Co. | J.P. Morgan |
Senior Co-Manager
Scotiabank
Co-Managers
BTIG | Mizuho Securities | PNC Capital Markets LLC | SunTrust Robinson Humphrey |
The date of this prospectus is , 2016.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. | Other Expenses of Issuance. |
The following table sets forth the various expenses, other than underwriting discounts and commissions, payable in connection with the offering contemplated by this registration statement. All of the fees set forth below are estimates except for the SEC registration fee, the FINRA fee and the stock exchange listing fee.
Payable by the
registrant |
||||
SEC registration fee |
$ | 79,906 | ||
FINRA fee |
119,525 | |||
Stock exchange listing fee |
175,000 | |||
Blue Sky fees and expenses |
0 | |||
Printing Expenses |
700,000 | |||
Legal fees and expenses |
5,000,000 | |||
Accounting fees and expenses |
2,060,000 | |||
Transfer agent and registrar fees |
6,000 | |||
Miscellaneous fees and expenses |
30,000 | |||
|
|
|||
Total |
$ | 8,170,431 | ||
|
|
Item 14. | Indemnification of Directors and Officers. |
Section 271B.2-020 of the KBCA permits a corporation to eliminate or limit the personal liability of its directors for monetary damages for breach of fiduciary duty as a director; provided that such a provision does not eliminate or limit the liability of directors for (i) transactions in which the directors personal financial interest is in conflict with the financial interests of the corporation or its shareholders; (ii) acts or omissions that are not taken in good faith, that involve intentional misconduct or that are known to the director to be a violation of law; (iii) a vote for or assent to certain unlawful distributions to shareholders; or (iv) any transaction from which the director derived an improper personal benefit. Our amended and restated articles of incorporation will include a provision limiting the liability of our directors to the fullest extent permitted by Kentucky law.
Section 271B.8-510 of the KBCA generally permits a corporation to indemnify an individual who is made a party to a proceeding because the individual is or was a director or officer of the corporation as long as the individual (i) conducted himself or herself in good faith; (ii) honestly believed, in the case of conduct in his or her official capacity with the corporation, that the conduct was in the best interest of the corporation or, in all other cases, was at least not opposed to its best interest; and (iii) in a criminal proceeding, had no reasonable cause to believe that the conduct was unlawful. Indemnification may be made against the obligation to pay a judgment, settlement, penalty, fine or reasonable expenses (including counsel fees) incurred with respect to a proceeding, except that if the proceeding was by or in the right of the corporation, indemnification may only be made against reasonable expenses. A determination that indemnification is permitted by the terms of the KBCA must first be made before a director or officer can be indemnified. Section 271B.8-510 of the KBCA specifically prohibits indemnification (i) in connection with a proceeding by or in the right of the corporation in which the director or officer is held liable to the corporation or (ii) in connection with any other proceeding where the director or officer is adjudged to have received an improper personal benefit, in each case, unless the applicable court determines that indemnification is appropriate.
In addition, Section 271B.8-520 of the KBCA provides that, unless limited by the articles of incorporation, a corporation shall indemnify any director or officer who is wholly successful in the defense of any proceeding to which the individual was a party because he or she is or was a director or officer of the corporation against reasonable expenses incurred in connection with the proceeding.
II-1
Our amended and restated articles of incorporation will permit, and our amended and restated by-laws will generally require, that we indemnify our directors and officers to the fullest extent permitted under Kentucky or other applicable law. The right to be indemnified will, unless determined by us not to be in our best interests, include the right of a director or officer to be paid expenses, including attorneys fees, in advance of the final disposition of any proceeding; provided that, if required by law or by us in our discretion, we receive an undertaking to repay such amount if it is ultimately determined that he or she is not entitled to be indemnified.
We also expect to maintain directors and officers insurance, and we intend to enter into indemnification agreements with each of our directors and executive employment contracts with certain of our executive officers that require indemnification, subject to certain exceptions and limitations.
The above summary of the KBCA, our amended and restated articles of incorporation and our amended and restated by-laws is not intended to be exhaustive and is qualified by reference to the full text of our amended and restated articles of incorporation and amended and restated by-laws, the forms of which will be filed as exhibits to this registration statement, as well as the applicable provisions of Kentucky law.
Item 15. | Recent Sales of Unregistered Securities. |
In the three years preceding the filing of this registration statement, the registrant has issued the following securities that were not registered under the Securities Act:
None.
Item 16. | Exhibits and Financial Statement Schedules. |
A. | Exhibits: |
Exhibit
|
Exhibit Description |
|
1.1 | Form of Underwriting Agreement | |
3.1 | Form of Amended and Restated Certificate of Incorporation of the Registrant | |
3.2 | Form of Amended and Restated By-laws of the Registrant | |
4.1 | Specimen Common Stock Certificate | |
5.1 | Opinion of Dinsmore & Shohl LLP | |
10.1 | Form of Separation Agreement | |
10.2 | Form of Transition Services Agreement | |
10.3 | Form of Reverse Transition Services Agreement | |
10.4 | Form of Tax Matters Agreement | |
10.5 | Form of Employee Matters Agreement | |
10.6 | Form of Registration Rights Agreement | |
10.7 | Supplier Terms & Conditions Agreement between Valvoline and Genuine Parts Company (NAPA oil), effective as of January 1, 2016 | |
10.8 | Supplier Terms & Conditions Agreement between Valvoline and Genuine Parts Company (Valvoline oil), effective as of January 1, 2016 |
II-2
Exhibit
|
Exhibit Description |
|
10.9 | Credit Agreement dated as of July 11, 2016, among Valvoline Finco One LLC, as Initial Borrower, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, Citibank, N.A., as Syndication Agent, and the Lenders party thereto | |
10.10 | Indenture dated as of July 20, 2016, among Valvoline Finco Two LLC, Ashland Inc. and U.S. Bank National Association, as trustee | |
10.11 | 2016 Valvoline Incentive Plan | |
10.12 | Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan | |
10.13 | Amendment to the Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Employees | |
21.1 | List of subsidiaries of the Registrant | |
23.1 | Consent of Ernst & Young LLP | |
23.2 | Consent of Ernst & Young LLP | |
23.3 | Consent of Pricewaterhouse Coopers LLP | |
23.4 | Consent of Dinsmore & Shohl LLP (contained in its opinion filed as Exhibit 5.1 hereto) | |
99.1 | Consent of Richard J. Freeland to be Named Director | |
99.2 | Consent of Stephen F. Kirk to be Named Director | |
99.3 | Consent of Stephen E. Macadam to be Named Director | |
99.4 | Consent of Vada O. Manager to be Named Director | |
99.5 | Consent of Charles M. Sonsteby to be Named Director | |
99.6 | Consent of Mary J. Twinem to be Named Director |
| Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and the omitted portions have been filed separately with the SEC. |
B. | Financial Statement Schedules: |
None.
Item 17. | Undertakings. |
The undersigned hereby undertakes as follows:
(a) to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the 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
II-3
precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act, and will be governed by the final adjudication of such issue.
(c)(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lexington, Commonwealth of Kentucky, on September 12, 2016.
VALVOLINE INC. |
||
By: |
/s/ Samuel J. Mitchell, Jr. |
|
Name: |
Samuel J. Mitchell, Jr. |
|
Title: |
Chief Executive Officer |
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated.
Signature | Title | Date | ||
/s/ Samuel J. Mitchell, Jr. Samuel J. Mitchell, Jr. |
Chief Executive Officer and Director (Principal Executive Officer) | September 12, 2016 | ||
/s/ Mary E. Meixelsperger Mary E. Meixelsperger |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | September 12, 2016 | ||
/s/ William A. Wulfsohn William A. Wulfsohn |
Director | September 12, 2016 | ||
/s/ Peter J. Ganz Peter J. Ganz |
Director | September 12, 2016 | ||
/s/ J. Kevin Willis J. Kevin Willis |
Director | September 12, 2016 |
II-5
EXHIBIT INDEX
Exhibit
|
Exhibit Description |
|
1.1 | Form of Underwriting Agreement | |
3.1 | Form of Amended and Restated Certificate of Incorporation of the Registrant | |
3.2 | Form of Amended and Restated By-laws of the Registrant | |
4.1 | Specimen Common Stock Certificate | |
5.1 | Opinion of Dinsmore & Shohl LLP | |
10.1 | Form of Separation Agreement | |
10.2 | Form of Transition Services Agreement | |
10.3 | Form of Reverse Transition Services Agreement | |
10.4 | Form of Tax Matters Agreement | |
10.5 | Form of Employee Matters Agreement | |
10.6 | Form of Registration Rights Agreement | |
10.7 | Supplier Terms & Conditions Agreement between Valvoline and Genuine Parts Company (NAPA oil), effective as of January 1, 2016 | |
10.8 | Supplier Terms & Conditions Agreement between Valvoline and Genuine Parts Company (Valvoline oil), effective as of January 1, 2016 | |
10.9 | Credit Agreement dated as of July 11, 2016, among Valvoline Finco One LLC, as Initial Borrower, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, Citibank, N.A., as Syndication Agent, and the Lenders party thereto | |
10.10 | Indenture dated as of July 20, 2016, among Valvoline Finco Two LLC, Ashland Inc. and U.S. Bank National Association, as trustee | |
10.11 | 2016 Valvoline Incentive Plan | |
10.12 | Amendment to Ashland Inc. Nonqualified Excess Benefit Pension Plan | |
10.13 | Amendment to the Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Employees | |
21.1 | List of subsidiaries of the Registrant | |
23.1 | Consent of Ernst & Young LLP | |
23.2 | Consent of Ernst & Young LLP | |
23.3 | Consent of Pricewaterhouse Coopers LLP | |
23.4 | Consent of Dinsmore & Shohl LLP (contained in its opinion filed as Exhibit 5.1 hereto) | |
99.1 |
Consent of Richard J. Freeland to be Named Director |
|
99.2 |
Consent of Stephen F. Kirk to be Named Director |
|
99.3 |
Consent of Stephen E. Macadam to be Named Director |
|
99.4 |
Consent of Vada O. Manager to be Named Director |
|
99.5 |
Consent of Charles M. Sonsteby to be Named Director |
|
99.6 |
Consent of Mary J. Twinem to be Named Director |
| Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and the omitted portions have been filed separately with the SEC. |
II-6
Exhibit 1.1
VALVOLINE INC.
(a Kentucky corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
Dated: [●], 2016
VALVOLINE INC.
(a Kentucky corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
[●], 2016
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Citigroup Global Markets Inc.
Morgan Stanley & Co. LLC
as Representatives of the several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
Valvoline Inc., a Kentucky corporation (the Company), and wholly-owned subsidiary of Ashland Global Holdings Inc., a Delaware corporation (Parent), confirms its agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) and each of the other Underwriters named in Schedule A hereto (collectively, the Underwriters, which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC are acting as representatives (in such capacity, the Representatives), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.01 per share, of the Company (Common Stock) set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [●] additional shares of Common Stock. The aforesaid [●] shares of Common Stock (the Initial Securities) to be purchased by the Underwriters and all or any part of the [●] shares of Common Stock subject to the option described in Section 2(b) hereof (the Option Securities) are herein called, collectively, the Securities.
The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to [●] shares of the Initial Securities to be purchased by the Underwriters (the Reserved Securities) shall be reserved for sale by the Underwriters to certain persons designated by the Company (the Invitees), as part of the distribution of the Securities by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the Financial Industry Regulatory Authority, Inc. (FINRA) and all other applicable laws, rules and regulations. The Company solely determined, without any direct or indirect participation
by the Underwriters, the Invitees who will purchase Reserved Securities (including the maximum amount to be purchased by such persons) sold by the Underwriters. To the extent that such Reserved Securities are not orally confirmed for purchase by Invitees by 9:00 A.M. (New York City time) on the first business day after the date of this Agreement, such Reserved Securities may be offered to the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the Commission) a registration statement on Form S-1 (No. 333-211720), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the 1933 Act). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (Rule 430A) of the rules and regulations of the Commission under the 1933 Act (the 1933 Act Regulations) and Rule 424(b) (Rule 424(b)) of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule 430A(b) is herein called the Rule 430A Information. Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the Registration Statement. Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the Rule 462(b) Registration Statement and, after such filing, the term Registration Statement shall include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a preliminary prospectus. The final prospectus, in the form first furnished to the Underwriters for use in connection with the offering of the Securities, is herein called the Prospectus. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (EDGAR).
As used in this Agreement:
Applicable Time means [●] [P./A.M.], New York City time, on [●], 2016 or such other time as agreed by the Company and the Representatives.
General Disclosure Package means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus filed with the Commission prior to the Applicable Time and the information included on Schedule B-1 hereto, all considered together.
Issuer Free Writing Prospectus means any issuer free writing prospectus, as defined in Rule 433 of the 1933 Act Regulations (Rule 433), including without limitation any free writing prospectus (as defined in Rule 405 of the 1933 Act Regulations (Rule 405)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a road show that is a written communication within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Companys records pursuant to Rule 433(g).
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Issuer General Use Free Writing Prospectus means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a bona fide electronic road show, as defined in Rule 433 (the Bona Fide Electronic Road Show)), as evidenced by its being specified in Schedule B-2 hereto.
Issuer Limited Use Free Writing Prospectus means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
As used in this Agreement, the Separation refers to the (i) the separation of the Valvoline business from Parents other businesses, including the transfer by Parent and Ashland Inc. to the Company of substantially all of the assets and liabilities related to the Valvoline business and (ii) the execution on or prior to the Closing Time of the separation agreement and other agreements by the Company and Parent set forth in Schedule D hereto (collectively, the Separation Agreements). The Separation Agreements and this Agreement are referred to in this Agreement collectively as the Transaction Agreements. References to subsidiaries of the Company include only the subsidiaries of the Company as of the completion of the offering.
SECTION 1. Representations and Warranties .
(a) Representations and Warranties by the Company . The Company represents and warrants to each Underwriter as of the date hereof, the Applicable Time, the Closing Time (as defined below) and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:
(i) Registration Statement and Prospectuses . The Registration Statement and any amendment thereto subsequent to the initial effective date of the Registration Statement have become effective under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Companys knowledge, contemplated.
Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Accurate Disclosure . Neither the Registration Statement nor any amendment thereto, at its effective time, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the Applicable Time, neither (A) the General Disclosure Package nor (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto, as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of
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Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), any free writing prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use therein. For purposes of this Agreement, the only information furnished by the Underwriters through the Representatives shall be the information in the first paragraph under the heading UnderwritingCommissions and Discounts, the information in the second, third and fourth paragraphs under the heading UnderwritingPrice Stabilization, Short Positions and Penalty Bids and the information under the heading UnderwritingElectronic Distribution in each case contained in the Prospectus (collectively, the Underwriter Information).
(iii) Issuer Free Writing Prospectuses . No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any road show (as defined in Rule 433(h)) is required in connection with the offering of the Securities.
(iv) Company Not Ineligible Issuer . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
(v) Independent Accountants . The accountants who certified the financial statements and supporting schedules included in the Registration Statement, the General Disclosure Package and the Prospectus are independent public accountants as required by the 1933 Act, the 1933 Act Regulations and the Public Company Accounting Oversight Board.
(vi) Financial Statements; Non-GAAP Financial Measures . The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly in all material respects the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders equity and cash flows of Valvoline, an unincorporated commercial unit of Ashland Inc., for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) applied on a consistent basis throughout the periods involved. The supporting schedules, if any, present fairly in all material respects in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. The pro forma financial statements and the related notes thereto included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the information shown therein, have been
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prepared in accordance with the Commissions rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the Securities Exchange Act of 1934, as amended (the 1934 Act and the rules and regulations of the Commission under the 1934 Act, the 1934 Act Regulations) and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.
(vii) No Material Adverse Change in Business . Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, (A) there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a Material Adverse Effect), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.
(viii) Good Standing of the Company . The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the Commonwealth of Kentucky and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under the Transaction Agreements; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect.
(ix) Good Standing of Subsidiaries . Each significant subsidiary of the Company (as such term is defined in Rule 1-02 of Regulation S-X) (each, a Subsidiary and, collectively, the Subsidiaries) has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, has corporate or similar power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding shares of capital stock of any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. The only subsidiaries of the Company as of the completion of the offering are (A) the subsidiaries listed on Exhibit 21.1 to the Registration Statement and (B) certain other subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary as defined in Rule 1-02 of Regulation S-X.
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(x) Capitalization . The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus in the column entitled Actual under the caption Capitalization (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus). The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. None of the outstanding shares of capital stock of the Company were issued in violation of the preemptive or other similar rights of any securityholder of the Company.
(xi) Authorization of Agreement . This Agreement has been duly authorized, executed and delivered by the Company.
(xii) Authorization of Separation Agreements . Each of the Separation Agreements to which the Company is a party has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles.
(xiii) Descriptions of the Separation Agreements . Each Separation Agreement conforms in all material respects to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(xiv) Authorization and Description of Securities . The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. The Common Stock conforms in all material respects to the description thereof contained in the Registration Statement, the General Disclosure Package and the Prospectus. No holder of Securities will be subject to personal liability solely by reason of being such a holder.
(xv) Registration Rights . There are no persons with registration rights or other similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement, other than those rights that have been disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and have been waived.
(xvi) Absence of Violations, Defaults and Conflicts . Neither the Company nor any of its subsidiaries is (A) in violation of its charter, by-laws or similar organizational document, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the properties or assets of the Company or any subsidiary is subject (collectively, Agreements and Instruments), except for such
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defaults that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations (each, a Governmental Entity), except for such violations that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The execution, delivery and performance of each of the Transaction Agreements and the consummation of the transactions contemplated herein and therein, in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under the caption Use of Proceeds) and compliance by the Company with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect), nor will such action result in any violation of (x) the provisions of the charter, by-laws or similar organizational document of the Company or any of its subsidiaries or (y) any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity, except in the case of clause (y), for such violations that could not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. As used herein, a Repayment Event means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holders behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.
(xvii) Absence of Labor Dispute . No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiarys principal suppliers, manufacturers, customers or contractors, which, in either case, would reasonably be expected to result in a Material Adverse Effect.
(xviii) Absence of Proceedings . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries or any of their respective properties or assets, which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Transaction Agreements or the performance by the Company of its obligations under the Transaction Agreements.
(xix) Accuracy of Exhibits . There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described and filed as required.
(xx) Absence of Further Requirements . Other than as are described in the Registration Statement, the General Disclosure Package and the Prospectus, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any
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Governmental Entity is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the Separation, except (A) such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the rules of the New York Stock Exchange, state securities laws or the rules of FINRA and (B) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities were offered.
(xxi) Possession of Licenses and Permits . The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, Governmental Licenses) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, except where the failure so to possess would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and its subsidiaries are in compliance with the terms and conditions of all Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Material Adverse Effect.
(xxii) Title to Property . The Company and its subsidiaries have good and marketable title to all real property owned by them and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (A) are described in the Registration Statement, the General Disclosure Package and the Prospectus, (B) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries or (C) could not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, and neither the Company nor any such subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease that would reasonably be expected to result in a Material Adverse Effect.
(xxiii) Possession of Intellectual Property . The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, Intellectual Property) necessary to carry on the business now operated by them (the Business Intellectual Property), and neither the Company nor any subsidiary has received any written notice or is otherwise aware of any infringement of, misappropriation of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances that would render any Business Intellectual Property invalid or inadequate to protect the interest of the Company or its subsidiaries therein,
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and which infringement, misappropriation or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. The Company and its subsidiaries maintain policies requiring each person who is or was a significant employee or contractor of the Company or its subsidiaries and who could reasonably be expected to have enforceable rights in respect of any material Business Intellectual Property to assign to the Company or its subsidiaries of such persons rights in and to such Business Intellectual Property. Other than ordinary course activities consistent with past practice, all Business Intellectual Property owned by the Company or its subsidiaries and registered with any Governmental Entity has been duly maintained in all material respects in accordance with applicable law, including submission of all necessary filings and payment of fees in accordance with the legal and administrative requirements of the appropriate jurisdictions. Neither the Company nor any of its subsidiaries has received any written notice or is otherwise aware of any facts or circumstances which would render any issued patents within the Business Intellectual Property invalid or unenforceable. All material technical information developed by and belonging to the Company or its subsidiaries that has not been patented has been kept confidential and, to the knowledge of the Company, there is no infringement or misappropriation by third parties of any Business Intellectual Property.
(xxiv) Environmental Laws . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus or would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, or binding and enforceable policy, rule of common law or judicial or administrative interpretation thereof, or any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of, or human exposure to, environmental pollutants or contaminants, toxic or hazardous chemicals, substances, materials or wastes, petroleum or petroleum products including used oil, asbestos-containing materials or mold (collectively, Hazardous Materials) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, Environmental Laws), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there has been no release of Hazardous Materials at any of the properties of the Company or any of its subsidiaries that requires any clean-up or remediation pursuant to Environmental Law, and neither the Company nor any of their subsidiaries is conducting or funding any investigation, clean-up or remediation of any release of Hazardous Materials at any property, (D) there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings arising under any Environmental Law against the Company or any of its subsidiaries and (E) to the knowledge of the Company, there are no events or circumstances that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company or any of its subsidiaries or arising under any Environmental Laws.
(xxv) Accounting Controls. The Company and each of its subsidiaries maintain effective internal control over financial reporting (as defined under Rule 13-a15 and 15d-15 under the 1934 Act Regulations) and a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with managements general or specific authorization; (B) transactions are recorded as necessary to permit preparation
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of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with managements general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Companys most recent audited fiscal year, there has been (1) no material weakness in the Companys internal control over financial reporting (whether or not remediated) and (2) no change in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
(xxvi) Compliance with the Sarbanes-Oxley Act. The Company has taken appropriate actions to ensure that, upon the effectiveness of the Registration Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or implementing the provisions thereof (the Sarbanes-Oxley Act) that are then in effect and with which the Company is required to comply as of the effectiveness of the Registration Statement, and is actively taking steps considered reasonably necessary to ensure that it will be in material compliance with other provisions of the Sarbanes-Oxley Act not currently in effect, upon the effectiveness of such provisions, or which will become applicable to the Company at all times after the effectiveness of the Registration Statement.
(xxvii) Payment of Taxes . All United States federal income tax returns of the Company and its subsidiaries required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except taxes for which the failure to file a return or to pay could not reasonably be expected to result in a Material Adverse Effect or assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided. The Company and its subsidiaries have filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not reasonably be expected to result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company and its subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been established by the Company or the failure of which to pay could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not reasonably be expected to result in a Material Adverse Effect.
(xxviii) Insurance . The Company and its subsidiaries carry or are entitled to the benefits of insurance, with recognized and reputable insurers, in such amounts and covering such risks as is generally maintained by companies of established repute engaged in the same or similar business and owning similar properties in localities where the Company or the applicable subsidiary operates., and all such insurance is in full force and effect. The Company has no reason to believe that it or any of its subsidiaries will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect.
(xxix) Investment Company Act . The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds
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therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an investment company under the Investment Company Act of 1940, as amended (the 1940 Act).
(xxx) Absence of Manipulation . Neither the Company nor any controlled affiliate of the Company has taken, nor will the Company or any controlled affiliate take, directly or indirectly, any action which is designed, or would be expected, to cause or result in, or which constitutes, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or to result in a violation of Regulation M under the 1934 Act.
(xxxi) Foreign Corrupt Practices Act . None of the Company, any of its subsidiaries, or to the knowledge of the Company, any director, officer, agent, employee, controlled affiliate or other person acting on behalf of the Company or any of its subsidiaries is aware of or has taken, any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the FCPA), the United Kingdom Bribery Act 2010 (the U.K. Bribery Act), or any other applicable comparable law (together with the FCPA and the U.K. Bribery Act, the Anti-Corruption Laws), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any foreign official (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the Anti-Corruption Laws and the Company and its subsidiaries and, to the knowledge of the Company, its controlled affiliates have conducted and will conduct their businesses in compliance with the Anti-Corruption Laws and have instituted and maintained and will continue to institute and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith. Neither the Company nor its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of the Anti-Corruption Laws.
(xxxii) Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the Money Laundering Laws); and no action, suit or proceeding by or before any Governmental Entity involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
(xxxiii) OFAC . None of the Company or any of its subsidiaries, or, to the knowledge of the Company, any director, officer, agent, employee, affiliate or representative of the Company or any of its subsidiaries is an individual or entity (Person), or is owned or controlled by one or more Persons, currently, or in the past five years, the subject or target of any sanctions administered or enforced by the United States Government, including, without limitation, the U.S. Department of the Treasurys Office of Foreign Assets Control (OFAC), the United Nations Security Council (UNSC), the European Union, Her Majestys Treasury (HMT), or other relevant sanctions authority (collectively, Sanctions), nor located, organized or resident in
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a country or territory that is the subject of Sanctions (including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria); and the Company will not directly or indirectly use the proceeds of the sale of the Securities, or lend, contribute or otherwise make available such proceeds to any subsidiaries, joint venture partners or other Person, to fund or facilitate any activities of or business with any Person, or in any country or territory, that, at the time of such funding or facilitation, is the subject of Sanctions or in any other manner that would reasonably be expected to result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. Except as detailed in the Registration Statement, the General Disclosure Package and the Prospectus, for the past five years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
(xxxiv) Sales of Reserved Securities . In connection with any offer and sale of Reserved Securities outside the United States, each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time it was filed, complied and will comply in all material respects with any applicable laws or regulations of foreign jurisdictions in which the same is distributed. The Company has not offered, or caused the Representatives to offer, Reserved Securities to any person with the specific intent to unlawfully influence (i) a customer or supplier of the Company or any of its affiliates to alter the customers or suppliers level or type of business with any such entity or (ii) a trade journalist or publication to write or publish favorable information about the Company or any of its affiliates, or their respective businesses or products.
(xxxv) Lending Relationship . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (ii) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any affiliate of any Underwriter.
(xxxvi) Statistical and Market-Related Data . Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes to be reliable and accurate and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.
(xxxvii) ERISA Compliance . (A) The minimum funding standard under Sections 412 and 430 of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the Code) and Sections 302 and 303 of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (ERISA), has been satisfied by each pension plan (as defined in Section 3(2) of ERISA) that has been established or maintained by the Company, its Subsidiaries and their ERISA Affiliates (as defined below); (B) each of the Company, its Subsidiaries and their ERISA Affiliates has fulfilled its obligations, if any, under Section 515 of ERISA; (C) each pension plan and welfare plan (as defined in Section 3(1) of ERISA) established or maintained by the Company and its Subsidiaries is in compliance with the currently applicable provisions of ERISA and the Code; (D) the fair market value of the assets under each pension plan established or maintained by the Company, its Subsidiaries and their ERISA Affiliates exceeds the present value of all benefits accrued under such pension plan (determined based on those assumptions used to fund such pension plan); (E) no prohibited transaction, within the meaning of Section 406 of
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ERISA or Section 4975 of the Code, has occurred with respect to any pension plan established or maintained by the Company, its Subsidiaries or their ERISA Affiliates excluding transactions effected pursuant to a statutory or administrative exemption; and (F) none of the Company and its Subsidiaries have incurred or, except as set forth or contemplated in the Registration Statement, the General Disclosure Package and the Prospectus, would reasonably be expected to incur any withdrawal liability under Section 4201 of ERISA, any liability under Section 4062, 4063, or 4064 of ERISA, or any other liability under Title IV of ERISA (other than contributions to pension plans or premiums to the Pension Benefit Guaranty Corporation, in the ordinary course and without default); except, in each case with respect to clauses (A) through (F) hereof, as would not reasonably be expected to result in a Material Adverse Effect. ERISA Affiliate means any trade or business (whether or not incorporated) that, together with the Company, could be deemed a single employer within the meaning of Section 4001(b)(1) of ERISA or within the meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations issued thereunder.
(b) Officers Certificates . Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company or such subsidiary, as applicable, to each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing .
(a) Initial Securities . On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule A, that number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
(b) Option Securities . In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grant(s) an option to the Underwriters, severally and not jointly, to purchase up to an additional [●] shares of Common Stock, at the price per share set forth in Schedule A, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted may be exercised for 30 days after the date hereof and may be exercised in whole or in part at any time from time to time only for the purpose of covering overallotments made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a Date of Delivery) shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject, in each case, to such adjustments as Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
(c) Payment . Payment of the purchase price for, and delivery of certificates or security entitlements for, the Initial Securities shall be made at the offices of Shearman & Sterling LLP, 599
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Lexington Avenue, New York, New York, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (New York City time) on the third (fourth, if the pricing occurs after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called Closing Time).
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates or security entitlements for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of certificates or security entitlements for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. The Representatives, individually and not as a representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
(d) Appointment of Qualified Independent Underwriter. The Company hereby confirms its engagement of BTIG, LLC as, and BTIG, LLC hereby confirms its agreement with the Company to render services as, a qualified independent underwriter within the meaning of NASD Conduct Rule 2720 (or any successor rule) adopted by FINRA (Rule 2720) with respect to the offering and sale of the Securities. BTIG, LLC, solely in its capacity as qualified independent underwriter and not otherwise, is referred to herein as the QIU.
SECTION 3. Covenants of the Company . The Company covenants with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests . The Company, subject to Section 3(b), will comply with the requirements of Rule 430A, and will notify the Representatives promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)). The Company will use commercially reasonable efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof as promptly as practicable.
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(b) Continued Compliance with Securities Laws . The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (Rule 172), would be) required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representatives or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company will give the Representatives notice of its intention to make any such filing from the Applicable Time to the Closing Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements . The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses . The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Blue Sky Qualifications . The Company will use commercially reasonable efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as may be agreed upon between
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the Company and the Representatives and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
(f) Rule 158 . The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds . The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under Use of Proceeds.
(h) Listing . The Company will use commercially reasonable efforts to effect and maintain the listing of the Common Stock (including the Securities) on the New York Stock Exchange.
(i) Restriction on Sale of Securities . During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of the Representatives, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (C) any shares of Common Stock or equity awards issued or options to purchase Common Stock granted pursuant to existing employee benefit plans of the Company referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan referred to in the Registration Statement, the General Disclosure Package and the Prospectus or (E) any shares of Common Stock issued to Parent to the extent necessary to enable it to maintain ownership of at least 81.00% of the outstanding Common Stock; provided that in the case of clause (E), the Parent and each recipient of any such shares of Common Stock shall execute and deliver to the Representatives an agreement substantially in the form of Exhibit B hereto.
(j) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 5(m) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(k) Reporting Requirements . The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Securities as may be required under Rule 463 under the 1933 Act.
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(l) Issuer Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the Representatives (which consent shall not be unreasonably withheld or delayed), it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a free writing prospectus, or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule B-2 hereto and any road show that is a written communication within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representatives as an issuer free writing prospectus, as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
(m) Compliance with FINRA Rules . The Company hereby agrees that it will ensure that the Reserved Securities will be restricted as required by FINRA or the FINRA rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Securities, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release.
(n) Foreign Jurisdiction Compliance . The Company hereby agrees that it will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Reserved Securities are offered to Invitees.
SECTION 4. Payment of Expenses .
(a) Expenses . The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery of the certificates or security entitlements for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Companys counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e)
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hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto (but in any event such fees to counsel shall not exceed $15,000), (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of aircraft and other transportation chartered in connection with the road show, provided, however, that the cost of any aircraft chartered in connection with the road show shall be paid 50% by the Company and 50% by the Underwriters (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities (but in any event such fees to counsel shall not exceed $60,000), (ix) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange, (x) the costs and expenses (including, without limitation, any damages or other amounts payable in connection with legal or contractual liability) associated with the reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained in the third sentence of Section 1(a)(ii), (xi) all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection with matters related to the Reserved Securities which are designated by the Company for sale to Invitees and (xii) the fees and expenses of the QIU.
(b) Termination of Agreement . If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) or (iii) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters Obligations . The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates of any officer of the Company or any of its subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Companys knowledge, contemplated. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
(b) Opinion of Counsel for Company . At the Closing Time, the Representatives shall have received the favorable opinion and disclosure letter, dated the Closing Time, of Cravath, Swaine & Moore LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A-1 hereto.
(c) Opinion of Kentucky Counsel for Company . At the Closing Time, the Representatives shall have received the favorable opinion, dated the Closing Time, of Dinsmore & Shohl LLP, Kentucky
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counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A-2 hereto.
(d) Opinion of General Counsel of Company . At the Closing Time, the Representatives shall have received the favorable opinion, dated the Closing Time, of the General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A-3 hereto.
(e) Opinion of Counsel for Underwriters . At the Closing Time, the Representatives shall have received the favorable opinion and negative assurance statement, each dated the Closing Time, of Shearman & Sterling LLP, counsel for the Underwriters.
(f) Officers Certificate . At the Closing Time, there shall not have been, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company, dated the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, contemplated.
(g) Accountants Comfort Letter . At the time of the execution of this Agreement, the Representatives shall have received from each of Ernst & Young LLP and PricewaterhouseCoopers LLP a letter, dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(h) Bring-down Comfort Letter . At the Closing Time, the Representatives shall have received from each of Ernst & Young LLP and PricewaterhouseCoopers LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (f) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.
(i) Chief Financial Officers Certificate . At the time of the execution of this Agreement, the Representatives shall have received from the chief financial officer of the Company a certificate, dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such certificate for each of the other Underwriters containing statements and information with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
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(j) Bring-down Chief Financial Officers Certificate . At the Closing Time, the Representatives shall have received the chief financial officer of the Company a certificate, dated as of the Closing Time, to the effect that she or he reaffirm the statements made in the certificate furnished pursuant to subsection (h) of this Section.
(k) Approval of Listing . At the Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance.
(l) No Objection . FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.
(m) Lock-up Agreements . At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule C hereto.
(n) Maintenance of Rating . Since the execution of this Agreement, there shall not have been any decrease in or withdrawal of the rating of any long-term debt securities of the Company or any of its subsidiaries by any nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the 1934 Act) or any notice given of any intended or potential decrease in or withdrawal of any such rating or of a possible change in any such rating that does not indicate the direction of the possible change. 1
(o) Conditions to Purchase of Option Securities . In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company and any of its subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:
(i) Officers Certificate . A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(f) hereof remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company . If requested by the Representatives, the favorable opinion and disclosure letter of Cravath, Swaine & Moore LLP, counsel for the Company, together with the favorable opinion of Dinsmore & Shohl LLP, Kentucky counsel for the Company, each in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Sections 5(b) and 5(c) hereof.
1 | NTD: The provision will be revised to the following in the event the company prices an IPO with net proceeds of less than $500 million: |
(m) | Maintenance of Rating . Since the execution of this Agreement, there shall not have been any decrease in or withdrawal of the rating of any long-term debt securities of the Company or any of its subsidiaries by any nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the 1934 Act) or any notice given of any intended or potential decrease in or withdrawal of any such rating or of a possible change in any such rating that does not indicate the direction of the possible change; provided , that , this subsection (m) shall not apply in the event Moodys Investors Services, Inc. (Moodys) lowers the Companys Corporate Family Rating under the circumstances described in the Moodys Rating Action: Moodys rates Valvoline Ba2, dated July 12, 2016. |
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(iii) Opinion of General Counsel of the Company . If requested by the Representatives, the favorable opinion of the General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(d) hereof.
(iv) Opinion of Counsel for Underwriters . If requested by the Representatives, the favorable opinion of Shearman & Sterling LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(e) hereof.
(v) Bring-down Comfort Letter . If requested by the Representatives, a letter from each of Ernst & Young LLP and PricewaterhouseCoopers LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(h) hereof, except that the specified date in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery.
(vi) Bring-down Chief Financial Officers Certificate . If requested by the Representatives, a certificate from the chief financial officer of the Company, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the certificate furnished to the Representatives pursuant to Section 5(j) hereof.
(p) Additional Documents . At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters shall have been furnished with such other documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters.
(q) Completion of Separation. The Separation shall have been consummated in all material respects as described in the Registration Statement, General Disclosure Package and the Prospectus.
(r) Termination of Agreement . If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by written notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7, 8, 14 , 15 and 16 shall survive any such termination and remain in full force and effect.
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SECTION 6. Indemnification .
(a) Indemnification of Underwriters . The Company agrees to indemnify and hold harmless each Underwriter, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an Affiliate)), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense whatsoever, as reasonably incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Issuer Free Writing Prospectus, any road show (as defined in Rule 433 of the Securities Act Regulations), the General Disclosure Package or the Prospectus (or any amendment or supplement thereto).
(ii) against any and all loss, liability, claim, damage and expense whatsoever, as reasonably incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company;
(iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package, the Prospectus (or any amendment or supplement thereto), any preliminary prospectus or any Issuer Free Writing Prospectus in reliance upon and in conformity with the Underwriter Information.
(b) Indemnification of Company, Directors and Officers . Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, the General Disclosure Package, the Prospectus (or any amendment or supplement thereto), any preliminary prospectus or any Issuer Free Writing Prospectus in reliance upon and in conformity with the Underwriter Information.
(c) Actions against Parties; Notification . Each indemnified party shall give notice in writing as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced (through the forfeiture of substantive rights or defenses) as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by the Representatives, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party
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may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; provided, that, if indemnity is sought pursuant to Section 6(e), then, in addition to the fees and expenses of such counsel for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one counsel (in addition to any local counsel) separate from its own counsel and that of the other indemnified parties for the QIU in its capacity as a qualified independent underwriter and all persons, if any, who control the QIU within the meaning of Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances if, in the reasonable judgment of the QIU, there may exist a conflict of interest between the QIU and the other indemnified parties. Any such separate counsel for the QIU and such control persons of the QIU shall be designated in writing by the QIU. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse . If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) or settlement of any claim in connection with any violation referred to in Section 6(f) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement, provided that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party, prior to the date of such settlement, (1) reimburses such indemnified party in accordance with such request for the amount of such fees and expenses of counsel as the indemnifying party believes in good faith to be reasonable, and (2) provides written notice to the indemnified party that the indemnifying party disputes in good faith the reasonableness of the unpaid balance of such fees and expenses.
(e) Indemnification of QIU . In addition to and without limitation of the Companys obligation to indemnify BTIG, LLC as an Underwriter, the Company also agrees to indemnify and hold harmless the QIU, its Affiliates and selling agents and each person, if any, who controls the QIU within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all loss, liability, claim, damage and expense whatsoever, as incurred, incurred as a result of the QIUs participation as a qualified independent underwriter within the meaning of Rule 2720 in connection with the offering of the Securities.
(f) Indemnification for Reserved Securities . In connection with the offer and sale of the Reserved Securities, the Company agrees to indemnify and hold harmless the Underwriters, their Affiliates and selling agents and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act (each an Underwriter Entity), from and
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against any and all loss, liability, claim, damage and expense (including, without limitation, any legal or other expenses reasonably incurred in connection with defending, investigating or settling any such action or claim), as incurred, (i) arising out of any untrue statement or alleged untrue statement of a material fact contained in any other material prepared by or with the consent of the Company for distribution to Invitees in connection with the offering of the Reserved Securities or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) caused by the failure of any Invitee to pay for and accept delivery of Reserved Securities which have been orally confirmed for purchase by any Invitee by 9:00 A.M. (New York City time) on the first business day after the date of the Agreement or (iii) related to, or arising out of or in connection with, the offering of the Reserved Securities, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Underwriter Entities.
SECTION 7. Contribution . If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions, or in connection with any violation of the nature referred to in Section 6(f) hereof, which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.
The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or any violation of the nature referred to in Section 6(f) hereof.
The Company and the Underwriters agree that BTIG, LLC will not receive any additional benefits hereunder for serving as the QIU in connection with the offering and sale of the Securities.
The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
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Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting discount and commissions received by such Underwriter in connection with the Securities underwritten by it and distributed to the public.
No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriters Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive . All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors, any person controlling the Company and (ii) delivery of and payment for the Securities.
SECTION 9. Termination of Agreement .
(a) Termination . The Representatives may terminate this Agreement, by written notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the judgment of the Representatives, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange or (iv) if trading generally on the NYSE MKT or the New York Stock Exchange or in the Nasdaq Global Select Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (vi) if a banking moratorium has been declared by either Federal or New York authorities.
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(b) Liabilities . If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8, 14, 15 and 16 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters . If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the Defaulted Securities), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:
(i) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and the Company to sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the (i) Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the Prospectus or in any other documents or arrangements. As used herein, the term Underwriter includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices . All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to Merrill Lynch at One Bryant Park, New York, New York 10036, attention of Syndicate Department (facsimile: (646) 855-3073), with a copy to ECM Legal (facsimile: (212) 230-8730); Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013, attention of General Counsel, facsimile number 1-646-291-1469; Morgan Stanley & Co. LLC at 1585 Broadway, New York, New York 10036, attention of Equity Syndicate Desk, with a copy to the Legal Department; notices to the Company shall be directed to it at 3499 Blazer Parkway, Lexington, Kentucky 40509, attention of Julie M. ODaniel, General Counsel & Corporate Secretary.
SECTION 12. No Advisory or Fiduciary Relationship . The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arms-
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length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company, any of its subsidiaries or its stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Securities or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any of its subsidiaries on other matters) and no Underwriter has any obligation to the Company with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering of the Securities and the Company has consulted its own legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.
SECTION 13. Parties . This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. Trial by Jury . The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
SECTION 15. GOVERNING LAW . THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.
SECTION 16. Consent to Jurisdiction; Waiver of Immunity . Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (Related Proceedings) shall be instituted in (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the Specified Courts), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a Related Judgment), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such partys address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.
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SECTION 17. TIME . TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 18. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
SECTION 19. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms.
Very truly yours, | ||
VALVOLINE INC. | ||
By |
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Title: |
CONFIRMED AND ACCEPTED, | ||
as of the date first above written: | ||
MERRILL LYNCH, PIERCE, FENNER & SMITH | ||
INCORPORATED | ||
By: MERRILL LYNCH, PIERCE, FENNER & SMITH | ||
INCORPORATED | ||
By |
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Authorized Signatory | ||
By: CITIGROUP GLOBAL MARKETS INC. | ||
By |
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Authorized Signatory | ||
By: MORGAN STANLEY & CO. LLC | ||
By |
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Authorized Signatory |
For themselves and as Representatives of the other Underwriters named in Schedule A hereto.
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Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
VALVOLINE INC.
VALVOLINE INC., a corporation organized and existing under the laws of the Commonwealth of Kentucky, DOES HEREBY CERTIFY AS FOLLOWS:
1. The name of the corporation is Valvoline Inc. The original Articles of Incorporation of the corporation were filed with the Secretary of State of the Commonwealth of Kentucky on May 13, 2016 (as in effect immediately prior to the adoption and effectiveness hereof, the Original Articles of Incorporation ), and the name under which the corporation was originally incorporated is Valvoline Inc.
2. These Amended and Restated Articles of Incorporation (these Articles ) have been duly adopted in accordance with Sections 271B.10-030 and 271B.10-070 of the Kentucky Business Corporation Act (the KBCA ) and shall be effective as of [Time] Eastern [Standard/Daylight] Time on [Date], 2016.
3. The Original Articles of Incorporation are hereby amended and restated to read in their entirety as follows:
ARTICLE I
NAME
SECTION 1.01. The name of the corporation (hereinafter called the Corporation ) is Valvoline Inc.
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
SECTION 2.01. The address of the Corporations registered office in the Commonwealth of Kentucky is 306 West Main Street Suite 512, City of Frankfort, County of Franklin, Kentucky 40601. The name of the Corporations registered agent at such address is CT Corporation System.
ARTICLE III
PURPOSE
SECTION 3.01. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the KBCA.
ARTICLE IV
CAPITAL STOCK
SECTION 4.01. Authorized Capital Stock . The total number of shares of all classes of stock which the Corporation shall have authority to issue is 440,000,000 shares, consisting of (1) 40,000,000 shares of Preferred Stock, having no par value ( Preferred Stock ), and (2) 400,000,000 shares of Common Stock, par value $0.01 per share ( Common Stock ).
SECTION 4.02. Preferred Stock .
(a) | The Board of Directors of the Corporation (the Board ) is hereby expressly authorized, by resolution or resolutions, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers ( if any) of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. |
(b) | Except as otherwise required by law, holders of a series of Preferred Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted to such holders by these Articles. |
SECTION 4.03. Common Stock .
(a) Ranking . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board upon any issuance of the Preferred Stock of any series.
(b) Voting Rights . Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which shareholders generally are entitled to vote; provided , however , that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to these Articles that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to these Articles or pursuant to the KBCA.
(c) Dividends . Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock, dividends may be declared and paid on the Common Stock at such times and in such amounts as the Board in its discretion shall determine.
(d) Liquidation and Other Events . Upon the dissolution, liquidation or winding up of the Corporation, subject to the rights, if any, of the holders of any outstanding series of Preferred Stock, the holders of the Common Stock, as such, shall be entitled to receive the assets of the Corporation available for distribution to its shareholders ratably in proportion to the number of shares held by them.
ARTICLE V
BOARD OF DIRECTORS
SECTION 5.01. Size of Board . The business and affairs of the Corporation shall be managed by or under the direction of the Board. Except as otherwise fixed pursuant to the terms of any outstanding series of Preferred Stock pursuant to these Articles, the number of directors of the Corporation shall be fixed from time to time by or pursuant to the By-laws of the Corporation (the By-laws ).
SECTION 5.02. Election of Directors . (a) The directors, other than those who may be elected by the holders of any series of Preferred Stock voting separately pursuant to these Articles, shall be elected by the shareholders entitled to vote thereon at each annual meeting of the shareholders and shall hold office until the next annual meeting of the shareholders and until each of their successors shall have been elected and qualified. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.
(b) The vote required for the election of directors by shareholders, other than in a contested election of directors, shall be the affirmative vote of a majority of the votes cast with respect to a director nominee. For purposes of this paragraph, a majority of the votes cast shall mean that the number of votes cast for a director must exceed the number of votes cast against that director. In any contested election of directors, the nominees receiving the greatest number of the votes cast for their election, up to the number of directors to be elected in such election, shall be deemed elected. Abstentions and broker non-votes will not count as votes either for or against a nominee. Any incumbent director who fails to receive a majority of the votes cast in an uncontested election shall submit an offer to resign from the Board no later than two weeks after the certification by the Corporation of the voting results. An uncontested election is one in which the number of individuals who have been nominated for election as a director is equal to, or less than, the number of directors constituting the Whole Board (as defined below). A contested election is one in which the number of persons nominated exceeds the number of directors to be elected as of the date that is ten days prior to the date that the Corporation first mails its notice of meeting for such meeting to the shareholders. The term Whole Board shall mean the total number of authorized directors, whether or not there exist any vacancies on the Board.
SECTION 5.03. Vacancies and Newly Created Directorships . Except as otherwise provided for or fixed by or pursuant to the provisions of these Articles relating to the rights of the holders of any outstanding series of Preferred Stock, newly created directorships resulting from any increase in the number of directors may be filled by the Board, and any vacancies on the Board resulting from death, resignation, removal or other cause shall only be filled by the Board, and not by the shareholders, by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board, or by a sole remaining director. Any director elected in accordance with the preceding sentence of this Section 5.03 shall hold office until the next annual meeting of the shareholders and until such directors successor shall have been elected and qualified.
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SECTION 5.04. Removal of Directors . Subject to the rights of holders of any outstanding series of Preferred Stock with respect to the removal of directors, a director may be removed from office by the shareholders (i) without cause by the affirmative vote of the holders of 80% or more of the voting power of the outstanding voting stock of the Corporation, voting together as single class and (ii) with cause by the affirmative vote of the holders of a majority of the voting power of the outstanding voting stock of the Corporation, voting together as a single class. For purposes of this Section 5.04, cause shall mean the willful and continuous failure of a director to substantially perform such directors duties to the Corporation, other than any such failure resulting from incapacity due to physical or mental illness, or the willful engaging by a director in gross misconduct materially and demonstrably injurious to the Corporation. As used in these Articles, voting stock shall mean shares of capital stock of the Corporation entitled to vote generally in an election of directors.
ARTICLE VI
SHAREHOLDERS
SECTION 6.01. Action by Unanimous Written Consent . Subject to the rights of the holders of any outstanding series of Preferred Stock, any action required or permitted to be taken by the shareholders of the Corporation may be effected by the written consent of the shareholders of the Corporation in lieu of a duly called annual or special meeting of the shareholders of the Corporation, provided that such written consent is unanimously granted by the holders of 100% of voting power of the voting stock of the Corporation, voting together as a single class, that would be entitled to vote on such action at a duly called annual or special meeting of the shareholders of the Corporation.
ARTICLE VII
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
SECTION 7.01. Board of Directors . Subject to the KBCA, and in furtherance and not in limitation of the powers conferred upon it by law, the Board is expressly authorized to adopt, repeal, alter or amend the By-laws, by the vote of a majority of the entire Board or such greater vote as shall be specified in the By-laws, that the Board may deem necessary or desirable for the efficient conduct of the affairs of Corporation, including, but not limited to, provisions governing the conduct of, and the matters which may properly be brought before, annual or special meetings of the shareholders and provisions specifying the manner and extent to which prior notice shall be given of the submission of proposals to be considered at any such meeting or of nominations for election of directors to be held at any such meeting.
SECTION 7.02. Shareholders . The shareholders shall also have power to adopt, repeal, alter or amend the By-laws; provided , however , that in addition to any requirements of law and any other provision of these Articles (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles or the By-laws), the affirmative vote of the holders of at least 80% of the voting power of the then outstanding voting stock of the Corporation, voting together as a single class, shall be required for shareholders to adopt, amend, alter or repeal any provision of the By-laws.
ARTICLE VIII
ADOPTION, AMENDMENT OR REPEAL OF ARTICLES
SECTION 8.01. The Corporation reserves the right to amend, alter, adopt or repeal any provision contained in these Articles, in the manner now or hereafter prescribed by statute, and all rights conferred upon shareholders herein are subject to this reservation. Notwithstanding anything contained in these Articles to the contrary (and in addition to any vote required by law), the affirmative vote of the holders of at least 80% of the voting power of the then outstanding voting stock of the Corporation, voting together as a single class, shall be required to amend, alter, change, or repeal or to adopt any provision inconsistent with Article V, Article VI, Article VII and this Article VIII.
ARTICLE IX
LIMITATION ON DIRECTOR LIABILITY; INDEMNIFICATION
SECTION 9.01. Limitation on Director Liability . To the fullest extent that the KBCA or any other law of the Commonwealth of Kentucky as it exists or as it may hereafter be amended permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director.
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SECTION 9.02. Indemnification . To the fullest extent that the KBCA or any other law of the Commonwealth of Kentucky as it exists or as it may hereafter be amended permits, the Corporation may provide indemnification of (and advancement of expenses to) its current and former directors, officers, and agents (and any other persons to which the KBCA permits the Corporation to provide indemnification) through By-law provisions, agreements with such agents or other persons, votes of shareholders or disinterested directors or otherwise.
SECTION 9.03. Effect of Amendment or Repeal . No amendment to or repeal of any Section of this Article IX, nor the adoption of any provision of these Articles inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any action or proceeding accruing or arising, prior to such amendment, repeal or adoption of an inconsistent provision. This Article IX is not intended to eliminate or limit any protection otherwise available to the directors or officers of the Corporation.
ARTICLE X
FORUM SELECTION
SECTION 10.01. Unless the Corporation consents in writing to the selection of an alternative forum, the Fayette County Circuit Court of the Commonwealth of Kentucky shall be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporations shareholders, (iii) any action asserting a claim arising pursuant to any provision of the KBCA or (iv) any action asserting a claim governed by the internal affairs doctrine; provided , however , that, in the event that the Fayette County Circuit Court of the Commonwealth of Kentucky lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the Commonwealth of Kentucky, in each such case, unless the Fayette County Circuit Court (or such other state or federal court located within the Commonwealth of Kentucky, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 10.01. Failure to enforce the foregoing provisions would cause the Corporation irreparable harm and the Corporation shall be entitled to equitable relief, including injunction and specific performance, to enforce the forgoing provisions.
ARTICLE XI
INCORPORATOR
SECTION 11.01. The name of the Incorporator is Michael S. Roe and the mailing address of the incorporator is 50 E. River Center Blvd., Covington, Kentucky, 41011.
ARTICLE XII
PRINCIPAL ADDRESS
SECTION 12.01. The mailing address of the principal office of the Corporation is 3499 Blazer Parkway, Lexington, Kentucky 40509.
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Exhibit 3.2
BY-LAWS
OF
VALVOLINE INC.
Amended and restated as of [DATE], 2016
ARTICLE I
Offices
SECTION 1.01. Registered Office . The registered office of Valvoline Inc. (hereinafter called the Corporation ) in the Commonwealth of Kentucky shall be at 306 West Main Street Suite 512, City of Frankfort, County of Franklin, Kentucky 40601, and the registered agent shall be CT Corporation System, or such other office or agent as the Board of Directors of the Corporation (the Board ) shall from time to time select.
SECTION 1.02. Other Offices . The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as may otherwise be required by law, at such other place or places, either within or outside of the Commonwealth of Kentucky, as the Board may from time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Shareholders
SECTION 2.01. Place of Meeting . All meetings of the shareholders of the Corporation (the shareholders ) shall be held at a place, either within or outside of the Commonwealth of Kentucky, to be determined by the Board. If no designation is made by the Board, the place of meeting shall be the principal office of the Corporation. The Board may, in its sole discretion, determine that the meetings shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 271B.7-080 of the Kentucky Business Corporation Act (the KBCA ) (or any successor provision thereto).
SECTION 2.02. Annual Meetings . The annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time as shall from time to time be fixed by the Board. Any previously scheduled annual meeting of the shareholders may be postponed by action of the Board taken prior to the time previously scheduled for such annual meeting of the shareholders.
SECTION 2.03. Special Meetings .
(a) Except as otherwise required by law or the Articles of Incorporation of the Corporation (the Articles ), and subject to the rights of the holders of any outstanding series of preferred stock (the Preferred Stock ), special meetings of the shareholders for any purpose or purposes may be called by a majority of the Board.
(b) Subject to the provisions of this Section 2.03, a special meeting of the shareholders shall be called by the Secretary of the Corporation (the Secretary ) following receipt by the Secretary of a written demand for a special meeting (a Special Meeting Demand ) from the holders of at least 33 1/3% of all shares entitled to vote on any issue proposed to be considered at the proposed special meeting (the Requisite Holders ) if such Special Meeting Demand complies with the requirements of Section 2.03(c). The Secretary shall determine whether all such requirements have been satisfied and such determination shall be binding on the Corporation and its shareholders.
(c) A Special Meeting Demand must be delivered to or mailed and received by the Secretary at the principal office of the Corporation. To be in proper form, a Special Meeting Demand shall set be in writing and set forth as to each matter proposed to be brought before the special meeting the information required by Section 2.07(d) with respect to shareholder proposals of business for annual and special meetings. Such shareholders shall also update and supplement such information as required by Sections 2.07(e) and (f) with respect to shareholder proposals of business for annual and special meetings. In addition, a Special Meeting Demand shall not be valid if (i) the Special Meeting Demand relates to an item of business that is not a proper subject for shareholder action under applicable law; (ii) the Special Meeting Demand is received
by the Corporation during the period commencing 90 days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting; or (iii) such Special Meeting Demand was made in a manner that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended (the Exchange Act ) or other applicable law.
(d) A Special Meeting Demand may be revoked by written revocation delivered to the Corporation at any time prior to the special meeting by one or more of the shareholders who originally executed such Special Meeting Demand so long as those shareholders who originally executed the Special Meeting Demand but who do not execute such written revocation (if any) do not collectively constitute Requisite Holders; provided , however , the Board shall have the discretion to determine whether or not to proceed with the special meeting.
(e) If none of the shareholders who submitted the Special Meeting Demand for a special meeting of the shareholders appears or sends a qualified representative to present the proposal(s) or business submitted by the shareholders for consideration at the special meeting, the Corporation need not present such proposal(s) or business for a vote at such meeting.
(f) Only such business as is specified in the Corporations notice of any special meeting of the shareholders shall come before a special meeting. Such business only may be specified by a majority of the Board or in a valid Special Meeting Demand. A special meeting shall be held at such place, if any, and on such date and at such time as shall be fixed by the Board.
(g) The chairman of a special meeting may refuse to permit any business to be brought before a special meeting that fails to comply with this Section 2.03 or, in the case of a shareholder proposal, if the shareholder solicits proxies in support of such shareholders proposal without having made the representation required by Section 2.07(d)(7).
SECTION 2.04. Notice of Meetings . (a) Except as otherwise provided by law, notice of each meeting of the shareholders, whether annual or special, shall be given by the Corporation to each shareholder of record entitled to notice of the meeting not less than 10 days nor more than 60 days before the date of the meeting. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the shareholder at such shareholders address as it appears on the records of the Corporation. Each such notice shall state the place, if any, date and time of the meeting, the means of remote communications, if any, by which shareholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
(b) Notice of adjournment of a meeting of the shareholders need not be given if the place, if any, date and time to which it is adjourned, and the means of remote communications, if any, by which shareholders and proxy holders may be deemed to be present in person and vote at such meeting, are announced at such meeting, unless, after adjournment, a new record date is or must be fixed for the adjourned meeting. If after adjournment a new record date is or must be fixed for the adjourned meeting, the notice of the adjourned meeting shall be given to each shareholder of record as of the new record date. Such further notice shall be given as may be required by law.
SECTION 2.05. Quorum . Except as otherwise required by law, the Articles or these By-laws of the Corporation (these By-laws ), the holders of a majority of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote thereat, present in person or by proxy, shall constitute a quorum at any meeting of the shareholders; provided , however , that in the case of any vote to be taken by classes or series, the holders of a majority of the votes entitled to be cast by the shareholders of a particular class or series, present in person or by proxy, shall constitute a quorum of such class or series. To the fullest extent permitted by law, the shareholders present at a duly organized meeting may continue to transact any business for which a quorum existed at the commencement of such meeting until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
SECTION 2.06. Adjournments . The chairman of the meeting or the shareholders, by the affirmative vote of the holders of a majority of the voting power of the shares of capital stock entitled to vote thereat, who are present in person or by proxy, may adjourn the meeting from time to time whether or not a quorum is present (or, in the case of specified business to be voted on by a class or series, the chairman of the meeting or the shareholders, by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of such class or series so represented, may adjourn the meeting with respect to such specified business). At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called.
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SECTION 2.07. Order of Business; Shareholder Proposals . (a) At each meeting of the shareholders, the Chairman of the Board or, in the absence of the Chairman of the Board, the President of the Corporation (the President ) or, in the absence of the Chairman of the Board and the President, such person as shall be selected by the Board or the executive committee of the Board, shall act as chairman of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof and the opening and closing of the voting polls.
(b) At any annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the annual meeting (i) by or at the direction of the chairman of the meeting or (ii) by any shareholder who is a holder of record at the time of the giving of the notice provided for in this Section 2.07, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 2.07.
(c) For business properly to be brought before an annual meeting of the shareholders by a shareholder, the shareholder must have given timely notice thereof in proper written form to the Secretary. To be timely, a shareholders notice must be delivered to or mailed and received by the Secretary at the principal office of the Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the date of the immediately preceding annual meeting; provided , however , that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting and the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall an adjournment or postponement of an annual meeting commence a new time period for the giving of a shareholders notice as described in this Section 2.07. As used in these By-laws, public announcement shall mean disclosure (i) in a press release reported by the Dow Jones Newswire, Business Wire, Reuters Information Service or any similar or successor news wire service or (ii) in a communication distributed generally to shareholders and in a document publicly filed by the Corporation with the Securities and Exchange Commission (the SEC ) pursuant to Sections 13, 14 or 15(d) of the Exchange Act or any successor provisions thereto.
(d) To be in proper written form, a shareholders notice to the Secretary or a Special Meeting Demand shall set forth in writing as to each matter the shareholder proposes to bring before the annual meeting or, in the case of a Special Meeting Demand, a special meeting:
(1) the name and address of each shareholder proposing such business, as they appear on the Corporations books;
(2) as to each shareholder proposing such business, the name and address of (i) any other beneficial owner of stock of the Corporation that are owned by such shareholder and (ii) any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the shareholder or such beneficial owner (each, a Shareholder Associated Person );
(3) as to each shareholder proposing such business and any Shareholder Associated Person, (i) the class or series and number of shares of stock directly or indirectly held of record and beneficially by the shareholder proposing such business or Shareholder Associated Person, (ii) the date such shares of stock were acquired, (iii) a description of any agreement, arrangement or understanding, direct or indirect, with respect to such business between or among the shareholder proposing such business, any Shareholder Associated Person or any others (including their names) acting in concert with any of the foregoing, (iv) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, hedging transactions and borrowed or loaned shares) that has been entered into, directly or indirectly, as of the date of such shareholders notice or Special Meeting Demand by, or on behalf of, the shareholder proposing such business or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of the shareholder proposing such business or any Shareholder Associated Person with respect to shares of stock of the Corporation (a Derivative ), (v) a description in reasonable detail of any proxy (including revocable proxies), contract, arrangement, understanding or other relationship pursuant to which the shareholder proposing such business or Shareholder Associated Person has a right to vote any shares of stock of the Corporation, (vi) any rights to dividends on the stock of the
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Corporation owned beneficially by the shareholder proposing such business or Shareholder Associated Person that are separated or separable from the underlying stock of the Corporation, (vii) any proportionate interest in stock of the Corporation or Derivatives held, directly or indirectly, by a general or limited partnership in which the shareholder proposing such business or Shareholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (viii) any performance-related fees (other than an asset-based fee) that the shareholder proposing such business or Shareholder Associated Person is entitled to based on any increase or decrease in the value of stock of the Corporation or Derivatives thereof, if any, as of the date of such notice or Special Meeting Demand (the information specified in Section 2.07(d)(1) to (3) is referred to herein as Shareholder Information );
(4) a representation that each such shareholder is a holder of record of stock of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose such business;
(5) a brief description of the business desired to be brought before the annual meeting or, in the case of a Special Meeting Demand, a special meeting, the text of the proposal (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these By-laws, the text of the proposed amendment) and the reasons for conducting such business at the meeting;
(6) any material interest of the shareholder and any Shareholder Associated Person in such business;
(7) a representation as to whether such shareholder intends (i) to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporations outstanding capital stock required to approve or adopt such business or (ii) otherwise to solicit proxies from the shareholders in support of such business;
(8) all other information that would be required to be filed with the SEC if the shareholder or any Shareholder Associated Person were participants in a solicitation subject to Section 14 of the Exchange Act; and
(9) a representation that the shareholder shall provide any other information reasonably requested by the Corporation.
(e) Such shareholders providing the notice or Special Meeting Demand shall also provide any other information reasonably requested by the Corporation within five business days after such request.
(f) In addition, such shareholders shall further update and supplement the information provided to the Corporation in the notice, Special Meeting Demand, or upon the Corporations request pursuant to Section 2.07(e) as needed, so that such information shall be true and correct as of the record date for the meeting and as of the date that is the later of 10 business days before the meeting or any adjournment or postponement thereof. Such update and supplement must be delivered personally or mailed to, and received at the principal office of the Corporation, addressed to the Secretary, by no later than five business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than seven business days before the date for the meeting (in the case of the update and supplement required to be made as of 10 business days before the meeting or any adjournment or postponement thereof).
(g) The foregoing notice requirements shall be deemed satisfied by a shareholder for an annual meeting if the shareholder has notified the Corporation of his or her intention to present a proposal at an annual meeting and such shareholders proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such annual meeting; provided , however , that if such shareholder does not appear or send a qualified representative to present such proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation; and provided , further , that the foregoing shall not imply any obligation beyond that required by applicable law to include a shareholders proposal in a proxy statement prepared by management of the Corporation. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 2.07.
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(h) The chairman of an annual meeting may refuse to permit any business to be brought before an annual meeting that fails to comply with this Section 2.07 or, in the case of a shareholder proposal, if the shareholder solicits proxies in support of such shareholders proposal without having made the representation required by Section 2.07(d)(7).
(i) The provisions of this Section 2.07 shall govern all business related to shareholder proposals at the annual meeting of the shareholders; provided that business related to the election or nomination of directors shall be governed by the provisions of Section 3.03 and not by this Section 2.07.
SECTION 2.08. List of Shareholders . It shall be the duty of the Secretary or other officer who has charge of the stock ledger to prepare and make, at least five days before each meeting of the shareholders, a complete list of the shareholders entitled to notice thereof, arranged, subject to applicable law, in alphabetical order by voting group (and within each voting group by class or series of shares), and showing the address of each shareholder and the number of shares registered in such shareholders name. Such list shall be produced and kept available at the times and places required by law.
SECTION 2.09. Voting .
(a) Except as otherwise provided by law or by the Articles, each shareholder of record of any series of Preferred Stock shall be entitled at each meeting of the shareholders to such number of votes, if any, for each share of such stock as may be fixed in the Articles or in the resolution or resolutions adopted by the Board providing for the issuance of such stock, and each shareholder of record of Common Stock shall be entitled at each meeting of the shareholders to one vote for each share of such stock, in each case, registered in such shareholders name on the books of the Corporation:
(1) on the date fixed pursuant to Section 7.06 as the record date for the determination of shareholders entitled to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the close of business on the day immediately before the day on which notice of such meeting is given, or, if notice is waived, at the close of business on the day immediately before the day on which the meeting is held.
(b) Each shareholder entitled to vote at any meeting of the shareholders may authorize a person to act for such shareholder by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated for holding such meeting, but in any event not later than the time designated in the order of business for so delivering such proxies. No such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period.
(c) Except as otherwise required by law and except as otherwise provided in the Articles or these By-laws, at each meeting of the shareholders, all corporate actions to be taken by vote of the shareholders shall be authorized by a majority of the votes cast by the shareholders entitled to vote thereon who are present in person or by proxy, and where a separate vote by class or series is required, a majority of the votes cast by the shareholders of such class or series who are present in person or by proxy shall be the act of such class or series.
(d) Unless required by law or determined by the chairman of the meeting to be advisable, the vote on any matter, including the election of directors, need not be by written ballot. Any written ballot shall be signed by the shareholder voting, or by such shareholders proxy, and shall state the number of shares voted.
SECTION 2.10. Inspectors . The chairman of the meeting shall appoint one or more inspectors to act at any meeting of the shareholders. Such inspectors shall perform such duties as shall be required by law or specified by the chairman of the meeting. Inspectors need not be shareholders. No director or nominee for the office of director shall be appointed such inspector.
ARTICLE III
Board of Directors
SECTION 3.01. General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Articles directed or required to be exercised or done by the shareholders.
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SECTION 3.02. Number, Term of Office, Qualification and Election .
(a) Number of Directors . Subject to the rights of holders of any outstanding series of Preferred Stock with respect to the election of directors, the number of directors of the Corporation shall be fixed from time to time by resolution adopted by the Board; provided , however , that a vote of the shareholders is required to increase or decrease the number of directors by more than 30% from the number last fixed by the shareholders. However, no decrease in the number of directors constituting the Board shall shorten the term of any incumbent director. Directors of the Corporation need not be shareholders.
(b) Term of Office . Directors, other than any who may be elected by the holders of any series of Preferred Stock pursuant to the provisions set forth in the Articles, shall hold office until the next annual meeting of the shareholders and until each of their successors shall have been duly elected and qualified.
(c) Director Qualification . Unless the Board determines otherwise, to be eligible to be a nominee for election or reelection as a director, a person must deliver (in accordance with the time periods prescribed for delivery of notice by the Board) to the Secretary at the principal office of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (i) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person will act or vote as a director on any issue or question (a Voting Commitment ) that has not been disclosed to the Corporation or (ii) any Voting Commitment that could limit or interfere with such persons ability to comply with such persons fiduciary duties as a director under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein and (C) in such persons individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading and other policies and guidelines of the Corporation that are applicable to directors.
(d) Election . Directors shall be elected in the manner provided in the Articles.
SECTION 3.03. Notification of Nominations . (a) Subject to the rights of the holders of any outstanding series of Preferred Stock, nominations for the election of directors may be made by (1) the Board or (2) by any shareholder who is a shareholder of record at the time of giving of the notice of nomination provided for in this Section 3.03 and who is entitled to vote for the election of directors.
(b) Subject to the rights of the holders of any outstanding series of Preferred Stock, any shareholder of record entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if timely written notice of such shareholders intent to make such nomination is given in proper written form to the Secretary. To be timely, a shareholders notice must be delivered to or mailed and received by the Secretary at the principal office of the Corporation (i) with respect to an election to be held at an annual meeting of the shareholders, not less than 90 days nor more than 120 days prior to the first anniversary of the date of the immediately preceding annual meeting; provided , however , that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting and the 10th day following the day on which public announcement of the date of such meeting is first made; and (ii) with respect to an election to be held at a special meeting of the shareholders for the election of directors, not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting and the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees to be elected at such meeting. In no event shall an adjournment or postponement, or public announcement of an adjournment or postponement, of an annual or special meeting commence a new time period (or extend any time period) for the giving of a shareholders notice as described in this Section 3.03.
(c) Each such notice shall set forth:
(1) the Shareholder Information with respect to such shareholder and any Shareholder Associated Persons and the name and address of the person or persons to be nominated;
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(2) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote in the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
(3) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;
(4) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the shareholder and any Shareholder Associated Person or any of their respective affiliates or associates or other parties with whom they are acting in concert, including all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the shareholder, Shareholder Associated Person or any person acting in concert therewith, were the registrant for purposes of such rule and each nominee were a director or executive of such registrant;
(5) such other information regarding each nominee proposed by such shareholder and Shareholder Associated Persons as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board and a completed signed questionnaire, representation and agreement required by Section 3.02(b);
(6) a representation as to whether such shareholder intends (a) to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporations outstanding capital stock required to approve the nomination or (b) otherwise to solicit proxies from shareholders in support of such nomination;
(7) a representation that the shareholders shall provide any other information reasonably requested by the Corporation; and
(8) the executed written consent of each nominee to serve as a director of the Corporation if so elected;
(d) Such shareholders shall also provide any other information reasonably requested by the Corporation within five business days after such request.
(e) In addition, such shareholders shall further update and supplement the information provided to the Corporation in the notice of nomination or upon the Corporations request pursuant to Section 3.03(d) as needed, so that such information shall be true and correct as of the record date for the meeting and as of the date that is 10 business days before the meeting or any adjournment or postponement thereof. Such update and supplement must be delivered personally or mailed to, and received at the principal office of the Corporation, addressed to the Secretary, by no later than five business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than seven business days before the date for the meeting (in the case of the update and supplement required to be made as of 10 business days before the meeting or any adjournment or postponement thereof).
(f) The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure or if the shareholder solicits proxies in favor of such shareholders nominee(s) without having made the representations required by Section 3.03(c)(6).
(g) If such shareholder does not appear or send a qualified representative to present such proposal at such meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation.
(h) Subject to the rights of the holders of any outstanding series of Preferred Stock, only such persons who are nominated in accordance with the procedures set forth in this Section 3.03 shall be eligible to serve as directors of the Corporation.
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(i) Notwithstanding anything in this Section 3.03 to the contrary, in the event that the number of directors to be elected to the Board at an annual meeting of the shareholders is increased and there is no public announcement naming all of the nominees for directors or specifying the size of the increased Board made by the Corporation at least 90 days prior to the first anniversary of the date of the immediately preceding annual meeting, a shareholders notice required by this Section 3.03 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to or mailed to and received by the Secretary at the principal office of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
SECTION 3.04. Quorum and Manner of Acting . Except as otherwise provided by law, the Articles or these By-laws, (i) a majority of the Whole Board (as defined below) shall constitute a quorum for the transaction of business at any meeting of the Board, and (ii) the affirmative vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The term Whole Board shall mean the total number of authorized directors pursuant to Section 3.02(a), whether or not there exist any vacancies on the Board.
SECTION 3.05. Place of Meetings . Subject to Sections 3.06 and 3.07, the Board may hold its meetings at such place or places within or outside of the Commonwealth of Kentucky as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.
SECTION 3.06. Regular Meetings . As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction of other business. Regular meetings of the Board shall be held at such times as the Board shall from time to time determine, at such locations as the Board may determine.
SECTION 3.07. Special Meetings . Special meetings of the Board shall be held whenever called by the Chairman of the Board, the President or by a majority of directors then in office, and shall be held at such place, on such date and at such time as he, she or they, as applicable, shall fix.
SECTION 3.08. Notice of Meetings . Notice of regular meetings of the Board or of any adjourned meeting thereof need not be given. Notice of each special meeting of the Board shall be given by overnight delivery service or mailed to each director, in either case addressed to such director at such directors residence or usual place of business, at least two days before the day on which the meeting is to be held or shall be sent to such director at such place by telecopy or by electronic transmission or shall be given personally or by telephone, not later than two days before the meeting is to be held, but notice need not be given to any director who shall, either before or after the meeting, submit a signed written waiver of such notice or who shall attend such meeting without protesting at the beginning of the meeting (or promptly upon such directors arrival) the lack of notice to such director.
SECTION 3.09. Rules and Regulations . The Board may adopt such rules and regulations not inconsistent with the provisions of law, the Articles or these By-laws for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper.
SECTION 3.10. Participation in Meeting by Means of Communications Equipment . Any one or more members of the Board or any committee thereof may participate in any meeting of the Board or of any such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other or as otherwise permitted by law, and such participation in a meeting shall constitute presence in person at such meeting.
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SECTION 3.11. Action Without Meeting . Any action required or permitted to be taken at any meeting of the Board or any committee thereof may be taken without a meeting if all of the members of the Board or of any such committee consent thereto in a signed writing describing the action to be taken and, if required by law, the writing or writings are filed with the minutes or proceedings of the Board or of such committee.
SECTION 3.12. Resignations . Any director of the Corporation may at any time resign by delivering written notice to the Board, the Chairman of the Board or the Corporation. Such resignation shall take effect at the time specified therein or, if the time be not specified therein, upon receipt thereof, and the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.13. Removal . Directors may only be removed in accordance with and in the manner provided in the Articles.
SECTION 3.14. Compensation . Each director, in consideration of such person serving as a director, shall be entitled to receive from the Corporation such amount per annum and such fees for attendance at meetings of the Board or of committees of the Board, or both, as the Board or a committee thereof shall from time to time determine. In addition, each director shall be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such persons duties as a director. Nothing contained in this Section 3.14 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving compensation therefor.
ARTICLE IV
Committees of the Board of Directors
SECTION 4.01. Establishment of Committees of the Board . The Board shall designate such committees as may be required by the rules of the New York Stock Exchange (or any other principal United States exchange upon which the shares of the Corporation may be listed) and may from time to time, by resolution adopted by a majority of the Board, designate other committees of the Board (including an executive committee), with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee.
SECTION 4.02. Conduct of Business . Any committee, to the extent allowed by law and provided in the resolution establishing such committee or the charter of such committee, shall have and may exercise all the duly delegated powers and authority of the Board in the management of the business and affairs of the Corporation. The Board shall have the power to prescribe the manner in which proceedings of any such committee shall be conducted. In the absence of any such prescription, any such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board or such committee shall otherwise provide, regular and special meetings and other actions of any such committee shall be governed by the provisions of Article IV applicable to meetings and actions of the Board. Each committee shall keep regular minutes and report on its actions to the Board.
ARTICLE V
Officers
SECTION 5.01. Number; Term of Office . (a) The officers of the Corporation shall be determined by the Board and, to the extent provided in Section 5.01(c), the Chairman of the Board, and may include a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (including, without limitation, Senior Vice Presidents) and a Treasurer, Secretary and Controller and such other officers and agents as the Board may appoint from time to time, each to have such authority, functions or duties as these By-laws provide or as may be delegated or assigned to such officer, from time to time, by the Board, the Chairman of the Board or the President. One person may hold the offices and perform the duties of any two or more of said officers; provided , however , that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Articles or these By-laws to be executed, acknowledged or verified by two or more officers. The Board may require any officer or agent to give security for the faithful performance of such persons duties. The Board shall designate which of the officers shall be executive officers of the Corporation.
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(b) Each officer shall be appointed by the Board at its annual meeting and hold office until the next annual meeting of the Board and until the officers successor is appointed or until the officers earlier death, resignation or removal in the manner hereinafter provided. If additional officers are appointed by the Board during the year, each of them shall hold office until the next annual meeting of the Board at which officers are regularly appointed and until the officers successor is appointed or until the officers earlier death, resignation or removal in the manner hereinafter provided.
(c) In addition to the foregoing, the Chairman of the Board, by written designation filed with the Secretary, may appoint one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Controllers and Assistant Auditors of the Corporation. If appointed during the year, each of them shall hold office until the next annual meeting of the Board at which officers are regularly appointed and until the officers successor is appointed or until the officers earlier death, resignation or removal in the manner hereinafter provided. Subject to the authority of the Board, the Chairman of the Board shall also have authority to fix the salary of such officer.
SECTION 5.02. Resignation; Removal; Vacancies . Any officer may resign at any time by delivering written notice to the Corporation, and such resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date. All officers and agents appointed shall be subject to removal at any time by the Board with or without cause. All appointed officers may be removed at any time by the Chairman of the Board acting jointly with the President or any Executive or Senior Vice President, by written designation filed with the Secretary. A vacancy in any office may be filled for the unexpired portion of the term in the same manner as provided for appointment to such office.
SECTION 5.03. Chairman of the Board . The Chairman of the Board, if present, shall preside at all meetings of the shareholders and the Board. If designated by Board resolution, the Chairman of the Board shall be Chief Executive Officer of the Corporation, and if so designated, shall be vested with executive control and management of the business and affairs of the Corporation and have the direction of all other officers, agents and employees. The Chairman of the Board shall perform all such other duties as are incident to the office or as may be properly required of the Chairman of the Board by the Board, subject in all matters to the control of the Board.
SECTION 5.04. President . The President, in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and the Board. If designated by Board resolution, the President shall be Chief Executive Officer of the Corporation, and if so designated, shall be vested with executive control and management of the business and affairs of the Corporation and have the direction of all other officers, agents and employees. The President shall have such powers, authority and duties as may be delegated or assigned to the President from time to time by the Board or the Chairman of the Board.
SECTION 5.05. Vice Presidents . The Executive Vice Presidents, Senior Vice Presidents, Administrative Vice Presidents and Vice Presidents shall have such powers, authority and duties as may be delegated or assigned to them from time to time by the Board, the Chairman of the Board or the President. An Administrative Vice President or Vice President need not be an officer of the Corporation and shall not be deemed an officer of the Corporation unless designated as such by the Board, the Chairman of the Board or the President.
SECTION 5.06. Treasurer . The Treasurer shall have custody and control of the funds and securities of the Corporation and shall perform all such other duties as are incident to the office of the Treasurer or that may be properly required of the Treasurer by the Board, the Chairman of the Board or the President.
SECTION 5.07. Controller . The Controller shall maintain adequate records of all assets, liabilities and transactions of the Corporation; shall see that adequate audits thereof are currently and regularly made; shall have general supervision of the preparation of the Corporations balance sheets, income accounts and other financial statements or records; and shall perform such other duties as shall, from time to time, be assigned to him, by the Board, the Chairman of the Board or the President. Unless otherwise provided by the Board, the Chairman of the Board or the President, these duties and powers shall extend to all subsidiary corporations and, so far as the Board, the Chairman of the Board or the President may deem practicable, to all affiliated corporations.
SECTION 5.08. Secretary . The Secretary shall attend to the giving and serving of all notices required by law or these By-laws, shall be the custodian of the corporate seal and shall affix and attest the same to all papers requiring it; shall have responsibility for preparing minutes of the meetings of the Board and shareholders; shall have responsibility for authenticating records of the Corporation; and shall in general perform all the duties incident to the office of the Secretary, subject in all matters to the control of the Board.
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SECTION 5.09. Auditor . The Auditor shall review the accounting, financial and related operations of the Corporation and shall be responsible for measuring the effectiveness of various controls established for the Corporation. The Auditors duties shall include, without limitation, the appraisal of procedures, verifying the extent of compliance with formal controls and the prevention and detection of fraud or dishonesty and such other duties as shall, from time to time, be assigned to the Auditor by the Board, the Chairman of the Board or the President. Unless otherwise provided by the Board, the Chairman of the Board or the President, these duties and powers shall extend to all subsidiary corporations and, so far as the Board, the Chairman of the Board or the President may deem practicable, to all affiliated corporations.
SECTION 5.10. Assistant Treasurers, Assistant Controllers and Assistant Secretaries . Any Assistant Treasurers, Assistant Controllers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Board or by the Treasurer, Controller or Secretary, respectively, or by the Chief Executive Officer.
SECTION 5.11. General Provision . The powers, authorities and duties established pursuant to this Article V may be delegated or assigned, directly or indirectly, by the Board, the Chairman of the Board or the President, as the case may be.
ARTICLE VI
Indemnification
SECTION 6.01. Right to Indemnification . The Corporation, to the fullest extent permitted or required by the KBCA or other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment and unless applicable law otherwise requires, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), shall indemnify and hold harmless any person who is or was a director or officer of the Corporation and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, any action, suit or proceedings by or in the right of the Corporation to procure a judgment in its favor) (a Proceeding ) by reason of the fact that such 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 corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) (a Covered Entity ) against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding; provided , however , that, except as required by law, the foregoing shall not apply to a director or officer of the Corporation with respect to a Proceeding that was commenced by such director or officer unless the proceeding was commenced after a Change in Control (as defined below). Any director or officer of the Corporation entitled to indemnification as provided in this Section 6.01 is hereinafter called an Indemnitee . Any right of an Indemnitee to indemnification shall be a contract right and shall, unless determined by the Corporation to not be in its best interest, include the right to receive payment in advance of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of the KBCA or other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment and unless applicable law otherwise requires, only to the extent that such amendment permits the Corporation to provide broader rights to payment of expenses than such law permitted the Corporation to provide prior to such amendment), and the other provisions of this Article VI; provided that, if required by law or by the Corporation in its discretion, the Corporation receive an undertaking to repay such amount if it is ultimately determined that the Indemnitee is not entitled to be indemnified.
For purposes of this Section 6.01, Change in Control means the occurrence of any of the following: (i) any merger or consolidation of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporations Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporations Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Corporation, or the liquidation or dissolution of the Corporation or (iii) individuals who would constitute a majority of the members of the Board elected at any meeting of shareholders or by written consent (without regard to any members of the Board elected pursuant to the terms of any series of Preferred Stock) shall be elected to the Board and the election or the nomination for election by the shareholders of such directors was not approved by a vote of at least two-thirds of the directors in office immediately prior to such election.
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SECTION 6.02. Insurance, Contracts and Funding . The Corporation may purchase and maintain insurance to protect itself and any director, officer, employee or agent of the Corporation or of any Covered Entity against any expenses, judgments, fines and amounts paid in settlement as specified in Section 6.01 of this Article VI or incurred by any such director, officer, employee or agent in connection with any Proceeding referred to in Section 6.01 of this Article VI, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the KBCA. The Corporation may enter into contracts with any director, officer, employee or agent of the Corporation or of any Covered Entity in furtherance of the provisions of this Article VI and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided or authorized in this Article VI.
SECTION 6.03. Indemnification Not Exclusive Right . The right of indemnification provided in this Article VI shall not be exclusive of any other rights to which an Indemnitee may otherwise be entitled, and the provisions of this Article VI shall inure to the benefit of the heirs and legal representatives of any Indemnitee under this Article VI and shall be applicable to Proceedings commenced or continuing after the adoption of this Article VI, whether arising from acts or omissions occurring before or after such adoption.
SECTION 6.04. Severability . If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or enforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 6.05. Indemnification of Employees Serving as Directors . The Corporation, to the fullest extent of the provisions of this Article VI with respect to the indemnification of directors and officers of the Corporation, may indemnify any person who is or was an employee of the Corporation or of any entity in which the Corporation, directly or indirectly, has an interest and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such employee is or was serving (a) as a director of a corporation in which the Corporation had at the time of such service, directly or indirectly, a 50% or greater equity interest (a Subsidiary Director ) or (b) at the written request of an Authorized Officer, as a director of another corporation in which the Corporation had at the time of such service, directly or indirectly, a less than 50% equity interest (or no equity interest at all) or in a capacity equivalent to that of a director for any partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) in which the Corporation has an interest (a Requested Employee ), against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Subsidiary Director or Requested Employee in connection with such Proceeding. The Corporation, to the fullest extent of the provisions of this Article VI with respect to the advancement of expenses of directors and officers of the Corporation, may also advance expenses incurred by any such Subsidiary Director or Requested Employee in connection with any such Proceeding, consistent with the provisions of this Article VI with respect to the advancement of expenses of directors and officers of the Corporation.
For purposes of this Section 6.05, Authorized Officer means any one of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, any Vice President that is an officer of the Corporation or the Secretary.
SECTION 6.06. Indemnification of Employees and Agents . Notwithstanding any other provision or provisions of this Article VI, the Corporation, to the fullest extent of the provisions of this Article VI with respect to the indemnification of directors and officers of the Corporation, may indemnify any person other than a director or officer of the Corporation, a Subsidiary Director or a Requested Employee, who is or was an employee or agent of the Corporation or of any entity in which the Corporation, directly or indirectly, has an interest and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed Proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, a Covered Entity, or of any entity in which the Corporation, directly or indirectly, has an interest, against all expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. The Corporation may also advance expenses incurred by such employee or agent in connection with any such Proceeding, consistent with the provisions of this Article VI with respect to the advancement of expenses of directors and officers of the Corporation.
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ARTICLE VII
Capital Stock
SECTION 7.01. Certificates for Shares and Uncertificated Shares . (a) The shares of stock of the Corporation shall be uncertificated shares that may be evidenced by a book-entry system maintained by the registrar of such stock, or shall be represented by certificates, or a combination of both. To the extent that shares are represented by certificates, such certificates whenever authorized by the Board shall be in such form as shall be approved by the Board. The certificates representing shares of stock of each class shall be signed by, or in the name of, the Corporation by the Chairman of the Board, the President, or by any Vice President, and by the Secretary or any Assistant Secretary, and sealed with the seal of the Corporation, which may be a facsimile thereof. Any or all such signatures may be facsimiles if countersigned by a transfer agent or registrar. Although any officer, transfer agent or registrar whose manual or facsimile signature is affixed to such a certificate ceases to be such officer, transfer agent or registrar before such certificate has been issued, it may nevertheless be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still such at the date of its issue. In the event that the Corporation issues or transfers shares without certificates, within a reasonable time after such issuance or transfer, the Corporation shall send the shareholder a written statement of the information required by the KBCA to be stated on a share certificate.
(b) The stock ledger and blank share certificates, if any, shall be kept by the Secretary or by a transfer agent or by a registrar or by any other officer or agent designated by the Board.
SECTION 7.02. Transfer of Shares . Transfers of shares of stock of each class of the Corporation shall be made only on the books of the Corporation upon authorization by the registered holder thereof, or by such holders attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary or a transfer agent for such stock, if any, and if such shares are represented by a certificate, upon surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power (or by proper evidence of succession, assignment or authority to transfer) and the payment of any taxes thereon; provided , however , that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. To the fullest extent permitted by law, the person in whose name shares are registered on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 7.03. Registered Shareholders and Addresses of Shareholders . The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock 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 Kentucky.
SECTION 7.04. Lost, Destroyed and Mutilated Certificates . The holder of any certificate representing any shares of stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of such certificate. The Corporation may issue to such holder a new certificate or certificates for shares, upon the surrender of the mutilated certificate or, in the case of loss, theft or destruction of the certificate, upon satisfactory proof of such loss, theft or destruction. The Board, or a committee designated thereby, or the transfer agents and registrars for the stock, may, in their discretion, require the owner of the lost, stolen or destroyed certificate, or such persons legal representative, to give the Corporation a bond in such sum and with such surety or sureties as they may direct to indemnify the Corporation and said transfer agents and registrars against any claim that may be made on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
SECTION 7.05. Regulations . The Board may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of stock of each class of the Corporation and may make such rules and take such action as it may deem expedient concerning the issue of certificates in lieu of certificates claimed to have been lost, destroyed, stolen or mutilated.
SECTION 7.06. Fixing Date for Determination of Shareholders of Record . (a) In order that the Corporation may determine the shareholders entitled to notice of any meeting of the shareholders or any adjournment thereof, 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 may fix, in advance, a record date, which shall not be more than 70 nor less than 10 days before the date of such meeting nor more than 70 days prior to any such other action (as the case may be).
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(b) A determination of shareholders entitled to notice of or to vote at a meeting of the shareholders shall apply to any adjournment of the meeting; provided , however , that the Board shall fix a new record date for the adjourned meeting if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.
SECTION 7.07. Transfer Agents and Registrars . The Board may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
ARTICLE VIII
Miscellaneous
SECTION 8.01. Seal . The Board shall provide a suitable corporate seal, which shall bear, but not be limited to, the full name of the Corporation and shall be in the charge of the Secretary. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.02. Fiscal Year . The fiscal year of the Corporation shall begin on the first day of October in each year.
SECTION 8.03. Waiver of Notice . Whenever any notice whatsoever is required to be given by these By-laws, by the Articles or by law, the person entitled thereto may, either before or after the meeting or other matter in respect of which such notice is to be given, waive such notice in a signed writing or as otherwise permitted by law, which shall be filed with or entered upon the minutes of the meeting or the corporate records kept with respect to such other matter, as the case may be, and in such event such notice need not be given to such person and such waiver shall be deemed equivalent to such notice. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice other than in the case of attendance for the express purpose of objecting at the beginning of the meeting (or promptly upon such persons arrival) to the transaction of business because the meeting is not lawfully called or convened.
SECTION 8.04. Execution of Documents . The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, notes, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize (including authority to redelegate) to other officers, employees or agents of the Corporation. Such delegation may be by resolution or otherwise and the authority granted shall be general or confined to specific matters, all as the Board or any such committee may determine. In the absence of such designation, the officers of the Corporation shall have such power so referred to, to the extent incident to the normal performance of their duties.
SECTION 8.05. Deposits . All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or any committee thereof or any officer of the Corporation to whom power in respect of financial operations shall have been delegated by the Board or any such committee or in these By-laws shall select.
SECTION 8.06. Checks . All checks, drafts and other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed on behalf of the Corporation in such manner as shall from time to time be determined by resolution of the Board or of any committee thereof or by any officer of the Corporation to whom power in respect of financial operations shall have been delegated by the Board or any such committee thereof or as set forth in these By-laws.
SECTION 8.07. Proxies in Respect of Stock or Other Securities of Other Corporations . The Board shall designate the officers of the Corporation who shall have authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation or other entity, and to vote or consent in respect of such stock or securities; such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise its said powers and rights.
14
SECTION 8.08. Subject to Law and the Articles of Incorporation . All powers, duties and responsibilities provided for in these By-laws, whether or not explicitly so qualified, are qualified by the provisions of the Articles and applicable law.
ARTICLE IX
Amendments
SECTION 9.01. Subject to the KBCA and the Articles, these By-laws may be altered, amended or repealed, in whole or in part, or new By-laws may be adopted by the Board at any meeting thereof; provided , however , that notice of such alteration, amendment, repeal or adoption of new By-laws is contained in the notice of such meeting of the Board and such notice is given not less than twenty-four hours prior to the meeting. Unless a higher percentage is required by the Articles, any such alteration, amendment, repeal or adoption of any By-law shall require approval by a majority of the Board. The shareholders of the Corporation shall have the power to alter, amend, repeal or adopt any By-law only to the extent and in the manner provided in the Articles and only to the extent permitted by law.
15
Exhibit 4.1
Exhibit 5.1
Dinsmore & Shohl LLP
350 West Main Street, Suite 1400
Lexington, KY 40507
September 12, 2016
Valvoline Inc.
3499 Blazer Parkway
Lexington, KY 40509
Ladies and Gentlemen:
We have acted as counsel for Valvoline Inc., a Kentucky corporation (the Company ), in connection with the registration statement on Form S-1 (Registration No. 333-211720) (the Registration Statement ), filed with the Securities and Exchange Commission (the Commission ) under the Securities Act of 1933, as amended (the Securities Act ), with respect to (i) the registration of the offer and sale of up to 30,000,000 shares of common stock, par value $0.01 per share, of the Company (the Shares ), and (ii) the registration offer and sale by the Company of up to 4,500,000 additional shares of the Companys common stock (the Additional Shares ); in each case to the underwriters (the Underwriters ), if the Underwriters exercise their option to acquire the Additional Shares, pursuant to the terms of the underwriting agreement (the Underwriting Agreement ) to be executed by the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC, as representatives of the Underwriters.
In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for the purposes of this opinion, including, without limitation: (a) the Amended and Restated Articles of Incorporation of the Company; (b) the By-laws of the Company; and (c) certain resolutions adopted by the Board of Directors of the Company.
In rendering our opinion, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. As to all questions of fact material to this opinion that have not been independently established, we have relied upon certificates or comparable documents of officers and representatives of the Company.
Based on the foregoing and in reliance thereon, we are of the opinion that the Shares and the Additional Shares have been duly authorized on the part of the Company and, when issued and delivered by the Company and paid for by the Underwriters pursuant to the Underwriting Agreement, will be validly issued, fully paid and non-assessable so long as the consideration paid therefore is no less than the consideration authorized by the directors.
We are admitted to practice in the Commonwealth of Kentucky, and we express no opinion as to matters governed by any laws other than the laws of the Commonwealth of Kentucky.
We hereby consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. We also consent to the reference to our firm in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission.
Very truly yours,
/s/ Dinsmore & Shohl LLP
Exhibit 10.1
FORM OF
SEPARATION AGREEMENT
by and between
ASHLAND GLOBAL HOLDINGS INC.
and
VALVOLINE INC.
Dated as of [DATE], 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
Definitions | ||||||
SECTION 1.01. |
Definitions |
2 | ||||
ARTICLE II | ||||||
The Separation | ||||||
SECTION 2.01. |
Transfer of Assets and Assumption of Liabilities |
22 | ||||
SECTION 2.02. |
Certain Matters Governed Exclusively by Ancillary Agreements |
24 | ||||
SECTION 2.03. |
Termination of Intercompany Agreements and Intercompany Accounts |
25 | ||||
SECTION 2.04. |
Shared Contracts |
26 | ||||
SECTION 2.05. |
Disclaimer of Representations and Warranties |
26 | ||||
SECTION 2.06. |
Conveyancing and Assumption Instruments |
27 | ||||
ARTICLE III | ||||||
Credit Support | ||||||
SECTION 3.01. |
Replacement of Credit Support |
27 | ||||
ARTICLE IV | ||||||
Actions Pending the Separation | ||||||
SECTION 4.01. |
Actions Prior to the Separation |
28 | ||||
SECTION 4.02. |
Conditions Precedent to Consummation of the Separation |
29 | ||||
SECTION 4.03. |
Separation Date |
30 | ||||
SECTION 4.04. |
Sole Discretion of Ashland Global |
30 | ||||
ARTICLE V | ||||||
The IPO; Distribution | ||||||
SECTION 5.01. |
The Initial Public Offering |
30 | ||||
SECTION 5.02. |
The Distribution or Other Disposition |
30 |
ARTICLE VI | ||||||
Mutual Releases; Indemnification | ||||||
SECTION 6.01. |
Release of Pre-Separation Claims |
31 | ||||
SECTION 6.02. |
Indemnification by Valvoline |
33 | ||||
SECTION 6.03. |
SECTION 6.03. Indemnification by Ashland Global |
34 | ||||
SECTION 6.04. |
SECTION 6.04. Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds |
34 | ||||
SECTION 6.05. |
SECTION 6.05. Procedures for Indemnification of Third-Party Claims |
35 | ||||
SECTION 6.06. |
SECTION 6.06. Additional Matters |
36 | ||||
SECTION 6.07. |
Remedies Cumulative |
37 | ||||
SECTION 6.08. |
Survival of Indemnities |
37 | ||||
SECTION 6.09. |
Limitation on Liability |
37 | ||||
ARTICLE VII | ||||||
Access to Information; Confidentiality | ||||||
SECTION 7.01. |
Agreement for Exchange of Information; Archives |
38 | ||||
SECTION 7.02. |
Ownership of Information |
39 | ||||
SECTION 7.03. |
Compensation for Providing Information |
39 | ||||
SECTION 7.04. |
Record Retention |
39 | ||||
SECTION 7.05. |
Accounting Information |
39 | ||||
SECTION 7.06. |
Limitations of Liability |
41 | ||||
SECTION 7.07. |
Production of Witnesses; Records; Cooperation |
41 | ||||
SECTION 7.08. |
Confidential Information |
42 | ||||
ARTICLE VIII | ||||||
Insurance | ||||||
SECTION 8.01. |
Insurance |
43 | ||||
SECTION 8.02. |
Director and Officer Liability Insurance |
47 | ||||
ARTICLE IX | ||||||
Intellectual Property | ||||||
SECTION 9.01. |
Consent To Use Intellectual Property And Duty To Cooperate |
48 | ||||
SECTION 9.02. |
Trade Secrets |
51 | ||||
SECTION 9.03. |
Intellectual Property Cross License |
52 | ||||
SECTION 9.04. |
Scope |
52 | ||||
SECTION 9.05. |
Licenses; Assignments |
52 |
ii
ARTICLE X | ||||||
Further Assurances and Additional Covenants | ||||||
SECTION 10.01. |
Further Assurances |
53 | ||||
ARTICLE XI | ||||||
Termination | ||||||
SECTION 11.01. |
Termination |
54 | ||||
SECTION 11.02. |
Effect of Termination |
54 | ||||
ARTICLE XII | ||||||
Miscellaneous | ||||||
SECTION 12.01. |
Counterparts; Entire Agreement; Corporate Power |
54 | ||||
SECTION 12.02. |
Governing Law; Dispute Resolution; Jurisdiction |
55 | ||||
SECTION 12.03. |
Assignability |
55 | ||||
SECTION 12.04. |
Third-Party Beneficiaries |
56 | ||||
SECTION 12.05. |
Notices |
56 | ||||
SECTION 12.06. |
Severability |
57 | ||||
SECTION 12.07. |
Publicity |
57 | ||||
SECTION 12.08. |
Expenses |
57 | ||||
SECTION 12.09. |
Headings |
57 | ||||
SECTION 12.10. |
Survival of Covenants |
57 | ||||
SECTION 12.11. |
Waivers of Default |
58 | ||||
SECTION 12.12. |
Specific Performance |
58 | ||||
SECTION 12.13. |
Amendments |
58 | ||||
SECTION 12.14. |
Interpretation |
58 | ||||
SECTION 12.15. |
Waiver of Jury Trial |
58 |
Schedule I | - | Ashland Global Retained Assets | ||
Schedule II | - | Ashland Global Retained Liabilities | ||
Schedule III | - | Valvoline Equity Interests | ||
Schedule IV | - | Valvoline Assets | ||
Schedule V | - | Valvoline Liabilities | ||
Schedule VI | - | Shared Contracts | ||
Schedule VII | - | Fees and Expenses | ||
Schedule VIII | - | Intercompany Agreements and Intercompany Accounts | ||
Schedule IX | - | Valvoline Environmental Liabilities | ||
Exhibit A | Form of Registration Rights Agreement | |||
Exhibit B | Restructuring Step Plan |
iii
SEPARATION AGREEMENT dated as of [DATE], 2016, by and between ASHLAND GLOBAL HOLDINGS INC., a Delaware corporation ( Ashland Global ) and parent of Ashland LLC , and VALVOLINE INC., a Kentucky corporation ( Valvoline ). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof.
R E C I T A L S
WHEREAS Ashland LLC, a Kentucky limited liability company ( Ashland LLC ), which prior to the effectiveness of this Agreement existed as a Kentucky corporation under the name Ashland Inc., acting through itself and its direct and indirect Subsidiaries, currently conducts the Ashland Global Business and the Valvoline Business;
WHEREAS the board of directors of Ashland Inc. (as predecessor to Ashland LLC) determined to separate Ashland LLC into two independent, publicly traded companies: (a) Ashland Global, which following the Separation will own and conduct, directly and indirectly, the Ashland Global Business, and (b) Valvoline, which following the Separation will own and conduct, directly and indirectly, the Valvoline Business;
WHEREAS in connection with the Separation, Ashland LLC has become a wholly owned subsidiary of Ashland Global and, prior to the conversion to a limited liability company, the shareholders of Ashland Inc. have received shares of Ashland Global Common Stock in exchange for their Ashland Inc. shares;
WHEREAS the board of directors of Ashland Global has determined in connection with the Separation, on the terms contemplated hereby, to cause Valvoline to offer and sell for its own account in the Initial Public Offering a limited number of shares of Valvoline Common Stock;
WHEREAS after the Initial Public Offering, (i) Ashland Global may transfer shares of Valvoline Common Stock to stockholders of Ashland Global by means of one or more distributions by Ashland Global to its stockholders of shares of Valvoline Common Stock, one or more offers to stockholders of Ashland Global to exchange their Ashland Global Common Stock for shares of Valvoline Common Stock, or any combination thereof (the Distribution ) or (ii) alternatively, Ashland Global may effect a disposition of its Valvoline Common Stock pursuant to one or more public or private offerings or other similar transactions ( Other Disposition ) or Ashland Global (or other permitted transferees) may continue to hold its interest in shares of Valvoline Common Stock;
WHEREAS this Agreement is intended to be, and is hereby adopted as, a plan of reorganization within the meaning of Section 1.368-2(g) of the Regulations;
WHEREAS for U.S. federal income tax purposes, the Distribution, if effected, is intended to qualify as a tax-free distribution under Section 355 of the Code; and
WHEREAS it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Initial Public Offering and certain other agreements that will govern certain matters relating to the Separation, the Initial Public Offering and the Distribution or the Other Disposition, as applicable, and the relationship of Ashland Global, Valvoline and their respective Subsidiaries following the Separation.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. For the purposes of this Agreement, the following terms shall have the following meanings:
Action means any claim, demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any Governmental Authority or any Federal, state, local, foreign or international arbitration or mediation tribunal.
Additional Pre-IPO Restructuring Transactions means all of the transactions described in the Step Plan that occur after the Internal Transactions (defined below) but prior to the Initial Public Offering.
Affiliate of any Person means a Person that controls, is controlled by or is under common control with such Person. As used herein, control of any entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise; provided , however , that (i) Valvoline and the other members of the Valvoline Group shall not be considered Affiliates of Ashland Global or any of the other members of the Ashland Global Group and (ii) Ashland Global and the other members of the Ashland Global Group shall not be considered Affiliates of Valvoline or any of the other members of the Valvoline Group.
Agreement means this Separation Agreement, including the Schedules hereto.
Ancillary Agreements means the TSA, the RTSA, the TMA, the EMA, the IPA, the SERLA and any Conveyancing and Assumption Instruments executed in connection with the implementation of the transactions contemplated by this Agreement.
Asbestos Liability means any Ashland Global Asbestos Legacy Liability, any Ashland Global Asbestos Liability or any Valvoline Asbestos Liability.
Ashland Corporate Employee means any employee who (a) was not, at any time during the period between August 1, 2016 and the Separation Date, an employee of the Valvoline Group or expected to become an employee of the Valvoline Group in connection with the Initial Public Offering, (b) was not, at the time of the events or circumstances giving rise to the applicable Legacy Claim, a former employee who provided substantially all of his or her
2
services to the Valvoline Business or any terminated, divested or discontinued businesses or operations of the Valvoline Business and (c) does not, or did not at the time of the events or circumstances giving rise to the applicable Legacy Claim, provide substantially all of his or her services to the Ashland Specialty Ingredients business, the Ashland Performance Materials business or any terminated, divested or discontinued businesses or operations of such businesses.
Ashland Global has the meaning set forth in the preamble.
Ashland Global Asbestos Liability means any Liability to the extent, and only to the extent, such Liability arises from or relates to the actual or alleged (a) exposure of any person to any asbestos actually or allegedly contained in or comprising any product, merchandise, manufactured good, part, component or other item manufactured, produced, sold, distributed, conveyed or placed in the stream of commerce, in each case, after the Separation Date by any member of the Ashland Global Group or in connection with any businesses or operations of the Ashland Global Business, or (b) exposure of any person, after the Separation Date, to asbestos actually or allegedly contained in or comprising any building material, equipment or other asset, facility or real property then owned, leased or operated by any member of the Ashland Global Group or in connection with any businesses or operations of the Ashland Global Business.
Ashland Global Asbestos Legacy Liability means any Liability to the extent, and only to the extent, such Liability arises from or relates to the actual or alleged (a) exposure of any person to any asbestos actually or allegedly contained in or comprising any product, merchandise, manufactured good, part, component or other item manufactured, produced, sold, distributed, conveyed or placed in the stream of commerce, in each case, prior to or on the Separation Date (i) by any member of either the Ashland Global Group or the Valvoline Group (or by any of their respective predecessors in interest, including Ashland LLC or any Person that was a Subsidiary of Ashland LLC before giving effect to the Separation) or (ii) in connection with any existing, terminated, divested or discontinued businesses or operations of the Ashland Global Business or the Valvoline Business, or (b) exposure of any person, prior to or on the Separation Date, to asbestos actually or allegedly contained in or comprising any building material, equipment or other asset, facility or real property then owned, leased or operated (i) by any member of either the Ashland Global Group or the Valvoline Group (or by any of their respective predecessors in interest, including Ashland LLC or any Person that was a Subsidiary of Ashland LLC before giving effect to the Separation) or (ii) in connection with any existing, terminated, divested or discontinued businesses or operations of the Ashland Global Business or the Valvoline Business, except in each of (a) and (b), to the extent any such Liability is subject to, or is barred or covered by, workers compensation, disability or other insurance providing medical care and/or compensation to injured workers, which Liability shall be deemed a Legacy Claim.
Ashland Global Assets means (i) all Assets of the Ashland Global Group, (ii) the Ashland Global Retained Assets, (iii) any Assets held by a member of the Valvoline Group determined by Ashland Global, in good faith, to be primarily related to or used primarily in connection with the business or operations of the Ashland Global Business, (iv) all interests in the capital stock, or other equity interests in, the members of the Ashland Global Group (other than Ashland Global) and (v) the rights related to the Ashland Global Portion of any Shared
3
Contract. Notwithstanding the foregoing, the Ashland Global Assets shall not include (a) any Assets governed by the TMA, (b) the Valvoline Assets and (c) any Assets required by Valvoline to perform its obligations under the RTSA.
Ashland Global Business means the business and operations conducted by Ashland Global and its Subsidiaries other than the Valvoline Business.
Ashland Global Common Stock means the common stock, $0.01 par value per share, of Ashland Global.
Ashland Global Credit Support Instruments has the meaning set forth in Section 3.01(a).
Ashland Global Disclosure Sections means all material set forth in, or incorporated by reference into, the IPO Registration Statement or the Valvoline Offering Memorandum to the extent relating exclusively to (i) the Ashland Global Group, (ii) the Ashland Global Business, (iii) Ashland Globals intentions with respect to any Distribution, or (iv) the terms of the Distribution, including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing of and conditions to the consummation of the Distribution.
Ashland Global Environmental Liabilities means, without duplication, the following Environmental Liabilities:
(a) all Environmental Liabilities, known or unknown, and whether arising or relating to events, conduct or conditions occurring prior to, on or after the Separation Date, to the extent such Liability arises from or relates to:
(i) the Ashland Global Assets;
(ii) the operation or conduct of the Ashland Global Business (or any other business conducted by Ashland Global or any other member of the Ashland Global Group at any time after the Separation) or any member of the Ashland Global Group (or any of their respective predecessors in interest);
(iii) any Asset that was formerly owned, leased or operated in connection with the Ashland Global Business or by any member of the Ashland Global Group (or any of their respective predecessors in interest);
(iv) the operation or conduct of any business or operation that was discontinued, divested or terminated (in whole or in part) from or in connection with the Ashland Global Business or by any member of the Ashland Global Group (or any of their respective predecessors in interest); or
(v) any Release of Hazardous Material, including any off-site migration of any Hazardous Material prior to, on or after the Separation Date, at, under, to or from any Off-Site Location, to the extent such Liability arises from or relates to the operation or conduct of the Ashland Global Business or to any member of the Ashland Global Group
4
(or any of their respective predecessors in interest), and any Action or Third-Party Claim related thereto, whether or not a notice of potential responsibility, notice of claim or other communication has been received by any Person as of the Separation Date;
(b) Ashland Globals proportionate share of any Shared Environmental Remediation Liabilities, as further set forth in the SERLA; and
(c) all Environmental Liabilities arising out of or relating to compliance with any property transfer laws applicable to any of the Ashland Global Assets as the result of or in connection with the Separation.
Notwithstanding the foregoing, for purposes of the definition of Ashland Global Environmental Liabilities, the terms member of the Ashland Global Group or predecessor in interest shall not include Ashland LLC (or any Person that was a Subsidiary of Ashland LLC before giving effect to the Separation) on behalf of, or in connection with, the ownership or operation of the Valvoline Business or any discontinued, divested or terminated businesses or operations of the Valvoline Business, the Valvoline Group or the Valvoline Entities. For the avoidance of doubt, Ashland Global Environmental Liabilities shall not include any Valvoline Environmental Liabilities.
Ashland Global Group means Ashland Global and each Person that will be a Subsidiary of Ashland Global after giving effect to the Separation, but excluding any member of the Valvoline Group and the Valvoline Entities.
Ashland Global Indemnitees has the meaning set forth in Section 6.02.
Ashland Global IP means the Intellectual Property included in the Ashland Global Assets.
Ashland Global Insurance Policies means any and all policies of insurance except D&O Insurance Policies, current or past, which are or at any time were maintained by or on behalf of or for the benefit or protection of Ashland Global (or its respective predecessors in interest, including Ashland LLC or any Person that was a Subsidiary of Ashland LLC before giving effect to the Separation) and its Subsidiaries, including, without limitation, property and liability insurance policies, but excluding the Valvoline Insurance Policies.
Ashland Global Legacy Claims means:
(a) all Legacy Claims associated with Ashland Inc.s Specialty Ingredients business or Performance Materials business as such businesses were constituted as of August 1, 2016 or any time thereafter, wherever arising, including any Legacy Claim brought by any individual who provided substantially all of his or her services to either such business at the time of the events or circumstances giving rise to such Legacy Claim, but excluding any Legacy Claim brought by any Ashland Corporate Employee;
(b) all Legacy Claims asserted by any individual who was an Ashland Corporate Employee as of August 1, 2016 or at any time thereafter on or prior to the Separation Date, wherever arising;
5
(c) any Legacy Claims asserted in a jurisdiction outside of the United States by any individual who was an Ashland Corporate Employee at any time prior to, but not including, August 1, 2016;
(d) any Legacy Claims asserted in a jurisdiction outside of the United States and associated with any terminated, divested or discontinued businesses or operations of the Ashland Global Group (other than the Valvoline Business and any terminated, divested or discontinued businesses or operations of the Valvoline Business), including any Legacy Claim brought by any individual who provided substantially all of his or her services to any such business at the time of the events or circumstances giving rise to such Legacy Claim; or
(e) any Legacy Claims that are actively managed on the books of Ashmont Insurance Company, Inc. as of June 30, 2016.
Ashland Global Liabilities means, without duplication, the following Liabilities:
(a) all Liabilities of the Ashland Global Group;
(b) all Liabilities to the extent relating to, arising out of or resulting from:
(i) the operation or conduct of the Ashland Global Business as conducted at any time prior to the Separation (including any Liability to the extent relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority), which act or failure to act relates to the Ashland Global Business);
(ii) the operation or conduct of the Ashland Global Business or any other business conducted by Ashland Global or any other member of the Ashland Global Group at any time after the Separation (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority));
(iii) any terminated, divested or discontinued businesses or operations of the Ashland Global Business (other than the Valvoline Business, the Valvoline Group, the Valvoline Entities and any terminated, divested or discontinued businesses or operations of the Valvoline Business); or
(iv) the Ashland Global Assets (other than the Capital Stock and other equity interests, direct or indirect, of any member of the Valvoline Group);
(c) the Ashland Global Retained Liabilities;
(d) any obligations related to the Ashland Global Portion of any Shared Contract;
(e) all Ashland Global Environmental Liabilities;
6
(f) all other Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (except the TMA) as Liabilities to be assumed or retained by, or allocated to, any member of the Ashland Global Group;
(g) all Ashland Global Asbestos Liabilities and Ashland Global Asbestos Legacy Liabilities;
(h) any Liabilities determined by Ashland Global, in good faith, to be primarily related to the business or operations of the Ashland Global Business (unless otherwise expressly provided in this Agreement); and
(i) all Ashland Global Legacy Claims.
Notwithstanding the foregoing, the Ashland Global Liabilities shall not include (x) any Liabilities governed by the TMA or (y) any Valvoline Liabilities.
Ashland Global Portion has the meaning set forth in Section 2.04.
Ashland Global Retained Assets means the Assets to be retained by the Ashland Global Group set forth on Schedule I.
Ashland Global Retained Liabilities means the Liabilities to be retained by the Ashland Global Group set forth on Schedule II.
Ashland Global Tax Opinions has the meaning set forth in the TMA.
Ashland LLC has the meaning set forth in the Recitals to this Agreement.
Ashland LLC Contribution has the meaning set forth in the Step Plan.
Assets means all assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible or intangible, or accrued or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following:
(a) all accounting and other books, records and files, whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape, electronic recording or any other form;
(b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, furniture, office and other equipment, including hardware systems, circuits and other computer and telecommunication assets and equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property;
(c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products;
7
(d) all owned and leased real property, in each case, together with any right, title and interest in any buildings, structures, improvements, parking lots and fixtures thereon or appurtenant thereto, and all interests in real property of whatever nature, including rights of way, licenses and easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;
(e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person; all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person; all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person; all other investments in securities of any Person; and all rights as a partner, joint venturer or participant;
(f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments and all rights arising thereunder;
(g) all deposits, letters of credit, performance bonds and other surety bonds;
(h) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals and materials and analyses prepared by consultants and other third parties;
(i) all Intellectual Property;
(j) all websites, content, text, graphics, images, audio, video and other works of authorship, in each case to the extent not included in subsection (i) of this section;
(k) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, subscriber, customer and vendor data, correspondence and lists, product literature and other advertising and promotional materials, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, server and traffic logs, quality records and reports and other books, records, studies, surveys, reports, plans, business records and documents, in each case to the extent not included in subsection (i) of this section;
(l) all prepaid expenses, trade accounts and other accounts and notes receivable (whether current or non-current);
(m) all claims or rights against any Person arising from the ownership of any other Asset, all rights in connection with any bids or offers, all claims, causes in action, lawsuits, judgments or similar rights, all rights under express or implied warranties, all rights of recovery and all rights of setoff of any kind and demands of any nature, in each case whether accrued or contingent, whether in tort, contract or otherwise and whether arising by way of counterclaim or otherwise;
(n) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;
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(o) all Permits and all pending applications therefor;
(p) Cash, bank accounts, lock boxes and other deposit arrangements;
(q) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements; and
(r) all goodwill as a going concern and other intangible properties.
Cash means cash, cash equivalents, bank deposits and marketable securities, whether denominated in United States dollars or otherwise.
Cash Management Arrangements shall mean all cash management arrangements pursuant to which Ashland Global or its Subsidiaries automatically or manually sweep cash from, or automatically or manually transfer cash to, accounts of Valvoline or any of its Subsidiaries.
CERCLA means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq., as amended.
Code means the Internal Revenue Code of 1986, as amended.
Commission means the Securities and Exchange Commission.
Consents means any consents, waivers or approvals from, or notification or filing requirements to, any Person other than a member of either Group.
Conveyancing and Assumption Instruments shall mean, collectively, the various contracts and other documents heretofore entered into and to be entered into to effect the transfer of Assets and the assumption of Liabilities in the manner contemplated by this Agreement and the Step Plan, or otherwise relating to, arising out of or resulting from the transactions contemplated by this Agreement in such form or forms as Ashland Global determines in good faith and are consistent with the requirements of Section 2.06.
Credit Support Instruments has the meaning set forth in Section 3.01(a).
Determination has the meaning set forth in the TMA.
Distribution has the meaning set forth in the Recitals to this Agreement.
Distribution Date means the date of the Distribution or if no Distribution has occurred, the date that Ashland Global ceases to control (as defined in the definition of Affiliate herein) Valvoline.
D&O Insurance Policies has the meaning set forth in Section 8.02(a).
EMA means the Employee Matters Agreement dated as of the date of this Agreement by and among Ashland Global and Valvoline.
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Environmental Law means any Law relating to (a) pollution, (b) protection or restoration of the environment, natural resources or threatened or endangered species or biota, (c) the generation, processing, blending, use, management, storage, handling, transport, distribution, recycling, treatment, disposal, remediation, Release or threatened Release of, or the classification, registration or control of, any pollutant or hazardous or toxic material, substance or waste, and all recordkeeping, notification, disclosure and reporting requirements relating thereto, (d) process safety management or risk management programs or (e) human health and safety (as such relates to exposure to any pollutant or hazardous or toxic material, substance or waste).
Environmental Liability means any Liability under Environmental Law, including fines, penalties, losses, costs, expenses and disbursements, that relates to, arises out of or results from:
(a) compliance or actual or alleged noncompliance with any Environmental Law, including any failure to obtain, maintain or comply with any Environmental Permit, and any costs and expenses (including but not limited to capital expenditures) required to address or resolve such compliance or noncompliance;
(b) the generation, processing, blending, use, management, storage, handling, transport, distribution, recycling, treatment or disposal of any Hazardous Material;
(c) Remedial Action at any location, including in connection with any actual or alleged natural resources damages associated with the presence, Release or threatened Release of any Hazardous Material;
(d) actual or alleged exposure of any person to any Hazardous Material; provided that to the extent such Liability relates to, arises out of or results from exposure occurring prior to or on the Separation Date, or after the Separation Date but prior to or on the Trigger Date, and is subject to, or is barred or covered by, workers compensation, disability or other insurance providing medical care and/or compensation to injured workers, such Liability shall be (i) if the exposure occurred prior to or on the Separation Date, deemed a Legacy Claim or (ii) if the exposure occurred after the Separation Date but prior to or on the Trigger Date, governed by the EMA; and
(e) any Action or Third-Party Claim arising out of or relating to any of the foregoing (including for property damages and damages associated with personal injury, medical monitoring or wrongful death); provided , however , that none of (a) (e) in this definition of Environmental Liability shall include any Asbestos Liability or, except as specifically provided in (d), any Legacy Claim.
Environmental Permit means any approval, concession, grant, franchise, license, permit, certificate, exemption, registration, waiver or other authorization granted, issued or accepted by any Governmental Authority in connection with the operation or conduct of the business and required under Environmental Law.
Exchange means the New York Stock Exchange.
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Exchange Act means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
First Post-Distribution Report has the meaning set forth in Section 12.07.
Governmental Approvals means any notices, reports or other filings to be given to or made with, or any Consents to be obtained from, any Governmental Authority.
Governmental Authority means any Federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other legislative, judicial, regulatory, administrative or governmental authority.
Group means either the Ashland Global Group or the Valvoline Group, as the context requires.
Hazardous Material means any material, substance or waste that, in relevant form, quantity or concentration or based on its characteristics, is listed, defined or regulated as hazardous or toxic or as a pollutant or environmental contaminant (or words of similar import) pursuant to any Environmental Law, including any petroleum or petroleum products, constituents, by-products or derivatives (including crude oil, used oil and waste oil), asbestos or asbestos-containing materials, polychlorinated biphenyls or radioactive materials (including NORM).
Indemnifying Party has the meaning set forth in Section 6.04(a).
Indemnitee has the meaning set forth in Section 6.04(a).
Indemnity Payment has the meaning set forth in Section 6.04(a).
Information means information, whether or not patentable, copyrightable or protectable as a trade secret, in written, oral, electronic or other tangible or intangible forms, stored in any medium now known or yet to be created, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, processes, formulae, techniques, technical data, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, Software, pricing and cost information, business and marketing plans and proposals, customer and supplier names and lists, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product) and other technical, financial, employee or business information or data, documents, correspondence, materials and files.
Initial Public Offering means the initial public offering of the Valvoline Common Stock.
Insurance Proceeds means those monies:
(a) received by an insured (or its successor-in-interest) from an insurance carrier;
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(b) paid by an insurance carrier on behalf of the insured (or its successor-in-interest); or
(c) received (including by way of setoff) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability;
in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments), net of any costs or expenses incurred in the collection thereof and net of any taxes resulting from the receipt thereof.
Intellectual Property means any and all intellectual property rights existing anywhere in the world associated with all (a) patents (including all reissues, divisionals, continuations, continuations-in-part, reexaminations, supplemental examinations, inter partes reviews, post-grant oppositions, covered business method reviews, substitutions and extensions thereof), patent registrations and applications, including provisional applications, statutory invention registrations, invention disclosures and inventions, (b) trademarks, service marks, trade names, logos, slogans, trade dress or other source identifiers, including any registration or any application for registration therefor, together with all goodwill associated therewith (the elements of this subsection (b), collectively, Trademark Assets ), (c) copyrights, moral rights, works of authorship (whether or not copyrightable, including all translations, adaptations, derivations and combinations thereof), mask works, designs and database rights, including, in each case, any registrations and applications for registration therefor, (d) Internet domain names, including top level domain names and global top level domain names, URLs, user names, social media identifiers, handles and tags, (e) Software, (f) Trade Secrets and other confidential Information, (g) all tangible embodiments of the foregoing in whatever form or medium, (h) licenses from third parties granting the right to use any of the foregoing and (i) any other legal protections and rights related to any of the foregoing.
Intercompany Accounts has the meaning set forth in Section 2.03(a).
Intercompany Agreements has the meaning set forth in Section 2.03(a).
Internal Transactions means all of the transactions described in the Step Plan through the Ashland Conversion (as defined in the Step Plan).
IPA means the Intellectual Property Agreement dated as of August 1, 2016, by and between Ashland Licensing and Intellectual Property LLC and Valvoline Licensing and Intellectual Property LLC.
IPO Registration Statement means the registration statement on Form S-1 filed under the Securities Act (No. 333-211720) pursuant to which the offering of Valvoline Common Stock to be sold by Valvoline in the Initial Public Offering will be registered, as amended from time to time.
Law means any statute, law, regulation, ordinance, rule, judgment, rule of common law, order, decree, directive, requirement or other governmental restriction or any similar binding and enforceable form of decision of, or determination by, or agreement with, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether now or hereinafter in effect and, in each case, as amended.
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Legacy Claims means any claims, Action or other Liability, whether known or unknown, arising on or prior to the Separation Date, to the extent arising out of or otherwise relating to (a) work-related injury or illness (including workers compensation claims, disability or other insurance providing medical care and/or compensation to injured workers), (b) property damages and damages associated with personal injury, medical monitoring or wrongful death in connection with the operation of a vehicle, (c) actual or potential employee-related Liabilities (except as otherwise provided in the Employee Matters Agreement), (d) property damages and damages associated with personal injury, medical monitoring or wrongful death in connection with the operation or conduct of any business or (e) property damages and damages associated with personal injury, medical monitoring or wrongful death in connection with the manufacture, production, sale, distribution, conveyance or placement in the stream of commerce or any products or inventory. Legacy Claims excludes all (i) Ashland Global Asbestos Legacy Liabilities, except to the extent any such Liability is subject to, or is barred or covered by, workers compensation, disability or other insurance providing medical care and/or compensation to injured workers, and (ii) all Environmental Liabilities, except as specifically provided in subsection (d) of that definition.
Liabilities means any and all claims, debts, demands, actions, causes of action, suits, damages, obligations, accruals, accounts payable, reckonings, bonds, indemnities and similar obligations, agreements, promises, guarantees, make-whole agreements and similar obligations, and other liabilities and requirements, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any Law, Action, threatened or contemplated Action or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. For the avoidance of doubt, Liabilities shall include attorneys and consultants fees, the costs and expenses of all assessments, judgments, settlements and compromises, and any and all other costs and expenses whatsoever reasonably incurred in connection with anything contemplated by the preceding sentence (including costs and expenses incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions).
Litigation Condition has the meaning set forth in Section 6.05(b).
Off-Site Location means any real property or facility to which Hazardous Materials were sent by or on behalf of any member of either Group (or any of their respective predecessors in interest) or the Valvoline Entities for disposal, treatment, reclamation or recycling in connection with the operation of their respective businesses.
Other Disposition has the meaning set forth in the Recitals to this Agreement.
Party means either party hereto, and Parties means both parties hereto.
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Permit means any approval, concession, grant, franchise, license, permit, certificate, exemption, registration, waiver or other authorization granted or issued by any Governmental Authority to conduct the business as of the Separation Date.
Person means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability company, any other entity and any Governmental Authority.
Prospectus means the prospectus or prospectuses included in any of the Registration Statements, as amended or supplemented by any prospectus supplement and by all other amendments and supplements to any such prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.
Registration Rights Agreement means the Registration Rights Agreement in substantially the form attached hereto as Exhibit A, to be entered into by and between Ashland Global and Valvoline.
Registration Statements means the IPO Registration Statement and any registration statement in connection with the Distribution or Other Disposition, including in each case the Prospectus related thereto, amendments and supplements to any such Registration Statement and/or Prospectus, including post-effective amendments, all exhibits thereto and all materials incorporated by reference in any such Registration Statement or Prospectus.
Regulations has the meaning set forth in the TMA.
Release means any release, spill, emission, leaking, dumping, injection, pouring, pumping, placing, discarding, abandoning, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment or any building, structure, facility, fixture or equipment.
Released Insurance Matters has the meaning set forth in Section 8.01(i).
Remedial Action means any investigation, assessment, response, removal, remediation, or any treatment, containment, or corrective or monitoring action or activity, related to the presence or Release of any Hazardous Material, including any action or activity to prevent or minimize a Release or threatened Release of any Hazardous Material in order to avoid any endangerment or threat of endangerment to public health and welfare or the environment.
Representation Letters has the meaning set forth in the TMA.
Retained Information has the meaning set forth in Section 7.04.
RTSA means the Reverse Transition Services Agreement dated as of the date of this Agreement between Ashland Global and Valvoline.
Securities Act means the Securities Act of 1933, as amended.
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Security Interest means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer or other encumbrance of any nature whatsoever.
SERLA means the Shared Environmental Remediation Liabilities Agreement dated as of the date of this Agreement by and between Ashland Global and Valvoline.
Separation means (a) the Internal Transactions, (b) the Additional Pre-IPO Restructuring Transactions, (c) any actions to be taken pursuant to Article II and (d) any other transfers of Assets and assumptions of Liabilities, in each case, between a member of one Group and a member of the other Group, provided for in this Agreement or in any Ancillary Agreement.
Separation Date has the meaning set forth in Section 4.03.
Shared Contract means any contract or agreement of any member of either Group that relates in any material respect to both the Valvoline Business and the Ashland Global Business, including the contracts and agreements set forth on Schedule VI; provided that the Parties may, by mutual written consent, elect to include in, or exclude from, this definition any contract or agreement.
Shared Environmental Remediation Liability means any Liability, including fines, penalties, losses, costs, expenses and disbursements, that relates to or arises out of Environmental Law (a) for performing or funding the costs of Remedial Action at any location, including in connection with any actual or alleged natural resources damages associated with the presence, Release or threatened Release of any Hazardous Material, as well as any Action or Third-Party Claim relating to or arising out of any of the foregoing, and (b) is alleged by any Person (including any member of either Group or any Valvoline Entity) to be attributable in part, on the one hand, to any member of the Ashland Global Group or to the Ashland Global Business and in part, on the other hand, to any member of the Valvoline Group, the Valvoline Business or the Valvoline Entities, in each case, whether known or unknown and regardless of when such Liability arises or is identified (including, for the avoidance of doubt, any actual or contingent Liability known as of the Separation Date but only determined, in accordance with the provisions of this Agreement or the SERLA, after the Separation Date to be a Shared Environmental Remediation Liability); provided , however , that the definition of Shared Environmental Remediation Liability shall not include any Liability relating to or arising out of property damages, damages associated with personal injury, medical monitoring or wrongful death, or actual or alleged noncompliance with any Environmental Law or Environmental Permit. A list of Shared Environmental Remediation Liabilities known as of the date hereof, as well as the proportionate shares of each such Shared Environmental Remediation Liability that have been allocated as of the date hereof to any member of the Ashland Global Group and to any member of the Valvoline Group or the Valvoline Entities, is set forth on Exhibit A to the SERLA.
Software means any and all (a) computer programs and applications, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases, database rights and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work product used to design, plan, organize and
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develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, (d) all documentation including user manuals and other training documentation relating to any of the foregoing and (e) all tangible embodiments of the foregoing in whatever form or medium now known or yet to be created, including all disks, diskettes and tapes.
Step Plan means the Restructuring Step Plan attached as Exhibit B.
Subsidiary of any Person means any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries.
taxes has the meaning set forth in the TMA.
Third-Party Claim means any assertion by a Person (including any Governmental Authority) who is not a member of the Ashland Global Group or the Valvoline Group of any claim, or the commencement by any such Person of any Action, against any member of the Ashland Global Group or the Valvoline Group.
Third-Party Proceeds has the meaning set forth in Section 6.04(a).
TMA means the Tax Matters Agreement dated as of the date of this Agreement by and between Ashland Global and Valvoline.
Trade Secrets means trade secrets within the meaning of applicable law and any information that derives independent economic value, actual or potential, from not being generally known and is the subject of efforts to maintain its secrecy.
Trigger Date means, December 1, 2016.
TSA means the Transition Services Agreement dated as of the date of this Agreement between Ashland Global and Valvoline.
Underwriters means the managing underwriters for the Initial Public Offering.
Underwriting Agreement means the Underwriting Agreement to be entered into by and among Valvoline and the Underwriters in connection with the offering of Valvoline Common Stock by Valvoline in the Initial Public Offering.
Valvoline has the meaning set forth in the preamble.
Valvoline Asbestos Liability means any Liability to the extent, and only to the extent, such Liability arises from or relates to the actual or alleged (a) exposure of any person to any asbestos actually or allegedly contained in or comprising any product, merchandise, manufactured good, part, component or other item manufactured, produced, sold, distributed,
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conveyed or placed in the stream of commerce, in each case, after the Separation Date by any member of the Valvoline Group or the Valvoline Entities or in connection with any businesses or operations of the Valvoline Business, or (b) exposure of any person, after the Separation Date, to asbestos actually or allegedly contained in or comprising any building material, equipment or other asset, facility or real property then owned, leased or operated by any member of the Valvoline Group or the Valvoline Entities or in connection with any businesses or operations of the Valvoline Business; provided that in each of (a) and (b), to the extent any such Liability is subject to, or is barred or covered by, workers compensation, disability or other insurance providing medical care and/or compensation to injured workers, such Liability shall be, if the exposure occurred after the Separation Date but prior to or on the Trigger Date, governed by the EMA.
Valvoline Assets means, without duplication, the following Assets:
(a) all Assets held by the Valvoline Group;
(b) all interests in the capital stock of, or other equity interests in, the members of the Valvoline Group (other than Valvoline) and all other equity, partnership, membership, joint venture and similar interests set forth on Schedule III under the caption Joint Ventures and Minority Investments;
(c) all Assets reflected on the Valvoline Business Balance Sheet, and all Assets acquired after the date of the Valvoline Business Balance Sheet that, had they been acquired on or before such date and owned as of such date, would have been reflected on the Valvoline Business Balance Sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any dispositions of such Assets subsequent to the date of the Valvoline Business Balance Sheet;
(d) the Assets listed or described on Schedule IV;
(e) the rights related to the Valvoline Portion of any Shared Contract;
(f) all other Assets that are expressly provided by this Agreement or any Ancillary Agreement as Assets to be assigned to or retained by, or allocated to, any member of the Valvoline Group; and
(g) all Assets held by a member of the Ashland Global Group that are determined by Ashland Global, in good faith, to be primarily related to or used or held for use primarily in connection with the business or operations of the Valvoline Business.
Notwithstanding the foregoing, the Valvoline Assets shall not include (i) any Ashland Global Retained Assets, (ii) any Assets governed by the TMA, (iii) the rights related to the Ashland Global Portion of Shared Contracts, (iv) any Assets determined by Ashland Global, in good faith, to arise primarily from the business or operations of the Ashland Global Business (unless otherwise expressly provided in this Agreement) and (v) Assets required by Ashland Global to perform its obligations under the TSA.
Valvoline Bond Issuance means the issuance by Valvoline Finco Two LLC of $375,000,000 aggregate principal amount of 5.5% senior notes due 2024.
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Valvoline Business means the businesses and operations of Valvoline and its Subsidiaries as described in the IPO Registration Statement.
Valvoline Business Balance Sheet means the balance sheet of the Valvoline Business, including the notes thereto, as of June 30, 2016, included in the IPO Registration Statement.
Valvoline Common Stock means the common stock, $0.01 par value per share, of Valvoline.
Valvoline Entities means the entities, the equity, partnership, membership, joint venture or similar interests of which are set forth on Schedule III under the caption Joint Ventures and Minority Investments.
Valvoline Environmental Liabilities means, without duplication, the following Environmental Liabilities:
(a) all Environmental Liabilities, known or unknown, and whether arising or relating to events, conduct or conditions occurring prior to, on or after the Separation Date, to the extent such Liability arises from or relates to:
(i) the Valvoline Assets;
(ii) the operation or conduct of the Valvoline Business (or any other business conducted by Valvoline or any other member of the Valvoline Group or the Valvoline Entities at any time after the Separation) or any member of the Valvoline Group (or any of their respective predecessors in interest) or the Valvoline Entities;
(iii) any Asset that was formerly owned, leased or operated in connection with the Valvoline Business or by any member of the Valvoline Group (or any of their respective predecessors in interest) or the Valvoline Entities;
(iv) the operation or conduct of any business or operation that was discontinued, divested or terminated (in whole or in part) from or in connection with the Valvoline Business or by any member of the Valvoline Group (or any of their respective predecessors in interest) or the Valvoline Entities;
(v) any Release of Hazardous Material, including any off-site migration of any Hazardous Material prior to, on or after the Separation Date, at, under, to or from any Off-Site Location, to the extent such Liability arises from or relates to the operation or conduct of the Valvoline Business or to any member of the Valvoline Group (or any of their respective predecessors in interest) or the Valvoline Entities, and any Action or Third-Party Claim related thereto, whether or not a notice of potential responsibility, notice of claim or other communication has been received by any Person as of the Separation Date; or
(vi) any real property currently or formerly operated by any member of the Valvoline Group (or any of their respective predecessors in interest) or the Valvoline Entities as a Valvoline Instant Oil Change site or facility, notwithstanding the fact that
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any such real property may also have been operated as a Speedway Super America or Ashland Branded Materials site or facility, the Environmental Liabilities for which would, but for this subsection (vi), otherwise be considered Ashland Global Environmental Liabilities;
(b) Valvolines proportionate share of any Shared Environmental Remediation Liabilities, as further set forth in the SERLA; and
(c) all Environmental Liabilities arising out of or relating to compliance with any property transfer laws applicable to any of the Valvoline Assets as the result of or in connection with the Separation.
A list of currently known Valvoline Environmental Liabilities that fall within this subsection (a) of this definition of Valvoline Environmental Liabilities is set forth on Schedule IX;
Notwithstanding the foregoing, for purposes of the definition of Valvoline Environmental Liabilities, the terms member of the Valvoline Group or predecessor in interest shall include Ashland LLC (or any Person that was a Subsidiary of Ashland LLC before giving effect to the Separation) on behalf of, or in connection with, the ownership or operation of the Valvoline Business or any discontinued, divested or terminated businesses or operations of the Valvoline Business, the Valvoline Group or the Valvoline Entities.
Valvoline Group means (a) Valvoline, (b) the entities set forth on Schedule III under the caption Subsidiaries, and (c) each Person that becomes a Subsidiary of Valvoline after the Separation, including in each case any Person that is merged or consolidated with and into Valvoline or any Subsidiary of Valvoline.
Valvoline Indemnitees has the meaning set forth in Section 6.03.
Valvoline IP means the Intellectual Property included in the Valvoline Assets.
Valvoline Insurance Policies has the meaning set forth in Section 8.01(a).
Valvoline Legacy Claims means:
(a) all Legacy Claims associated with the Valvoline Business or any terminated, divested or discontinued businesses or operations of the Valvoline Business, wherever arising, including any Legacy Claim brought by any individual who provided substantially all of his or her services to any such business at the time of the events or circumstances giving rise to such Legacy Claim;
(b) all Legacy Claims asserted by any individual who was, at any time during the period between August 1, 2016 and the Separation Date, an employee of the Valvoline Group or any Valvoline Entity or expected to become an employee of the Valvoline Group or any Valvoline Entity in connection with the Initial Public Offering, wherever arising;
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(c) any Legacy Claims asserted in any jurisdiction within the United States by any individual who was an Ashland Corporate Employee at any time prior to, but not including, August 1, 2016; or
(d) any Legacy Claims asserted in any jurisdiction within the United States and associated with any terminated, divested or discontinued businesses or operations of the Ashland Global Group (other than the Valvoline Business and any terminated, divested or discontinued businesses or operations of the Valvoline Business), including any Legacy Claim brought by any individual who provided substantially all of his or her services to any such business at the time of the events or circumstances giving rise to such Legacy Claim.
Valvoline Liabilities means, without duplication, the following Liabilities:
(a) all Liabilities of the Valvoline Group and the Valvoline Entities;
(b) all Liabilities to the extent relating to, arising out of or resulting from:
(i) the operation or conduct of the Valvoline Business as conducted at any time prior to the Separation (including any Liability to the extent relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority), which act or failure to act relates to the Valvoline Business);
(ii) the operation or conduct of the Valvoline Business or any other business conducted by Valvoline or any other member of the Valvoline Group at any time after the Separation (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority));
(iii) any terminated, divested or discontinued businesses or operations of the Valvoline Group; or
(iv) the Valvoline Assets;
(c) all Liabilities reflected as liabilities or obligations on the Valvoline Business Balance Sheet, and all Liabilities arising or assumed after the date of the Valvoline Business Balance Sheet that, had they arisen or been assumed on or before such date and been existing obligations as of such date, would have been reflected on the Valvoline Business Balance Sheet if prepared in accordance with GAAP applied on a consistent basis, subject to any discharge of such Liabilities subsequent to the date of the Valvoline Business Balance Sheet;
(d) the Liabilities listed or described on Schedule V;
(e) the obligations related to the Valvoline Portion of any Shared Contract;
(f) all other Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (except the TMA) as Liabilities to be assumed or retained by, or allocated to, any member of the Valvoline Group;
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(g) all Valvoline Environmental Liabilities;
(h) all Liabilities to the extent relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, (i) the IPO Registration Statement and any other documents filed with the Commission in connection with the Initial Public Offering or as contemplated by this Agreement or (ii) the Valvoline Offering Memorandum and any other documents delivered to the initial purchasers in connection with the Valvoline Bond Issuance, in each case other than with respect to the Ashland Global Disclosure Sections;
(i) all Valvoline Asbestos Liabilities; and
(j) all Valvoline Legacy Claims.
Notwithstanding the foregoing, the Valvoline Liabilities shall not include (i) any Ashland Global Retained Liabilities, (ii) any Liabilities governed by the TMA, (iii) any obligations related to the Ashland Global Portion of any Shared Contract, (iv) Ashland Global Asbestos Legacy Liabilities or (v) any Liabilities determined by Ashland Global, in good faith, to be primarily related to the business or operations of the Ashland Global Business (unless otherwise expressly provided in this Agreement).
Valvoline Non-Voting Stock means any class or series of Valvolines capital stock, and any warrant, option or right in such stock, other than Valvoline Voting Stock.
Valvoline Offering Memorandum means the offering memordam delivered to the initial purchasers in connection with the Valvoline Bond Issuance, together with any preliminary offering memoranda or supplemental or amended offering memoranda related to thereto.
Valvoline Portion has the meaning set forth in Section 2.04.
Valvoline Voting Stock means all classes of the then outstanding capital stock of Valvoline entitled to vote generally with respect to the election of directors.
ARTICLE II
The Separation
SECTION 2.01. Transfer of Assets and Assumption of Liabilities. (a) Prior to the Initial Public Offering, and subject to Section 2.01(d), the Parties shall cause, or shall have caused, the Internal Transactions to be completed.
(b) Subject to Section 2.01(d), prior to the Separation Date, the Parties shall, and shall cause their respective Group members to, execute such Conveyancing and Assumption Instruments and take such other corporate actions as are necessary to (i) transfer and convey to one or more members of the Valvoline Group all of the right, title and interest of the Ashland
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Global Group in, to and under all Valvoline Assets not already owned by the Valvoline Group, (ii) transfer and convey to one or more members of the Ashland Global Group all of the right, title and interest of the Valvoline Group in, to and under all Ashland Global Assets not already owned by the Ashland Global Group, (iii) cause one or more members of the Valvoline Group to assume all of the Valvoline Liabilities to the extent such Liabilities would otherwise remain obligations of any member of the Ashland Global Group and (iv) cause one or more members of the Ashland Global Group to assume all of the Ashland Global Liabilities to the extent such Liabilities would otherwise remain obligations of any member of the Valvoline Group. In furtherance of the foregoing, the Parties shall use reasonable best efforts to obtain or submit any necessary Governmental Approvals or other Consents for the transfer, conveyance, acceptance or assumption (as applicable) of all Assets and Liabilities required by this Agreement to be so transferred, conveyed, accepted or assumed including, to the extent applicable, the substitution of Valvoline or a Person or Persons in the Valvoline Group for Ashland Global or a Person or Persons in the Ashland Global Group in connection with any order, decree, ruling, judgment, agreement or Action pending or in effect as of the Separation Date with respect to any Valvoline Liabilities or the substitution of Ashland Global or a Person or Persons in the Ashland Global Group for Valvoline or a Person or Persons in the Valvoline Group in connection with any order, decree, ruling, judgment, agreement or Action pending or in effect as of the Separation Date with respect to any Ashland Global Liabilities. Notwithstanding anything to the contrary, neither Party shall be required to transfer any Information except as required by Article VII.
(c) In the event that it is discovered any time after the Separation that there was an omission of (i) the transfer or conveyance by Valvoline (or a member of the Valvoline Group) or the acceptance or assumption by Ashland Global (or a member of the Ashland Global Group) of any Ashland Global Asset or Ashland Global Liability, as the case may be, (ii) the transfer or conveyance by Ashland Global (or a member of the Ashland Global Group) or the acceptance or assumption by Valvoline (or a member of the Valvoline Group) of any Valvoline Asset or Valvoline Liability, as the case may be, or (iii) the transfer or conveyance by one Party (or any other member of its Group) to, or the acceptance or assumption by, the other Party (or any other member of its Group) of any Asset or Liability, as the case may be, that, had the Parties given specific consideration to, or otherwise had accurate or complete knowledge regarding the use, nature or basis of, such Asset or Liability (including, for the avoidance of doubt, any Asbestos Liability, Legacy Claim or Environmental Liability) prior to the Separation, would have otherwise been so transferred, conveyed, accepted or assumed, as the case may be, pursuant to this Agreement or the Ancillary Agreements, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption of such Asset or Liability. The Party to whom or by whom the Asset or Liability is transferred or conveyed, or accepted or assumed, shall reimburse the other Party for any costs directly related to retaining or maintaining such Asset, or managing or defending such Liability, promptly after receiving a request therefor. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.01(c) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Ashland LLC Contribution, except as otherwise required by applicable Law or a Determination. The obligations of the Parties under this Section 2.01(c) shall terminate on the 25th anniversary of the Separation Date.
(d) In the event that it is discovered any time after the Separation that there was a transfer or conveyance (i) by Valvoline (or a member of the Valvoline Group) to, or the
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acceptance or assumption by, Ashland Global (or a member of the Ashland Global Group) of any Valvoline Asset or Valvoline Liability, as the case may be, or (ii) by Ashland Global (or a member of the Ashland Global Group) to, or the acceptance or assumption by, Valvoline (or a member of the Valvoline Group) of any Ashland Global Asset or Ashland Global Liability, as the case may be, the Parties shall use reasonable best efforts to promptly transfer or convey such Asset or Liability back to the transferring or conveying Party or to rescind any acceptance or assumption of such Asset or Liability, as the case may be. The Party to whom or by whom the Asset or Liability is transferred or conveyed, or accepted or assumed, shall reimburse the other Party for any costs directly related to retaining or maintaining such Asset, or managing or defending such Liability, promptly after receiving a request therefor. Any transfer or conveyance made or acceptance or assumption rescinded pursuant to this Section 2.01(d) shall be treated by the Parties for all purposes as if such Asset or Liability had never been originally transferred, conveyed, accepted or assumed, as the case may be, except as otherwise required by applicable Law or a Determination. The obligations of the Parties under this Section 2.01(d) shall terminate on the 25th anniversary of the Separation Date.
(e) To the extent that any transfer or conveyance of any Asset or acceptance or assumption of any Liability required by this Agreement to be so transferred, conveyed, accepted or assumed shall not have been completed prior to the Separation, the Parties shall use reasonable best efforts to effect such transfer, conveyance, acceptance or assumption as promptly following the Separation as shall be practicable. Nothing in this Agreement shall be deemed to require the transfer or conveyance of any Assets or the acceptance or assumption of any Liabilities which by their terms or operation of Law cannot be so transferred, conveyed, accepted or assumed; provided , however , that the Parties shall use reasonable best efforts to obtain any necessary Governmental Approvals or other Consents for the transfer, conveyance, acceptance or assumption (as applicable) of all Assets and Liabilities required by this Agreement to be so transferred, conveyed, accepted or assumed. In the event that any such transfer, conveyance, acceptance or assumption (as applicable) has not been completed effective as of and after the Separation, the Party retaining such Asset or Liability shall thereafter hold such Asset for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto, who shall reimburse the other Party for any costs directly related to retaining such Asset or Liability promptly after receiving a request therefor) and retain such Liability for the account, and at the expense, of the Party by whom such Liability should have been assumed or accepted pursuant to this Agreement, and take such other actions as may be required by Law, including the terms and conditions of any applicable order, decree, ruling judgment, agreement or Action pending or in effect as of the Separation Date with respect to such Asset or Liability, or otherwise reasonably requested by the Party to which such Asset should have been transferred or conveyed, or by whom such Liability should have been assumed or accepted, as the case may be, in order to place both Parties, insofar as reasonably possible, in the same position as would have existed had such Asset or Liability been transferred, conveyed, accepted or assumed (as applicable) as contemplated by this Agreement, including possession, use, risk of loss, potential for gain and control over such Asset or Liability. As and when any such Asset or Liability becomes transferable, the Parties shall use reasonable best efforts to promptly effect such transfer, conveyance, acceptance or assumption (as applicable). Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.01(e) shall be treated by the Parties for all purposes as if it had occurred immediately prior to the Ashland LLC Contribution, except as otherwise required by applicable Law or a Determination.
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(f) The Party retaining any Asset or Liability due to the deferral of the transfer and conveyance of such Asset or the deferral of the acceptance and assumption of such Liability pursuant to this Section 2.01 or otherwise shall not be obligated by this Agreement, in connection with this Section 2.01, to expend any money or take any action that would require the expenditure of money unless and to the extent the Party entitled to such Asset or the Party intended to assume such Liability advances or agrees to reimburse it for the applicable expenditures.
SECTION 2.02. Certain Matters Governed Exclusively by Ancillary Agreements. Each of Ashland Global and Valvoline agrees on behalf of itself and the members of its Group that, except as explicitly provided in this Agreement or any Ancillary Agreement, (a) the TMA shall exclusively govern all matters relating to taxes between such parties (except to the extent that tax matters are expressly addressed in any other Ancillary Agreement), (b) the EMA shall exclusively govern the allocation of Assets and Liabilities related to employee and employee benefits-related matters, including (x) arrangements with certain non-employee service providers to the extent specified in Section 2.06 of the EMA and (y) the existing equity plans with respect to employees and former employees of members of both the Ashland Global Group and the Valvoline Group (it being understood that (i) any such Assets and Liabilities, as allocated pursuant to the EMA, shall constitute Valvoline Assets, Valvoline Liabilities, Ashland Global Assets or Ashland Global Liabilities, as applicable, hereunder and shall be subject to Article VI hereof and (ii) all matters arising on or prior to the Separation Date that relate to workers compensation and other claims alleging injury or illness as a result of employment shall be governed by this Agreement), (c) the TSA and RTSA shall exclusively govern all matters relating to the provision of certain services identified therein to be provided by each Party to the other on a transitional basis following the Separation, (d) the IPA shall exclusively govern all matters relating to the assignment, transfer and licensing of Intellectual Property and (e) the SERLA shall exclusively govern matters relating to the identification and allocation, as well as the defense, management, control, resolution and funding after the Separation Date, of Liabilities determined in accordance with the provisions of this Agreement and/or the SERLA to be Shared Environmental Remediation Liabilities (it being understood that any such Shared Environmental Remediation Liability subject to the SERLA shall nonetheless constitute a Valvoline Environmental Liability or a Ashland Global Environmental Liability, as applicable, hereunder and shall be subject to Article VI hereof except in the case of conflict between those provisions and the provisions of the SERLA).
SECTION 2.03. Termination of Intercompany Agreements and Intercompany Accounts. (a) Except as set forth in Section 2.03(c) or as otherwise provided by the steps constituting the Internal Transactions and the Additional Pre-IPO Restructuring Transactions, in furtherance of the releases and other provisions of Section 6.01, effective immediately prior to the Ashland LLC Contribution, Valvoline and each other member of the Valvoline Group, on the one hand, and Ashland Global and each other member of the Ashland Global Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments and understandings, oral or written ( Intercompany Agreements ), including all intercompany accounts payable or accounts receivable ( Intercompany Accounts ), between such parties and in effect or accrued as of the Ashland LLC Contribution. No such terminated Intercompany Agreement or Intercompany Account (including any provision thereof that purports to survive termination) shall be of any further force or effect after the date of the Ashland LLC Contribution. Each Party
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shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing. The Parties, on behalf of the members of their respective Groups, hereby waive any advance notice provision or other termination requirements with respect to any Intercompany Agreement.
(b) In connection with the termination of Intercompany Accounts described in Section 2.03(a), each of Ashland Global and Valvoline shall cause each Intercompany Account between a member of the Valvoline Group, on the one hand, and a member of the Ashland Global Group, on the other hand, outstanding as of the close of business on the business day immediately prior to the date of the Ashland LLC Contribution to be settled on a net basis (whether via a dividend, a capital contribution, a combination of the foregoing or as otherwise agreed), in each case prior to the close of business on the business day immediately prior to the date of the Ashland LLC Contribution. If after giving effect to such settlements and the Internal Transactions, the Additional Pre-IPO Restructuring Transactions and the Initial Public Offering, the net amount of Cash held by the Valvoline Group as of the time of the Separation would not equal $50,000,000, the foregoing settlement shall be adjusted, or Ashland Global and Valvoline shall otherwise agree on a method of Cash transfer on the Separation Date, such that the amount of Cash held by the Valvoline Group immediately following the Separation shall equal such amount.
(c) The provisions of Section 2.03(a) shall not apply to any of the following Intercompany Agreements or Intercompany Accounts (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other Intercompany Agreement or Intercompany Account expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by either Party or any other member of its Group); (ii) any existing written Intercompany Agreement between a member of the Valvoline Group, on the one hand, and a member of the Ashland Global Group, on the other hand, that has been entered into in the ordinary course of business on an arms-length basis for the provision of services or other commercial arrangement, including outstanding operational intercompany trade receivables or payables incurred on such basis and (iii) any other Intercompany Agreements or Intercompany Accounts set forth on Schedule VIII.
(d) Each of Ashland Global and Valvoline shall, and shall cause their respective Subsidiaries to, take all necessary actions to remove each of Valvoline and Valvolines Subsidiaries from all Cash Management Arrangements to which it is a party, in each case prior to the close of business on the business day immediately prior to the Separation Date.
SECTION 2.04. Shared Contracts . The Parties shall, and shall cause the members of their respective Groups to, use their respective reasonable best efforts to work together (and, if necessary and desirable, to work with the third party to such Shared Contract) in an effort to divide, partially assign, modify and/or replicate (in whole or in part) the respective rights and obligations under and in respect of any Shared Contract, such that (a) a member of the Valvoline Group is the beneficiary of the rights and is responsible for the obligations related to that portion of such Shared Contract relating to the Valvoline Business (the Valvoline Portion ), which rights shall be a Valvoline Asset and which obligations shall be a Valvoline Liability and (b) a member of the Ashland Global Group is the beneficiary of the rights and is responsible for the obligations related to such Shared Contract not relating to the Valvoline Business (the
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Ashland Global Portion ), which rights shall be a Ashland Global Asset and which obligations shall be a Ashland Global Liability. If the Parties, or their respective Group members, as applicable, are not able to enter into an arrangement to formally divide, partially assign, modify and/or replicate such Shared Contract prior to the Separation as contemplated by the previous sentence, then the Parties shall, and shall cause their respective Group members to, cooperate in any lawful arrangement to provide that, following the Separation and until the earlier of five years after the Separation Date and such time as the formal division, partial assignment, modification and/or replication of such Shared Contract as contemplated by the previous sentence is effected, a member of the Valvoline Group shall receive the interest in the benefits and obligations of the Valvoline Portion under such Shared Contract and a member of the Ashland Global Group shall receive the interest in the benefits and obligations of the Ashland Global Portion under such Shared Contract.
SECTION 2.05. Disclaimer of Representations and Warranties. Each of Ashland Global (on behalf of itself and each other member of the Ashland Global Group) and Valvoline (on behalf of itself and each other member of the Valvoline Group) understands and agrees that, except as expressly set forth in this Agreement, any Ancillary Agreement or the Representation Letters, no Party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement or any Ancillary Agreement is representing or warranting in any way as to any Assets or Liabilities transferred or assumed as contemplated hereby or thereby, as to the sufficiency of the Assets or Liabilities transferred or assumed hereby or thereby for the conduct and operations of the Valvoline Business or the Ashland Global Business, as applicable, as to any Governmental Approvals or other Consents required in connection therewith or in connection with any past transfers of the Assets or assumptions of the Liabilities, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets or Liabilities of such party, or as to the absence of any defenses or rights of setoff or freedom from counterclaim with respect to any claim or other Asset, including any accounts receivable, of any such Party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth herein, any such Assets are being transferred on an as is, where is basis and the respective transferees shall bear the economic and legal risks that (a) any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest, and (b) any necessary Governmental Approvals or other Consents are not obtained or that any requirements of Laws or judgments are not complied with.
SECTION 2.06. Conveyancing and Assumption Instruments. In connection with, and in furtherance of, the transfers of Assets and the acceptance and assumptions of Liabilities contemplated by this Agreement, the Parties shall execute and deliver to each other or cause to be executed and delivered, on or after the date hereof by the appropriate entities, any Conveyancing and Assumption Instruments necessary to evidence the valid and effective assumption by the applicable Party of its assumed Liabilities and the valid transfer to the applicable Party or member of such Partys Group of all right, title and interest in and to its accepted Assets for transfers and assumptions to be effected pursuant to New York Law or the Laws of one of the other states of the United States or, if not appropriate for a given transfer or assumption, pursuant to applicable non-U.S. Laws, in such form as Ashland Global determines in good faith and are not inconsistent with the express requirements of this Agreement, including
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the transfer of real property with deeds as may be appropriate and in form and substance as may be required by the jurisdiction in which the real property is located. Except as determined by Ashland Global in good faith (such determination not to be inconsistent with the express requirements of this Agreement), the Conveyancing and Assumption Instruments shall not contain any representations or warranties or indemnities, shall not conflict with this Agreement and, to the extent that any provision of a Conveyancing and Assumption Instrument does conflict with any provision of this Agreement, this Agreement shall govern and control unless specifically stated otherwise in such Conveyancing and Assumption Instrument. The transfer of capital stock shall be effected by means of executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to transfer title to stock and, only to the extent required by applicable Law, by notation on public registries.
ARTICLE III
Credit Support
SECTION 3.01. Replacement of Credit Support. (a) Valvoline shall use reasonable best efforts to arrange, at its sole cost and expense and effective on or prior to the Separation Date, the replacement of all guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances or credit support ( Credit Support Instruments ) provided by or through Ashland Global or any other member of the Ashland Global Group for the benefit of Valvoline or any other member of the Valvoline Group ( Ashland Global Credit Support Instruments ) with alternate arrangements that do not require any credit support from Ashland Global or any other member of the Ashland Global Group, and shall use reasonable best efforts to obtain from the beneficiaries of such Credit Support Instruments written releases (which (i) in the case of a letter of credit or bank guarantee would be effective upon surrender of the original Ashland Global Credit Support Instrument to the originating bank and such banks confirmation to Ashland Global of cancelation thereof and (ii) shall expressly release any collateral in respect of such Credit Support Instrument) indicating that Ashland Global or such other member of the Ashland Global Group will, effective upon the consummation of the Separation, have no liability with respect to such Credit Support Instruments, in each case reasonably satisfactory to Ashland Global.
(b) Ashland Global shall use reasonable best efforts to arrange, at its sole cost and expense and effective on or prior to the Separation Date, the replacement of all Credit Support Instruments provided by or through Valvoline or any other member of the Valvoline Group for the benefit of Ashland Global or any other member of the Ashland Global Group with alternate arrangements that do not require any credit support from Valvoline or any other member of the Valvoline Group, and shall use reasonable best efforts to obtain from the beneficiaries of such Credit Support Instruments written releases (which (i) in the case of a letter of credit or bank guarantee would be effective upon surrender of the original Valvoline Credit Support Instrument to the originating bank and such banks confirmation to Valvoline of cancelation thereof and (ii) shall expressly release any collateral in respect of such Credit Support Instrument) indicating that Valvoline or such other member of the Valvoline Group will, effective upon the consummation of the Separation, have no liability with respect to such Credit Support Instruments, in each case reasonably satisfactory to Valvoline.
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(c) Ashland Global and Valvoline shall provide each other with written notice of the existence of all Credit Support Instruments within a reasonable period prior to the Separation.
ARTICLE IV
Actions Pending the Separation
SECTION 4.01. Actions Prior to the Separation. Subject to the conditions specified in Section 4.02 and subject to Section 4.04, Ashland Global and Valvoline shall use reasonable best efforts to consummate the Separation. Such efforts shall include taking the actions specified in this Section 4.01.
(a) Valvoline shall prepare, file with the Commission and use its reasonable best efforts to cause to become effective the IPO Registration Statement and any registration statements or amendments thereto required to effect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements.
(b) Ashland Global and Valvoline shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Initial Public Offering.
(c) Valvoline shall prepare and file, and shall use reasonable best efforts to have approved prior to the Initial Public Offering, an application for the listing of the Valvoline Common Stock to be offered and sold in the Initial Public Offering on the Exchange.
(d) Prior to the Separation, Ashland Global shall have duly elected the individuals listed as members of the Valvoline board of directors in the IPO Registration Statement, and such individuals shall be the members of the Valvoline board of directors effective as of immediately after the Separation.
(e) Immediately prior to the Separation, the Amended and Restated Certificate of Incorporation and the Amended and Restated By-laws of Valvoline, each in substantially the form filed as an exhibit to the IPO Registration Statement, shall be in effect.
(f) Ashland Global and Valvoline shall, subject to Section 4.04, take all reasonable steps necessary and appropriate to complete the Additional Pre-IPO Restructuring Transactions.
(g) Ashland Global and Valvoline shall, subject to Section 4.04, take all reasonable steps necessary and appropriate to cause the conditions set forth in Section 4.02 to be satisfied and to effect the Separation on the Separation Date.
SECTION 4.02. Conditions Precedent to Consummation of the Separation. Subject to Section 4.04, as soon as practicable after the execution of this Agreement, the Parties shall use reasonable best efforts to satisfy the following conditions prior to the consummation of the Separation (to the extent not already satisfied). The obligations of the Parties to consummate the Separation shall be conditioned on the satisfaction, or waiver by Ashland Global, of the following conditions:
(a) The board of directors of Ashland Global shall have authorized and approved the Internal Transactions and Separation and not withdrawn such authorization and approval.
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(b) Each Ancillary Agreement shall have been executed by each party to such agreement.
(c) The Commission shall have declared effective the IPO Registration Statement, no stop order suspending the effectiveness of the IPO Registration Statement shall be in effect and no proceedings for that purpose shall be pending before or threatened by the Commission.
(d) The Valvoline Common Stock shall have been accepted for listing on the Exchange or another national securities exchange approved by Ashland Global, subject to official notice of issuance.
(e) The Internal Transactions and the Additional Pre-IPO Restructuring Transactions shall have been completed.
(f) Ashland Global shall have received legal opinions from Cravath, Swaine & Moore LLP as to certain agreed-upon matters in respect of the Internal Transactions (including certain Ashland Global Tax Opinions).
(g) No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation or the Initial Public Offering shall be in effect, and no other event shall have occurred or failed to occur that prevents the consummation of the Separation or the Initial Public Offering.
(h) No other events or developments shall have occurred prior to the Separation that, in the judgment of the board of directors of Ashland Global, would result in the Separation or the Initial Public Offering having a material adverse effect on Ashland Global or the shareholders of Ashland Global.
(i) The actions set forth in Sections 4.01(d) and (e) shall have been completed.
The foregoing conditions are for the sole benefit of Ashland Global and shall not give rise to or create any duty on the part of Ashland Global or the Ashland Global board of directors to waive or not waive such conditions or in any way limit the right of Ashland Global to terminate this Agreement as set forth in Article XI or alter the consequences of any such termination from those specified in such Article XI. Any determination made by the Ashland Global board of directors prior to the Separation concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 4.02 shall be conclusive.
SECTION 4.03. Separation Date. Subject to the terms and conditions of this Agreement, the Separation shall be consummated at a closing to be held at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, NY 10019 on the date on which the Initial Public Offering closes or at such other place or on such other date as Ashland Global and Valvoline may mutually agree upon in writing (the day on which such closing takes place being the Separation Date ).
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SECTION 4.04. Sole Discretion of Ashland Global. Ashland Global shall, in its sole and absolute discretion, determine all terms of the Separation, including the form, structure and terms of any transactions and/or offerings to effect the Separation (so long as any such determinations are made in good faith and are not inconsistent with the express terms of this Agreement) and the timing of and conditions to the consummation thereof. In addition and notwithstanding anything to the contrary set forth below, Ashland Global may at any time and from time to time until the Separation decide to delay or abandon the Separation, including by accelerating or delaying the timing of the consummation of all or part of the Separation.
ARTICLE V
The IPO; Distribution
SECTION 5.01. The Initial Public Offering. Valvoline shall consult with, and cooperate in all respects with and take all actions reasonably requested by Ashland Global in connection with the Initial Public Offering.
SECTION 5.02. The Distribution or Other Disposition. (a) Subject to applicable Law, Ashland Global shall, in its sole and absolute discretion, determine (i) whether and when to proceed with all or part of the Distribution or Other Disposition and (ii) all terms of the Distribution or Other Disposition, as applicable, including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution or Other Disposition and the timing of and conditions to the consummation of the Distribution or Other Disposition. In addition, in the event that Ashland Global determines to proceed with the Distribution or Other Disposition, Ashland Global may, subject to applicable Law, at any time and from time to time until the completion of the Distribution or Other Disposition abandon, modify or change any or all of the terms of the Distribution or Other Disposition, including, by accelerating or delaying the timing of the consummation of all or part of the Distribution or Other Disposition.
(b) Valvoline shall cooperate with Ashland Global and any member of the Ashland Global Group in all respects to accomplish the Distribution or Other Disposition and shall, at Ashland Globals direction, promptly take any and all actions necessary or desirable to effect the Distribution or Other Disposition, including, the registration under the Securities Act of the offering of the Valvoline Common Stock on an appropriate registration form as reasonably designated by Ashland Global, the filing of any necessary documents pursuant to the Exchange Act and the filing of any necessary application or related documents with the Exchange in connection with listing the Valvoline Common Stock that is the subject of such Distribution or Other Disposition. Subject to applicable Law and contractual requirements among the Parties, Ashland Global shall select any investment bank, manager, underwriter or dealer manager in connection with the Distribution or Other Disposition, as well as any financial printer, solicitation and/or exchange agent and financial, legal, accounting, tax and other advisors and service providers in connection with the Distribution or Other Disposition, as applicable. Ashland Global and Valvoline, as the case may be, will provide to the exchange agent, if any, all share certificates and any information required in order to complete the Distribution or Other Disposition.
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(c) Notwithstanding anything to the contrary contained in this Agreement, the Registration Rights Agreement shall control the terms and conditions of any Other Disposition to the extent contemplated therein.
ARTICLE VI
Mutual Releases; Indemnification
SECTION 6.01. Release of Pre-Separation Claims. (a) Except as provided in Section 6.01(c) or elsewhere in this Agreement or the Ancillary Agreements, effective as of the Separation, Valvoline does hereby, for itself and each other member of the Valvoline Group, their respective Affiliates, and to the extent it may legally do so, successors and assigns and all Persons who at any time on or prior to the Separation have been shareholders, directors, officers, agents or employees of any member of the Valvoline Group (in each case, in their respective capacities as such), remise, release and forever discharge Ashland Global and the other members of the Ashland Global Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Separation have been shareholders, directors, officers, agents or employees of any member of the Ashland Global Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Valvoline Liabilities whatsoever, whether at Law (including CERCLA and any other Environmental Law) or in equity (including any right of contribution or recovery), whether arising under any contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation, including in connection with the Separation, the Initial Public Offering and any Distribution or Other Disposition and all other activities to implement any such transactions. This Section 6.01(a) shall not affect Ashland LLCs indemnification obligations with respect to Liabilities arising on or before the Separation Date under Article X of the Fourth Restated Articles of Incorporation of Ashland Inc. (or any equivalent provision in the limited liability company agreement of Ashland LLC), as in effect on the date on which the event or circumstances giving rise to such indemnification obligation occur.
(b) Except as provided in Section 6.01(c) or elsewhere in this Agreement or the Ancillary Agreements, effective as of the Separation, Ashland Global does hereby, for itself and each other member of the Ashland Global Group, their respective Affiliates, and to the extent it may legally do so, successors and assigns and all Persons who at any time on or prior to the Separation have been shareholders, directors, officers, agents or employees of any member of the Ashland Global Group (in each case, in their respective capacities as such), remise, release and forever discharge Valvoline, the other members of the Valvoline Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Separation have been shareholders, directors, officers, agents or employees of any member of the Valvoline Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Ashland Global Liabilities whatsoever, whether at Law (including CERCLA and any other Environmental Law) or in equity (including
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any right of contribution or recovery), whether arising under any contract or agreement, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Separation, including in connection with the Separation, the Initial Public Offering and any Distribution or Other Disposition and all other activities to implement any such transactions.
(c) Nothing contained in Section 6.01(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any Intercompany Agreement or Intercompany Account that is specified in Section 2.03(c) not to terminate as of the Separation, in each case in accordance with its terms. Nothing contained in Section 6.01(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement among any members of the Ashland Global Group or the Valvoline Group that is specified in Section 2.03(c) as not to terminate as of the Separation, or any other Liability specified in such Section 2.03(c) as not to terminate as of the Separation;
(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;
(iii) any Liability provided in or resulting from any other agreement or understanding that is entered into after the Separation between one Party (and/or a member of such Partys Group), on the one hand, and the other Party (and/or a member of such Partys Group), on the other hand;
(iv) any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement for claims brought against the Parties, the members of their respective Groups or any of their respective directors, officers, employees or agents, by third Persons, which Liability shall be governed by the provisions of this Article VI or, if applicable, the appropriate provisions of the relevant Ancillary Agreement; or
(v) any Liability the release of which would result in the release of any Person not otherwise intended to be released pursuant to this Section 6.01.
(d) Valvoline shall not make, and shall not permit any other member of the Valvoline Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Ashland Global or any other member of the Ashland Global Group, or any other Person released pursuant to Section 6.01(a), with respect to any Liabilities released pursuant to Section 6.01(a). Ashland Global shall not make, and shall not permit any other member of the Ashland Global Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against Valvoline or any other member of the Valvoline Group, or any other Person released pursuant to Section 6.01(b), with respect to any Liabilities released pursuant to Section 6.01(b).
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(e) It is the intent of each of Ashland Global and Valvoline, by virtue of the provisions of this Section 6.01, to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Separation Date, between or among Valvoline or any other member of the Valvoline Group, on the one hand, and Ashland Global or any other member of the Ashland Global Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Separation Date), except as set forth in Section 6.01(c) or elsewhere in this Agreement or in any Ancillary Agreement. At any time, at the request of the other Party, each Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof.
SECTION 6.02. Indemnification by Valvoline. Subject to Section 6.04, Valvoline shall indemnify, defend and hold harmless Ashland Global, each other member of the Ashland Global Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the Ashland Global Indemnitees ), from and against any and all Liabilities of the Ashland Global Indemnitees relating to, arising out of or resulting from any of the following items (without duplication):
(a) the Valvoline Liabilities, including the failure of Valvoline or any other member of the Valvoline Group or any other Person to pay, perform or otherwise promptly discharge any Valvoline Liability in accordance with its terms;
(b) any breach by Valvoline or any other member of the Valvoline Group of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein (which shall be controlling); and
(c) any breach by Valvoline of any of the representations and warranties made by Valvoline on behalf of itself and the members of the Valvoline Group in Section 12.01(c).
SECTION 6.03. Indemnification by Ashland Global. Subject to Section 6.04, Ashland Global shall indemnify, defend and hold harmless Valvoline, each other member of the Valvoline Group and each of their respective former and current directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the Valvoline Indemnitees ), from and against any and all Liabilities of the Valvoline Indemnitees relating to, arising out of or resulting from any of the following items (without duplication):
(a) the Ashland Global Liabilities, including the failure of Ashland Global or any other member of the Ashland Global Group or any other Person to pay, perform or otherwise promptly discharge any Ashland Global Liability in accordance with its terms;
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(b) any breach by Ashland Global or any other member of the Ashland Global Group of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein (which shall be controlling); and
(c) any breach by Ashland Global of any of the representations and warranties made by Ashland Global on behalf of itself and the members of the Ashland Global Group in Section 12.01(c).
SECTION 6.04. Indemnification Obligations Net of Insurance Proceeds and Third-Party Proceeds. (a) The Parties intend that any Liability subject to indemnification or reimbursement pursuant to this Agreement will be net of (i) Insurance Proceeds that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability or (ii) other amounts recovered from any third party that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability ( Third-Party Proceeds ). Accordingly, the amount that either Party (an Indemnifying Party ) is required to pay to any Person entitled to indemnification or reimbursement pursuant to this Agreement (an Indemnitee ) will be reduced by any Insurance Proceeds or Third-Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee from a third party in respect of the related Liability. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Liability (an Indemnity Payment ) and subsequently receives Insurance Proceeds or Third-Party Proceeds in respect of such Liability, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if such Insurance Proceeds or Third-Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.
(b) An insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or have any subrogation rights with respect thereto by virtue of the indemnification provision contained in this Agreement or any Ancillary Agreement, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a wind-fall ( i.e. , a benefit they would not be entitled to receive, or the reduction or elimination of an insurance coverage provision obligation that they would otherwise have, in the absence of the indemnification provisions) by virtue of the indemnification provisions contained in this Agreement or any Ancillary Agreement. Each member of the Ashland Global Group and Valvoline Group shall use reasonable best efforts to seek to collect or recover, or allow the Indemnifying Party to collect or recover, or cooperate with each other in collecting or recovering, any Insurance Proceeds and any Third-Party Proceeds to which such Person is entitled in connection with any Liability for which such Person seeks indemnification pursuant to this Article VI; provided , however , that such Persons inability to collect or recover any such Insurance Proceeds or Third-Party Proceeds shall not limit the Indemnifying Partys obligations hereunder. Notwithstanding the foregoing, an Indemnifying Party may not delay making an indemnification payment required under the terms of this Agreement, or otherwise satisfying any indemnification obligation, pending the outcome of any Actions to collect or recover any Insurance Proceeds, and an Indemnitee need not attempt to collect any Insurance Proceeds prior to making a claim for indemnification or receiving any Indemnity Payment otherwise owed to it under this Agreement or any Ancillary Agreement.
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(c) The calculation of any Indemnity Payments required by this Agreement shall be subject to Section 4.04 of the TMA.
SECTION 6.05. Procedures for Indemnification of Third-Party Claims. (a) If an Indemnitee shall receive notice or otherwise learn of a Third-Party Claim with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to this Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as reasonably practicable, but no later than 30 calendar days after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 6.05(a) shall not relieve the related Indemnifying Party of its obligations under this Article VI, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice.
(b) The Indemnifying Party shall have the right, exercisable by written notice to the Indemnitee within 30 calendar days after receipt of notice from an Indemnitee in accordance with Section 6.05(a) (or sooner, if the nature of such Third-Party Claim so requires), to assume and conduct the defense of such Third-Party Claim in accordance with the limits set forth in this Agreement with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnitee; provided , however , that (i) the defense of such Third-Party Claim by the Indemnifying Party will not, in the reasonable judgment of the Indemnitee, affect the Indemnitee or any of its controlled Affiliates in a materially adverse manner and (ii) the Third-Party Claim solely seeks (and continues to seek) monetary damages (the conditions set forth in this proviso, the Litigation Condition ).
(c) If the Indemnifying Party elects not to assume the defense of a Third-Party Claim (or is not permitted to assume the defense of a Third-Party Claim as a result of the Litigation Condition not being met with respect thereto) in accordance with this Agreement, or fails to notify an Indemnitee of its election as provided in Section 6.05(b), such Indemnitee may defend such Third-Party Claim at the cost and expense of the Indemnifying Party.
(d) If the Indemnifying Party elects (and is permitted) to assume the defense of a Third-Party Claim in accordance with the terms of this Agreement, the Indemnitees shall, subject to the terms of this Agreement, cooperate with the Indemnifying Party with respect to the defense of such Third-Party Claim.
(e) If the Indemnifying Party elects (and is permitted) to assume the defense of a Third-Party Claim in accordance with the terms of this Agreement, the Indemnifying Party will not be liable for any additional legal expenses subsequently incurred by the Indemnitee in connection with the defense of the Third-Party Claim; provided , however , that if (i) the Litigation Condition ceases to be met or (ii) the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third-Party Claim, the Indemnitee may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs or expenses paid or incurred in connection with such defense. The Indemnifying Party or the Indemnitee, as the case may be, shall have the right to participate in (but, subject to the prior sentence, not control), at its own expense, the defense of any Third-Party Claim that the other is defending as provided in this Agreement. In the event, however, that such Indemnitee reasonably determines that
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representation by counsel to the Indemnifying Party of both such Indemnifying Party and the Indemnitee could reasonably be expected to present such counsel with a conflict of interest, then the Indemnitee may employ separate counsel to represent or defend it in any such action or proceeding and the Indemnifying Party will pay the reasonable fees and expenses of such counsel.
(f) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of any Third-Party Claim without the consent of the applicable Indemnitee or Indemnitees; provided , however , that such Indemnitee(s) shall be required to consent to such entry of judgment or to such settlement that the Indemnifying Party may recommend if the judgment or settlement (i) contains no finding or admission of any violation of Law or any violation of the rights of any Person, (ii) involves only monetary relief which the Indemnifying Party has agreed to pay and (iii) includes a full and unconditional release of the Indemnitee. Notwithstanding the foregoing, in no event shall an Indemnitee be required to consent to any entry of judgment or settlement if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee.
(g) Whether or not the Indemnifying Party assumes the defense of a Third-Party Claim, no Indemnitee shall admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the Indemnifying Partys prior written consent (such consent not to be unreasonably withheld or delayed).
SECTION 6.06. Additional Matters. (a) Any claim on account of a Liability that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 calendar days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such Party as contemplated by this Agreement.
(b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(c) In the event of an Action relating to a Liability that has been allocated to an Indemnifying Party pursuant to the terms of this Agreement or any Ancillary Agreement in which the Indemnifying Party is not a named defendant, if the Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant or add the Indemnifying Party as an additional named defendant, if at all practicable. If such
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substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action and the Indemnifying Party shall fully indemnify the named defendant against all reasonable costs of defending the Action (including court costs, sanctions imposed by a court, attorneys fees, experts, fees and all other external expenses), the costs of any judgment or settlement and the cost of any interest or penalties relating to any judgment or settlement. Notwithstanding the foregoing, this Section 6.06(c) shall not apply to tax matters to the extent such matters are governed by the TMA.
SECTION 6.07. Remedies Cumulative. The remedies provided in this Article VI shall be exclusive and, subject to the provisions of Article X, shall preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
SECTION 6.08. Survival of Indemnities. The rights and obligations of each of Ashland Global and Valvoline and their respective Indemnitees under this Article VI shall survive the sale or other transfer by any Party or its Affiliates of any Assets or businesses or the assignment by it of any Liabilities.
SECTION 6.09. Limitation on Liability. Except as may expressly be set forth in this Agreement, none of Ashland Global, Valvoline or any other member of either Group shall in any event have any Liability to the other or to any other member of the others Group, or to any other Ashland Global Indemnitee or Valvoline Indemnitee, as applicable, under this Agreement (i) with respect to any matter to the extent that such Party seeking indemnification has engaged in any knowing violation of Law or fraud in connection therewith or (ii) for any indirect, special, punitive or consequential damages, whether or not caused by or resulting from negligence or breach of obligations hereunder and whether or not informed of the possibility of the existence of such damages; provided , however , that the provisions of this Section 6.09(ii) shall not limit an Indemnifying Partys indemnification obligations hereunder with respect to any Liability any Indemnitee may have to any third party not affiliated with any member of the Ashland Global Group or the Valvoline Group for any indirect, special, punitive or consequential damages.
ARTICLE VII
Access to Information; Confidentiality
SECTION 7.01. Agreement for Exchange of Information; Archives. (a) Except in the case of an adversarial Action or threatened adversarial Action by either Ashland Global or Valvoline or a Person or Persons in its Group against the other Party or a Person or Persons in its Group, and subject to Section 7.01(b), each of Ashland Global and Valvoline, on behalf of its respective Group, shall provide, or cause to be provided, to the other Party, at any time after the Separation, as soon as reasonably practicable after written request therefor, any Information relating to time periods on or prior to the Separation Date in the possession or under the control of such respective Group, including reasonable access to any employees of such respective Group with relevant knowledge regarding any actual or alleged Environmental Liability, but only to the extent that such access does not unreasonably interfere with the relevant employees normal duties, which Ashland Global or Valvoline, or any member of its respective Group, as
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applicable, reasonably needs (i) to comply with reporting, disclosure, filing, notification or other requirements imposed on Ashland Global or Valvoline, or any member of its respective Group, as applicable (including under applicable securities laws), by any national securities exchange or by any Governmental Authority having jurisdiction over Ashland Global or Valvoline, or any member of its respective Group, as applicable, (ii) for use in any other judicial, regulatory, administrative or other Action (including with respect to evaluating, managing and defending actual or potential Environmental Liabilities of either Party, any member of its respective Group or any Valvoline Entities) or in order to satisfy audit, accounting, regulatory, litigation or other similar requirements or (iii) to comply with its obligations under this Agreement or any Ancillary Agreement. The receiving Party shall use any Information received pursuant to this Section 7.01(a) solely to the extent reasonably necessary to satisfy the applicable obligations or requirements described in clause (i), (ii) or (iii) of the immediately preceding sentence.
(b) In the event that either Ashland Global or Valvoline reasonably determines that the exchange of any Information pursuant to Section 7.01(a) could be commercially detrimental, violate any Law or agreement or waive or jeopardize any attorney-client privilege or attorney work product protection, such Party shall not be required to provide access to or furnish such Information to the other Party; provided , however , that both Ashland Global and Valvoline shall take all commercially reasonable measures to permit compliance with Section 7.01(a) in a manner that avoids any such harm or consequence. Both Ashland Global and Valvoline intend that any provision of access to or the furnishing of Information pursuant to this Section 7.01 that would otherwise be within the ambit of any legal privilege shall not operate as waiver of such privilege.
(c) Each of Valvoline and Ashland Global agrees, on behalf of itself and each member of the Group of which it is a member, not to disclose or otherwise waive any privilege or protection attaching to any privileged Information relating to a member of the other Group or relating to or arising in connection with the relationship between the Groups prior to the Separation, without providing prompt written notice to and obtaining the prior written consent of the other (not to be unreasonably withheld or delayed).
(d) Ashland Global and Valvoline each agrees that it will only process personal data provided to it by the other Group in accordance with all applicable privacy and data protection law obligations (including any applicable privacy policies of the Valvoline Group or the Ashland Global Group, as the case may be) and will implement and maintain at all times appropriate technical and organizational measures to protect such personal data against unauthorized or unlawful processing and accidental loss, destruction, damage, alteration and disclosure. In addition, each Party agrees to provide reasonable assistance to the other Party in respect of any obligations under privacy and data protection legislation affecting the disclosure of such personal data to the other Party and will not knowingly process such personal data in such a way to cause the other Party to violate any of its obligations under any applicable privacy and data protection legislation.
SECTION 7.02. Ownership of Information. Any Information owned by one Group that is provided to the requesting Party hereunder shall be deemed to remain the property of the providing Party. Except as specifically set forth herein, nothing herein shall be construed as granting or conferring rights of license or otherwise in any such Information.
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SECTION 7.03. Compensation for Providing Information. Ashland Global and Valvoline shall reimburse each other for the direct costs, if any, in complying with a request for Information pursuant to this Article VII (which costs shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing), as may be reasonably incurred in providing such Information or access to such Information.
SECTION 7.04. Record Retention. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement, each Party shall use its reasonable best efforts to retain all Information in such Partys possession relating to the other Party or its businesses, Assets or Liabilities, this Agreement or the Ancillary Agreements (the Retained Information ) substantially in accordance with the record retention policies and/or practices of Ashland LLC as in effect immediately prior to the Separation Date or such other record retention policies and/or practices as may be reasonably adopted by the respective Party on or after the Separation Date or such longer or shorter period as required by Law, this Agreement or the Ancillary Agreements. For the avoidance of doubt, such policies shall be deemed to apply to any Information in a Partys possession or control on or after the Separation Date relating to the other Party or members of its Group. Notwithstanding the foregoing, to the extent such Information relates to employee benefits or Environmental Liabilities, such period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof).
SECTION 7.05. Accounting Information. Without limiting the generality of Section 7.01 but subject to Section 7.01(b), Ashland Global and Valvoline agree that, for so long as Ashland Global is required by Law to consolidate the financial results or financial position of Valvoline and any other members of the Valvoline Group in its financial statements (either on a consolidation or equity accounting basis, determined in accordance with GAAP and consistent with Commission reporting requirements) or complete a financial statement audit for any period during which the financial results or financial position of the Valvoline Group were consolidated with those of Ashland Global:
(a) Valvoline shall use its reasonable best efforts to enable Ashland Global to meet its timetable for dissemination of its financial statements and to enable Ashland Globals auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) Valvoline shall authorize and direct its auditors to make available to Ashland Globals auditors, within a reasonable time prior to the date of Ashland Globals auditors opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of Valvoline and (y) work papers related to such annual audits and quarterly reviews, to enable Ashland Globals auditors to perform any procedures they consider reasonably necessary to take responsibility for the work of Valvolines auditors as it relates to Ashland Globals auditors opinion or report and (ii) until all governmental audits are complete, Valvoline shall provide reasonable access during normal business hours for Ashland Globals internal auditors, counsel and other designated representatives to (x) the premises of Valvoline and its Subsidiaries and all Information (and duplicating rights) within the knowledge,
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possession or control of Valvoline and its Subsidiaries and (y) the officers and employees of Valvoline and its Subsidiaries, so that Ashland Global may conduct reasonable audits relating to the financial statements provided by Valvoline and its Subsidiaries; provided , however , that (A) such access shall not be unreasonably disruptive to the business and affairs of the Valvoline Group and (B) Ashland Global shall provide reasonable advance notice of its intent to exercise its access rights pursuant to this clause (ii), it being agreed that the failure to do so shall not result in an indefinite bar to the exercise of such access right but shall only relieve Valvoline of its obligation to comply with such request earlier than is reasonable given the actual notice provided.
(b) Ashland Global shall use its reasonable best efforts to enable Valvoline to meet its timetable for dissemination of its financial statements and to enable Valvolines auditors to timely complete their annual audit and quarterly reviews of financial statements. As part of such efforts, to the extent reasonably necessary for the preparation of financial statements or completing an audit or review of financial statements or an audit of internal control over financial reporting, (i) Ashland Global shall authorize and direct its auditors to make available to Valvolines auditors, within a reasonable time prior to the date of Valvolines auditors opinion or review report, both (x) the personnel who performed or will perform the annual audits and quarterly reviews of Ashland Global and (y) work papers related to such annual audits and quarterly reviews, to enable Valvolines auditors to perform any procedures they consider reasonably necessary to take responsibility for the work of Ashland Globals auditors as it relates to Valvolines auditors opinion or report and (ii) until all governmental audits are complete, Ashland Global shall provide reasonable access during normal business hours for Valvolines internal auditors, counsel and other designated representatives to (x) the premises of Ashland Global and its Subsidiaries and all Information (and duplicating rights) within the knowledge, possession or control of Ashland Global and its Subsidiaries and (y) the officers and employees of Ashland Global and its Subsidiaries, so that Valvoline may conduct reasonable audits relating to the financial statements provided by Ashland Global and its Subsidiaries; provided , however , that (A) such access shall not be unreasonably disruptive to the business and affairs of the Ashland Global Group and (B) Valvoline shall provide reasonable advance notice of its intent to exercise its access rights pursuant to this clause (ii), it being agreed that the failure to do so shall not result in an indefinite bar to the exercise of such access right but shall only relieve Ashland Global of its obligation to comply with such request earlier than is reasonable given the actual notice provided.
(c) In order to enable the principal executive officer(s) and principal financial officer(s) (as such terms are defined in the rules and regulations of the Commission) of Ashland Global to make any certifications required of them under Section 302 or 906 of the Sarbanes-Oxley Act of 2002, Valvoline shall, within a reasonable period of time following a request from Ashland Global in anticipation of filing such reports, cause its principal executive officer(s) and principal financial officer(s) to provide Ashland Global with certifications of such officers in support of the certifications of Ashland Globals principal executive officer(s) and principal financial officer(s) required under Section 302 or 906 of the Sarbanes-Oxley Act of 2002 with respect to each Quarterly Report on Form 10-Q and Annual Report on Form 10-K of Ashland Global for which Ashland Global is required by Law to consolidate the financial results or financial position of Valvoline and any other members of the Valvoline Group in its financial statements (either on a consolidation or equity accounting basis, determined in accordance with
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GAAP and consistent with Commission reporting requirements) or complete a financial statement audit for any period during which the financial results or financial position of the Valvoline Group were consolidated with those of Ashland Global. Such certifications shall be provided in substantially the same form and manner as such Valvoline officers provided prior to the Separation (reflecting any changes in certifications necessitated by the Initial Public Offering or any other transactions related thereto) or as otherwise agreed upon between Ashland Global and Valvoline.
SECTION 7.06. Limitations of Liability. Neither Ashland Global nor Valvoline shall have any Liability to the other Party in the event that any Information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or that is based on an estimate or forecast, is found to be inaccurate in the absence of wilful misconduct by the providing Person. Neither Ashland Global nor Valvoline shall have any Liability to the other Party if any Information is destroyed after reasonable best efforts by Valvoline or Ashland Global, as applicable, to comply with the provisions of Section 7.04.
SECTION 7.07. Production of Witnesses; Records; Cooperation. (a) After the Separation Date and until the fifth (5th) anniversary thereof, except in the case of an adversarial Action or threatened adversarial Action by either Ashland Global or Valvoline or a Person or Persons in its Group against the other Party or a Person or Persons in its Group, each of Ashland Global and Valvoline shall take all reasonable steps to make available, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the Persons in its respective Group (whether as witnesses or otherwise) and any books, records or other documents within its control or that it otherwise has the ability to make available, to the extent that such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action or threatened or contemplated Action (including preparation for such Action) in which Ashland Global or Valvoline, as applicable, may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all reasonable out-of-pocket costs and expenses in connection therewith.
(b) Without limiting the foregoing, Ashland Global and Valvoline shall use their reasonable best efforts to cooperate and consult to the extent reasonably necessary with respect to any Actions or threatened or contemplated Actions, other than an adversarial Action against the other Group.
(c) The obligation of Ashland Global and Valvoline to make available former, current and future directors, officers, employees and other personnel and agents or provide witnesses and experts pursuant to this Section 7.07 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to make available employees and other officers without regard to whether such individual or the employer of such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 7.07(a)).
(d) Upon the reasonable request of Ashland Global or Valvoline, in connection with any Action contemplated by this Article VII, Ashland Global and Valvoline will enter into a mutually acceptable common interest or joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of either Group.
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SECTION 7.08. Confidential Information. (a) Each of Ashland Global and Valvoline, on behalf of itself and each Person in its respective Group, shall hold, and cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, but no less than a reasonable degree of care, that Ashland LLC applies to its own confidential and proprietary information pursuant to policies in effect immediately prior to the Separation Date, all Information concerning the other Group or its business that is either in its possession (including Information in its possession prior to the Separation) or furnished by the other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder, except, in each case, to the extent that such Information is (i) in the public domain through no fault of any member of the Ashland Global Group or the Valvoline Group, as applicable, or any of its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by any of Ashland Global, Valvoline or their respective Group, employees, directors or agents, accountants, counsel and other advisors and representatives, as applicable, which sources are not themselves bound by a confidentiality obligation to the knowledge of any of Ashland Global, Valvoline or Persons in its respective Group, as applicable, (iii) independently generated without reference to any proprietary or confidential Information of the Ashland Global Group or the Valvoline Group, as applicable, or (iv) required to be disclosed by Law; provided , however , that the Person required to disclose such Information gives the applicable Person prompt, and to the extent reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use reasonable best efforts to cooperate, at the expense of the requesting Person, in seeking any reasonable protective arrangements requested by such Person. In the event that such appropriate protective order or other remedy is not obtained, the Person that is required to disclose such Information shall furnish, or cause to be furnished, only that portion of such Information that is legally required to be disclosed and shall use reasonable best efforts to ensure that confidential treatment is accorded such Information. Notwithstanding the foregoing, each of Ashland Global and Valvoline may release or disclose, or permit to be released or disclosed, any such Information concerning the other Group (x) to their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of the obligations hereunder with respect to such Information), and (y) to any nationally recognized statistical rating organization as it reasonably deems necessary, solely for the purpose of obtaining a rating of securities or other debt instruments upon normal terms and conditions; provided , however , that the Party whose Information is being disclosed or released to such rating organization is promptly notified thereof. Each Partys obligations under this Section 7.08 shall expire five years from the date of this Agreement.
(b) Without limiting the foregoing, when any Information concerning the other Group or its business is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each of Ashland Global and Valvoline will, promptly after request of
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the other Party, either return all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party, as applicable, that it has destroyed such Information, other than, in each case, any such Information electronically preserved or recorded within any computerized data storage device or component (including any hard-drive or database) pursuant to automatic or routine backup procedures generally accessible only by legal, IT or compliance personnel.
ARTICLE VIII
Insurance
SECTION 8.01. Insurance. (a) Until the earlier of (x) the date Valvoline has obtained in effect such insurance policies as meet the specifications set forth in clauses (i) and (ii) of Section 8.01(d) and (y) the Trigger Date, Ashland Global shall (i) cause the members of the Valvoline Group and their respective employees, officers and directors to continue to be covered as insured parties under Ashland Global Insurance Policies in a manner which is no less favorable than the coverage provided for the Ashland Global Group and (ii) permit the members of the Valvoline Group and their respective employees, officers and directors to submit claims arising from or relating to facts, circumstances, events or matters that occurred prior to the Trigger Date to the extent permitted under such policies; provided that Valvoline shall use commercially reasonable efforts to obtain, effective as of the Separation Date, insurance policies that meet the specifications set forth in clauses (i) and (ii) of Section 8.01(d). With respect to policies currently procured by Valvoline for the sole benefit of the Valvoline Group ( Valvoline Insurance Policies ), Valvoline shall continue to maintain such insurance coverage through the Distribution Date in a manner no less favorable than currently provided. Without limiting any of the rights or obligations of the parties pursuant to Section 8.01, Ashland Global and Valvoline acknowledge that, as of immediately prior to the Trigger Date, Ashland Global intends to take such action as it may deem necessary or desirable to remove the members of the Valvoline Group and their respective employees, officers and directors as insured parties under any policy of insurance issued to any member of the Ashland Global Group by any insurance carrier effective immediately prior to the Trigger Date. Valvoline further acknowledges and agrees that, from and after the Trigger Date, neither Valvoline nor any member of the Valvoline Group shall have any rights to or under such Ashland Global Insurance Policy other than as expressly provided in Section 8.01(b).
(b) From and after the Separation Date, with respect to any Liability accrued and/or incurred by the Valvoline Group prior to the Trigger Date, Ashland Global shall provide members of the Valvoline Group with access to, and, if and to the extent determined by Ashland Global at its sole discretion, the Ashland Global Group and the Valvoline Group may jointly make claims under the Ashland Global Insurance Policies if and solely to the extent that the terms of such policies provide for such coverage to the Valvoline Group with respect to any Liabilities accrued or incurred by the Valvoline Group prior to the Trigger Date, and subject to the terms and conditions of such insurance policies, including any limits on coverage or scope, any deductibles and other fees and expenses, and subject to the following conditions:
(i) Valvoline shall, or shall cause the applicable member of the Valvoline Group to, report any potential claims under Ashland Global Insurance Policies arising
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from the Valvoline Business as soon as practicable to Ashland Global and Ashland Global shall determine whether and at what time to report any such claims directly to the applicable insurance company, and to submit a claim for coverage thereunder, and Ashland Global shall provide a copy of all such claim reports and submissions to Valvoline; provided , that , with respect to any such claims, Valvoline shall provide Ashland Global with the information regarding the claims and provide recommendations with regard to the reporting and submission of such claims, and Ashland Global shall consult with Valvoline with regard to the timing thereof.
(ii) If and to the extent that Valvoline is the sole entity recovering proceeds under one or more Ashland Global Insurance Policies in respect of a particular claim arising from the Valvoline Business, Valvoline shall exclusively bear and be responsible for (and Ashland Global shall have no obligation to repay or reimburse Valvoline for) and pay the applicable insurers as required under the Ashland Global Insurance Policy for any and all costs as a result of having access to, or making claims under, such Ashland Global Insurance Policy, including any amounts of deductibles and self-insured retention associated with such claims, claim handling and administrative costs, taxes, surcharges, state assessments, reinsurance costs and other related costs, as well as for any applicable increase in Ashland Globals future premiums for the coverage provided by such policy, relating to all open, closed, re-opened claims covered by the applicable insurance policies, whether such claims are made by Valvoline, its employees or third parties, and Valvoline shall indemnify, hold harmless and reimburse Ashland Global for any such amounts incurred by Ashland Global to the extent resulting from any access to, any claims made by Valvoline under, any Ashland Global Insurance Policy provided pursuant to this Section 8.01(b)(ii).
(iii) If Ashland Global and Valvoline jointly make a claim for coverage under any Ashland Global Insurance Policy for amounts that have been or may in the future be incurred partially by Ashland Global and partially by Valvoline, any insurance recovery resulting therefrom will first be allocated to reimburse Ashland Global and/or Valvoline for their respective costs, legal and consulting fees, and other out-of-pocket expenses incurred in pursuing such insurance recovery, as well as to reimburse Ashland Global for any applicable increase in Ashland Globals future premiums for the coverage provided by such policy attributable to the Valvoline portion of such joint claim, with the remaining net proceeds from the insurance recovery to be allocated as between Ashland Global and Valvoline in a manner to be negotiated in good faith by Ashland Global and Valvoline at or near the time of such recovery, provided that if the Parties cannot agree to an allocation within twenty (20) business days of the grant, settlement or other agreement, either Party may exercise any remedies available to it under this Agreement.
(iv) Valvoline shall exclusively bear (and Ashland Global shall have no obligation to repay or reimburse Valvoline for) and shall be liable for all uninsured, uncovered, unavailable or uncollectible amounts, incurred from and after the Trigger Date, of all such claims pursued by Valvoline under the Ashland Global Insurance Policies as provided for in this Section 8.01(b).
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(v) In connection with making any joint claim under any Ashland Global Insurance Policy pursuant to this Section 8.01(b), Ashland Global shall control the administration of all such claims, including the timing of any assertion and pursuit of coverage, and Valvoline shall not take any action that would be reasonably likely to: (A) have an adverse impact on the then-current relationship between Ashland Global and the applicable insurance company; (B) result in the applicable insurance company terminating or reducing coverage to Ashland Global or Valvoline, or increasing the amount of any premium owed by Ashland Global under the applicable Ashland Global Insurance Policy; (C) otherwise compromise, jeopardize or interfere with the rights of Ashland Global under the applicable Ashland Global Insurance Policy or (D) otherwise compromise or impair Ashland Globals ability to enforce its rights with respect to any indemnification under or arising out of this Agreement, and Ashland Global shall have the right, in its sole discretion, to cause Valvoline to desist from any action that Ashland Global determines, in its sole discretion, would compromise or impair Ashland Globals rights in accordance with this clause (D).
Each of Ashland Global and Valvoline shall, and shall cause each member of the Ashland Global Group and the Valvoline Group, respectively, to, cooperate and assist the applicable member of the Valvoline Group and the Ashland Global Group, as applicable, with respect to such claims.
(c) Any payments, costs and adjustments required pursuant to Section 8.01(b) shall be billed by Ashland Global to Valvoline on a quarterly basis and Valvoline shall pay such billed payments, costs and adjustments to Ashland Global within 60 days from receipt of invoice. If Ashland Global incurs costs to enforce Valvolines obligations under this Section 8.01, Valvoline agrees to indemnify Ashland Global for such enforcement costs, including reasonable attorneys fees.
(d) At the Trigger Date, Valvoline shall have in effect all insurance programs required to comply with Valvolines statutory obligations. Valvoline further agrees that from and after the Trigger Date and until the Distribution Date, Valvoline will maintain with (i) financially sound and reputable insurance companies and (ii) insurance companies that are not Affiliates of the Valvoline Group, insurance with respect to its properties and business in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Valvoline Group operates.
(e) This Agreement shall not be considered an attempted assignment of any policy of insurance in its entirety, nor is it considered to be itself a contract of insurance, and further this Agreement shall not be construed to waive any right or remedy of Ashland under or with respect to any
(f) Ashland Global shall not be liable to Valvoline for claims not reimbursed by insurers for any reason, including coinsurance provisions, deductibles, quota share deductibles, exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Ashland Global Insurance Policy limitations or restrictions, any coverage disputes, any failure to timely claim by Ashland Global or any defect in such claim or in its processing. For the avoidance of doubt, this provision shall not supersede any obligation of Ashland Global to indemnify Valvoline as provided in Section 6.03.
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(g) In the event that any insurance claims of both Ashland Global and Valvoline for any Liability accrued and/or incurred prior to the Trigger Date exist relating to the same occurrence, both Parties shall jointly defend and waive any conflict of interest to the extent necessary to the conduct of the joint defense. Nothing in this Section 8.01(g) shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those obligations under Article VI of this Agreement or otherwise, by operation of law or otherwise.
(h) In the event of any Action by either Valvoline or Ashland Global (or both) to recover or obtain insurance proceeds, or to defend against any Action by an insurance carrier to deny any benefits under an insurance policy, both Parties may join in any such Action and be represented by joint counsel and both Parties shall waive any conflict of interest to the extent necessary to conduct any such Action. Nothing in this Section 8.01(h) shall be construed to limit or otherwise alter in any way the obligations of both Parties, including those obligations under Article VI of this Agreement or otherwise, by operation of law or otherwise.
(i) Notwithstanding anything contained in this Section 8.01, to the extent Ashland Global has entered into or agrees to enter into, whether on its own or with respect to any arrangement provided for under this Section 8.01, any settlement or agreement or other arrangement with any insurance provider regarding coverage under any Ashland Global Insurance Policy that provides for any limitation of coverage or release of such insurance provider with regard to any coverage thereunder, whether in whole or in part (collectively, the Released Insurance Matters ), Valvoline agrees that it shall (a) abide by the terms of and, to the extent required, consent to, any such settlement or arrangement relating to the Released Insurance Matters as a condition to receiving any coverage under any Ashland Global Insurance Policy related thereto, (b) have no rights to any such coverage under the Ashland Global Insurance Policies with respect to any Released Insurance Matters and (c) make no claims under any Ashland Global Insurance Policy with respect to any Released Insurance Matters.
SECTION 8.02. Director and Officer Liability Insurance. (a) Until the Separation Date, Ashland Global shall maintain directors and officers liability insurance policies or fiduciary liability insurance policies (collectively, D&O Insurance Policies ) for officers and directors of the Valvoline Group in a manner which is no less favorable than the coverage provided for the Ashland Global Group. Ashland Global and Valvoline acknowledge that, as of immediately prior to the Separation Date, Ashland Global intends to take such action as it may deem necessary or desirable to terminate any D&O Insurance Policy issued to any officer or director of the Valvoline by any insurance carrier effective immediately prior to the Separation Date.
(b) On and after the Separation Date, to the extent that any claims have been duly reported before the Separation Date under the D&O Insurance Policies maintained by members of the Ashland Global Group, Ashland Global shall not, and shall cause the members of the Ashland Global Group not to, take any action that would limit the coverage of the individuals who acted as directors or officers of Valvoline (or members of the Valvoline Group) prior to the Separation Date under any D&O Insurance Policies maintained by the members of the Ashland
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Global Group. On and after the Separation Date, Valvoline shall maintain in effect for each past or present director of Valvoline or any of its subsidiaries, as well as each individual who prior to the effectiveness of the Separation Agreement becomes a director or officer of Valvoline or any of its subsidiaries, for a period of at least six years after the Separation Date, D&O Insurance Policies of at least the same coverage and containing terms and conditions which are, in the aggregate, no less advantageous to the insured, as the current D&O Insurance Policies of Ashland Global with respect to claims arising from acts or omissions that occurred on or prior to the Separation Date. Ashland Global shall provide, and shall cause other members of the Ashland Global Group to provide, such cooperation as is reasonably requested by Valvoline in order for Valvoline to have in effect on and after the Separation Date such new D&O Insurance Policies as Valvoline deems appropriate with respect to claims reported on or after the Separation Date. Except as provided in this Section 8.02, the Ashland Global Group may, at any time, without liability or obligation to the Valvoline Group, amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any occurrence-based insurance policy or claims-made-based insurance policy (and such claims will be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications); provided , however , that Ashland Global will immediately notify Valvoline of any termination of any insurance policy.
(c) From and after the Separation Date and until the day following the Distribution Date, Valvoline shall maintain D&O Insurance Policies for officers and directors of the Valvoline Group in a manner which is no less favorable than the coverage provided for the Ashland Global Group.
(d) The Parties shall use reasonable best efforts to cooperate with respect to the various insurance matters contemplated by this Section 8.02.
ARTICLE IX
Intellectual Property
SECTION 9.01. Consent To Use Intellectual Property And Duty To Cooperate. (a) Valvoline, on behalf of itself and each other member of the Valvoline Group, (i) consents to the use and registration of the Ashland Global IP in the business and operations conducted by Ashland Global and its Subsidiaries, Affiliates and their respective licensees and (ii) agrees to use reasonable best efforts, prior to, on and after the Separation Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable to effect the transfer, assignment, registration or any related recordation of Ashland Global IP contemplated by this Agreement, on a worldwide basis.
(b) Ashland Global, on behalf of itself and each other member of the Ashland Global Group, (i) consents to the use and registration of the Valvoline IP in the Valvoline Business by Valvoline and its Affiliates and their respective licensees and (ii) agrees to use reasonable best efforts, prior to, on and after the Separation Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable to effect the transfer, assignment, registration and any related recordation of Valvoline IP contemplated by this Agreement, on a worldwide basis.
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(c) Valvoline agrees that it will not, and agrees to cause its Subsidiaries not to (i) oppose, challenge, petition to cancel, contest or threaten in any way, or assist another party in opposing, challenging, petitioning to cancel, contesting or threatening in any way, any application or registration by Ashland Global or its Affiliates or their respective licensees for any Ashland Global IP, the use of which is consistent with the use to which Valvoline has consented under this Agreement or (ii) engage in any act, or purposefully omit to perform any act, that impairs or adversely affects the rights of Ashland Global or any member of the Ashland Global Group in and to any Ashland Global IP, in each case for a period of five years after the Separation Date.
(d) Ashland Global agrees that it will not, and agrees to cause its Subsidiaries not to (i) oppose, challenge, petition to cancel, contest or threaten in any way, or assist another party in opposing, challenging, petitioning to cancel, contesting or threatening in any way, any application or registration by Valvoline or its Affiliates or their respective licensees for any Valvoline IP, the use of which is consistent with the use to which Ashland Global has consented under this Agreement or (ii) engage in any act, or purposefully omit to perform any act, that impairs or adversely affects the rights of Valvoline or any member of the Valvoline Group in and to any Valvoline IP, in each case for a period of five years after the Separation Date.
(e) Valvoline hereby acknowledges (on behalf of itself and each other member of the Valvoline Group) Ashland Globals right, title and interest in and to the Ashland Global IP, and will not in any way, directly or indirectly, do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part of such right, title and interest within the business and operations conducted by Ashland Global and its Subsidiaries, Affiliates and their respective licensees, or with respect to goods or services provided in connection with the business and operations conducted by Ashland Global and its Subsidiaries, Affiliates and their respective licensees, in each case for a period of five years after the Separation Date.
(f) Ashland Global hereby acknowledges (on behalf of itself and each other member of the Ashland Global Group) Valvolines right, title and interest in and to the Valvoline IP, and will not in any way, directly or indirectly, do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part of such right, title and interest within the Valvoline Business or with respect to goods or services provided in connection with the Valvoline Business, in each case for a period of five years after the Separation Date.
(g) Prior to, on and after the Separation Date, Ashland Global shall cooperate with Valvoline, without any further consideration, but at the expense of Valvoline, to obtain, or cause to be obtained, the Consents of any third parties necessary to effect the assignment or transfer of any Intellectual Property assets or rights contemplated under this Agreement or any Ancillary Agreement. If, for any reason, the assignment or transfer of any Intellectual Property assets or rights contemplated under this Agreement or any Ancillary Agreement is otherwise impossible or ineffective, Ashland Global shall, and shall cause its Subsidiaries to, use their reasonable best efforts to work together (and, if necessary and desirable, to work with any applicable third parties) in an effort to sublicense, divide, partially assign, modify and/or replicate (in whole or in part) the respective rights and obligations under and in respect of any planned assignment or transfer.
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(h) Prior to, on and after the Separation Date, Ashland Global shall cooperate with Valvoline, without any further consideration and at no expense to Valvoline, to obtain, cause to be obtained or properly record the release of any outstanding liens or security interests attached to any Valvoline IP and to take, or cause to be taken, all actions as Ashland Global may reasonably be requested to take in order to obtain, cause to be obtained or properly record such release.
(i) Valvoline agrees not to use, and agrees to cause its Subsidiaries not to use, any of the Trademark Assets included in the Ashland Global Assets (the Ashland Global Marks), including any names, trademarks or domain names that incorporate the Ashland Global Marks for any purpose, except where (i) the use is a use, otherwise than as a mark, of a member of the Ashland Global Groups individual name in its own business, or of the individual name of anyone in privity with the Ashland Global Group, or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of the Ashland Global Group, or their geographic origin; or, (ii) if used as a mark, such use does not conflict with, and is unlikely to cause consumer confusion with, dilute or tarnish, any Ashland Global Marks, and is in no way contrary to the terms of this Article IX.
In the event that, as of the Separation Date, Ashland Global Marks prominently appear on any publicly available or promoted business or promotional materials used by Valvoline or its Affiliates within the Valvoline Business, Valvoline shall remove and cease using, and shall cause its Subsidiaries to remove and cease using, such prominently appearing marks as soon as reasonably practical following the Separation Date but in any event within 180 days of the Separation Date or, with respect to products for sale produced prior to the Separation Date on which any Ashland Global Mark prominently appears, within 365 days of the Separation Date; provided that Valvoline shall promptly arrange for the destruction of any such products for sale produced prior to the Separation Date that remain unsold following such 365-day period and on which any Ashland Global Mark prominently appears.
Notwithstanding anything in this Agreement to the contrary, and without limiting the rights otherwise granted in this Section 9.01(i), the Valvoline Group shall have the right, at all times before, during and after the Separation Date, to retain records and other historical or archived documents containing or referencing (i) the Ashland Global Marks or (ii) any other Information previously held by the Ashland Global Group, to the extent relating to the Valvoline Business.
(j) Ashland Global agrees not to use, and agrees to cause its Subsidiaries not to use, any of the Trademark Assets included in the Valvoline Assets (the Valvoline Marks) for any purpose, except where (i) the use is a use, otherwise than as a mark, of a member of the Valvoline Groups individual name in its own business, or of the individual name of anyone in privity with the Valvoline Group, or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of the Valvoline Group, or their geographic origin; or, (ii) if used as a mark, such use does not conflict with, and is unlikely to cause consumer confusion with, dilute or tarnish, any Valvoline Marks, and is in no way contrary to the terms of this Article IX.
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In the event that, as of the Separation Date, Valvoline Marks prominently appear on any publicly available or promoted business or promotional materials used by Ashland Global or its Affiliates within the business and operations conducted by Ashland Global and its Subsidiaries, Ashland Global shall remove and cease using, and shall cause its Subsidiaries to remove and cease using, such prominently appearing marks as soon as reasonably practical following the Separation Date but in any event within 180 days of the Separation Date or, with respect to products for sale produced or published prior to the Separation Date on which any Valvoline Mark prominently appears, within 365 days of the Separation Date; provided that Ashland Global shall promptly arrange for the destruction of any such products for sale produced or published prior to the Separation Date that remain unsold following such 365-day period and on which any Valvoline Mark prominently appears.
Notwithstanding anything in this Agreement to the contrary, and without limiting the rights otherwise granted in this Section 9.01(j), the Ashland Global Group shall have the right, at all times before, during and after the Separation Date, to retain records and other historical or archived documents containing or referencing (i) the Valvoline Marks or (ii) any other Information previously held by the Valvoline Group, to the extent relating to the Ashland Global Business.
(k) (i) As of the Separation Date, any and all photographs, artwork and similar objects and other physical assets owned by the Ashland Global Group or the Valvoline Group that relate to the history or historical activities of the Valvoline Business ( Valvoline Memorabilia ) shall be deemed to be owned, as between the Ashland Global Group and the Valvoline Group, by (i) the Valvoline Group to the extent located on the premises of any member of the Valvoline Group and (ii) the Ashland Global Group to the extent located on the premises of any member of the Ashland Global Group. Valvoline hereby grants the Ashland Global Group from the Separation Date a worldwide, transferable, perpetual, royalty-free, irrevocable (with right to sub-license), fully paid license to use any Valvoline Memorabilia in documenting, memorializing and (if desired) marketing its history.
(ii) As of the Separation Date, any and all photographs, artwork and similar objects and other physical assets owned by the Ashland Global Group or the Valvoline Group that relate to the history or historical activities of the Ashland Global Business ( Ashland Global Memorabilia ) shall be deemed to be owned, as between the Ashland Global Group and the Valvoline Group, by (i) the Valvoline Group to the extent located on the premises of any member of the Valvoline Group and (ii) the Ashland Global Group to the extent located on the premises of any member of the Ashland Global Group. Ashland Global hereby grants the Valvoline Group from the Separation Date a worldwide, transferable, perpetual, royalty-free, irrevocable (with right to sub-license), fully paid license to use any Ashland Global Memorabilia in documenting, memorializing and (if desired) marketing its history.
(l) Each of Ashland Global and Valvoline believes its respective Trademark Assets are sufficiently distinctive and different to ensure consumers will not be confused as to source or sponsorship, and each agrees to employ its reasonable best efforts to use its respective Trademark Assets in a manner that does not cause actual confusion or a likelihood of confusion as to source or sponsorship of its respective goods or services in its respective channels of trade.
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If, despite Ashland Globals and Valvolines reasonable best efforts, such actual confusion shall be brought to the attention of either such Party, the Parties agree to consult regarding steps to be taken to mitigate or correct such actual confusion.
(m) Each of Ashland Global and Valvoline shall be responsible for policing, protecting and enforcing its own Intellectual Property. Notwithstanding the foregoing, each of Ashland Global and Valvoline will promptly give notice to the other of any known, actual or threatened, use or infringement of any of the other Partys Intellectual Property, including, without limitation, infringement of the other Partys Trademark Assets, in each case for a period of five years after the Separation Date.
SECTION 9.02. Trade Secrets. All Trade Secrets included in the Valvoline Assets ( Valvoline Trade Secrets ) shall be in or shall be moved to the physical possession of the Valvoline Group in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) prior to or on the Separation Date. Within a commercially reasonable time after placing the Valvoline Trade Secrets within the Valvoline Group, Ashland Global shall destroy or shall have destroyed any form or copy of Valvoline Trade Secrets in the possession of Ashland Global or any members of its Group, other than Valvoline Trade Secrets that were electronically preserved or recorded by an electronic backup system prior to the Separation Date and remain within a secure, encrypted data backup system that is subject to industry practice defense, protection and access restriction measures. If any Valvoline Trade Secrets are discovered to remain in the possession of the Ashland Global Group after the Separation Date, Ashland Global shall destroy or shall have destroyed any form or copy of such Valvoline Trade Secrets as promptly as possible, and within no more than a commercially reasonable amount of time.
All Trade Secrets included in the Ashland Global Assets ( Ashland Global Trade Secrets ) shall be in or shall be moved to the physical possession of the Ashland Global Group in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) prior to or on the Separation Date. Within a commercially reasonable time after placing the Ashland Global Trade Secrets within the Ashland Global Group, Valvoline shall destroy or shall have destroyed any form or copy of Ashland Global Trade Secrets in the possession of Valvoline or any members of its Group, other than Ashland Global Trade Secrets that were electronically preserved or recorded by an electronic backup system prior to the Separation Date and remain within a secure, encrypted data backup system that is subject to industry practice defense, protection and access restriction measures. If any Ashland Global Trade Secrets are discovered to remain in the possession of the Valvoline Group after the Separation Date, Valvoline shall destroy or shall have destroyed any form or copy of such Ashland Global Trade Secrets as promptly as possible, and within no more than a commercially reasonable amount of time.
SECTION 9.03. Intellectual Property Cross License . The Parties acknowledge that through the course of a history of integrated operations they and the members of their respective Groups have each obtained knowledge of and access to Intellectual Property, including Trade Secrets, copyrighted content, proprietary know-how, and other Intellectual Property rights that are not governed expressly by this Agreement or any of the Ancillary Agreements or identified expressly in any of the schedules thereto (collectively, Shared
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Background IP ). With regard to this Shared Background IP, the Parties seek to ensure that each has the freedom to use such Shared Background IP in the future. Hence, as of the Separation Date, each Group hereby grants to the other Group a non-exclusive, royalty-free, fully-paid, perpetual, sublicenseable (through multiple tiers), worldwide license to use and exercise rights under any Shared Background IP (excluding Trademark Assets and the subject matter of any Ancillary Agreement) owned by such Group and used in the other Groups businesses prior to the Separation Date solely for use of the same type, of the same scope, and to the same extent as used by such Group prior to the Separation Date, in connection with such Groups businesses, including both internal business activities and distribution and sublicensing through multiple tiers carried out in the ordinary course of business. Such license shall be and is on an as-is, where-is basis, and each Group hereby expressly disclaims all representations and warranties of any type or nature, provided that the disclaimer set forth in this Section 9.03 is expressly limited to this Section 9.03 and does not limit, supersede or modify any other representation or warranty set forth elsewhere in this Agreement or any other Ancillary Agreement.
SECTION 9.04. Scope. The geographic scope of this Article IX shall be worldwide.
SECTION 9.05. Licenses; Assignments. Any license, assignment or other transfer of rights in the Ashland Global IP or the Valvoline IP to a third party shall be accompanied by the restrictions provided in this Article IX.
ARTICLE X
Further Assurances and Additional Covenants
SECTION 10.01. Further Assurances. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties shall, subject to Section 4.04, use reasonable best efforts, prior to, on and after the Separation Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws and agreements to consummate and make effective the transactions contemplated by this Agreement.
(b) Without limiting the foregoing, prior to, on and after the Separation Date, each Party shall cooperate with the other Party, without any further consideration, (i) to execute and deliver, or use reasonable best efforts to execute and deliver, or cause to be executed and delivered, all Conveyancing and Assumption Instruments as such Party may reasonably be requested to execute and deliver by the other Party, (ii) to make, or cause to be made, all filings with, and to obtain, or cause to be obtained, all Governmental Approvals or other Consents required by Law or otherwise necessary or advisable under any ruling, judgment, Permit, license, agreement, indenture or other instrument, (iii) to obtain, or cause to be obtained, any Governmental Approvals or other Consents required to effect the Separation, the Initial Public Offering, the Distribution or the Other Disposition, or to conduct the Valvoline Business or the Ashland Global Business, as each was conducted as of the Separation Date, from and after the Separation Date and (iv) to take, or cause to be taken, all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and any transfers of Assets or assignments and assumptions of Liabilities hereunder and the other transactions contemplated hereby.
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(c) On or prior to the Separation Date, Ashland Global and Valvoline, in their respective capacities as direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by Valvoline or any other Subsidiary of Ashland Global, as the case may be, to effectuate the transactions contemplated by this Agreement.
(d) Prior to the Separation, if either Party identifies any commercial or other service that is needed to ensure a smooth and orderly transition of its business in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement or any Ancillary Agreement, the Parties will cooperate in determining whether there is a mutually acceptable arms-length basis on which the other Party will provide such service.
(e) Prior to the Distribution Date, Valvoline will not, without the prior written consent of Ashland Global (which it may withhold in its sole and absolute discretion), issue (i) any shares of Valvoline Common Stock or any rights, warrants or options to acquire Valvoline Common Stock (including, without limitation, securities convertible into or exchangeable for Valvoline Common Stock) or (ii) any share of Valvoline Non-Voting Stock; provided that, regardless or whether or not Ashland Global shall have consented thereto, in no case shall any such issuance (after giving effect to such issuance and considering all the shares of Valvoline Common Stock acquirable pursuant to such rights, warrants and options that may be outstanding on the date of such issuance (whether or not then exercisable)), result in Ashland Global owning directly or indirectly less than the number of shares necessary to (x) constitute control of Valvoline within the meaning of Section 368(c) of the Code or (y) meet the stock-ownership requirements described in Section 1504(a)(2) of the Code (in each case, if the number 81 were substituted for the number 80 each time it appears in such sections).
ARTICLE XI
Termination
SECTION 11.01. Termination. This Agreement may be terminated by Ashland Global at any time, in its sole discretion, prior to the Separation.
SECTION 11.02. Effect of Termination. In the event of any termination of this Agreement prior to the Separation, neither Party (nor any of its directors or officers) shall have any Liability or further obligation to the other Party under this Agreement or the Ancillary Agreements.
ARTICLE XII
Miscellaneous
SECTION 12.01. Counterparts; Entire Agreement; Corporate Power. (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be
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considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and a facsimile or PDF signature shall constitute an original for all purposes.
(b) This Agreement, the Ancillary Agreements and the Appendices, Exhibits and Schedules hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein. If there is a conflict between any provision of this Agreement and any specific provision of an applicable Ancillary Agreement, such Ancillary Agreement shall control; provided that with respect to any Conveyancing and Assumption Instrument, this Agreement shall control unless specifically stated otherwise in such Conveyancing and Assumption Instrument.
(c) Ashland Global represents on behalf of itself and each other member of the Ashland Global Group, and Valvoline represents on behalf of itself and each other member of the Valvoline Group, as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and
(ii) this Agreement and each Ancillary Agreement to which it is a party has been (or, in the case of any Ancillary Agreement, will be on or prior to the Separation Date) duly executed and delivered by it and constitutes, or will constitute, a valid and binding agreement of it enforceable in accordance with the terms thereof.
SECTION 12.02. Governing Law; Dispute Resolution; Jurisdiction. (a)This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof.
(b) Unless otherwise set forth in this Agreement, in the event of any dispute arising under this Agreement between the Parties, either Party shall have a right to refer such dispute to the respective general counsels, and such general counsels shall attempt in good faith to resolve such dispute. If the Parties are unable to resolve a given dispute within 10 days of such dispute being referred to the general counsels, then either Party shall have a right to refer such dispute to the respective chief executive officers, and such chief executive officers shall attempt in good faith to resolve such dispute. If the Parties are unable to resolve a given dispute within 10 days of such dispute being referred to the chief executive officers as provided in this Section 12.02(b), then, subject to Section 6.07, each Party shall have the right to exercise any and all remedies available under law or equity with respect to such dispute.
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(c) Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective Subsidiaries, Affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.
(d) Notwithstanding anything in this Agreement to the contrary, a Party may seek a temporary restraining order or a preliminary injunction from any court of competent jurisdiction, at any time, in order to prevent immediate and irreparable injury, less or damage on a provisional basis, pending the resolution of any dispute hereunder, including under Sections 12.02(b) or (c) hereof.
SECTION 12.03. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Partys Assets, or (b) the sale of all or substantially all of such Partys Assets; provided , however , that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 12.03 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
SECTION 12.04. Third-Party Beneficiaries. Except for the indemnification rights under this Agreement of any Ashland Global Indemnitee or Valvoline Indemnitee in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any Person except the Parties hereto any rights or remedies hereunder and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.
SECTION 12.05. Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service or (c) upon the earlier of confirmed receipt or the fifth business day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
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If to Ashland Global, to:
ASHLAND HOLDINGS INC.
50 E. RiverCenter Blvd.
Covington, KY 41011
Attn: Peter J. Ganz
e-mail: PGanz@ashland.com
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Susan Webster and Thomas E. Dunn
e-mail: swebster@cravath.com, tdunn@cravath.com
Facsimile: (212) 474-3700
If to Valvoline, to:
VALVOLINE INC.
3499 Blazer Parkway
Lexington, KY 40509
Attn: Julie M. ODaniel
e-mail: JMODaniel@valvoline.com
Either Party may, by notice to the other Party, change the address to which such notices are to be given.
SECTION 12.06. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.
SECTION 12.07. Publicity. Each of Ashland Global and Valvoline shall consult with the other, and shall, subject to the requirements of Section 7.08, provide the other Party the opportunity to review and comment upon, any press releases or other public statements in connection with the Separation, the Initial Public Offering, the Distribution or the Other Disposition or any of the other transactions contemplated hereby and any filings with any Governmental Authority or national securities exchange with respect thereto, in each case prior
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to the issuance or filing thereof, as applicable (including the IPO Registration Statement, the Parties respective Current Reports on Form 8-K to be filed on the Distribution Date, the Parties respective Quarterly Reports on Form 10-Q filed with respect to the fiscal quarter during which the Distribution Date occurs, or if such quarter is the fourth fiscal quarter, the Parties respective Annual Reports on Form 10-K filed with respect to the fiscal year during which the Distribution Date occurs (each such Quarterly Report on Form 10-Q or Annual Report on Form 10-K, a First Post-Distribution Report )). Each Partys obligations pursuant to this Section 12.07 shall terminate on the date on which such Partys First Post-Distribution Report is filed with the Commission.
SECTION 12.08. Expenses. Ashland Global and Valvoline shall each bear the costs and expenses incurred or paid as of the Separation Date in connection with the Separation, the Initial Public Offering and the Distribution or the Other Disposition, as applicable, for the services and to the financial, legal, accounting and other advisors set forth below their respective names on Schedule VII. Except as expressly set forth in this Agreement or in any Ancillary Agreement, all other third-party fees, costs and expenses paid or incurred in connection with the Separation, the Initial Public Offering and the Distribution or the Other Disposition, as applicable, will be paid by the Party incurring such fees or expenses, whether or not the Separation is consummated, or as otherwise agreed by the Parties in writing.
SECTION 12.09. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 12.10. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall survive the Separation, the Initial Public Offering and any Distribution or Other Disposition, as applicable, and shall remain in full force and effect.
SECTION 12.11. Waivers of Default. No failure or delay of any Party (or the applicable member of its Group) in exercising any right or remedy under this Agreement or any Ancillary Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.
SECTION 12.12. Specific Performance. Subject to Section 4.04 and notwithstanding the procedures set forth in Article X, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at Law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
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SECTION 12.13. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.
SECTION 12.14. Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms hereof, herein and herewith and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules hereto) and not to any particular provision of this Agreement. Article, Section or Schedule references are to the articles, sections and schedules of or to this Agreement unless otherwise specified. Any capitalized terms used in any Schedule to this Agreement or to any Ancillary Agreement but not otherwise defined therein shall have the meaning as defined in this Agreement or the Ancillary Agreement to which such Schedule is attached, as applicable. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 12.13. The word including and words of similar import when used in this Agreement shall mean including, without limitation, unless the context otherwise requires or unless otherwise specified. The word or shall not be exclusive.
SECTION 12.15. Waiver of Jury Trial . EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) EACH OF THE PARTIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH OF THE PARTIES MAKES THIS WAIVER VOLUNTARILY AND (D) EACH OF THE PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.15.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.
ASHLAND GLOBAL HOLDINGS INC., | ||
by | ||
Name: | ||
Title: |
VALVOLINE INC., | ||
by | ||
Name: | ||
Title: |
Exhibit 10.2
Form of Transition Services Agreement
TRANSITION SERVICES AGREEMENT (this Agreement ) dated as of [DATE], 2016, (the Effective Date ) by and between Ashland Global Holdings Inc. ( Provider ), a Delaware corporation and parent of Ashland LLC, and Valvoline Inc. ( Recipient ), a Kentucky corporation. Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the Separation Agreement dated as of [DATE], 2016 (the Separation Agreement ), by and between Provider and Recipient.
BACKGROUND
WHEREAS the board of directors of Ashland Inc. (as predecessor to Provider) has determined to separate Ashland Inc. into two independent, publicly traded companies, Provider and Recipient;
WHEREAS in connection with the Separation, Ashland Inc. has become a wholly owned subsidiary of Provider and the shareholders of Ashland Inc. have received shares of Provider Common Stock in exchange for their Ashland Inc. shares;
WHEREAS Provider and Recipient have entered the Separation Agreement, which sets forth, among other things, the assets, liabilities, rights and obligations of Provider and Recipient for purposes of effecting the Separation; and
WHEREAS, in connection with the transactions contemplated by the Separation Agreement and in order to ensure a smooth transition following the Separation, Recipient and certain of its Affiliates have requested Provider and certain of its Affiliates to provide certain services to Recipient and its Affiliates for a period following the date hereof, and Provider has agreed to provide, or cause certain of its Affiliates to provide, such services, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:
TERMS
1. Services .
(a) Furnishing of Services . During the Term (as defined below), Provider agrees to provide to Recipient and its Affiliates, or cause certain of its Affiliates to provide to Recipient and its Affiliates, the services specifically identified in, and in accordance with, Schedule A (each a Service and collectively, the Services ). Recipient agrees to purchase, and cause its Affiliates to purchase, the Services in accordance with the terms of this Agreement.
(b) Additional Services . During the Term, Recipient may request that Provider provide services that are not specifically identified in Schedule A and not otherwise provided for under any other agreement between Provider and Recipient (each such service, an Additional Service ). Provider shall consider any such request in good faith and, if Provider agrees to
provide or cause such Additional Services to be provided, such Additional Services shall be provided on terms mutually agreed by the Parties in good faith and the Parties shall amend the provisions of Schedule A so that Schedule A includes the Additional Services. Any such Additional Services shall be deemed to be Services for all purposes of this Agreement.
(c) Migration Services . The Parties acknowledge the transitional nature of the Services and agree to cooperate in good faith to effectuate a smooth transition of the Services from Provider to Recipient. Provider shall, and shall use commercially reasonable efforts to cause any third-party provider of Services to, assist Recipient in connection with the transition from the performance of Services by Provider and its Affiliates to the performance of such Services by Recipient, which may include assistance with the transfer of records, migration of historical data, the transition of any such Service from the hardware, software, network and telecommunications equipment and internet-related information technology infrastructure ( Internal IT Systems ) of Provider to the Internal IT Systems of Recipient and cooperation with and assistance to any third-party consultants engaged by Recipient in connection with such transition ( Migration Services ), taking into account the need to minimize the cost of such migration and the disruption to the ongoing business activities of the Parties hereto and their Affiliates. The internal planning of the Migration Services by Provider and its Affiliates and Migration Services shall be provided to Recipient as set forth on Schedule A . Any such Migration Services shall be deemed to be Services for all purposes of this Agreement.
(d) Scope of Services; Standard of Care .
i. Provider shall perform, or shall cause its Affiliates to perform, all Services to the same standard of care, quality and professionalism as if they were being performed for Provider, and in any event with at least the same level of care, quality and professionalism as such Services were provided to the Valvoline Business during the twelve (12) months preceding the Effective Date.
ii. In connection with providing the Services, Provider and its Affiliates shall not be required to perform, or refrain from taking, any actions that would result in any breach or violation of any license, lease or other agreement to which Provider or any of its Affiliates is a Party, or any Law; provided , however , that Provider will use commercially reasonable efforts, at the sole cost of Recipient, to obtain any third-party consents required to provide the Services to Recipient; provided , further that Provider and its Affiliates shall not be required to pay any consideration therefor, or to commence, defend or participate in any litigation or offer or grant any accommodation (financial or otherwise) to any third-party in connection therewith. Until such consents are obtained, Provider will use commercially reasonable efforts, to arrange for an alternative method of delivering the relevant Services that does not violate any applicable Law. Recipient shall bear the costs for such alternative methods of delivering the relevant services.
iii. Except as otherwise provided in this Section 1(d), the Services to be provided under this Agreement are furnished as is, where is, with all faults, and without representation, warranty or condition of any kind, express or implied, including any representation, warranty or condition of noninfringement, merchantability, satisfactory quality, fitness for any particular purpose, absence of errors or absence of interruptions.
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iv. Except as otherwise provided in Section 11(c) hereof, neither Provider nor any of its Affiliates will be required to perform any of the Services for the benefit of any person other than Recipient and its Affiliates.
(e) Changes to Services . Provider or its Affiliates may make changes from time to time in the manner of performing the Services if Provider or its Affiliates are making similar changes in performing similar services for Provider and its Affiliates; provided , however , that prior to Provider or its Affiliates modifying in any material and adverse manner the service level or manner of performing a Service, Provider or its Affiliates, as applicable, shall furnish to Recipient substantially the same notice (in content and timing) relating to changes referred to in this Section 1(e) as Provider or its Affiliates would furnish to its own Affiliates respecting such changes.
(f) Providers of Services . The selection of the personnel who will furnish the Services shall be made by Provider in its sole discretion, but with due consideration to providing the level of service required to be provided hereunder (as set forth in Section 1(d) hereof and Schedule A hereto). In no event shall Provider or its Affiliates be required to hire additional individuals or to retain any specific individual in its employ to provide the Services hereunder. Recipient understands that, prior to the date of this Agreement, Provider or its Affiliates may have contracted with third-party vendors to provide services in connection with all or any portion of the Services to be provided hereunder. Provider reserves the right to continue in accordance with past practice in effect during the twelve (12) months preceding the Effective Date in the ordinary course of business to subcontract with third-party vendors to provide the Services; provided , however , that the fees for such Services shall not exceed the fees Recipient would have incurred for such Services had Provider not subcontracted with a third-party vendor to provide such Services.
(g) Information and Access to Premises . Recipient shall, and shall cause its Affiliates to, on a reasonably timely basis, (i) provide Provider and its Affiliates with such information and documentation as is reasonably requested by Provider and (ii) perform such actions and tasks, in each case, as may be reasonably requested by Provider to enable Provider to perform the Services in accordance with this Agreement. All personnel providing Services and the supervisors of such personnel will be granted access to Recipients sites and systems as reasonably necessary or appropriate for them to fulfill their obligations hereunder; provided , however , that no person shall be required to remain at a site if conditions at such site present a hazard to such persons health or safety.
(h) Cooperation . Each Party hereto and its Affiliates shall cooperate with each other in connection with the performance of the Services hereunder; provided , however , that such cooperation shall not unreasonably disrupt the normal operations of Provider, the Recipient or their respective Affiliates.
(i) Data Ownership and Protection . During the Term, Provider shall retain possession of all data and records as required to enable Provider and its Affiliates to provide the Services as contemplated by this Agreement; provided , however , that Recipient shall own all of the data and records (i) provided by Recipient or its Affiliates, or created by or for Provider primarily on behalf of Recipient or its Affiliates, that are used by Provider or its Affiliates in
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relation to the provision of the Services and/or (ii) acquired by Recipient or its Affiliates pursuant to the Separation Agreement, in each case including, without limitation, employee information, customer information, product details and pricing information. All such data shall be provided by Provider as part of the Migration Services or as otherwise reasonably requested by Recipient.
Provider shall only process, use and store data, including personal data, which it may receive from the Recipient, while carrying out its duties under this Agreement, (a) in such a manner as is necessary to carry out those duties, (b) in accordance with all applicable privacy and data protection law obligations (including any applicable privacy policies of the Recipient) and (c) using appropriate technical and organizational measures to prevent the unauthorized or unlawful processing of such personal data and/or the accidental loss, destruction, damage, alteration or disclosure of such personal data.
(j) Security . The Parties hereto shall use commercially reasonable efforts to ensure that Provider is able to maintain the level of security with respect to all of its facilities, networks and systems used in connection with the Services and all of the data contained therein as is maintained with respect to its facilities, networks and systems in the operation of its own businesses throughout the Term. Access to facilities, networks and systems by either of the Parties hereto or any Affiliate of either Party hereto in accordance with the terms of the Separation Agreement or Schedule A shall not be deemed to be a breach of the immediately preceding sentence. Recipient shall be entitled to choose an independent third-party to perform, at Recipients expense, with reasonable advance written notice and with reasonable cooperation of Provider, audits of the data and physical, electronic and systems security procedures in effect at the locations where Provider is providing Services, which audits shall be of the type and conducted in a manner that is reasonable under the circumstances for the provision of Services on a transitional basis.
(k) Books and Records . Provider shall keep books and records of the Services provided and reasonable supporting documentation of all charges and expenses incurred in providing such Services and shall produce written records that verify the same. Provider shall make such books and records and documentation (including financial data required for filings and audits, in either electronic or paper form) available to the Recipient upon reasonable written notice, during normal business hours and subject to compliance with Section 9 hereof.
(l) Representatives; Review Meetings .
i. In addition to the representatives of Provider and Recipient set forth in Schedule A with respect to each Service (the Service Representatives ), Provider and Recipient shall each designate in writing to the other Party one representative (each a Review Representative ) to act as a contact person with respect to all issues relating to the provision of the Services pursuant to this Agreement. To the extent an issue is not resolved by the Service Representatives or does not relate to a specific Service, the Review Representatives shall hold review meetings by telephone or in person, at times to be mutually agreed, to discuss any issues relating to such Service or the provision of the Services under this Agreement ( Review Meetings ). In the Review Meetings, the Review Representatives shall be responsible for discussing any problems identified in connection with the provision of the Services and, to the
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extent changes in the provision of the Services are agreed upon, for the implementation of such changes. The Review Representatives will mutually establish governance procedures for the Service Representatives to address and resolve issues and, if necessary, to escalate those issues to the Review Representatives for resolution in accordance with the terms of this Agreement. Each of Provider and Recipient shall have the right to, from time to time, change its Review Representative upon written notice to the other Party.
ii. In connection with the Information Technology Services ( IT Services ), Provider and Recipient shall each designate one to two senior Information Technology employees to participate on a steering committee (the IT Steering Committee ). The IT Steering Committee will meet quarterly to provide overall guidance and direction as to the IT Services and the efforts to effectuate a smooth transition of the performance of IT Services from Provider to Recipient. Meetings will be facilitated by the Service Representatives designated by Provider and Recipient with respect to the IT Services. In the event of any dispute relating to the IT Services which cannot be resolved between the Service Representatives, such dispute will be elevated to the IT Steering Committee for resolution.
2. Local Agreements .
(a) With respect to any Services that are delivered in a particular country, Provider and Recipient may cause their respective Affiliates located in such country to enter into one or more local services agreements (each a Local Agreement ), for the purpose of memorializing the implementation of this Agreement in that country, to address Services delivered locally in that country and payments for such Services. All Services shall be provided by Provider or its Affiliates, as applicable, pursuant to this Agreement or an executed Local Agreement. Unless and to the extent an individual Local Agreement expressly provides otherwise, each Local Agreement shall incorporate by reference the terms and conditions of this Agreement and shall not be construed as altering or superseding the rights and obligations of the Parties under this Agreement. In the event of any conflict between the terms of this Agreement and any Local Agreement, the provisions of this Agreement shall control.
(b) The Review Representatives (and/or their respective designees(s)) shall remain responsible for the administration of this Agreement and the individual Local Agreements on behalf of Provider and Recipient, respectively, and shall be the only Persons authorized to amend, modify, change, waive or discharge any rights and obligations under this Agreement on behalf of Provider and Recipient. No changes to any Local Agreement shall be made without the knowledge of the Review Representatives and the agreement of the local Provider Affiliate and local Recipient Affiliate in a written amendment to the Local Agreement.
(c) Recipient shall have the right to enforce this Agreement (including the terms of all Local Agreements) on behalf of each of its Affiliates that has entered into a Local Agreement, and to assert all rights and exercise and receive the benefits of all remedies (including Damages (as defined below)) of each such Affiliate, to the same extent as if Recipient were such Affiliate, subject to the limitations of liability applicable under this Agreement. Provider shall have the right to enforce this Agreement (including the terms of all Local Agreements) on behalf of each Provider Affiliate that enters into a Local Agreement, and to assert all rights and exercise and receive the benefits of all remedies (including Damages) of each of its Affiliates, to the same extent as if Provider were such Affiliate, subject to the limitations of liability applicable under this Agreement.
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3. Fees for Services .
(a) The fees or basis for the fees for the Services shall be as set forth in Schedule A . In addition to the fees set forth in Schedule A , Recipient shall pay, or cause its Affiliates to pay, each calendar month an administrative fee equal to 5% of the aggregate amount of fees payable for Services to be performed in such month (the Administrative Fee ). Except as otherwise provided on Schedule A , Provider shall provide, or cause its Affiliates to provide, as applicable, on the first day of each calendar month, a written invoice specifying (i) the fees payable for the Services to be performed during such month and (ii) the applicable Administrative Fee. Recipient shall pay, or cause its Affiliates to pay, as applicable, each such invoice within thirty (30) days of the date of such invoice (any such day on which a payment amount is due, the Due Date ). In the event that Additional Services are added in accordance with Section 1(b) of this Agreement, Schedule A shall be amended as necessary to reflect the service fees with respect to such Services. All payments made pursuant to this Section 3 shall be made in local currency designated in Schedule A by wire transfer to an account at a financial institution designated in writing by Provider or its Affiliates, as applicable. Notwithstanding the foregoing, in the event Recipient disputes any amount on an invoice, Recipient shall notify Provider in writing within ten (10) business days after Recipients receipt of such invoice and shall describe in detail the reason for disputing such amount, and will be entitled to withhold such amount during the pendency of the dispute. The provisions of Sections 11(i), 11(j) and 11(k) of this Agreement shall apply with respect to any disputed amount. Upon resolution of the Dispute (as defined below), to the extent Recipient owes Provider some or all of the amount withheld, it shall promptly pay such applicable amount to Provider.
(b) Any invoices not paid or the subject of a good faith dispute by the Due Date shall bear interest at a rate equal to the United States Federal Funds Rate plus 1.25%, calculated on the basis of the actual number of days elapsed, divided by 365, from the Due Date until the date payment is received in full by Provider.
(c) Provider shall, and shall cause its Affiliates to, cooperate and provide such information as reasonably requested by Recipient and provide such back-up therefor as reasonably requested by Recipient in connection therewith to the extent reasonably required to permit Recipient to review and evaluate the amounts set forth in any invoice and verify such amounts. If any such review reveals any overpayment by Recipient, Provider shall promptly refund the amount of such overpayment to Recipient.
(d) Recipient shall pay any one time set up charges and/or windup charges for the Services listed in Schedule A .
(e) This Section 3 shall survive the expiration, termination or cancellation of this Agreement with respect to the Services performed pursuant to this Agreement for which Recipient has not yet paid.
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4. Taxes . The amounts set forth for each Service on Schedule A do not include any federal, state, local or foreign sales, use, value added, goods and services, or other similar taxes (but, for the avoidance of doubt, excluding any taxes based upon or calculated by reference to income, receipts or capital or withholding taxes) sustained, incurred, or levied with respect to the sale, performance, provision or delivery of Services (the Sales Taxes ), which such Sales Taxes will be separately stated on the relevant invoice to Recipient. Recipient shall pay all such Sales Taxes to Provider in accordance with Section 3(a). Except as otherwise required under applicable Law, Provider shall be solely responsible for payment of all such Sales Taxes to the applicable Governmental Authority and for timely withholding and remitting to the applicable Governmental Authority any employment, income or other taxes required to be withheld in respect of its employees related to the sale, performance, provision or delivery of Services (the Withholding Taxes ). Except as otherwise required under applicable Law, Provider shall timely prepare and file all tax returns required to be filed with any Governmental Authority with respect to such Sales Taxes and Withholding Taxes and, in the case of value-added taxes, timely provide Recipient with valid value-added tax invoices in accordance with applicable Law. Notwithstanding the foregoing, in the case of all Sales Taxes, Recipient shall not be obligated to pay such Sales Taxes if and to the extent that Recipient has provided any valid exemption certificates or other applicable documentation that eliminate or reduce the obligation to collect and/or pay such Sales Taxes.
5. Term and Termination of Agreement .
(a) This Agreement shall commence on the Effective Date and shall terminate on the close of business on the latest Applicable Termination Date specified in Schedule A with respect to any Service hereunder, unless earlier terminated in accordance with any other express provision of this Agreement or by written agreement of the Parties (the Term ).
(b) The obligation of the Provider and its Affiliates to provide any Service hereunder shall cease on the earliest to occur of (i) the last day of the Term and (ii) the Applicable Termination Date specified in Schedule A with respect to such Service. If the provision by Provider of one Service (the Underlying Service ) is necessary in order to enable Provider to provide any other Services (the Dependent Services ) as set forth in Schedule A , Recipient may not terminate the Underlying Service without also canceling all applicable Dependent Services.
6. Force Majeure .
(a) A Party will be excused from performing hereunder (except for the performance of financial obligations for the Services provided) and will not be liable in damages or otherwise when and to the extent its performance is delayed or prevented by any circumstance beyond its reasonable control and not due to its willful misconduct or negligence (a Force Majeure ), including, without limitation, the following: natural disaster; fires; floods; earthquakes; storms; unusual weather conditions; explosions; terrorist act or war; accidents; breakdowns of machinery or equipment; inability to obtain equipment, fuel or other materials; labor shortages, slowdowns, strikes, lockouts or other disputes; public disorder, riots or other civil disturbances; or voluntary or involuntary compliance with any Law, order, official recommendation or request of any Governmental Authority.
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(b) If the performance of any obligation hereunder is sought to be excused by reason of a Force Majeure, the affected Party shall promptly notify the other Party in writing of the Force Majeure, the anticipated extent of the delayed or prevented performance and the steps it will take to remedy the situation. The Party so affected shall use commercially reasonable efforts to cure or remedy such cause of non-performance in a timely manner; provided , however , that it shall not be required to make any concession or grant any demand or request to settle any strike or other labor dispute. In no event will the affected Party be obligated to procure individuals from other sources to enable it to perform its obligations hereunder. At the option of Recipient, the term of any Service affected by a Force Majeure shall be tolled until such Service is resumed in accordance with the standards set forth in Section 1(d)(i) of this Agreement; provided , however , that this Agreement shall terminate no later than on the close of business on the latest Applicable Termination Date.
7. Limitation of Liability; Indemnity .
(a) Determination of the suitability of any Services furnished hereunder for the use contemplated by Recipient is the sole responsibility of Recipient, and neither Provider nor its Affiliates will have any responsibility in connection therewith. Subject to Sections 1(d)(i) and 7(d), Recipient assumes all risk and liability for loss, damage or injury to persons or property arising out of such Services, however used, and Provider and its Affiliates shall in no event be liable to Recipient or its Affiliates or those claiming by, through or under Recipient or its Affiliates (including employees, agents, customers, subtenants, contractors and other invitees) for any damage, including, without limitation, personal or property damage, suffered by any of them, directly or indirectly, as a result of any Services provided hereunder, regardless of whether due or alleged to be due to the negligence of Provider or its Affiliates, except to the extent such damage is occasioned by the bad faith, willful misconduct, fraud or gross negligence of Provider or its Affiliates or the willful breach of this Agreement by Provider.
(b) NONE OF PROVIDER, RECIPIENT OR ANY OF THEIR RESPECTIVE AFFILIATES SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE FOR ANY LOST PROFITS, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND WHETHER OR NOT BASED ON CONTRACT, TORT, WARRANTY CLAIMS OR OTHERWISE, IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE SERVICES PROVIDED HEREUNDER (OTHER THAN ANY PUNITIVE OR CONSEQUENTIAL DAMAGES FOR WHICH PROVIDER INDEMNITEE (AS DEFINED BELOW) OR RECIPIENT INDEMNITEE (AS DEFINED BELOW) IS FOUND LIABLE THROUGH THE FINAL RESOLUTION OF AN UNAFFILIATED THIRD-PARTY CLAIM, WHETHER CAUSED BY BREACH OF THIS AGREEMENT, NEGLIGENCE OR OTHERWISE; PROVIDED , HOWEVER , THAT THE FEES FOR SERVICES HEREUNDER AND PROVIDERS RIGHT THERETO SHALL NOT BE DEEMED LOST PROFITS, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE IN NATURE.
(c) Recipient shall indemnify, defend and hold harmless Provider and its Affiliates and their respective officers, directors, employees, agents, advisors or representatives (each a Provider Indemnitee ) from and against all costs, judgments, awards, claims, suits, liabilities, damages, losses, penalties and other expenses of any kind or nature (whether absolute, accrued, contingent or other) suffered by any of them arising from or in connection with this Agreement
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or the Services provided hereunder, regardless of the legal basis of liability or legal or equitable principle involved, including reasonable attorneys fees and expenses of investigation (which fees and expenses shall be paid as incurred) (collectively, the Damages ); provided , however , that such indemnity shall not apply for the benefit of a Provider Indemnitee if it is ultimately found through settlement or by final, non-appealable order that such Provider Indemnitees actions constituted gross negligence, fraud, bad faith, willful misconduct or willful breach of this Agreement.
(d) Provider shall indemnify, defend and hold harmless Recipient and its Affiliates and their respective officers, directors, employees, agents, advisors or representatives (each a Recipient Indemnitee ) from and against all Damages, solely to the extent that it is ultimately found through settlement or by final, non-appealable order that Providers actions in respect of such damages constituted gross negligence, fraud, bad faith, willful misconduct or willful breach of this Agreement.
(e) Any Actions relating to indemnification under this Section 7 shall be conducted in accordance with the procedures as set forth in Section 6.05 and Section 6.06 of the Separation Agreement.
(f) Nothing contained in this Section 7 shall limit or alter the obligation of either Party to indemnify the other Party pursuant to the Separation Agreement or any Ancillary Agreement; provided , however , that no Party shall obtain duplicative recoveries. For the avoidance of doubt, the provisions of Article 6 of the Separation Agreement shall not constitute the sole and exclusive remedy in respect of Damages arising from or in connection with this Agreement or the Services.
(g) The provisions of this Section 7 shall survive the expiration, termination or cancellation of this Agreement and shall be enforceable to the fullest extent permitted by law or in equity.
8. Remedies for Default .
(a) If a Party:
i. defaults in the payment of any indebtedness hereunder to the other Party (other than amounts that are the subject of an unresolved Dispute) and fails to remedy such breach within thirty (30) business days of written notice of such default from the non-defaulting Party;
ii. commits a breach of any other provision of this Agreement in any material respect and fails to remedy such breach within forty-five (45) business days of written notice of such breach from the non-defaulting Party (or such longer period if a cure not capable of being completed within such forty-five (45) business day period has been commenced and is being diligently pursued); or
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iii. voluntarily files, or involuntarily has filed against it (which filing is undismissed within sixty (60) days of such involuntary filing), any bankruptcy, receivership, insolvency or reorganization proceeding; then in any such event the other Party will have the right, in addition to any other rights and remedies it may have hereunder, to suspend deliveries or receipts hereunder or to terminate this Agreement if such delay or default substantially impairs the value of the entire Agreement to the non-defaulting Party.
9. Confidentiality . Each Party hereby acknowledges that confidential Information of such Party or members of its Group may be exposed to employees and agents of the other Party or its Group as a result of the activities contemplated by this Agreement. Each Party agrees, on behalf of itself and its Affiliates, that such Partys obligation to use and keep confidential such Information of the other Party or its Group shall be governed by Sections 7.01(c) and 7.08 of the Separation Agreement.
10. Ownership of Intellectual Property .
(a) Except as otherwise expressly provided in this Agreement, the Separation Agreement or the other Ancillary Agreements (as defined in the Separation Agreement), each of the Parties hereto and their respective Affiliates shall retain all right, title and interest in and to their respective Intellectual Property, including any and all improvements, modifications, derivative works, additions or enhancements thereof. No license or right, express or implied, is granted under this Agreement by either Party or such Partys Affiliates in or to their respective Intellectual Property, except that, solely to the extent required for the provision or receipt of the Services in accordance with this Agreement, each Party ( Licensor ), for itself and on behalf of its subsidiaries, hereby grants to the other ( Licensee ) (and the Licensees subsidiaries) a non-exclusive, revocable (solely as expressly provided in this Agreement), non-transferable, non-sublicensable (except to third parties as required for the provision or receipt of Services, but not for their own independent use), royalty-free, worldwide license during the Term to use such Intellectual Property of the Licensor in connection with this Agreement, but only to the extent and for the duration necessary for the Licensee to provide or receive the applicable Service under this Agreement. Upon the expiration of such term, or the earlier termination of such Service in accordance with this Agreement, the license to the relevant Intellectual Property will terminate; provided , that all licenses granted hereunder shall terminate immediately upon the expiration or earlier termination of this Agreement in accordance with the terms hereof. Upon the expiration or termination of this Agreement or an applicable Service, the Licensee shall cease use of the Licensors Intellectual Property and shall return or destroy at the Licensors request all Intellectual Property provided in connection with this Agreement. The foregoing license is subject to any licenses granted by others with respect to Intellectual Property not owned by the Parties hereto or their respective Affiliates.
(b) Subject to the limited license granted in Section 10(a), in the event that any Intellectual Property is created, developed, written or authored by a Party hereto in connection with the performance or receipt of the Services by such Party, all right, title and interest throughout the world in and to all such Intellectual Property shall vest solely in such Party unconditionally and immediately upon such Intellectual Property having been created, developed, written or authored, unless the Parties hereto agree otherwise in writing.
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(c) In the event that any Intellectual Property is created, developed, written or authored by a Party hereto or any of its Affiliates in connection with the performance or receipt of the Services by such Party in accordance with this Agreement, such Party hereby grants to the Party hereto that did not create, develop, write or author such Intellectual Property, and its Affiliates, a limited, nonexclusive, nontransferable, irrevocable, royalty-free license (without the right to sublicense except as expressly provided herein), to use, subsequent to the Term, any Intellectual Property developed for and used in connection with Services provided under this Agreement. The Party hereto that did not create, develop, write or author such Intellectual Property shall be entitled to grant sublicenses of the license granted pursuant to this Section 10(c) for the benefit of itself and its Affiliates to their vendors, contractors, subcontractors and other similar third-party service providers solely to the extent necessary for such third parties to perform services for such Party and its Affiliates.
(d) To the extent title to any Intellectual Property that is the subject of Section 10(b), vests, by operation of Law, in the Party hereto or an Affiliate of the Party hereto that did not create, develop, write or author such Intellectual Property, such Party or Affiliate of the Party hereby assigns to the other Party or its designated Affiliate all right, title and interest in such Intellectual Property and agrees to provide such assistance and execute such documents as such other Party may reasonably request to vest in such Party all right, title and interest in such Intellectual Property.
11. Miscellaneous .
(a) All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the Party for whom it is intended, if delivered by certified mail, return receipt requested, or by an internationally recognized courier service, or if sent by facsimile, provided that the facsimile is promptly confirmed by written confirmation thereof to the Person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Person:
If to Provider or any of its Affiliates:
ASHLAND GLOBAL HOLDINGS INC.
50 E. RiverCenter Blvd.
Covington, KY 41011
Attn: General Counsel
e-mail: PGanz@ashland.com
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Susan Webster and Thomas E. Dunn
e-mail: SWebster@cravath.com, TDunn@cravath.com
Facsimile: (212) 474-3700
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If to Recipient or any of its Affiliates, to:
VALVOLINE INC.
3499 Blazer Parkway
Lexington, KY 40509
Attn: General Counsel
e-mail: JMODaniel@valvoline.com
(b) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Recipient and Provider or, in the case of a waiver, by the Party against whom the waiver is to be effective. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
(c) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Partys Assets, or (b) the sale of all or substantially all of such Partys Assets; provided , however , that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 11(c) shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
(d) Except to the extent provided by Section 7 hereof, the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any person except the Parties hereto any rights or remedies hereunder.
(e) This Agreement, including Schedule A , comprises the entire agreement between the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, except for (i) the Separation Agreement, (ii) any Local Agreements, (iii) the Ancillary Agreements, and (iv) any written agreement of the Parties that expressly provides that it is not superseded by this Agreement.
(f) Any obligation of any Party to any other Party under this Agreement, which obligation is performed, satisfied or fulfilled by an Affiliate of such Party, shall be deemed to have been performed, satisfied or fulfilled by such Party.
(g) This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Recipient, Provider or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement.
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(h) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective Subsidiaries, Affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.
(i) Prior to initiating any legal action in accordance with Section 11(h), any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, or the breach, termination, or validity thereof ( Dispute ), shall be resolved by submitting such Dispute first to the relevant Service Representative of each Party hereto, and such Service Representatives shall seek to resolve such Dispute through informal good faith negotiation. In the event that any dispute among the Parties hereto relating to the Services or this Agreement is not resolved by such Service Representatives within ten (10) business days after the claiming Party verbally notifies the other Party of the Dispute (during which time the Service Representatives shall meet in person or by telephone as often as reasonably necessary to attempt to resolve the Dispute), such Service Representatives shall escalate the dispute to the Review Representatives for resolution. In the event the Review Representatives fail to meet or, if they meet, fail to resolve the Dispute within an additional ten (10) business days, then the claiming Party will provide the other Party with a written Notice of Dispute , describing (i) the issues in dispute and such Partys position thereon, (ii) a summary of the evidence and arguments supporting such Partys positions, (iii) a summary of the negotiations that have taken place to date, and (iv) the name and title of the senior executives or their respective designees who will represent each Party. The senior executives or their respective designees designated in such Notice of Dispute shall meet in person or by telephone as often as reasonably necessary to resolve the Dispute and shall confer in a good faith effort to resolve the Dispute. If such senior executives or their respective designees decline to meet within the allotted time or fail to resolve the Dispute within twenty (20) business days after receipt of the Notice of Dispute, then either Party may, if the dispute does not relate to or arise out of Section 3(a), subject to Sections 11(h) and 11(p), pursue any legal remedy available to it hereunder or under law, or if the Dispute relates to or arises out of Section 3(a), pursue the remedy set forth in Section 11(j).
(j) If any Dispute relates to or arises out of Section 3(a), either Party may promptly submit the disputed invoice to an independent third-party (the Arbitrator), selected by the mutual agreement of the Parties hereto or, if the Parties hereto fail to agree on such third-party within ten (10) days of receipt by either Party of a demand for arbitration, at the request of either Party, a third-party shall be appointed by the American Arbitration Association ( AAA ) using the listing, striking and ranking method in the Expedited Procedures of the Commercial Arbitration Rules of the AAA then in effect (the Rules ), for resolution. The Arbitrator shall be engaged solely to determine whether the disputed invoice has been properly rendered and reflects amounts due and owing in accordance with the terms of this Agreement. The arbitration shall be held in accordance with the Rules, except as modified herein. Any time period contained herein or in the Rules may be extended by mutual agreement of the Parties or by the Arbitrator for good cause shown. The arbitration shall be held in New York. Each Party shall
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submit its position in writing to the Arbitrator within 10 days of the appointment of the Arbitrator. Within thirty (30) days after receipt of such submissions, the Arbitrator shall make a final written determination and award of the amounts due under the disputed invoice, and such determination and award shall be final, conclusive and binding upon the Parties hereto, and may be entered and enforced in any court having jurisdiction. All fees and disbursements of the Arbitrator shall be paid by the Party that is unsuccessful in such arbitration.
(k) A Partys failure to comply with Sections 11(i) and 11(j) shall constitute cause for dismissal without prejudice of any legal proceeding.
(l) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.
(m) The heading references herein are for convenience purposes only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof.
(n) If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.
(o) The English language shall be the definitive and controlling text of this Agreement, notwithstanding the translation of this Agreement into any other language.
(p) EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11(P).
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(q) It is expressly understood that the relationship between the Parties hereto is that of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or other relationship. Neither Party has the authority to bind the other to any third person or otherwise to act in any way as the representative of the other, unless otherwise expressly agreed to in writing signed by both Parties hereto.
(r) Nothing in this Agreement (including any breach hereof) shall affect the obligations of Provider and Recipient under the Separation Agreement. In the case of any conflict or inconsistency between the Separation Agreement and this Agreement, the terms of the Separation Agreement shall govern and control.
(s) The provisions of this Section 11 shall survive the expiration, termination or cancellation of this Agreement.
[ Remainder of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF, the Parties have caused this Transition Services Agreement to be executed by their duly authorized representatives.
ASHLAND GLOBAL HOLDINGS INC. | ||||
by | ||||
Name: | ||||
Title: |
VALVOLINE INC. | ||||
by | ||||
Name: | ||||
Title: |
Exhibit 10.3
Form of Reverse Transition Services Agreement
REVERSE TRANSITION SERVICES AGREEMENT (this Agreement ) dated as of [DATE], 2016, (the Effective Date ) by and between Valvoline Inc. ( Provider ), a Kentucky corporation, and Ashland Global Holdings Inc. ( Recipient ), a Delaware corporation and parent of Ashland LLC. Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in the Separation Agreement dated as of [DATE], 2016 (the Separation Agreement ), by and between Recipient and Provider.
BACKGROUND
WHEREAS the board of directors of Ashland Inc. (as predecessor to Recipient) has determined to separate Ashland Inc. into two independent, publicly traded companies, Recipient and Provider;
WHEREAS in connection with the Separation, Ashland Inc. has become a wholly owned subsidiary of Recipient and the shareholders of Ashland Inc. have received shares of Recipient Common Stock in exchange for their Ashland Inc. shares;
WHEREAS Recipient and Provider have entered the Separation Agreement, which sets forth, among other things, the assets, liabilities, rights and obligations of Provider and Recipient for purposes of effecting the Separation; and
WHEREAS, in connection with the transactions contemplated by the Separation Agreement and in order to ensure a smooth transition following the Separation, Recipient and certain of its Affiliates have requested Provider and certain of its Affiliates to provide certain services to Recipient and its Affiliates for a period following the date hereof, and Provider has agreed to provide, or cause certain of its Affiliates to provide, such services, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties, intending to be legally bound, hereby agree as follows:
TERMS
1. Services .
(a) Furnishing of Services . During the Term (as defined below), Provider agrees to provide to Recipient and its Affiliates, or cause certain of its Affiliates to provide to Recipient and its Affiliates, the services specifically identified in, and in accordance with, Schedule A (each a Service and collectively, the Services ). Recipient agrees to purchase, and cause its Affiliates to purchase, the Services in accordance with the terms of this Agreement.
(b) Additional Services . During the Term, Recipient may request that Provider provide services that are not specifically identified in Schedule A and not otherwise provided for under any other agreement between Provider and Recipient (each such service, an Additional Service ). Provider shall consider any such request in good faith and, if Provider agrees to
provide or cause such Additional Services to be provided, such Additional Services shall be provided on terms mutually agreed by the Parties in good faith and the Parties shall amend the provisions of Schedule A so that Schedule A includes the Additional Services. Any such Additional Services shall be deemed to be Services for all purposes of this Agreement.
(c) Migration Services . The Parties acknowledge the transitional nature of the Services and agree to cooperate in good faith to effectuate a smooth transition of the Services from Provider to Recipient. Provider shall, and shall use commercially reasonable efforts to cause any third-party provider of Services to, assist Recipient in connection with the transition from the performance of Services by Provider and its Affiliates to the performance of such Services by Recipient, which may include assistance with the transfer of records, migration of historical data, the transition of any such Service from the hardware, software, network and telecommunications equipment and internet-related information technology infrastructure ( Internal IT Systems ) of Provider to the Internal IT Systems of Recipient and cooperation with and assistance to any third-party consultants engaged by Recipient in connection with such transition ( Migration Services ), taking into account the need to minimize the cost of such migration and the disruption to the ongoing business activities of the Parties hereto and their Affiliates. The internal planning of the Migration Services by Provider and its Affiliates and Migration Services shall be provided to Recipient as set forth on Schedule A . Any such Migration Services shall be deemed to be Services for all purposes of this Agreement.
(d) Scope of Services; Standard of Care .
i. Provider shall perform, or shall cause its Affiliates to perform, all Services to the same standard of care, quality and professionalism as if they were being performed for Provider, and in any event with at least the same level of care, quality and professionalism as such Services were provided to Ashlands specialty ingredients and performance materials businesses, as applicable, during the twelve (12) months preceding the Effective Date.
ii. In connection with providing the Services, Provider and its Affiliates shall not be required to perform, or refrain from taking, any actions that would result in any breach or violation of any license, lease or other agreement to which Provider or any of its Affiliates is a Party, or any Law; provided , however , that Provider will use commercially reasonable efforts, at the sole cost of Recipient, to obtain any third-party consents required to provide the Services to Recipient; provided , further that Provider and its Affiliates shall not be required to pay any consideration therefor, or to commence, defend or participate in any litigation or offer or grant any accommodation (financial or otherwise) to any third-party in connection therewith. Until such consents are obtained, Provider will use commercially reasonable efforts, to arrange for an alternative method of delivering the relevant Services that does not violate any applicable Law. Recipient shall bear the costs for such alternative methods of delivering the relevant services.
iii. Except as otherwise provided in this Section 1(d), the Services to be provided under this Agreement are furnished as is, where is, with all faults, and without representation, warranty or condition of any kind, express or implied, including any representation, warranty or condition of noninfringement, merchantability, satisfactory quality, fitness for any particular purpose, absence of errors or absence of interruptions.
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iv. Except as otherwise provided in Section 11(c) hereof, neither Provider nor any of its Affiliates will be required to perform any of the Services for the benefit of any person other than Recipient and its Affiliates.
(e) Changes to Services . Provider or its Affiliates may make changes from time to time in the manner of performing the Services if Provider or its Affiliates are making similar changes in performing similar services for Provider and its Affiliates; provided , however , that prior to Provider or its Affiliates modifying in any material and adverse manner the service level or manner of performing a Service, Provider or its Affiliates, as applicable, shall furnish to Recipient substantially the same notice (in content and timing) relating to changes referred to in this Section 1(e) as Provider or its Affiliates would furnish to its own Affiliates respecting such changes.
(f) Providers of Services . The selection of the personnel who will furnish the Services shall be made by Provider in its sole discretion, but with due consideration to providing the level of service required to be provided hereunder (as set forth in Section 1(d) hereof and Schedule A hereto). In no event shall Provider or its Affiliates be required to hire additional individuals or to retain any specific individual in its employ to provide the Services hereunder. Recipient understands that, prior to the date of this Agreement, Provider or its Affiliates may have contracted with third-party vendors to provide services in connection with all or any portion of the Services to be provided hereunder. Provider reserves the right to continue in accordance with past practice in effect during the twelve (12) months preceding the Effective Date in the ordinary course of business to subcontract with third-party vendors to provide the Services; provided , however , that the fees for such Services shall not exceed the fees Recipient would have incurred for such Services had Provider not subcontracted with a third-party vendor to provide such Services.
(g) Information and Access to Premises . Recipient shall, and shall cause its Affiliates to, on a reasonably timely basis, (i) provide Provider and its Affiliates with such information and documentation as is reasonably requested by Provider and (ii) perform such actions and tasks, in each case, as may be reasonably requested by Provider to enable Provider to perform the Services in accordance with this Agreement. All personnel providing Services and the supervisors of such personnel will be granted access to Recipients sites and systems as reasonably necessary or appropriate for them to fulfill their obligations hereunder; provided , however , that no person shall be required to remain at a site if conditions at such site present a hazard to such persons health or safety.
(h) Cooperation . Each Party hereto and its Affiliates shall cooperate with each other in connection with the performance of the Services hereunder; provided , however , that such cooperation shall not unreasonably disrupt the normal operations of Provider, the Recipient or their respective Affiliates.
(i) Data Ownership and Protection . During the Term, Provider shall retain possession of all data and records as required to enable Provider and its Affiliates to provide the Services as contemplated by this Agreement; provided , however , that Recipient shall own all of the data and records (i) provided by Recipient or its Affiliates, or created by or for Provider primarily on behalf of Recipient or its Affiliates, that are used by Provider or its Affiliates in
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relation to the provision of the Services and/or (ii) acquired by Recipient or its Affiliates pursuant to the Separation Agreement, in each case including, without limitation, employee information, customer information, product details and pricing information. All such data shall be provided by Provider as part of the Migration Services or as otherwise reasonably requested by Recipient.
Provider shall only process, use and store data, including personal data, which it may receive from the Recipient, while carrying out its duties under this Agreement, (a) in such a manner as is necessary to carry out those duties, (b) in accordance with all applicable privacy and data protection law obligations (including any applicable privacy policies of the Recipient) and (c) using appropriate technical and organizational measures to prevent the unauthorized or unlawful processing of such personal data and/or the accidental loss, destruction, damage, alteration or disclosure of such personal data.
(j) Security . The Parties hereto shall use commercially reasonable efforts to ensure that Provider is able to maintain the level of security with respect to all of its facilities, networks and systems used in connection with the Services and all of the data contained therein as is maintained with respect to its facilities, networks and systems in the operation of its own businesses throughout the Term. Access to facilities, networks and systems by either of the Parties hereto or any Affiliate of either Party hereto in accordance with the terms of the Separation Agreement or Schedule A shall not be deemed to be a breach of the immediately preceding sentence. Recipient shall be entitled to choose an independent third-party to perform, at Recipients expense, with reasonable advance written notice and with reasonable cooperation of Provider, audits of the data and physical, electronic and systems security procedures in effect at the locations where Provider is providing Services, which audits shall be of the type and conducted in a manner that is reasonable under the circumstances for the provision of Services on a transitional basis.
(k) Books and Records . Provider shall keep books and records of the Services provided and reasonable supporting documentation of all charges and expenses incurred in providing such Services and shall produce written records that verify the same. Provider shall make such books and records and documentation (including financial data required for filings and audits, in either electronic or paper form) available to the Recipient upon reasonable written notice, during normal business hours and subject to compliance with Section 9 hereof.
(l) Representatives; Review Meetings .
i. In addition to the representatives of Provider and Recipient set forth in Schedule A with respect to each Service (the Service Representatives ), Provider and Recipient shall each designate in writing to the other Party one representative (each a Review Representative ) to act as a contact person with respect to all issues relating to the provision of the Services pursuant to this Agreement. To the extent an issue is not resolved by the Service Representatives or does not relate to a specific Service, the Review Representatives shall hold review meetings by telephone or in person, at times to be mutually agreed, to discuss any issues relating to such Service or the provision of the Services under this Agreement ( Review Meetings ). In the Review Meetings, the Review Representatives shall be responsible for discussing any problems identified in connection with the provision of the Services and, to the
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extent changes in the provision of the Services are agreed upon, for the implementation of such changes. The Review Representatives will mutually establish governance procedures for the Service Representatives to address and resolve issues and, if necessary, to escalate those issues to the Review Representatives for resolution in accordance with the terms of this Agreement. Each of Provider and Recipient shall have the right to, from time to time, change its Review Representative upon written notice to the other Party.
ii. In connection with the Information Technology Services ( IT Services ), Provider and Recipient shall each designate one to two senior Information Technology employees to participate on a steering committee (the IT Steering Committee ). The IT Steering Committee will meet quarterly to provide overall guidance and direction as to the IT Services and the efforts to effectuate a smooth transition of the performance of IT Services from Provider to Recipient. Meetings will be facilitated by the Service Representatives designated by Provider and Recipient with respect to the IT Services. In the event of any dispute relating to the IT Services which cannot be resolved between the Service Representatives, such dispute will be elevated to the IT Steering Committee for resolution.
2. Local Agreements .
(a) With respect to any Services that are delivered in a particular country, Provider and Recipient may cause their respective Affiliates located in such country to enter into one or more local services agreements (each a Local Agreement ), for the purpose of memorializing the implementation of this Agreement in that country, to address Services delivered locally in that country and payments for such Services. All Services shall be provided by Provider or its Affiliates, as applicable, pursuant to this Agreement or an executed Local Agreement. Unless and to the extent an individual Local Agreement expressly provides otherwise, each Local Agreement shall incorporate by reference the terms and conditions of this Agreement and shall not be construed as altering or superseding the rights and obligations of the Parties under this Agreement. In the event of any conflict between the terms of this Agreement and any Local Agreement, the provisions of this Agreement shall control.
(b) The Review Representatives (and/or their respective designees(s)) shall remain responsible for the administration of this Agreement and the individual Local Agreements on behalf of Provider and Recipient, respectively, and shall be the only Persons authorized to amend, modify, change, waive or discharge any rights and obligations under this Agreement on behalf of Provider and Recipient. No changes to any Local Agreement shall be made without the knowledge of the Review Representatives and the agreement of the local Provider Affiliate and local Recipient Affiliate in a written amendment to the Local Agreement.
(c) Recipient shall have the right to enforce this Agreement (including the terms of all Local Agreements) on behalf of each of its Affiliates that has entered into a Local Agreement, and to assert all rights and exercise and receive the benefits of all remedies (including Damages (as defined below)) of each such Affiliate, to the same extent as if Recipient were such Affiliate, subject to the limitations of liability applicable under this Agreement. Provider shall have the right to enforce this Agreement (including the terms of all Local Agreements) on behalf of each Provider Affiliate that enters into a Local Agreement, and to assert all rights and exercise and receive the benefits of all remedies (including Damages) of each of its Affiliates, to the same extent as if Provider were such Affiliate, subject to the limitations of liability applicable under this Agreement.
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3. Fees for Services .
(a) The fees or basis for the fees for the Services shall be as set forth in Schedule A . In addition to the fees set forth in Schedule A , Recipient shall pay, or cause its Affiliates to pay, each calendar month an administrative fee equal to 5% of the aggregate amount of fees payable for Services to be performed in such month (the Administrative Fee ). Except as otherwise provided on Schedule A , Provider shall provide, or cause its Affiliates to provide, as applicable, on the first day of each calendar month, a written invoice specifying (i) the fees payable for the Services to be performed during such month and (ii) the applicable Administrative Fee. Recipient shall pay, or cause its Affiliates to pay, as applicable, each such invoice within thirty (30) days of the date of such invoice (any such day on which a payment amount is due, the Due Date ). In the event that Additional Services are added in accordance with Section 1(b) of this Agreement, Schedule A shall be amended as necessary to reflect the service fees with respect to such Services. All payments made pursuant to this Section 3 shall be made in local currency designated in Schedule A by wire transfer to an account at a financial institution designated in writing by Provider or its Affiliates, as applicable. Notwithstanding the foregoing, in the event Recipient disputes any amount on an invoice, Recipient shall notify Provider in writing within ten (10) business days after Recipients receipt of such invoice and shall describe in detail the reason for disputing such amount, and will be entitled to withhold such amount during the pendency of the dispute. The provisions of Sections 11(i), 11(j) and 11(k) of this Agreement shall apply with respect to any disputed amount. Upon resolution of the Dispute (as defined below), to the extent Recipient owes Provider some or all of the amount withheld, it shall promptly pay such applicable amount to Provider.
(b) Any invoices not paid or the subject of a good faith dispute by the Due Date shall bear interest at a rate equal to the United States Federal Funds Rate plus 1.25%, calculated on the basis of the actual number of days elapsed, divided by 365, from the Due Date until the date payment is received in full by Provider.
(c) Provider shall, and shall cause its Affiliates to, cooperate and provide such information as reasonably requested by Recipient and provide such back-up therefor as reasonably requested by Recipient in connection therewith to the extent reasonably required to permit Recipient to review and evaluate the amounts set forth in any invoice and verify such amounts. If any such review reveals any overpayment by Recipient, Provider shall promptly refund the amount of such overpayment to Recipient.
(d) Recipient shall pay any one time set up charges and/or windup charges for the Services listed in Schedule A .
(e) This Section 3 shall survive the expiration, termination or cancellation of this Agreement with respect to the Services performed pursuant to this Agreement for which Recipient has not yet paid.
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4. Taxes . The amounts set forth for each Service on Schedule A do not include any federal, state, local or foreign sales, use, value added, goods and services, or other similar taxes (but, for the avoidance of doubt, excluding any taxes based upon or calculated by reference to income, receipts or capital or withholding taxes) sustained, incurred, or levied with respect to the sale, performance, provision or delivery of Services (the Sales Taxes ), which such Sales Taxes will be separately stated on the relevant invoice to Recipient. Recipient shall pay all such Sales Taxes to Provider in accordance with Section 3(a). Except as otherwise required under applicable Law, Provider shall be solely responsible for payment of all such Sales Taxes to the applicable Governmental Authority and for timely withholding and remitting to the applicable Governmental Authority any employment, income or other taxes required to be withheld in respect of its employees related to the sale, performance, provision or delivery of Services (the Withholding Taxes ). Except as otherwise required under applicable Law, Provider shall timely prepare and file all tax returns required to be filed with any Governmental Authority with respect to such Sales Taxes and Withholding Taxes and, in the case of value-added taxes, timely provide Recipient with valid value-added tax invoices in accordance with applicable Law. Notwithstanding the foregoing, in the case of all Sales Taxes, Recipient shall not be obligated to pay such Sales Taxes if and to the extent that Recipient has provided any valid exemption certificates or other applicable documentation that eliminate or reduce the obligation to collect and/or pay such Sales Taxes.
5. Term and Termination of Agreement .
(a) This Agreement shall commence on the Effective Date and shall terminate on the close of business on the latest Applicable Termination Date specified in Schedule A with respect to any Service hereunder, unless earlier terminated in accordance with any other express provision of this Agreement or by written agreement of the Parties (the Term ).
(b) The obligation of the Provider and its Affiliates to provide any Service hereunder shall cease on the earliest to occur of (i) the last day of the Term and (ii) the Applicable Termination Date specified in Schedule A with respect to such Service. If the provision by Provider of one Service (the Underlying Service ) is necessary in order to enable Provider to provide any other Services (the Dependent Services ) as set forth in Schedule A , Recipient may not terminate the Underlying Service without also canceling all applicable Dependent Services.
6. Force Majeure .
(a) A Party will be excused from performing hereunder (except for the performance of financial obligations for the Services provided) and will not be liable in damages or otherwise when and to the extent its performance is delayed or prevented by any circumstance beyond its reasonable control and not due to its willful misconduct or negligence (a Force Majeure ), including, without limitation, the following: natural disaster; fires; floods; earthquakes; storms; unusual weather conditions; explosions; terrorist act or war; accidents; breakdowns of machinery or equipment; inability to obtain equipment, fuel or other materials; labor shortages, slowdowns, strikes, lockouts or other disputes; public disorder, riots or other civil disturbances; or voluntary or involuntary compliance with any Law, order, official recommendation or request of any Governmental Authority.
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(b) If the performance of any obligation hereunder is sought to be excused by reason of a Force Majeure, the affected Party shall promptly notify the other Party in writing of the Force Majeure, the anticipated extent of the delayed or prevented performance and the steps it will take to remedy the situation. The Party so affected shall use commercially reasonable efforts to cure or remedy such cause of non-performance in a timely manner; provided , however , that it shall not be required to make any concession or grant any demand or request to settle any strike or other labor dispute. In no event will the affected Party be obligated to procure individuals from other sources to enable it to perform its obligations hereunder. At the option of Recipient, the term of any Service affected by a Force Majeure shall be tolled until such Service is resumed in accordance with the standards set forth in Section 1(d)(i) of this Agreement; provided , however , that this Agreement shall terminate no later than on the close of business on the latest Applicable Termination Date.
7. Limitation of Liability; Indemnity .
(a) Determination of the suitability of any Services furnished hereunder for the use contemplated by Recipient is the sole responsibility of Recipient, and neither Provider nor its Affiliates will have any responsibility in connection therewith. Subject to Sections 1(d)(i) and 7(d), Recipient assumes all risk and liability for loss, damage or injury to persons or property arising out of such Services, however used, and Provider and its Affiliates shall in no event be liable to Recipient or its Affiliates or those claiming by, through or under Recipient or its Affiliates (including employees, agents, customers, subtenants, contractors and other invitees) for any damage, including, without limitation, personal or property damage, suffered by any of them, directly or indirectly, as a result of any Services provided hereunder, regardless of whether due or alleged to be due to the negligence of Provider or its Affiliates, except to the extent such damage is occasioned by the bad faith, willful misconduct, fraud or gross negligence of Provider or its Affiliates or the willful breach of this Agreement by Provider.
(b) NONE OF PROVIDER, RECIPIENT OR ANY OF THEIR RESPECTIVE AFFILIATES SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE FOR ANY LOST PROFITS, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND WHETHER OR NOT BASED ON CONTRACT, TORT, WARRANTY CLAIMS OR OTHERWISE, IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE SERVICES PROVIDED HEREUNDER (OTHER THAN ANY PUNITIVE OR CONSEQUENTIAL DAMAGES FOR WHICH PROVIDER INDEMNITEE (AS DEFINED BELOW) OR RECIPIENT INDEMNITEE (AS DEFINED BELOW) IS FOUND LIABLE THROUGH THE FINAL RESOLUTION OF AN UNAFFILIATED THIRD-PARTY CLAIM, WHETHER CAUSED BY BREACH OF THIS AGREEMENT, NEGLIGENCE OR OTHERWISE; PROVIDED , HOWEVER , THAT THE FEES FOR SERVICES HEREUNDER AND PROVIDERS RIGHT THERETO SHALL NOT BE DEEMED LOST PROFITS, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE IN NATURE.
(c) Recipient shall indemnify, defend and hold harmless Provider and its Affiliates and their respective officers, directors, employees, agents, advisors or representatives (each a Provider Indemnitee ) from and against all costs, judgments, awards, claims, suits, liabilities, damages, losses, penalties and other expenses of any kind or nature (whether absolute, accrued, contingent or other) suffered by any of them arising from or in connection with this Agreement
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or the Services provided hereunder, regardless of the legal basis of liability or legal or equitable principle involved, including reasonable attorneys fees and expenses of investigation (which fees and expenses shall be paid as incurred) (collectively, the Damages ); provided , however , that such indemnity shall not apply for the benefit of a Provider Indemnitee if it is ultimately found through settlement or by final, non-appealable order that such Provider Indemnitees actions constituted gross negligence, fraud, bad faith, willful misconduct or willful breach of this Agreement.
(d) Provider shall indemnify, defend and hold harmless Recipient and its Affiliates and their respective officers, directors, employees, agents, advisors or representatives (each a Recipient Indemnitee ) from and against all Damages, solely to the extent that it is ultimately found through settlement or by final, non-appealable order that Providers actions in respect of such damages constituted gross negligence, fraud, bad faith, willful misconduct or willful breach of this Agreement.
(e) Any Actions relating to indemnification under this Section 7 shall be conducted in accordance with the procedures as set forth in Section 6.05 and Section 6.06 of the Separation Agreement.
(f) Nothing contained in this Section 7 shall limit or alter the obligation of either Party to indemnify the other Party pursuant to the Separation Agreement or any Ancillary Agreement; provided , however , that no Party shall obtain duplicative recoveries. For the avoidance of doubt, the provisions of Article 6 of the Separation Agreement shall not constitute the sole and exclusive remedy in respect of Damages arising from or in connection with this Agreement or the Services.
(g) The provisions of this Section 7 shall survive the expiration, termination or cancellation of this Agreement and shall be enforceable to the fullest extent permitted by law or in equity.
8. Remedies for Default .
(a) If a Party:
i. defaults in the payment of any indebtedness hereunder to the other Party (other than amounts that are the subject of an unresolved Dispute) and fails to remedy such breach within thirty (30) business days of written notice of such default from the non-defaulting Party;
ii. commits a breach of any other provision of this Agreement in any material respect and fails to remedy such breach within forty-five (45) business days of written notice of such breach from the non-defaulting Party (or such longer period if a cure not capable of being completed within such forty-five (45) business day period has been commenced and is being diligently pursued); or
iii. voluntarily files, or involuntarily has filed against it (which filing is undismissed within sixty (60) days of such involuntary filing), any bankruptcy, receivership, insolvency or reorganization proceeding;
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then in any such event the other Party will have the right, in addition to any other rights and remedies it may have hereunder, to suspend deliveries or receipts hereunder or to terminate this Agreement if such delay or default substantially impairs the value of the entire Agreement to the non-defaulting Party.
9. Confidentiality . Each Party hereby acknowledges that confidential Information of such Party or members of its Group may be exposed to employees and agents of the other Party or its Group as a result of the activities contemplated by this Agreement. Each Party agrees, on behalf of itself and its Affiliates, that such Partys obligation to use and keep confidential such Information of the other Party or its Group shall be governed by Sections 7.01(c) and 7.08 of the Separation Agreement.
10. Ownership of Intellectual Property .
(a) Except as otherwise expressly provided in this Agreement, the Separation Agreement or the other Ancillary Agreements (as defined in the Separation Agreement), each of the Parties hereto and their respective Affiliates shall retain all right, title and interest in and to their respective Intellectual Property, including any and all improvements, modifications, derivative works, additions or enhancements thereof. No license or right, express or implied, is granted under this Agreement by either Party or such Partys Affiliates in or to their respective Intellectual Property, except that, solely to the extent required for the provision or receipt of the Services in accordance with this Agreement, each Party ( Licensor ), for itself and on behalf of its subsidiaries, hereby grants to the other ( Licensee ) (and the Licensees subsidiaries) a non-exclusive, revocable (solely as expressly provided in this Agreement), non-transferable, non-sublicensable (except to third parties as required for the provision or receipt of Services, but not for their own independent use), royalty-free, worldwide license during the Term to use such Intellectual Property of the Licensor in connection with this Agreement, but only to the extent and for the duration necessary for the Licensee to provide or receive the applicable Service under this Agreement. Upon the expiration of such term, or the earlier termination of such Service in accordance with this Agreement, the license to the relevant Intellectual Property will terminate; provided , that all licenses granted hereunder shall terminate immediately upon the expiration or earlier termination of this Agreement in accordance with the terms hereof. Upon the expiration or termination of this Agreement or an applicable Service, the Licensee shall cease use of the Licensors Intellectual Property and shall return or destroy at the Licensors request all Intellectual Property provided in connection with this Agreement. The foregoing license is subject to any licenses granted by others with respect to Intellectual Property not owned by the Parties hereto or their respective Affiliates.
(b) Subject to the limited license granted in Section 10(a), in the event that any Intellectual Property is created, developed, written or authored by a Party hereto in connection with the performance or receipt of the Services by such Party, all right, title and interest throughout the world in and to all such Intellectual Property shall vest solely in such Party unconditionally and immediately upon such Intellectual Property having been created, developed, written or authored, unless the Parties hereto agree otherwise in writing.
(c) In the event that any Intellectual Property is created, developed, written or authored by a Party hereto or any of its Affiliates in connection with the performance or receipt
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of the Services by such Party in accordance with this Agreement, such Party hereby grants to the Party hereto that did not create, develop, write or author such Intellectual Property, and its Affiliates, a limited, nonexclusive, nontransferable, irrevocable, royalty-free license (without the right to sublicense except as expressly provided herein), to use, subsequent to the Term, any Intellectual Property developed for and used in connection with Services provided under this Agreement. The Party hereto that did not create, develop, write or author such Intellectual Property shall be entitled to grant sublicenses of the license granted pursuant to this Section 10(c) for the benefit of itself and its Affiliates to their vendors, contractors, subcontractors and other similar third-party service providers solely to the extent necessary for such third parties to perform services for such Party and its Affiliates.
(d) To the extent title to any Intellectual Property that is the subject of Section 10(b), vests, by operation of Law, in the Party hereto or an Affiliate of the Party hereto that did not create, develop, write or author such Intellectual Property, such Party or Affiliate of the Party hereby assigns to the other Party or its designated Affiliate all right, title and interest in such Intellectual Property and agrees to provide such assistance and execute such documents as such other Party may reasonably request to vest in such Party all right, title and interest in such Intellectual Property.
11. Miscellaneous .
(a) All notices or other communications hereunder shall be deemed to have been duly given and made if in writing and if served by personal delivery upon the Party for whom it is intended, if delivered by certified mail, return receipt requested, or by an internationally recognized courier service, or if sent by facsimile, provided that the facsimile is promptly confirmed by written confirmation thereof to the Person at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such Person:
If to Provider or any of its Affiliates, to:
VALVOLINE INC.
3499 Blazer Parkway
Lexington, KY 40509
Attn: General Counsel
e-mail: JMODaniel@valvoline.com
If to Recipient or any of its Affiliates:
ASHLAND GLOBAL HOLDINGS INC.
50 E. RiverCenter Blvd.
Covington, KY 41011
Attn: General Counsel
e-mail: PGanz@ashland.com
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with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Susan Webster and Thomas E. Dunn
e-mail: SWebster@cravath.com, TDunn@cravath.com
Facsimile: (212) 474-3700
(b) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Recipient and Provider or, in the case of a waiver, by the Party against whom the waiver is to be effective. No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
(c) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Partys Assets, or (b) the sale of all or substantially all of such Partys Assets; provided , however , that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 11(c) shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
(d) Except to the extent provided by Section 7 hereof, the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any person except the Parties hereto any rights or remedies hereunder.
(e) This Agreement, including Schedule A , comprises the entire agreement between the Parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, except for (i) the Separation Agreement, (ii) any Local Agreements, (iii) the Ancillary Agreements, and (iv) any written agreement of the Parties that expressly provides that it is not superseded by this Agreement.
(f) Any obligation of any Party to any other Party under this Agreement, which obligation is performed, satisfied or fulfilled by an Affiliate of such Party, shall be deemed to have been performed, satisfied or fulfilled by such Party.
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(g) This Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than Recipient, Provider or their successors or permitted assigns, any rights or remedies under or by reason of this Agreement.
(h) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective Subsidiaries, Affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.
(i) Prior to initiating any legal action in accordance with Section 11(h), any dispute, controversy or claim arising out of, relating to or in connection with this Agreement, or the breach, termination, or validity thereof ( Dispute ), shall be resolved by submitting such Dispute first to the relevant Service Representative of each Party hereto, and such Service Representatives shall seek to resolve such Dispute through informal good faith negotiation. In the event that any dispute among the Parties hereto relating to the Services or this Agreement is not resolved by such Service Representatives within ten (10) business days after the claiming Party verbally notifies the other Party of the Dispute (during which time the Service Representatives shall meet in person or by telephone as often as reasonably necessary to attempt to resolve the Dispute), such Service Representatives shall escalate the dispute to the Review Representatives for resolution. In the event the Review Representatives fail to meet or, if they meet, fail to resolve the Dispute within an additional ten (10) business days, then the claiming Party will provide the other Party with a written Notice of Dispute , describing (i) the issues in dispute and such Partys position thereon, (ii) a summary of the evidence and arguments supporting such Partys positions, (iii) a summary of the negotiations that have taken place to date, and (iv) the name and title of the senior executives or their respective designees who will represent each Party. The senior executives or their respective designees designated in such Notice of Dispute shall meet in person or by telephone as often as reasonably necessary to resolve the Dispute and shall confer in a good faith effort to resolve the Dispute. If such senior executives or their respective designees decline to meet within the allotted time or fail to resolve the Dispute within twenty (20) business days after receipt of the Notice of Dispute, then either Party may, if the dispute does not relate to or arise out of Section 3(a), subject to Sections 11(h) and 11(p), pursue any legal remedy available to it hereunder or under law, or if the Dispute relates to or arises out of Section 3(a), pursue the remedy set forth in Section 11(j).
(j) If any Dispute relates to or arises out of Section 3(a), either Party may promptly submit the disputed invoice to an independent third-party (the Arbitrator), selected by the mutual agreement of the Parties hereto or, if the Parties hereto fail to agree on such third-party within ten (10) days of receipt by either Party of a demand for arbitration, at the request of either Party, a third-party shall be appointed by the American Arbitration Association ( AAA ) using the listing, striking and ranking method in the Expedited Procedures of the Commercial Arbitration Rules of the AAA then in effect (the Rules ), for resolution. The Arbitrator shall be
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engaged solely to determine whether the disputed invoice has been properly rendered and reflects amounts due and owing in accordance with the terms of this Agreement. The arbitration shall be held in accordance with the Rules, except as modified herein. Any time period contained herein or in the Rules may be extended by mutual agreement of the Parties or by the Arbitrator for good cause shown. The arbitration shall be held in New York. Each Party shall submit its position in writing to the Arbitrator within 10 days of the appointment of the Arbitrator. Within thirty (30) days after receipt of such submissions, the Arbitrator shall make a final written determination and award of the amounts due under the disputed invoice, and such determination and award shall be final, conclusive and binding upon the Parties hereto, and may be entered and enforced in any court having jurisdiction. All fees and disbursements of the Arbitrator shall be paid by the Party that is unsuccessful in such arbitration.
(k) A Partys failure to comply with Sections 11(i) and 11(j) shall constitute cause for dismissal without prejudice of any legal proceeding.
(l) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.
(m) The heading references herein are for convenience purposes only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof.
(n) If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.
(o) The English language shall be the definitive and controlling text of this Agreement, notwithstanding the translation of this Agreement into any other language.
(p) EACH PARTY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11(P).
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(q) It is expressly understood that the relationship between the Parties hereto is that of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or other relationship. Neither Party has the authority to bind the other to any third person or otherwise to act in any way as the representative of the other, unless otherwise expressly agreed to in writing signed by both Parties hereto.
(r) Nothing in this Agreement (including any breach hereof) shall affect the obligations of Provider and Recipient under the Separation Agreement. In the case of any conflict or inconsistency between the Separation Agreement and this Agreement, the terms of the Separation Agreement shall govern and control.
(s) The provisions of this Section 11 shall survive the expiration, termination or cancellation of this Agreement.
[ Remainder of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF , the Parties have caused this Transition Services Agreement to be executed by their duly authorized representatives.
VALVOLINE INC. | ||
by | ||
Name: | ||
Title: |
ASHLAND GLOBAL HOLDINGS INC. | ||
by | ||
Name: | ||
Title: |
Exhibit 10.4
FORM OF TAX MATTERS AGREEMENT dated as of [DATE], 2016 (this Agreement ) between ASHLAND GLOBAL HOLDINGS INC., a Delaware corporation ( Ashland Global ), and VALVOLINE INC., a Kentucky corporation ( Valvoline , collectively, the Companies ).
WHEREAS Ashland Global is the common parent of an affiliated group of corporations, within the meaning of Section 1504(a) of the Code, that has elected to file consolidated Federal income Tax Returns, and Valvoline is a member of that group;
WHEREAS, pursuant to the Separation Agreement, the Companies have effected or agreed to effect the Internal Transactions and the Initial Public Offering;
WHEREAS, following the Initial Public Offering, pursuant to the Separation Agreement, Ashland Global intends to effect the Distribution;
WHEREAS the Companies intend each of the Internal Transactions, Additional Pre-IPO Restructuring Transactions, Initial Public Offering and Distribution (the Transactions ) to qualify for its Intended Tax Treatment; and
WHEREAS Valvoline will cease to be wholly owned, directly or indirectly, by Ashland Global following the Initial Public Offering and will cease to be a member of the Ashland Global Consolidated Group after the Distribution;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, Ashland Global and Valvoline hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms . The following terms shall have the following meanings (such meanings to apply equally to the singular and plural forms of the terms defined). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Separation Agreement. All section references are to this Agreement unless otherwise stated. All references to includes and including mean includes without limitation or including without limitation, as the case may be.
5% Acquisition Transaction has the meaning set forth in Section 5.05(b).
Actual Tax Return Amount has the meaning set forth in Section 3.02(a)(i)(A).
Agreement has the meaning set forth in the preamble.
Ancillary Agreement means an Ancillary Agreement, as defined in the Separation Agreement, other than this Agreement.
Ashland Global has the meaning set forth in the preamble.
Ashland Global Combined Return has the meaning set forth in Section 2.01(b).
Ashland Global Consolidated Group means Ashland Global (or, for periods prior to the Ashland Merger, Ashland Inc.) and the affiliated group of corporations, within the meaning of Section 1504(a) of the Code, of which Ashland Global (or Ashland Inc., as applicable) is the common parent.
Ashland Global Consolidated Return has the meaning set forth in Section 2.01(a).
Ashland Global Tax Opinions means the written opinions or memoranda, as applicable, of Cravath, Swaine & Moore LLP and Deloitte Tax LLP issued to Ashland Global, in form and substance satisfactory to Ashland Global in its sole discretion, as to the qualification of the steps of each Transaction for its Intended Tax Treatment.
Ashland Global Tax Representations means any representations made by Ashland Global in Representation Letters that serve as a basis for any Ashland Global Tax Opinion.
Ashland Global Transaction Tax Percentage means, with respect to any Transaction Tax, the fraction, expressed as a percentage, the numerator of which is the amount of such Transaction Tax allocated to Ashland Global pursuant to Section 4.03 and the denominator of which is the total amount of such Transaction Tax.
Business Day means any day on which the New York Stock Exchange, or its successor, is open for trading.
Chemicals Business means the business and operations of the Specialty Ingredients and Performance Materials business segments, as described in Ashland Inc.s and/or Ashland Globals most recently filed (as of the date of this Agreement) Annual Report on Form 10-K or Quarterly Report on Form 10-Q.
Clause (iii) Taxes has the meaning set forth in Section 4.01(a)(iii).
Companies has the meaning set forth in the preamble.
Consolidation Year means any taxable period (or portion thereof) ending on or before the date on which Deconsolidation occurs.
Deconsolidation means that the Valvoline Consolidated Group ceases to be included in the Ashland Global Consolidated Group.
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Determination means the final resolution of liability for any tax for any taxable period by or as a result of (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final settlement, compromise or other agreement with the relevant Taxing Authority, an agreement that constitutes a determination under Section 1313(a)(4) of the Code, an agreement contained in an IRS Form 870-AD, a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code or a comparable agreement under state, local or foreign Law; (iii) the expiration of the applicable statute of limitations; or (iv) the payment of the tax by the party responsible for payment of that tax under Section 2.04 if Ashland Global and Valvoline agree that no action should be taken to recoup that payment.
Excess Loss Account means any excess loss account within the meaning of Section 1.1502-19 of the Regulations.
Hypothetical Tax Return Amount has the meaning set forth in Section 3.02(a)(i)(B).
Indemnifying Party means a Person that has any obligation to indemnify an Indemnitee pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement.
Indemnitee means a Person entitled to indemnification by an Indemnifying Party pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement.
Intended Tax Treatment means the tax treatment as specified in Schedule A.
IRS means the Internal Revenue Service.
Legacy Tax Attribute means any Tax Attribute in existence at the opening of the taxable period that begins on October 1, 2016.
Market Capitalization means (i) in the case of Valvoline, the product of (a) the mean of the daily volume-weighted average trading price per share of the common stock of Valvoline for each of the 20 consecutive trading days beginning on and following the first trading day following the Separation Date, as quoted by Bloomberg Financial Services through its Volume at Price function, rounded to the nearest whole cent, multiplied by (b) the mean of the number of common shares of Valvoline outstanding, on a fully diluted basis (calculated under the treasury stock method), on each of such 20 trading days, rounded to two decimal places, and (ii) in the case of Ashland Global, (a) the mean of the daily volume-weighted average trading price per share of the common stock of Ashland Global for each of the 20 consecutive trading days beginning on and following the first trading day following the Separation Date, as quoted by Bloomberg Financial Services through its Volume at Price function, rounded to the nearest whole cent, multiplied by (b) the mean of the number of common shares of Ashland Global outstanding, on a fully diluted basis (calculated under the treasury stock method), on each of such 20 trading days, rounded to two decimal places, less (c) the mean volume-weighted average trading price per share of the common stock of Valvoline, as calculated pursuant to clause (i)(a) of this definition, multiplied by the mean of the number of common shares of Valvoline held by Ashland Global on each of the trading days described in clause (i)(b) of this definition, rounded to two decimal places.
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Post-consolidation Year means any taxable period (or portion thereof) beginning on or after the date on which Deconsolidation occurs.
Pro Forma Return Start Date means the first day of the calendar month closest to the Separation Date; provided , however , that if the Separation Date falls exactly in the middle of a calendar month, the Pro Forma Return Start Date means the first day of such calendar month.
Pro Forma Valvoline Combined Return has the meaning set forth in Section 2.05(a)(ii).
Pro Forma Valvoline Consolidated Return has the meaning set forth in Section 2.05(a)(i).
Pro Forma Valvoline Returns means the Pro Forma Valvoline Consolidated Returns and the Pro Forma Valvoline Combined Returns.
Proportionate Share Factor means (i) in the case of Ashland Global, the quotient, rounded to four decimal places, of the Market Capitalization of Ashland Global, divided by the sum of the Market Capitalization of each of Ashland Global and Valvoline and (ii) in the case of Valvoline, 1 minus the number computed in clause (i) of this definition.
Proposed Acquisition Transaction has the meaning set forth in Section 5.04(b)(i).
Protective Section 336(e) Election means, with respect to an entity, a protective election under Section 336(e) of the Code and Section 1.336-2(j) of the Regulations (and any similar provision of U.S. state or local Law) to treat the disposition of the Stock of such entity, pursuant to certain of the Transactions, as a deemed sale of the assets of such entity in accordance with Section 1.336-2(h) of the Regulations (or any similar provision of U.S. state or local Law).
Records has the meaning set forth in Section 7.03.
Refund Recipient has the meaning set forth in Section 4.05.
Regulations means the Treasury regulations promulgated under the Code or any successor Treasury regulations.
Representation Letters means the representation letters delivered in connection with the rendering by Tax Advisors of any opinions in connection with the Transactions.
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Return Items means any item of income, gain, loss, deduction or credit.
Ruling means a private letter ruling (including any supplemental ruling) issued by the IRS in connection with the Transactions.
Satisfactory Guidance has the meaning set forth in Section 5.04(c)(ii).
Separate Returns has the meaning set forth in Section 2.01(c).
Separation Agreement means the Separation Agreement dated [DATE], 2016, by and between Ashland Global and Valvoline.
Stock means (i) all classes or series of stock or other equity interests and (ii) all other instruments properly treated as stock for U.S. Federal income tax purposes.
tax means all taxes, assessments, duties or similar charges of any kind whatsoever, in the nature of a tax, whether direct or indirect, plus any interest, penalties, additional amounts or additions thereto.
Tax Advisor means a tax counsel or accountant of recognized national standing.
Tax Attributes means any carryovers or carrybacks of net operating losses, net capital losses, excess tax credits and any other similar tax attributes as determined for Federal, state, local or foreign tax purposes. For the avoidance of doubt, the existence or amount of basis and computations of previously taxed income and earnings and profits are not Tax Attributes.
Tax Return means any tax return, declaration, statement, report, form, estimate and information return relating to taxes, including any amendments thereto and any related or supporting information.
Taxing Authority means any governmental body charged with the determination, collection or imposition of taxes.
Transaction Taxes means all taxes arising as a result of or in connection with the Transactions and, if such taxes result from the failure of a Transaction to qualify for its Intended Tax Treatment, all reasonable out-of-pocket legal, accounting and other advisory and court fees incurred in connection with liability for such taxes.
Transactions has the meaning set forth in the recitals.
Unqualified Tax Opinion has the meaning set forth in Section 5.04(c)(iii).
Valvoline has the meaning set forth in the preamble.
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Valvoline Consolidated Group means Valvoline and the affiliated group of corporations, within the meaning of Section 1504(a) of the Code, of which Valvoline would be the common parent if it were not included in the Ashland Global Consolidated Group.
Valvoline Pro Forma Financial Statements means the unaudited pro forma condensed combined financial statements contained in the IPO Registration Statement.
Valvoline Pro Forma Tax Attributes has the meaning set forth in Section 3.02(a)(i)(B)(2).
Valvoline Tax Representations means any representations made by Valvoline in Representation Letters that serve as a basis for any Ashland Global Tax Opinion.
ARTICLE II
Preparation and Filing of Tax Returns
SECTION 2.01. Filing of Returns . (a) Consolidated Returns . Ashland Global shall prepare and timely file (or cause to be prepared and timely filed) each Federal income Tax Return required to be filed on behalf of the Ashland Global Consolidated Group (an Ashland Global Consolidated Return ). Ashland Global shall include the Valvoline Consolidated Group in such Tax Return if entitled to do so.
(b) Combined Returns . For each taxable year for which it is permissible to file a Tax Return on a consolidated, combined, unitary or similar basis (other than an Ashland Global Consolidated Return) that would include one or more members of the Valvoline Group and one or more members of the Ashland Global Group (an Ashland Global Combined Return ), then the relevant member of the Ashland Global Group may, in its sole discretion but subject to applicable Law, determine whether to file such Ashland Global Combined Return and whether to include certain or all of the relevant members of the Valvoline Group in such Tax Return. Ashland Global shall prepare and timely file (or cause to be prepared and timely filed) any Ashland Global Combined Returns. Schedule B sets out a list of jurisdictions in which Ashland Global intends to file an Ashland Global Combined Return that includes one or more members of the Valvoline Group.
(c) Separate Returns . For all Tax Returns other than Ashland Global Consolidated Returns and Ashland Global Combined Returns ( Separate Returns ), the entity customarily responsible under applicable Law for filing such Separate Returns shall prepare and timely file (or cause to be prepared and timely filed) such Separate Returns; provided , however , that Ashland Global shall prepare (or cause to be prepared) all Separate Returns of Valvoline set forth in Schedule C-1 for any taxable period ending on or before September 30, 2016. Schedule C-2 sets out a list of each material taxing jurisdiction in which the parties presently intend that members of the Valvoline Group
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will prepare (or cause to be prepared) a Separate Return. The parties intend that members of the Valvoline Group will file (or cause to be filed) Separate Returns in all relevant foreign jurisdictions unless Ashland Global otherwise notifies Valvoline that there is an opportunity in any such foreign jurisdiction to file an Ashland Global Combined Return.
SECTION 2.02. Preparing of Tax Returns . (a) Ashland Global-Prepared Tax Returns . To the extent that any Ashland Global Consolidated Return, Ashland Global Combined Return or Separate Return prepared (or caused to be prepared) by Ashland Global directly relates to matters for which Valvoline must indemnify the Ashland Global Group under Section 4.02 or to matters affecting a Pro Forma Valvoline Return or Separate Return prepared (or caused to be prepared) by Valvoline (including any refund or other Tax Attribute to which a member of the Valvoline Group is entitled), Ashland Global shall prepare (or cause to be prepared) the relevant portion of such Ashland Global Consolidated Return, Ashland Global Combined Return or Separate Return, as the case may be, on a basis consistent with past practice (except as required by applicable Law or as determined by Ashland Global). Ashland Global shall notify Valvoline of any such portions not prepared on a basis consistent with past practice.
(b) Valvoline-Prepared Tax Returns . To the extent that any Separate Return prepared (or caused to be prepared) by Valvoline directly relates to matters for which Ashland Global must indemnify the Valvoline Group under Section 4.01 or to matters affecting any Ashland Global Consolidated Return, Ashland Global Combined Return or Separate Return prepared (or caused to be prepared) by Ashland Global (including any refund or other Tax Attribute to which a member of the Ashland Global Group is entitled), Valvoline shall prepare (or cause to be prepared) the relevant portion of such Separate Return on a basis consistent with such Ashland Global Consolidated Return, Ashland Global Combined Return or Separate Return and with past practice (except as required by applicable Law), in each case subject to Section 2.07. Valvoline shall notify Ashland Global of any such portions not prepared on a basis consistent with any Ashland Global Consolidated Return, Ashland Global Combined Return or Separate Return prepared (or caused to be prepared) by Ashland Global or with past practice.
(c) Review of Tax Returns . The party responsible under Section 2.01 for preparing (or causing to be prepared) a Tax Return shall make such Tax Return or relevant portions thereof and related workpapers available for review by the other party at least 30 days prior to the due date (including any available extensions) for filing such Tax Return and shall consider the reasonable comments made by such other party, in each case to the extent (i) such Tax Return relates to taxes for which such other party may be liable or otherwise affects the preparation of Tax Returns prepared (or caused to be prepared) by such other party (including any Pro Forma Valvoline Return) or (ii) adjustments to the amount of taxes reported on such Tax Return may affect the determination of taxes for which such other party may be liable. The parties shall attempt in good faith to resolve any issues arising out of the review of such Tax Returns.
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SECTION 2.03. Consents and Elections . Ashland Global and Valvoline shall prepare, sign and timely file (or cause to be prepared, signed and timely filed) any consents, elections and other documents and take any other actions necessary or appropriate to effect the filing of the Tax Returns described in Section 2.01.
SECTION 2.04. Payment of Taxes . The party responsible under Section 2.01 for preparing (or causing to be prepared) a Tax Return shall pay any taxes shown as due on that Tax Return to the relevant Taxing Authority or the party responsible for filing (or causing to be filed) such Tax Return. The obligation to make these payments shall not affect the payors right, if any, to receive payments under Section 2.05 or otherwise be indemnified with respect to that tax liability.
SECTION 2.05. Pro Forma Valvoline Returns
(a) Pro Forma Valvoline Returns in General . (i) For each taxable period (or portion thereof) that includes or begins after the Pro Forma Return Start Date in which the Valvoline Consolidated Group is included in an Ashland Global Consolidated Return, Valvoline shall prepare or cause to be prepared a pro forma Federal income Tax Return for the Valvoline Consolidated Group (a Pro Forma Valvoline Consolidated Return ). Except as otherwise provided in this Section 2.05, the Pro Forma Valvoline Consolidated Return shall be prepared as if Valvoline filed a consolidated return on behalf of the Valvoline Consolidated Group.
(ii) For each taxable period (or portion thereof) that includes or begins after the Pro Forma Return Start Date in which one or more members of the Valvoline Group is included in an Ashland Global Combined Return, Valvoline shall prepare or cause to be prepared a pro forma Tax Return for those members of the Valvoline Group (a Pro Forma Valvoline Combined Return ). Except as otherwise provided in this Section 2.05, the Pro Forma Valvoline Combined Return shall be prepared as if the members of the Valvoline Group included in the Ashland Global Combined Return instead filed a single combined return.
(b) Preparation of the Pro Forma Valvoline Returns . Except as provided in Section 2.07, the Pro Forma Valvoline Returns shall be prepared in a manner consistent with all elections, positions and methods used in the relevant Tax Returns prepared (or caused to be prepared) by Ashland Global pursuant to Section 2.01 and in accordance with the principles set forth in Schedule D. Valvoline shall provide Ashland Global a reasonable opportunity to review any Pro Forma Valvoline Returns. Valvoline shall notify Ashland Global of any portions of such Pro Form Valvoline Returns not prepared on a basis consistent with a relevant Tax Return prepared (or caused to be prepared) by Ashland Global pursuant to Section 2.01.
(c) Payments with Respect to Pro Forma Valvoline Returns . Each Company shall make payments (including estimated payments) to the other Company with respect to any Pro Forma Valvoline Return as if (i) that Pro Forma Valvoline Return were actually required to be filed under the Laws of the applicable taxing jurisdiction and (ii) Ashland Global were the relevant Taxing Authority of that taxing jurisdiction. In applying this Section 2.05(c), all Laws and regulations relating to timing and computation of payments and estimated payments, interest, penalties, additions to tax and additional amounts shall be applied.
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SECTION 2.06. Recalculation of Pro Forma Valvoline Return for a Determination . If a Determination is made with respect to a Return Item, or an amended Tax Return is filed for, any taxable period for which a Pro Forma Valvoline Return is required to be prepared, a corresponding adjustment shall be made to the corresponding Return Items (if any) of the Pro Forma Valvoline Return for such taxable period. Within 15 days of being provided with written notice of any such adjustment, each Company shall make (or cause to be made) payments to the other Company, including interest and any other amounts determined under Section 2.05(c) as appropriate, reflecting such adjustment.
SECTION 2.07. Valvoline Tax Return Dispute Resolution . If Valvoline wishes to take a position (a) on either a Pro Forma Valvoline Return, or a Separate Return prepared (or caused to be prepared) by Valvoline, that is inconsistent with a position taken on a Tax Return prepared (or caused to be prepared) by Ashland Global pursuant to Section 2.01 or (b) on a Separate Return prepared (or caused to be prepared) by Valvoline that is inconsistent with past practice, then in each case, Valvoline may do so only if:
(i) (A) Ashland Globals position on such Tax Return (1) is inconsistent with past practice and (2) would result in an increased payment obligation by Valvoline or any of its Affiliates under Article II, obligate Valvoline to make an increased indemnity payment under Article IV, cause Valvoline or any of its Affiliates to incur any increased taxes for which it is not indemnified under this Agreement or adversely affect a refund or other Tax Attribute to which Valvoline or any of its Affiliates is entitled and (B) the position Valvoline wishes to take on such Pro Forma Valvoline Return or Separate Return prepared (or caused to be prepared) by Valvoline, as the case may be, is consistent with past practice and permitted by applicable Law; or
(ii) Valvoline obtains an opinion from a Tax Advisor that there is no substantial authority for Ashland Globals position on such Tax Return prepared (or caused to be prepared) by Ashland Global pursuant to Section 2.01 or past practice, as applicable, and that there is substantial authority for the position Valvoline wishes to take on such Pro Forma Valvoline Return or Separate Return prepared (or caused to be prepared) by Valvoline, as the case may be.
SECTION 2.08. Amendments . Each Company shall not (and shall cause its Affiliates not to) file, amend, withdraw, revoke or otherwise alter any Tax Return if doing so would reasonably be expected to (a) obligate the other Company to make an indemnity payment under Article IV, (b) cause the other Company or any of its Affiliates to incur any taxes for which it is not indemnified under this Agreement or (c) affect a refund or other Tax Attribute to which the other Company or any of its Affiliates is entitled, in each case without the prior written consent of the other Company.
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ARTICLE III
Post-consolidation Periods
SECTION 3.01. Post-consolidation Year Carrybacks . Valvoline shall (and shall cause members of the Valvoline Group to) waive, to the extent permitted under applicable Law, carrybacks of Tax Attributes from any Post-consolidation Year to any Consolidation Year unless such carryback does not have a material effect on Ashland Global (as determined by Ashland Global in its sole discretion). If any member of the Valvoline Group carries back a Tax Attribute from a Post-consolidation Year to a Consolidation Year, no payment shall be due from Ashland Global with respect to that carryback, regardless of whether such carryback is required by Law or permitted by Ashland Global.
SECTION 3.02. Tax Attributes . (a) Annual Payments . For each of the 5 taxable years after the date of Deconsolidation, Valvoline shall pay to Ashland Global the excess (if any) of the Hypothetical Tax Return Amount over the Actual Tax Return Amount, and Ashland Global shall pay to Valvoline the excess (if any) of the Actual Tax Return Amount over the Hypothetical Tax Return Amount.
(i) For purposes of this Agreement, (A) Actual Tax Return Amount means the aggregate, actual tax liability reported on all Tax Returns that Valvoline files with a Taxing Authority and (B) Hypothetical Tax Return Amount means the aggregate tax liability that would have been reported on such Tax Returns if Valvoline were (1) not able to utilize any Legacy Tax Attributes but (2) able to utilize (one time, without duplication) any Tax Attributes of the Valvoline Group (other than Legacy Tax Attributes) that Valvoline did not utilize on a Pro Forma Valvoline Return but that Ashland Global utilized on a Tax Return ( Valvoline Pro Forma Tax Attributes ).
(ii) The amount payable under Section 3.02(a) shall be payable within 20 Business Days after the last Tax Return for such taxable year is filed by Valvoline; provided , however , that any amount payable by Ashland Global shall be due no sooner than 10 Business Days after receiving an invoice from Valvoline therefor.
(b) Lump Sum Settlement Payment . Within 20 Business Days after the later of the filing of Valvolines (or its successors) Annual Report on Form 10-K for the fifth fiscal year ending after the Distribution or Other Disposition, as the case may be, or the filing by Valvoline of the last Tax Return for the fifth taxable year after the date of Deconsolidation:
(i) Valvoline shall deliver to Ashland Global a statement setting forth (A) the amounts of remaining (1) Legacy Tax Attributes that are reflected (or would be reflected if Ashland Global were not entitled to the benefit of such Legacy Tax Attributes under this Agreement) in its audited balance sheet in such Annual Report on Form 10-K, net of any valuation allowance or any similar reserve (except to the extent such valuation allowance or similar reserve was established as a result of Ashland Global being entitled to the benefit of such Legacy Tax Attributes under this Agreement), and (2) Valvoline Pro Forma Tax Attributes that it reasonably expects it would be able to utilize on Tax Returns for future taxable periods if such Valvoline Pro Forma Tax Attributes were Tax Attributes of Valvoline or its Affiliates under then-existing applicable Law (or, if applicable,
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that are reflected in its audited balance sheet in such Annual Report on Form 10-K, net of any valuation allowance or any similar reserve), in each case, without duplication of any amounts attributable to Tax Attributes previously taken into account in computing any Hypothetical Tax Return Amount and (B) the taxable year in which it estimates it will utilize such Legacy Tax Attributes or Valvoline Pro Forma Tax Attributes, as the case may be, consistent with the workpapers or methodology used in preparing such audited balance sheet;
(ii) Valvoline shall separately compute the net present value of the tax benefit in respect of amounts described in each of clauses (A)(1) and (A)(2) of Section 3.02(b)(i) and the relevant taxable year described in clause (B) of Section 3.02(b)(i) using a discount rate equal to the interest rate described in Section 8.01; and
(iii) Valvoline shall pay to Ashland Global the excess (if any) of the net present value of such amounts described in such clause (A)(1) over the net present value of such amounts described in such clause (A)(2), and Ashland Global shall pay to Valvoline the excess (if any) of the net present value of such amounts described in such clause (A)(2) over the net present value of such amounts described in such clause (A)(1); provided , however , that any amount payable by Ashland Global shall be due no sooner than 10 Business Days after receiving an invoice from Valvoline therefor.
(c) Cooperation . Valvoline agrees to share any calculations, workpapers or relevant Tax Returns reasonably requested by Ashland Global in connection with matters related to Section 3.02. The parties shall attempt in good faith to resolve any issues or disputes related to Section 3.02.
ARTICLE IV
Indemnity
SECTION 4.01. Ashland Global Indemnity . Ashland Global shall indemnify the Valvoline Group and hold it harmless from:
(a) with respect to taxes payable for a taxable period (or portion thereof) that ends prior to the date of Deconsolidation, including, for the avoidance of doubt, taxes that arise out of a contest, examination or audit by a Taxing Authority:
(i) 100% of such taxes that are directly attributable to the Chemicals Business;
(ii) 100% of such taxes that are directly attributable to neither the Chemicals Business nor the Valvoline Business and are payable to a Taxing Authority other than a Taxing Authority of the United States or any state or political subdivision thereof or the District of Columbia; and
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(iii) if such taxes are directly attributable to neither the Chemicals Business nor the Valvoline Business and are payable to a Taxing Authority of the United States or any state or political subdivision thereof or the District of Columbia ( Clause (iii) Taxes ):
(A) 0% of all Clause (iii) Taxes until the aggregate amount of all Clause (iii) Taxes paid by any party hereto or any Affiliate thereof equals $26 million; and
(B) 50% of all Clause (iii) Taxes thereafter;
in each case, as such taxes are attributed pursuant to Section 4.06;
(b) any tax payable with respect to a Separate Return prepared (or caused to be prepared) by Ashland Global pursuant to Section 2.01(c);
(c) any tax incurred as a result of any gain recognized pursuant to a gain recognition agreement entered into by any member of the Ashland Global Consolidated Group by reason of an action or failure to act on or after the Separation Date by any member of the Ashland Global Group in accordance with Section 1.367(a)-8 of the Regulations, excluding any gain required to be recognized as a result of Deconsolidation being a triggering event (within the meaning of those Regulations); and
(d) any Transaction Taxes allocated to Ashland Global pursuant to Section 4.03;
excluding, in each case, any tax for which Valvoline is responsible under Section 4.02.
SECTION 4.02. Valvoline Indemnity . In addition to payments pursuant to Section 2.05(c), Valvoline shall indemnify the Ashland Global Group and hold it harmless from:
(a) with respect to taxes payable for a taxable period (or portion thereof) that ends prior to the Pro Forma Return Start Date and that arise out of a contest, examination or audit by a Taxing Authority:
(i) 100% of such taxes that are directly attributable to the Valvoline Business; and
(ii) if such taxes are Clause (iii) Taxes:
(A) 100% of all Clause (iii) Taxes until the aggregate amount of all Clause (iii) Taxes paid by any party hereto or any Affiliate thereof equals $26 million; and
(B) 50% of all Clause (iii) Taxes thereafter;
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in each case, as such taxes are attributed pursuant to Section 4.06;
(b) if the Separation Date occurs prior to the Pro Forma Return Start Date, any taxes that arise from the Valvoline Group entering into or engaging in any action or transaction outside of the ordinary course of business on or after the Separation Date and prior to the Pro Forma Return Start Date;
(c) any tax payable with respect to a Separate Return prepared (or caused to be prepared) by Valvoline pursuant to Section 2.01(c);
(d) any tax incurred as a result of any gain recognized pursuant to a gain recognition agreement entered into by any member of the Ashland Global Consolidated Group by reason of an action or failure to act on or after the Separation Date by any member of the Valvoline Group in accordance with Section 1.367(a)-8 of the Regulations, excluding any gain required to be recognized as a result of Deconsolidation being a triggering event (within the meaning of those Regulations); and
(e) any Transaction Taxes allocated to Valvoline pursuant to Section 4.03.
SECTION 4.03. Allocation of Transaction Taxes . (a) Except as otherwise provided in this Section 4.03, all Transaction Taxes shall be allocated to (i) Ashland Global in an amount equal to such Transaction Taxes multiplied by the Proportionate Share Factor of Ashland Global and (ii) Valvoline in an amount equal to such Transaction Taxes multiplied by the Proportionate Share Factor of Valvoline.
(b) Any Transaction Taxes to the extent set forth in Schedule E shall be allocated in accordance with such schedule.
(c) Subject to Section 4.03(d), Transaction Taxes not allocated pursuant to Section 4.03(b) shall be allocated to a Company if such Transaction Taxes would not have been imposed but for:
(i) the failure of any of the Ashland Global Tax Representations, in the case of Ashland Global, and of any of the Valvoline Tax Representations, in the case of Valvoline, to be true when made;
(ii) the breach by such Company of any covenant herein or in the Separation Agreement or any Ancillary Agreement;
(iii) the application of Section 355(e) or 355(f) of the Code after the Separation Date as a result of any acquisition (or deemed acquisition) of Stock or assets of such Company or its Affiliates;
(iv) a determination that the Distribution was used principally as a device for the distribution of the earnings and profits within the meaning of Section 355(a)(1)(B) of the Code if such determination was based in whole or in part on any sale or exchange of the Stock of such Company; or
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(v) any other act or omission by such Company or its Affiliates that it knows or reasonably should expect, after consultation with its Tax Advisor, could give rise to Transaction Taxes (except to the extent such act or omission is otherwise expressly required or permitted by this Agreement (other than under Section 5.04(c)), the Separation Agreement or any Ancillary Agreement).
(d) To the extent any Transaction Taxes described in Section 4.03(c) would be allocated to both Ashland Global and Valvoline, such Transaction Taxes shall be allocated between Ashland Global and Valvoline in proportion to the relative contribution of the members of the Ashland Global Group (and such members Affiliates), on the one hand, and the members of the Valvoline Group (and such members Affiliates and counterparties to any consummated Proposed Acquisition Transactions, if applicable), on the other hand, to the circumstances giving rise to such Transaction Taxes.
SECTION 4.04. Treatment of Indemnity Payments . (a) Character . Any payment made pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement shall be treated for all tax purposes, if made by Valvoline to Ashland Global (or by or to their respective Affiliates), as a distribution from Valvoline to Ashland Global and, if made by Ashland Global to Valvoline (or by or to their respective Affiliates), as a contribution from Ashland Global to Valvoline. If such payment is made after the Distribution or Other Disposition, as the case may be, such distribution or contribution shall be treated as made immediately before the Distribution or Other Disposition, as the case may be, except to the extent otherwise required by Law.
(b) Net of Taxes . The amount of any indemnity payment made pursuant to this Agreement, the Separation Agreement or any Ancillary Agreement shall be (i) increased to take account of any taxes imposed on any taxable income or gain to the Indemnitee with respect to such payment or the creation or increase of an Excess Loss Account caused by such payment (in each case, including taxes imposed on payments of such additional amounts pursuant to this paragraph) and (ii) reduced to take account of the present value of any cash tax benefit reasonably likely to be realized (including with respect to any increase in the basis of any asset, but solely to the extent such increase in basis is depreciable or amortizable) by the Indemnitee arising from the incurrence or payment of the loss giving rise to such indemnity. For purposes of computing indemnity payments under this Section 4.04(b), each Person is assumed to pay tax at the maximum applicable tax rate.
SECTION 4.05. Refunds after Indemnity Payments . If Ashland Global, Valvoline or any of their respective Affiliates receives any refund of any amounts for which the other Company has previously made an indemnity payment (the Company receiving, or whose Affiliate receives, such refund, a Refund Recipient ), the Refund Recipient shall pay to the other Company the entire amount of the refund (net of any taxes imposed with respect to such refund) within 20 Business Days of receipt; provided , however , that the other Company, upon the request of the Refund Recipient, shall repay the amount paid to the other Company (plus any penalties, interest or other charges imposed by the relevant Taxing Authority) in the event the Refund Recipient or any of its
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Affiliates is required to repay such refund. Any tax credit, tax reduction or tax offset shall be treated as a refund for purposes of this Section 4.05 and shall be treated as received by the Refund Recipient (or one of its Affiliates) as and when applied (on a with and without basis) to reduce the cash tax liability of such Refund Recipient (or one of its Affiliates).
SECTION 4.06. Taxes Attributable to the Chemicals Business or Valvoline Business . For purposes of Sections 4.01(a) and 4.02(a), a tax shall be deemed directly attributable:
(a) to the Chemicals Business to the extent such tax (i) arises out of the profits before tax of the operations of the Chemicals Business or the results of the operations of the Chemicals Business that would have been reflected in unaudited pro forma condensed combined financial statements for the Chemicals Business had such financial statements been prepared for the same periods for which, and in accordance with similar principles under which, the Valvoline Pro Forma Financial Statements were prepared or (ii) would otherwise be attributable to the Chemicals Business under such principles;
(b) to the Valvoline Business to the extent such tax (i) arises out of the profits before tax of the operations of the Valvoline Business or the results of the operations that were reflected in the Valvoline Pro Forma Financial Statements (or is otherwise reflected in the Valvoline Pro Forma Financial Statements) or (ii) would otherwise be attributable to the Valvoline Business under the principles used to prepare the Valvoline Pro Forma Financial Statements; or
(c) to neither the Chemicals Business nor the Valvoline Business if such tax is described in Schedule F or is not otherwise deemed directly attributable to either business under Section 4.06(a) or 4.06(b).
Attribution shall be narrowly construed in uncertain or doubtful cases of attributing a tax to the Chemicals Business or Valvoline Business (i.e., uncertain or doubtful cases shall generally be deemed directly attributable to neither business under Section 4.06(c)).
SECTION 4.07. Calculation of Market Capitalization . Within 10 Business Days following the period of time described in clause (i)(a) of the definition of Market Capitalization, Ashland Global shall calculate, in its reasonable exercise of good faith, the Market Capitalization of each of Ashland Global and Valvoline and send to Valvoline its calculations thereof. Valvoline shall have 10 Business Days to review such calculations and provide comments to Ashland Global. The Market Capitalization thus agreed upon by the parties shall be the Market Capitalizations of the Companies for all purposes of this Agreement. The parties shall attempt in good faith to resolve any issues or disputes related to this Section 4.07.
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ARTICLE V
Tax Matters Relating to the Separation
SECTION 5.01. Mutual Representations . Each Company represents that as of the date of this Agreement:
(a) all information contained in its Representation Letters (and those delivered by its Affiliates) is true, correct and complete; and
(b) it has no plan or intention to take any action inconsistent with the qualification of the Transactions for the Intended Tax Treatment.
SECTION 5.02. Tax Opinions . The Companies shall use their best efforts to cause the Ashland Global Tax Opinions to be issued, including by executing any Representation Letters reasonably requested in connection with the Ashland Global Tax Opinions, provided that each Company shall have been provided with a reasonable opportunity to review, comment and consent to the content of any Representation Letter to be executed by it, such consent not to be unreasonably withheld.
SECTION 5.03. Mutual Covenants . Neither Company shall take or fail to take, or permit their respective Affiliates to take or fail to take, any action, if such action or omission would be inconsistent with its respective Representation Letters or cause any representation made in such Representation Letters to be untrue when made.
SECTION 5.04. Restricted Actions . (a) Subject to Section 5.04(b), from the date hereof until the first day after the 2-year anniversary of the Distribution (or if Ashland Global publicly announces that it has abandoned its plan to effect the Distribution, the first day after the 2-year anniversary of the date of the Valvoline-ChemCo Spin), Valvoline shall not (and shall not cause or permit any of its Affiliates to), in a single transaction or a series of transactions:
(i) cause or allow the Valvoline Consolidated Group to cease to be engaged in the applicable active trade or business (within the meaning of Section 355(b) of the Code and the Regulations thereunder) that formed the basis of the Ashland Global Tax Opinions;
(ii) liquidate or partially liquidate, by way of a merger, consolidation, conversion or otherwise (except as pursuant to the Separation Agreement);
(iii) sell or transfer 50% or more of the gross assets of the Valvoline Business or 50% or more of the consolidated gross assets of Valvoline (other than (A) sales, transfers or dispositions of assets in the ordinary course of business, (B) payments of cash to acquire assets from an unrelated Person in an arms length transaction, (C) sales, transfers or dispositions of assets to a Person that is disregarded as an entity separate from the transferor for U.S. Federal income tax purposes or (D) any mandatory or optional repayments (or prepayments) of any indebtedness of Valvoline or any of its Subsidiaries for borrowed money that is evidenced by a bond, debenture, note, loan agreement or similar instrument);
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(iv) redeem or otherwise repurchase (directly or indirectly) any Stock of Valvoline, except to the extent such redemptions or repurchases meet the following requirements: (A) there is a bona fide, non-tax business purpose for the repurchases of such Stock, (B) such Stock is widely held, (C) the repurchases of such Stock will be made on the open market and (D) the aggregate amount of repurchases of such Stock will be less than 20% of the total value of the outstanding Stock of Valvoline;
(v) enter into a Proposed Acquisition Transaction; or
(vi) take any affirmative action that permits a Proposed Acquisition Transaction to occur by means of an agreement to which it is not a party (including by (A) redeeming rights under a shareholder rights plan, (B) making a determination that a tender offer is a permitted offer under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction or (C) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the Delaware General Corporate Law or any similar corporate statute, any fair price or other provision of its charter or bylaws or otherwise).
(b) Definition of Proposed Acquisition Transaction . (i) For the purposes of this Agreement, Proposed Acquisition Transaction means a transaction or series of transactions (or any agreement, understanding or arrangement to enter into a transaction or series of transactions) as determined for purposes of Section 355(e) of the Code, in connection with which one or more Persons would (directly or indirectly) acquire, or have the right to acquire (including pursuant to an option, warrant or other conversion right), from any other Person or Persons, Stock of Valvoline that, when combined with any other acquisitions of the Stock of Valvoline that occur on or after the Initial Public Offering (but excluding any other acquisition that occurs in (A) the Initial Public Offering itself, (B) the Distribution or (C) any transaction that is excluded from the definition of Proposed Acquisition Transaction under Section 5.04(b)(ii)), comprises [15%] 1 or more of the value or the total combined voting power of all interests that are treated as outstanding equity in Valvoline for U.S. Federal income tax purposes immediately after such transaction or, in the case of a series of transactions, immediately after any transaction in such series. For this purpose, any recapitalization, repurchase or redemption of the Stock of, and any amendment to the certificate of incorporation (or other organizational documents) of, Valvoline shall be treated as an indirect acquisition of the Stock of Valvoline by any shareholder to the extent such shareholders percentage interest in interests that are treated as outstanding equity in Valvoline for U.S. Federal income tax purposes increases by vote or value.
1 | Percentage is subject to change based on the size of Valvoline Inc.s initial public offering. |
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(ii) Notwithstanding Section 5.04(b)(i), a Proposed Acquisition Transaction shall not include (A) the adoption by Valvoline of a shareholder rights plan that meets the requirements of IRS Revenue Ruling 90-11, 1990-1 C.B. 10, (B) issuances of Stock of Valvoline that satisfy Safe Harbor VIII (relating to acquisitions in connection with a persons performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Section 1.355-7(d) of the Regulations or (C) any acquisition of the Stock of Valvoline that satisfies Safe Harbor VII (relating to acquisitions of stock listed on an established market) of Section 1.355-7(d) of the Regulations; provided , however , that such transaction or series of transactions shall constitute a Proposed Acquisition Transaction if meaningful factual diligence is necessary to establish that Section 5.04(b)(ii)(A), (B) or (C) applies.
(iii) The provisions of this Section 5.04(b), including the definition of Proposed Acquisition Transaction, are intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, Section 355(e) of the Code or the Regulations thereunder shall be incorporated in this Section 5.04(b) and its interpretation.
(c) Consent to Take Certain Restricted Actions . (i) Valvoline may (and may cause or permit its Affiliates to) take an action otherwise prohibited under Section 5.04(a) if Ashland Global consents. Ashland Global may not withhold its consent if Valvoline has received Satisfactory Guidance. In all other cases, Ashland Globals consent shall be at its sole discretion.
(ii) For purposes of this Agreement, Satisfactory Guidance means either a Ruling or an Unqualified Tax Opinion, at the election of Valvoline, in either case satisfactory to Ashland Global in its sole discretion in both form and substance, including with respect to any underlying assumptions or representations and any legal analysis contained therein, and concluding that the proposed action will not cause any of the Transactions to fail to qualify for its Intended Tax Treatment.
(iii) For purposes of this Agreement, Unqualified Tax Opinion means an unqualified will opinion of a Tax Advisor that permits reliance by Ashland Global. The Tax Advisor, in issuing its opinion, shall be permitted to rely on the validity and correctness, as of the date given, of Rulings and any tax opinions previously issued by a Tax Advisor, unless such reliance would be unreasonable under the circumstances, and shall assume that each of the Transactions would have qualified for its Intended Tax Treatment if the action in question did not occur.
(d) Procedures Regarding Opinions and Rulings . (i) If Valvoline notifies Ashland Global that it desires to take a restricted action described in Section 5.04(a) and seeks Satisfactory Guidance for purposes of Section 5.04(c), Ashland Global, at the request of Valvoline, shall use commercially reasonable efforts to expeditiously obtain, or assist Valvoline in obtaining, such Satisfactory Guidance. Notwithstanding the
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foregoing, Ashland Global shall not be required to take any action pursuant to this Section 5.04(d) if, upon request, Valvoline fails to certify that all information and representations relating to Valvoline or any of its Affiliates in the relevant documents are true, correct and complete or fails to obtain certification from any counterparty to any Proposed Acquisition Transaction that all information and representations relating to such counterparty in the relevant documents are true, correct and complete. Valvoline shall reimburse Ashland Global for all reasonable out-of-pocket costs and expenses incurred by Ashland Global or any of its Affiliates in obtaining Satisfactory Guidance within 10 Business Days after receiving an invoice from Ashland Global therefor.
(ii) Ashland Global shall have the right to obtain a Ruling, any other guidance from any Taxing Authority or an opinion of a Tax Advisor relating to the Transactions at any time in Ashland Globals sole discretion. Valvoline, at the request of Ashland Global, shall use commercially reasonable efforts to expeditiously obtain, or assist Ashland Global in obtaining, any such Ruling, other guidance or opinion; provided , however , that Valvoline shall not be required to make any representation or covenant that it does not reasonably believe is (and will continue to be) true and accurate. Ashland Global shall reimburse Valvoline for all reasonable out-of-pocket costs and expenses incurred by Valvoline or any of its Affiliates in obtaining any such Ruling, other guidance or opinion requested by Ashland Global within 10 Business Days after receiving an invoice from Valvoline therefor.
(iii) Ashland Global shall have exclusive control over the process of obtaining any Ruling or other guidance from any Taxing Authority concerning the Transactions, and Valvoline shall not independently seek any Ruling or other guidance concerning the Transactions at any time. In connection with any Ruling requested by Valvoline pursuant to Section 5.04(d) or that can reasonably be expected to affect Valvolines liabilities under this Agreement, Ashland Global shall (A) keep Valvoline informed of all material actions taken or proposed to be taken by Ashland Global, (B) reasonably in advance of the submission of any ruling request provide Valvoline with a draft thereof, consider Valvolines comments on such draft and provide Valvoline with a final copy thereof and (C) provide Valvoline with notice reasonably in advance of, and (subject to the approval of the IRS or other applicable Taxing Authority) permit Valvoline to attend, any formally scheduled meetings with the IRS or other applicable Taxing Authority that relate to such Ruling.
(iv) Notwithstanding anything herein to the contrary, Valvoline shall not seek a ruling with respect to a taxable period (or portion thereof) that ends on or before the Separation Date (whether or not relating to the Transactions) if Ashland Global determines that there is a reasonable possibility that such action could have a significant adverse impact on Ashland Global or any of its Affiliates.
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SECTION 5.05. Notification and Certification Respecting Certain Acquisition Transactions . (a) If Valvoline proposes to enter into any 5% Acquisition Transaction or takes any affirmative action to permit any 5% Acquisition Transaction to occur at any time during the 30-month period following the date of the Distribution, Valvoline shall undertake in good faith to provide Ashland Global, no later than 10 Business Days following the signing of any written agreement with respect to such 5% Acquisition Transaction or obtaining knowledge of the occurrence of any such 5% Acquisition Transaction that takes place without a written agreement, with a written description of such transaction (including the type and amount of Stock to be issued) and an explanation as to why such transaction does not result in the application of Section 355(e) of the Code to the Transactions.
(b) For purposes of this Section 5.05, 5% Acquisition Transaction means any transaction or series of transactions that would be a Proposed Acquisition Transaction if the percentage specified in the definition of Proposed Acquisition Transaction were 5% instead of 15%.
SECTION 5.06. Reporting . Ashland Global and Valvoline each (a) shall timely file (or cause to be filed) the appropriate information and statements (including as required by Section 6045B of the Code and Section 1.355-5 and, to the extent applicable, Section 1.368-3 of the Regulations) to report the Transactions as qualifying for the Intended Tax Treatment and (b) absent a change of Law or a Determination in respect of the Transactions, shall not take any position on any Tax Return, financial statement or other document that is inconsistent with the Transactions qualifying for the Intended Tax Treatment.
SECTION 5.07. Protective Section 336(e) Elections . (a) The Companies shall, at Ashland Globals election, timely enter into a written, binding agreement (within the meaning of Section 1.336-2(h) of the Regulations) to make any Protective Section 336(e) Election that Ashland Global chooses (it being understood, for the avoidance of doubt, that such Protective Section 336(e) Elections shall have a tax effect on the Companies only if (x) Section 355(d) or 355(e) of the Code applies to any Transaction or (y) any Transaction otherwise fails its Intended Tax Treatment to qualify for nonrecognition treatment under Section 355(c) of the Code). Ashland Global shall timely make such Protective Section 336(e) Elections and timely file such forms as may be contemplated by applicable tax Law or administrative practice to effect such Protective Section 336(e) Elections and shall have the exclusive right to prepare and file (i) the relevant purchase price allocation and any corresponding IRS Form 8883 (or any successor thereto) and (ii) any similar forms required or permitted to be filed under U.S. state or local Law in connection with such Protective Section 336(e) Elections.
(b) To the extent any such Transaction constitutes a qualified stock disposition (as defined in Section 1.336-1(b)(6) of the Regulations) pursuant to a Determination, the Companies shall not and shall not permit any of their respective Affiliates to, take any position for tax purposes inconsistent with any of the Protective Section 336(e) Elections, except as may be required pursuant to a Determination.
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(c) If there is a failure of one or more of the Transactions to qualify (in whole or in part) for its Intended Tax Treatment and, as a consequence, a relevant Protective Section 336(e) Election results in a step-up in the basis of any asset of the Valvoline Group, then Valvoline shall make quarterly payments to Ashland Global equal to (i) the actual tax savings, if, as and when realized, arising from such step-up in tax basis, determined on a with and without basis (treating any deductions or amortization attributable to such step-up in tax basis resulting from such Protective Section 336(e) Election as the last items claimed for any taxable period, including after the utilization of any available net operating loss carryforwards), and less a reasonable charge for administrative expenses and other reasonable out-of-pocket expenses necessary to secure the tax savings multiplied by (ii) the Ashland Global Transaction Tax Percentage of any Transaction Taxes resulting from such failure of one or more of the Transactions to qualify (in whole or in part) for its Intended Tax Treatment.
ARTICLE VI
Audits, Amended Returns, Contests, Adjustments and Rulings
SECTION 6.01. Audits and Contests . (a) Subject to Section 6.01(b), (i) Ashland Global shall have exclusive and sole responsibility and control with respect to the conduct and settlement of any examinations and contests by a Taxing Authority of any Ashland Global Consolidated Returns or Ashland Global Combined Returns and (ii)Ashland Global and Valvoline shall each have exclusive and sole responsibility and control with respect to the conduct and settlement of any examinations and contests by a Taxing Authority of the respective Separate Returns that each party is responsible for preparing under Article II.
(b) If the conduct or settlement of any portion or aspect of any examination or contest of a partys Tax Return could reasonably be expected to obligate the other Company to make an indemnity payment under Article IV or result in an additional payment obligation of the other Company under Article II, then (i) the other Company shall have the right to share joint control over the conduct and settlement of that portion or aspect and (ii) whether or not the other Company exercises that right, such party shall not accept or enter into any settlement that would obligate the other Company to make an indemnity payment under Article IV or result in an additional payment obligation of the other Company under Article II without the consent of the other Company (which consent shall not unreasonably be withheld or delayed). Within 15 Business Days of the commencement of any such examination or contest, such party shall give the other Company notice of, and consult with the other Company with respect to, any issues that could reasonably be expected to obligate the other Company as described in the preceding sentence; provided , however , that the other Company shall not be relieved of any obligation to make additional payments under this Agreement if such party fails to timely deliver the notice described above except to the extent that the other Company is actually prejudiced thereby. If the other Company does not respond to such partys request for consent within 15 Business Days, the other Company shall be deemed to have consented.
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SECTION 6.02. Expenses . Each Indemnifying Party shall reimburse the Indemnitee for all reasonable out-of-pocket expenses (including legal, consulting and accounting fees) in the course of proceedings described in Section 6.01 to the extent those expenses are reasonably attributable to the Indemnifying Party or any of its Affiliates, or to any matter for which the Indemnifying Party is required to indemnify under Article IV or which would result in an additional payment obligation of the Indemnifying Party under Article II.
ARTICLE VII
General Cooperation and Document Retention
SECTION 7.01. Cooperation and Good Faith . Each member of the Ashland Global Group and the Valvoline Group shall cooperate fully with all reasonable requests from the other party in connection with the preparation and filing of Tax Returns, audits, contests and other matters covered by this Agreement. Such cooperation shall include the execution of any document that may be necessary or reasonably helpful in connection with any audit or contest, the filing or amending of a Tax Return by a member of the Ashland Global Group or the Valvoline Group, obtaining any tax opinion or Ruling or, for no more than 2 years following the date of this Agreement, the provision of services described in Schedule G (which services shall, for the avoidance of doubt, be provided without remuneration).
SECTION 7.02. Duty to Mitigate Recognition or Recapture of Income . Prior to any event that may result in recognition or recapture of income (including under any gain recognition agreement or domestic use agreement), Ashland Global and Valvoline shall use (and shall cause the members of the Ashland Global Group and Valvoline Group, respectively, to use) all commercially reasonable efforts to eliminate such recognition or recapture of income or otherwise avoid or minimize the impact thereof. For the avoidance of doubt:
(a) Valvoline shall enter into (or shall cause the appropriate member of the Valvoline Group to enter into) a new gain recognition agreement pursuant to Section 1.367(a)-8 of the Regulations, if entering into that gain recognition agreement would preclude or defer the recognition of gain by any member of the Ashland Global Group.
(b) To the extent that any member of the Valvoline Group is a U.S. transferor (within the meaning of Section 1.367(a)-8(b)(1)(xvii) of the Regulations) with respect to property for which a gain recognition agreement was entered into, Valvoline shall comply (or shall cause the appropriate member of the Valvoline Group to comply) with the annual certification requirements of Section 1.367(a)-8(g) of the Regulations for the term of such gain recognition agreement and promptly provide copies of those annual certifications to Ashland Global. A list of gain recognition agreements is set out in Schedule H.
(c) Valvoline shall enter into any agreements (including new domestic use agreements under Section 1.1503(d)-6(f)(2) of the Regulations), make any elections and take any other actions, in each case as requested by Ashland Global or as otherwise required in order to avoid causing the Distribution or Other Disposition to be a
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triggering event requiring recapture of any dual consolidated loss (in each case, within the meaning of Section 1503(d) of the Code and the Regulations thereunder) for which an Ashland Global Consolidated Group member has made a domestic use election under Section 1.1503(d)-6(d) of the Regulations and that was incurred by a member of the Valvoline Group during a Consolidation Year.
SECTION 7.03. Document Retention, Access to Records and Use of Personnel . Until the expiration of the relevant statute of limitations (including extensions), each of Ashland Global and Valvoline shall (i) retain records, documents, accounting data, computer data and other information (collectively, the Records ) necessary for the preparation, filing, review, audit or defense of all Tax Returns or relevant to an obligation, right or liability of either party under this Agreement and (ii) give each other reasonable access to such Records and to its personnel (ensuring their cooperation) and premises to the extent relevant to an obligation, right or liability of either party under this Agreement. Prior to disposing of any such Records, each of Ashland Global and Valvoline shall notify the other party in writing of such intention and afford the other party the opportunity to take possession or make copies of such Records at its discretion.
ARTICLE VIII
Miscellaneous Provisions
SECTION 8.01. Interest . Except as provided in Section 2.05(c), any payments required pursuant to this Agreement that are not made within the time period specified in this Agreement shall bear interest at a rate equal to 200 basis points above the average interest rate on the senior bank debt of Ashland Global.
SECTION 8.02. No Duplication of Payment . Notwithstanding anything to the contrary herein, nothing in this Agreement shall require Valvoline or Ashland Global, as the case may be, to make any payment to the extent that the payment is attributable to a Tax Attribute, Return Item or any other amount for which payment has previously been made under this Agreement.
SECTION 8.03. Confidentiality . Each of the Companies agrees that any information furnished pursuant to this Agreement is confidential and, except as and to the extent required by Law or otherwise during the course of an audit or contest or other administrative or legal proceeding, shall not be disclosed to other Persons. In addition, each of Ashland Global and Valvoline shall cause its Affiliates, employees, agents and advisors to comply with the terms of this Section 8.03.
SECTION 8.04. Successors and Access to Information . This Agreement shall be binding upon and inure to the benefit of any successor to any of the parties, by merger, acquisition of assets or otherwise, to the same extent as if the successor had been an original party to this Agreement, and in such event, all references herein to a party shall refer instead to the successor of such party.
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SECTION 8.05. Injunctions. The Companies acknowledge that irreparable damage would occur to them in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. The Companies agree that they shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which it may be entitled at Law or in equity. Nothing in this Agreement shall prevent any Company from seeking injunctive relief as it deems necessary or appropriate.
SECTION 8.06. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of New York excluding (to the greatest extent permissible by Law) any rule of Law that would cause the application of the Laws of any jurisdiction other than the State of New York.
SECTION 8.07. Headings . The headings in this Agreement are for convenience only and shall not be deemed for any purpose to constitute a part or to affect the interpretation of this Agreement.
SECTION 8.08. Counterparts . This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart.
SECTION 8.09. Notice . All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given (a) when delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service or (c) upon the earlier of confirmed receipt or the fifth Business Day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, in each case addressed as follows:
If to Ashland Global, to:
ASHLAND GLOBAL HOLDINGS INC.
50 East RiverCenter Boulevard
Covington, KY 41011
Attn: Scott A. Gregg
Peter Ganz
Email: sagregg@ashland.com
pganz@ashland.com
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with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Stephen L. Gordon
Lauren Angelilli
Email: gordon@cravath.com
langelilli@cravath.com
Facsimile: (212) 474-3700
If to Valvoline, to:
VALVOLINE INC.
3499 Blazer Parkway
Lexington, KY 40509
Attn: Nicolas H. Schmelzer
Julie M. ODaniel
Email: nhschmelzer@valvoline.com
jmodaniel@valvoline.com
Either Company may, by notice to the other Company, change the address to which such notices are to be given. Any payment required to be made under this Agreement shall be delivered to the relevant Company at an address to which notice under this Section 8.09 may be given to such Company.
SECTION 8.10. Severability . If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent practicable. In any event, all other provisions of this Agreement shall be deemed valid, binding and enforceable to their full extent.
SECTION 8.11. Termination . This Agreement shall remain in force and be binding for 90 days following the expiration of the applicable period of assessments (including extensions) for any taxes contemplated by this Agreement; provided , however , that neither Ashland Global nor Valvoline shall have any liability to the other party with respect to tax liabilities for taxable periods (or portions thereof) in which Valvoline is not included in the Ashland Global Consolidated Returns except as provided in Article II or IV of this Agreement.
SECTION 8.12. Successor Provisions . Any reference herein to any provisions of the Code or Regulations shall be deemed to include any amendments or successor provisions thereto as appropriate.
SECTION 8.13. Compliance by Group Members . Ashland Global and Valvoline each shall cause all present and future members of the Ashland Global Group and the Valvoline Group to comply with the terms of this Agreement.
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SECTION 8.14. Survival . Notwithstanding anything in this Agreement to the contrary, the provisions of this Agreement shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extensions thereof) plus 90 days.
SECTION 8.15. Integration; Amendments . Except as explicitly stated herein, this Agreement embodies the entire understanding between the parties relating to its subject matter and supersedes and terminates all prior agreements and understandings among the parties with respect to such matters. No promises, covenants or representations of any kind, other than those expressly stated herein, have been made to induce any party to enter into this Agreement. This Agreement shall not be modified or terminated except by a writing duly signed by each of the parties hereto, and no waiver of any provisions of this Agreement shall be effective unless in a writing duly signed by the party sought to be bound. If, and to the extent, the provisions of this Agreement conflict with the TSA, the provisions of this Agreement shall control.
SECTION 8.16. Third-Party Beneficiaries. (a) The provisions of this Agreement are solely for the benefit of the Companies and are not intended to confer upon any Person except the Companies any rights or remedies hereunder and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third Person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.
SECTION 8.17. Waiver of Jury Trial . EACH OF THE COMPANIES ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH OF THE COMPANIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE COMPANIES CERTIFIES AND ACKNOWLEDGES THAT (a) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER COMPANY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER COMPANY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (b) EACH OF THE COMPANIES UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (c) EACH OF THE COMPANIES MAKES THIS WAIVER VOLUNTARILY AND (d) EACH OF THE COMPANIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.17.
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IN WITNESS WHEREOF, the Companies have caused this Agreement to be executed by their duly authorized representatives as of the date first set forth above.
ASHLAND GLOBAL HOLDINGS INC. | ||
by | ||
Name: | ||
Title: |
VALVOLINE INC. | ||
by | ||
Name: | ||
Title: |
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Exhibit 10.5
EMPLOYEE MATTERS AGREEMENT
by and between
ASHLAND GLOBAL HOLDINGS INC.
and
VALVOLINE INC.
Dated as of [DATE], 2016
TABLE OF CONTENTS
ARTICLE I
Definitions
SECTION 1.01. |
Definitions |
1 | ||||
SECTION 1.02. |
Glossary of Defined Terms |
8 | ||||
ARTICLE II | ||||||
General | ||||||
SECTION 2.01. |
Transferred Employees |
9 | ||||
SECTION 2.02. |
Employee Liabilities Generally |
9 | ||||
SECTION 2.03. |
Employee Benefits Generally |
10 | ||||
SECTION 2.04. |
Non-Termination of Employment or Benefits |
10 | ||||
SECTION 2.05. |
No Right to Continued Employment |
10 | ||||
SECTION 2.06. |
Service Providers |
11 | ||||
ARTICLE III | ||||||
Collective Bargaining Agreements | ||||||
SECTION 3.01. |
Continuity and Performance of Agreements |
11 | ||||
ARTICLE IV | ||||||
Valvoline Plans Generally | ||||||
SECTION 4.01. |
Valvoline Benefit Plans |
11 | ||||
SECTION 4.02. |
Standalone Valvoline Benefit Plans |
12 | ||||
SECTION 4.03. |
Power to Amend |
12 | ||||
ARTICLE V | ||||||
Welfare Plans | ||||||
SECTION 5.01. |
Welfare Plans |
12 | ||||
SECTION 5.02. |
Workers Compensation Claims |
14 |
ARTICLE VI | ||||||
Pension Plans | ||||||
SECTION 6.01. |
U.S. Qualified Pension Plans |
14 | ||||
SECTION 6.02. |
Excess Benefit and Supplemental Pension Plans; Establishment of Valvoline Plans |
16 | ||||
SECTION 6.03. |
Non-U.S. Pension Plans |
17 | ||||
SECTION 6.04. |
LESOP |
17 | ||||
ARTICLE VII | ||||||
401(k) Plans | ||||||
SECTION 7.01. |
Establishment of Valvoline 401(k) Plan |
18 | ||||
SECTION 7.02. |
Transfer and Assumption of Liabilities |
18 | ||||
SECTION 7.03. |
Trust to Trust Transfer of Assets |
18 | ||||
SECTION 7.04. |
Stock Fund Considerations |
19 | ||||
ARTICLE VIII | ||||||
Equity-Based Incentive Compensation Awards | ||||||
SECTION 8.01. |
Adoption of the Valvoline Equity Incentive Plan |
19 | ||||
SECTION 8.02. |
Treatment of Outstanding Awards |
19 | ||||
ARTICLE IX | ||||||
Annual Bonus Awards; Retention; Individual Agreements | ||||||
SECTION 9.01. |
Annual Bonus Awards; Retention |
21 | ||||
SECTION 9.02. |
Individual Agreements |
21 | ||||
ARTICLE X | ||||||
Deferred Compensation Plans | ||||||
SECTION 10.01. |
Establishment of Valvoline Deferred Compensation Plans |
22 | ||||
SECTION 10.02. |
Participation in Deferred Compensation Plans; Allocation of Liabilities |
22 | ||||
SECTION 10.03. |
No Distributions |
24 | ||||
SECTION 10.04. |
Limitation of Liability |
24 | ||||
SECTION 10.05. |
No Transfer of Assets Pertaining to Deferred Compensation Plans |
24 | ||||
ARTICLE XI | ||||||
Vacation and Other Paid Time Off | ||||||
SECTION 11.01. |
Vacation and Other Paid Time Off |
24 |
ii
ARTICLE XII | ||||||
Retiree Medical and Welfare Liabilities | ||||||
SECTION 12.01. |
Assumption of Liabilities |
25 | ||||
ARTICLE XIII | ||||||
Non-Solicitation | ||||||
SECTION 13.01. |
Non-Solicitation |
25 | ||||
ARTICLE XIV | ||||||
Payroll Services | ||||||
SECTION 14.01. |
Payroll Services |
26 | ||||
ARTICLE XV | ||||||
Cooperation; Access to Information; Litigation; Confidentiality | ||||||
SECTION 15.01. |
Cooperation |
26 | ||||
SECTION 15.02. |
Access to Information; Litigation; Confidentiality |
27 | ||||
ARTICLE XVI | ||||||
Reimbursements | ||||||
SECTION 16.01. |
Reimbursements by the Valvoline Group |
27 | ||||
ARTICLE XVII | ||||||
Termination | ||||||
SECTION 17.01. |
Termination |
29 | ||||
SECTION 17.02. |
Effect of Termination |
29 | ||||
ARTICLE XVIII | ||||||
Miscellaneous | ||||||
SECTION 18.01. |
Counterparts; Entire Agreement; Corporate Power |
29 | ||||
SECTION 18.02. |
Governing Law; Jurisdiction |
29 | ||||
SECTION 18.03. |
Assignability |
29 | ||||
SECTION 18.04. |
Third-Party Beneficiaries |
30 | ||||
SECTION 18.05. |
Notices |
30 | ||||
SECTION 18.06. |
Severability |
31 |
iii
SECTION 18.07. |
Headings |
31 | ||||
SECTION 18.08. |
Survival of Covenants |
31 | ||||
SECTION 18.09. |
Specific Performance |
31 | ||||
SECTION 18.10. |
Amendments |
31 | ||||
SECTION 18.11. |
Interpretation |
32 | ||||
SCHEDULES |
SCHEDULE 1.01: Certain Excluded Excess Benefit and Supplemental Pension Plans |
S-1 | |||
SCHEDULE 3.01: Collective Bargaining Agreements |
S-2 | |||
SCHEDULE 4.01: New Valvoline Plans |
S-3 | |||
SCHEDULE 6.02: Certain Assumed Excess Benefit and Supplemental Pension Plans |
S-4 | |||
SCHEDULE 6.03: Treatment of Non-U.S. Pension Plans |
S-5 | |||
SCHEDULE 10.01: Certain Ashland Global Deferred Compensation Plans |
S-6 | |||
SCHEDULE 10.02: Transitioning Directors |
S-7 |
iv
EMPLOYEE MATTERS AGREEMENT, dated as of [DATE], 2016, by and between ASHLAND GLOBAL HOLDINGS INC., a Delaware corporation (Ashland Global) and parent of Ashland LLC, and VALVOLINE INC., a Kentucky corporation ( Valvoline ).
R E C I T A L S
WHEREAS the Parties are entering into the Separation Agreement (the Separation Agreement ) concurrently herewith, pursuant to which Ashland Global intends to effect the Initial Public Offering (as defined below) and the Distribution (as defined below); and
WHEREAS the Parties (as defined below) wish to set forth their agreements as to certain matters regarding employment, compensation and employee benefits and arrangements with certain non-employee service providers.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement (as defined below), the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. For purposes of this Agreement, the following terms shall have the following meanings. All capitalized terms used but not defined herein shall have the meanings assigned to them in the Separation Agreement, unless otherwise indicated.
Action shall have the meaning set forth in the Separation Agreement.
Affiliate shall have the meaning set forth in the Separation Agreement.
Agreement means this Employee Matters Agreement, including the schedules hereto.
Ancillary Agreements shall have the meaning set forth in the Separation Agreement.
Ashland Global Benefit Plan means any Benefit Plan sponsored or maintained by any member of the Ashland Global Group or to which any member of the Ashland Global Group is a party.
Ashland Global Business shall have the meaning set forth in the Separation Agreement.
Ashland Global Common Stock shall have the meaning set forth in the Separation Agreement.
Ashland Global Deferred Compensation Plan means the Ashland Inc. Supplemental Defined Contribution Plan for Certain Employees and each nonqualified Ashland Global Benefit Plan or Individual Agreement that provides employees or non-employee directors an election to defer compensation, other than the Hercules Deferred Compensation Plan.
Ashland Global Employee means (i) each individual who was employed by a member of the Ashland Global Group as of immediately following August 1, 2016, including any such individual who was not actively at work at such time due to a leave of absence (including vacation, holiday, illness, injury or short-term disability, but excluding long-term disability) from which such employee was permitted to return to active employment in accordance with the Ashland Global Groups personnel policies, (ii) each individual who, as of immediately following August 1, 2016 (A) is on leave under part I of the Ashland Global Groups long-term disability plan, (B) was primarily charged to an Ashland cost center at the time such leave commenced and (C) is reasonably likely to return to work prior to transitioning to part II of the Ashland Global Groups long-term disability plan, as determined by Ashland Global in its sole discretion, and (iii) each individual who commenced or commences employment with a member of the Ashland Global Group any time following August 1, 2016, in each case excluding any Former Ashland Global Employee, Valvoline Employee or Former Valvoline Employee.
Ashland Global Equity Awards means Ashland Global Performance Units, Ashland Global Restricted Share Units, Ashland Global Restricted Shares and Ashland Global Stock Appreciation Rights.
Ashland Global Excess Benefit and Supplemental Pension Plan means each Ashland Global Benefit Plan that provides nonqualified excess or supplemental pension benefits, other than those set forth on Schedule 1.01 .
Ashland Global General Employee Liabilities means all actual or potential employee-related Liabilities (i) that are incurred on or after August 1, 2016 in respect of or relating to any Ashland Global Employee or (ii) that are incurred prior to August 1, 2016 and are not covered by clause (ii) of the definition of Valvoline General Employee Liabilities.
Ashland Global Group shall have the meaning set forth in the Separation Agreement.
Ashland Global Liabilities shall have the meaning set forth in the Separation Agreement.
Ashland Global Performance Unit means each award of performance units payable in whole or in part in shares of Ashland Global Common Stock, or the value of which is determined with reference to the value of shares of Ashland Global Common Stock, whether granted pursuant to an equity-based incentive compensation plan or otherwise.
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Ashland Global Restricted Share Unit means each award of restricted share units or restricted share equivalents payable in whole or in part in shares of Ashland Global Common Stock, or the value of which is determined with reference to the value of shares of Ashland Global Common Stock, whether granted pursuant to an equity-based incentive compensation plan or otherwise. For the avoidance of doubt, deferred compensation balances denominated or hypothetically invested in shares of Ashland Global Common Stock shall be treated in accordance with Article X and shall not be considered Ashland Global Restricted Share Units for purposes of this Agreement.
Ashland Global Restricted Share means each award of restricted shares of Ashland Global Common Stock, whether granted pursuant to an equity-based incentive compensation plan or otherwise.
Ashland Global Stock Appreciation Right means each award of stock appreciation rights payable in whole or in part in shares of Ashland Global Common Stock, or the value of which is determined with reference to the value of shares of Ashland Global Common Stock, whether granted pursuant to an equity-based incentive compensation plan or otherwise.
Ashland Hercules Pension Plan means the Ashland Hercules Pension Plan. For the avoidance of doubt, each reference to the Ashland Hercules Pension Plan in this Agreement shall refer to such plan prior to or after it has been assumed by a member of the Valvoline Group in accordance with Section 6.01(a), as the context requires.
Ashland Hercules Pension Plan Trust means the trust (or the relevant portion of a master trust) or other funding vehicle that has been established to fund the Ashland Hercules Pension Plan. For the avoidance of doubt, each reference to the Ashland Hercules Pension Plan Trust in this Agreement shall refer to such trust or other funding vehicle prior to or after it has been assumed by a member of the Valvoline Group in accordance with Section 6.01(a), as the context requires.
Benefit Plan means any plan, program, policy, agreement, arrangement or understanding that is an employment, consulting, deferred compensation, executive compensation, incentive bonus or other bonus, employee pension, profit sharing, savings, retirement, supplemental retirement, stock option, stock purchase, stock appreciation right, restricted stock, restricted stock unit, performance unit, deferred stock unit or other equity-based compensation, severance pay, retention, change in control, salary continuation, life insurance, death benefit, health, hospitalization, workers compensation, welfare benefits, perquisites, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any employee benefit plan (as defined in Section 3(3) of ERISA), whether or not subject to ERISA.
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Benefit Plan Transfer Date means, with respect to an applicable Valvoline Benefit Plan, the date set forth opposite such Valvoline Benefit Plan in Schedule 4.01 , or such other date prior to the Distribution Date as determined by Ashland Global in its sole discretion.
CHPP means the Pension Plan for Hourly Employees of Ashland Chemical.
CHPP Transfer Interest Amount means an interest increment on the absolute value of the Section 414(l) Increment for the period from the Pension Spin-Off Date until the CHPP True-Up Transfer Date at a rate equal to the select interest rate that the Pension Benefit Guaranty Corporation publishes as of the Pension Spin-Off Date for the purpose of determining the present value of annuities in involuntary and distress terminations of single-employer plans, as described in 29 CFR 4044.
CHPP Trust means the trust or other funding vehicle that has been established to fund the CHPP.
COBRA means the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and any similar applicable Laws.
Code shall have the meaning set forth in the Separation Agreement.
Distribution shall have the meaning set forth in the Separation Agreement.
Distribution Date shall have the meaning set forth in the Separation Agreement.
Employment Taxes means all fees, taxes, social insurance payments or similar contributions to a fund of a Governmental Authority with respect to wages or other compensation.
Equity Award Exchange Ratio means the ratio that will be determined by the board of directors of Ashland Global (or the appropriate committee thereof), in its sole discretion, in a manner designed to preserve the aggregate value of the applicable outstanding equity awards.
ERISA means the U.S. Employee Retirement Income Security Act of 1974, as amended.
Final CHPP Transfer Amount means the sum of:
(A) the Section 414(l) Increment,
(B) plus the CHPP Transfer Interest Amount, if the Section 414(l) Increment is a positive number, or less the CHPP Transfer Interest Amount, if the Section 414(l) Increment is a negative number,
4
(C) less the amount of any benefit payments that are made from the Ashland Hercules Pension Plan to Hopewell Pension Plan Participants in respect of the Transferred to CHPP Accrued Benefits between the Pension Spin-Off Date and the CHPP True-Up Transfer Date, if any.
Former Ashland Global Employee means each former employee whose employment terminated prior to August 1, 2016 and who is not a Former Valvoline Employee.
Former Valvoline Employee means each former employee whose employment terminated prior to August 1, 2016 and who, as of immediately prior to such individuals termination of employment, was employed by a member of the Valvoline Group, was primarily engaged in the conduct of any terminated, divested or discontinued business or operations of the Valvoline Business or was a U.S. employee primarily engaged in the conduct of any other terminated, divested or discontinued business or operations of the Ashland Global Group (other than the Valvoline Business or any terminated, divested or discontinued businesses or operations of the Valvoline Business).
Governmental Authority shall have the meaning set forth in the Separation Agreement.
Hercules Rabbi Trusts means the Hercules Incorporated Amended and Restated Compensation Benefits Grantor Trust Agreement for Management Employees and the Hercules Incorporated Amended and Restated Compensation Benefits Grantor Trust Agreement for Nonemployee Directors.
Hopewell Pension Plan Participant means each individual who participates in or has an accrued benefit under the Ashland Hercules Pension Plan who is an active employee covered by the Hopewell collective bargaining agreement as of the Pension Spin-Off Date.
Individual Agreement means an individual employment contract or other similar agreement that specifically pertains to any Valvoline Employee, Former Valvoline Employee, Ashland Global Employee or Former Ashland Global Employee.
Information shall have the meaning set forth in the Separation Agreement.
Initial Public Offering shall have the meaning set forth in the Separation Agreement.
Law shall have the meaning set forth in the Separation Agreement.
LESOP means the Ashland Inc. Leveraged Employee Stock Ownership Plan.
LESOP Trust means the trust or other funding vehicle that has been established to fund the LESOP.
5
Liabilities shall have the meaning set forth in the Separation Agreement. For the avoidance of doubt, for purposes of this Agreement, Liabilities shall include the employer-paid portion of any employment and payroll taxes.
Party means either party hereto, and Parties means both parties hereto.
Person shall have the meaning set forth in the Separation Agreement.
Proportionate Share Factor shall have the meaning set forth in the TMA.
RTSA shall have the meaning set forth in the Separation Agreement.
Section 414(l) Amount means the amount required to be transferred from the Ashland Hercules Pension Plan Trust to the CHPP Trust in respect of the Transferred to CHPP Accrued Benefits pursuant to Section 414(l) of the Code and Treasury Regulation Section 1.414(l)-1(n)(2) or, if the requirements thereof cannot be satisfied, in accordance with the applicable requirements of ERISA and the Code as determined by Ashland Global in its sole discretion, in each case using actuarial assumptions and methodology deemed reasonable by the administrator of the Ashland Hercules Pension Plan in its sole discretion (for the avoidance of doubt, such actuarial assumptions and methodology may, but need not, include the safe harbor assumptions specified in Section 414(l) of the Code), subject to any requirements under the Code and ERISA.
Section 414(l) Increment means (i) the Section 414(l) Amount, as recalculated by the Actuary following the Pension Spin-Off Date, less (ii) the Initial CHPP Transfer Amount.
Service Provider means any individual who provided or is providing services for a member of the Valvoline Group or a member of the Ashland Global Group, whether as a consultant, an independent contractor or other similar role (other than as an employee), including, for the avoidance of doubt, any non-employee member of the board of directors of Ashland Global or the board of directors of Valvoline.
Specified Performance Factor means:
(i) in the case of Ashland Global Performance Units granted with respect to the three-year vesting period ending September 30, 2017, the actual level of achievement of all relevant performance goals as of immediately prior to the Distribution, as determined by the board of directors of Ashland Global (or the appropriate committee thereof) in its sole discretion prior to the Distribution; and
(ii) in the case of Ashland Global Performance Units granted with respect to the three-year vesting period ending September 30, 2018 and any Ashland Global Performance Units granted following the date hereof, the actual level of achievement of all relevant performance goals as of the conclusion of the applicable performance period, as determined by the board of directors of Ashland Global (or the appropriate committee thereof) in its sole discretion as soon as practicable following the conclusion of the applicable performance period, in accordance with the terms of the applicable award agreement.
6
Subsidiary shall have the meaning set forth in the Separation Agreement.
taxes shall have the meaning set forth in the TMA.
Taxing Authority shall have the meaning set forth in the TMA.
TMA shall have the meaning set forth in the Separation Agreement.
Transition Services Employee means each individual who spends or spent 50% or more of his or her work time engaged in providing services pursuant to one or more of the TSA, the RTSA or the joint project undertaken by the Parties to implement the workday system for the Ashland Group and the Valvoline Group, collectively, in each case as determined by Ashland Global in its sole discretion.
TSA shall have the meaning set forth in the Separation Agreement.
Valvoline Benefit Plan means any Benefit Plan sponsored or maintained by any member of the Valvoline Group or to which any member of the Valvoline Group is a party.
Valvoline Business shall have the meaning set forth in the Separation Agreement.
Valvoline Common Stock shall have the meaning set forth in the Separation Agreement.
Valvoline Employee means (i) each individual who was employed by a member of the Valvoline Group as of immediately following August 1, 2016, including any such individual who was not actively at work at such time due to a leave of absence (including vacation, holiday, illness, injury or short-term disability, but excluding long-term disability) from which such employee was permitted to return to active employment in accordance with the Valvoline Groups personnel policies, (ii) each individual who, as of immediately following August 1, 2016, is on leave under part I or part II of the Ashland Global Groups long-term disability plan, other than any individual described in clause (ii) of the definition of Ashland Global Employee, and (iii) each individual who commenced or commences employment with a member of the Valvoline Group any time following August 1, 2016, in each case excluding any Former Valvoline Employee, Ashland Global Employee or Former Ashland Global Employee.
Valvoline General Employee Liabilities means all actual or potential employee-related Liabilities (i) that are incurred on or after August 1, 2016 in respect of or relating to any Valvoline Employee or (ii) that are incurred prior to August 1, 2016 and are Valvoline Legacy Claims.
7
Valvoline Group shall have the meaning set forth in the Separation Agreement.
Valvoline Legacy Claims shall have the meaning set forth in the Separation Agreement.
Valvoline Liabilities shall have the meaning set forth in the Separation Agreement.
Welfare Plan means any Benefit Plan that provides life insurance, health care, dental care, accidental death and dismemberment insurance, disability benefits or other group welfare or fringe benefits.
SECTION 1.02. Glossary of Defined Terms. The following terms shall have the meanings set forth in the Sections set forth below:
Definition |
Section |
|
Actuary |
6.01(c)(i) | |
Ashland Global |
Preamble | |
Ashland Global 401(k) Plan |
7.01 | |
Ashland Global Deferred Compensation Plans |
10.01 | |
Ashland Global Excess Benefit and Supplemental Pension Plans |
6.02(a) | |
Ashland Global Pension Plans |
6.01(a) | |
Ashland Global Welfare Plan |
5.01(b) | |
Ashland Global Workers Compensation Plan |
5.02 | |
CHPP True-Up Transfer Date |
6.01(c)(ii) | |
Continuing Valvoline Employee |
8.02 | |
Excess Benefit Plan Assumption Date |
6.02(a) | |
Initial CHPP Transfer Amount |
6.01(c)(i) | |
New Valvoline Plans |
4.01(a) | |
Pension Spin-Off Date |
6.01(b) | |
Separation Agreement |
Recitals | |
Transferred Employee |
2.01 | |
Transferred to CHPP Accrued Benefits |
6.01(b) | |
Transitioning Director |
10.02 | |
Valvoline |
Preamble | |
Valvoline 401(k) Plans |
7.01(a) | |
Valvoline Deferred Compensation Plans |
10.01 | |
Valvoline Equity Plan |
8.01 | |
Valvoline Excess Benefit and Supplemental Pension Plans |
6.02(a) | |
Valvoline Pension Plans |
6.01(a) | |
Valvoline Welfare Plans |
Schedule 4.01 | |
Valvoline Workers Compensation Plan |
5.02 | |
Workers Compensation Event |
5.02 |
8
ARTICLE II
General
SECTION 2.01. Transferred Employees. Following the date hereof the Parties may jointly agree to, or to cause their Subsidiaries to, transfer the employment of one or more individuals from a member of the Ashland Global Group to a member of the Valvoline Group, or from a member of the Valvoline Group to a member of the Ashland Global Group, as applicable, in each case in connection with the transactions contemplated by this Agreement, the Separation Agreement and the Ancillary Agreements (each such individual, a Transferred Employee ). Except as otherwise expressly provided in this Agreement, effective as of the date the employment of a Transferred Employee is transferred in accordance with the immediately preceding sentence, or such other date as may otherwise be agreed in writing by the Parties, the members of the Valvoline Group or the members of the Ashland Global Group, as applicable, shall assume all Liabilities outstanding as of the date of such transfer of the type or nature that would have been assumed by such members of the Valvoline Group or members of the Ashland Global Group, as applicable, had such Transferred Employee transferred to and been employed by a member of the Valvoline Group or a member of the Ashland Global Group, as applicable, as of August 1, 2016, except that Liabilities under any Benefit Plan shall be determined as of the date such Transferred Employee transferred employment. Without limiting the foregoing, the Parties shall cooperate to determine whether each Transition Services Employee shall be employed by a member of the Valvoline Group or a member of the Ashland Global Group or terminated following the expiration of the TSA or RTSA, the early termination of the subpart of the TSA or RTSA pursuant to which such Transition Services Employee provides or provided services, or such other time as the Parties may mutually agree in writing. For the avoidance of doubt, the foregoing provisions shall not apply to an individual employed by or previously employed by a member of the Valvoline Group who commences employment with a member of the Ashland Global Group, or an individual employed by or previously employed by a member of Ashland Global Group who commences employment with a member of the Valvoline Group, in each case in the ordinary course of business following the date hereof and not in connection with the transactions contemplated by this Agreement, the Separation Agreement and the Ancillary Agreements.
SECTION 2.02. Employee Liabilities Generally. Except as otherwise expressly provided in this Agreement, (a) effective as of August 1, 2016, a member of the Valvoline Group has assumed or retained Liability for paying, performing, fulfilling and discharging in accordance with their respective terms all Valvoline General Employee Liabilities and shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect thereto, and (b) a member of the Ashland Global Group hereby assumes or retains Liability for paying, performing, fulfilling and discharging in accordance with their respective terms all Ashland Global General Employee Liabilities.
9
SECTION 2.03. Employee Benefits Generally. Except as otherwise expressly provided in this Agreement or as otherwise required by applicable Law and subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01, each Valvoline Employee or Former Valvoline Employee who is eligible to participate in any Ashland Global Benefit Plan shall participate in such Ashland Global Benefit Plan following the date hereof and through the applicable Benefit Plan Transfer Date on the terms and conditions applicable thereto in effect from time to time.
SECTION 2.04. Non-Termination of Employment or Benefits. (a) Except as otherwise required by applicable Law or the express terms of any Individual Agreement, neither this Agreement, the Separation Agreement nor any Ancillary Agreement shall be construed to create any right, or to accelerate any entitlement, to any compensation or benefit on the part of any Valvoline Employee, Former Valvoline Employee, Ashland Global Employee or Former Ashland Global Employee. Without limiting the generality of the foregoing, except as otherwise required by applicable Law or the express terms of any Individual Agreement, neither the Initial Public Offering, the Distribution nor the transfers of employment contemplated by Section 2.01 shall cause any individual to be deemed to have incurred a termination of employment or to have created any entitlement to any severance payments or benefits or the commencement of any other benefits under any Ashland Global Benefit Plan, any Valvoline Benefit Plan or any Individual Agreement; provided , however , that:
(i) in the event the Parties do not mutually agree in writing pursuant to Section 2.01 that a Transition Services Employee shall be employed by a member of either of the Valvoline Group or the Ashland Global Group following the expiration of the TSA or RTSA, or the early termination of the subpart of the TSA or RTSA pursuant to which such Transition Services Employee provides or provided services, or such other time as the Parties may mutually agree in writing, as applicable, and the employment of such Transition Services Employee is terminated as a result, any severance or other Liabilities associated with such termination of employment shall be divided equally between the Parties; and
(ii) in the event such transactions or such transfers (other than those described in the immediately preceding clause (a)) result in severance or other separation payments or benefits to any individual, such Liabilities shall be allocated among the Parties in accordance with their Proportionate Share Factors.
SECTION 2.05. No Right to Continued Employment. Nothing contained in this Agreement shall confer any right to continued employment on any Valvoline Employee or Ashland Global Employee. Except as otherwise expressly provided in this Agreement, this Agreement shall not limit the ability of any member of the Valvoline Group or any member of the Ashland Global Group to change the position, compensation or benefits of any of its employees for performance-related, business or any other reasons or require any such entity to continue the employment of any such employee for any period of time; provided , however, that in the event of any such termination of employment or modification of the terms and conditions of employment
10
(other than those described in clause (i) of Section 2.04(a)), any associated Liabilities shall be Valvoline Liabilities if undertaken by a member of the Valvoline Group with respect to Valvoline Employees and shall be Ashland Global Liabilities if undertaken by a member of the Ashland Global Group with respect to Ashland Global Employees.
SECTION 2.06. Service Providers. Except as provided in Article X with respect to deferred compensation benefits provided to non-employee members of the board of directors of Ashland Global or the board of directors of Valvoline or as otherwise expressly provided in this Agreement, the provisions of this Agreement shall not apply to any Service Providers, and all actual or potential Liabilities relating to services provided by Service Providers to any member of the Ashland Global Group or any member of the Valvoline Group, including (a) Liabilities relating to the misclassification of any individual as a Service Provider and not as an employee, (b) Liabilities for taxes (including Employment Taxes), (c) accounts payable owed to any Service Provider and (d) any claims made by any Service Provider with respect to benefits under any Benefit Plan, shall be allocated among the members of the Valvoline Group and the members of the Ashland Global Group in accordance with the cost center (other than a shared cost center) to which such Service Providers services are or were charged and/or the method of allocating the costs and expenses of such services (other than any such costs and expenses that are or were charged to a shared cost center) as in effect as of the date hereof (or as of the date of the termination of such Service Providers services, if earlier).
ARTICLE III
Collective Bargaining Agreements
SECTION 3.01. Continuity and Performance of Agreements. From and after the date hereof, any unions, works councils or similar organizations representing the Valvoline Employees shall continue to represent those employees for purposes of collective bargaining with any member of the Valvoline Group, and the members of the Valvoline Group shall comply with the terms of, and assume all Liabilities of the Ashland Global Group with respect to, each works council, collective bargaining or other labor union agreement that covers one or more Valvoline Employees, including those set forth on Schedule 3.01 , in each case as in effect as of the date hereof, and shall comply with all applicable Laws with respect thereto, until such time as the Valvoline Group negotiates a new works council, collective bargaining or other labor union agreement.
ARTICLE IV
Valvoline Plans Generally
SECTION 4.01. Valvoline Benefit Plans. (a) Establishment of Certain Valvoline Benefit Plans. Effective as of no later than the applicable Benefit Plan Transfer Date, a member of the Valvoline Group shall establish or shall cause to be established the Benefit Plans set forth in Schedule 4.01 (the New Valvoline Plans ). A member of the Valvoline Group shall be the sole plan sponsor of, and from and after the
11
date of adoption thereof, shall have the sole responsibility and liability for, each New Valvoline Plan. The members of the Valvoline Group shall cease to be participating members in each corresponding Ashland Global Benefit Plan as of the applicable Benefit Plan Transfer Date.
(b) Service and Other Factors Determining Benefits. Each New Valvoline Plan shall provide that all service, all compensation and all other factors affecting benefit determinations that were recognized under the corresponding Ashland Global Benefit Plan for Valvoline Employees and Former Valvoline Employees who participate in such New Valvoline Plan shall be fully recognized and credited and shall be taken into account under such New Valvoline Plan to the same extent as though arising thereunder; provided that, in the case of any such individuals who become employed by a member of the Valvoline Group following a break in employment, such recognition and credit shall be subject to any applicable policies of the members of Valvoline Group regarding non-continuous employment, to the extent permitted by applicable Law. Notwithstanding the foregoing, in no event shall such crediting of service or any other action taken pursuant to this Section 4.01 result in the duplication of benefits for any Valvoline Employee or Former Valvoline Employee. All beneficiary designations made by Valvoline Employees and Former Valvoline Employees under the corresponding Ashland Global Benefit Plan shall be transferred to and shall be in full force and effect under the applicable New Valvoline Plan until such beneficiary designations are replaced or revoked by the applicable Valvoline Employee or Former Valvoline Employee.
SECTION 4.02. Standalone Valvoline Benefit Plans. To the extent that any member of the Valvoline Group maintains any Benefit Plans as of the date hereof that are separate and distinct from the Ashland Global Benefit Plans, such member of the Valvoline Group shall continue to maintain, operate and contribute to such separate Benefit Plans immediately following the date hereof in accordance with their terms, and all Liabilities relating to, arising out of or resulting from such separate Benefit Plans shall be Valvoline Liabilities.
SECTION 4.03. Power to Amend. Subject to the Parties compliance with the remaining terms of this Agreement, nothing in this Agreement shall prevent any member of the Valvoline Group or any member of the Ashland Global Group from amending, merging, modifying, terminating, eliminating, reducing or otherwise altering in any respect any Valvoline Benefit Plan or Ashland Benefit Plan, any benefit under any Valvoline Benefit Plan or Ashland Benefit Plan or any trust, insurance policy or funding vehicle related to any Valvoline Benefit Plan or Ashland Benefit Plan, as applicable.
ARTICLE V
Welfare Plans
SECTION 5.01. Welfare Plans. (a) Comparable Benefits. Effective as of no later than each applicable Benefit Plan Transfer Date, a member of the Valvoline Group shall establish or cause to be established the Valvoline Welfare Plans for the benefit of the Valvoline Employees and Former Valvoline Employees, as applicable.
12
Subject to the Valvoline Groups compliance with the remaining terms of this Agreement, the members of the Valvoline Group shall retain the right to modify, alter, amend or terminate the terms of any Valvoline Welfare Plan to the same extent that a member of the Ashland Global Group had such rights under the corresponding Ashland Global Welfare Plan.
(b) Participation in Valvoline Welfare Plans. Effective as of each applicable Benefit Plan Transfer Date, each Valvoline Employee shall become covered under the applicable Valvoline Welfare Plan and shall cease to be covered under the Welfare Plan maintained by a member of the Ashland Global Group to which such Valvoline Welfare Plan most closely corresponds (such applicable plan, the applicable Ashland Global Welfare Plan ). Valvoline shall cause the Valvoline Welfare Plans to (i) waive all limitations as to preexisting conditions, exclusions, service conditions and waiting period limitations and any evidence of insurability requirements applicable to any Valvoline Employees, other than such limitations, exclusions, conditions and requirements that were in effect with respect to such Valvoline Employees as of the applicable Benefit Plan Transfer Date, in each case under the corresponding Ashland Global Welfare Plan and subject to any applicable policies of the Valvoline Group regarding credit to employees who service or employment has not been continuous, and (ii) honor any deductibles, out-of-pocket maximums and co-payments incurred by the Valvoline Employees under the corresponding Ashland Global Welfare Plan in satisfying the applicable deductibles, out-of-pocket maximums or co-payments under such Valvoline Welfare Plans for the plan year in which the applicable Benefit Plan Transfer Date occurs.
(c) Claims Arising Prior to and Following Benefit Plan Transfer Date. Subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01, (i) the members of the Ashland Global Group shall retain responsibility in accordance with the Ashland Global Welfare Plans for all reimbursement claims (such as health and dental care claims) for expenses incurred by, for all non-reimbursement claims (such as life insurance claims) incurred by and for providing continued health care coverage under COBRA with respect to Valvoline Employees and Former Valvoline Employees (and their dependents and beneficiaries) under such plans prior to each applicable Benefit Plan Transfer Date and (ii) the members of the Valvoline Group shall retain responsibility in accordance with the Valvoline Welfare Plans for all reimbursement claims (such as health and dental care claims) for expenses incurred by, for all non-reimbursement claims (such as life insurance claims) incurred by and for providing continued health care coverage under COBRA with respect to Valvoline Employees and Former Valvoline Employees (and their dependents and beneficiaries) under such plans on or following each applicable Benefit Plan Transfer Date. For purposes of this Section 5.01(c), a benefit claim shall be deemed to be incurred as follows: (1) health, dental, vision and prescription drug benefits (including in respect of hospital confinement), upon provision of such services, materials or supplies and (2) life, accidental death and dismemberment and business travel accident insurance benefits, upon the death, cessation of employment or other event giving rise to such benefits.
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(d) No Transfer of Assets Pertaining to Welfare Plans. Except as otherwise described in Section 16.01, nothing in this Agreement shall require any member of the Ashland Global Group or any Ashland Global Welfare Plan to transfer assets or reserves with respect to the Ashland Global Welfare Plans to any member of the Valvoline Group or any Valvoline Welfare Plan.
SECTION 5.02. Workers Compensation Claims. Effective as of August 1, 2016, a member of the Valvoline Group has assumed liability for the Valvoline Legacy Claims (to the extent related to work-related injury or illness (including workers compensation claims, disability or other insurance providing medical care and/or compensation to injured workers)) and shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect thereto. Subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01, in the case of any workers compensation claim of any Valvoline Employee or Former Valvoline Employee who participates in a workers compensation plan of a member of the Ashland Global Group (an Ashland Global Workers Compensation Plan ), such claim shall be covered (a) under such Ashland Global Workers Compensation Plan if the event, injury, illness or condition giving rise to such workers compensation claim (the applicable Workers Compensation Event ) occurred prior to the applicable Benefit Plan Transfer Date and (b) under a workers compensation plan of a member of the Valvoline Group (a Valvoline Workers Compensation Plan ) if the applicable Workers Compensation Event occurred on or following the applicable Benefit Plan Transfer Date. Subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01, if the applicable Workers Compensation Event occurs over a period both preceding and following the applicable Benefit Plan Transfer Date, the claim shall be covered jointly under the Ashland Global Workers Compensation Plan and the Valvoline Workers Compensation Plan and shall be equitably apportioned between them based upon the relative periods of time that the Workers Compensation Event transpired preceding and following the applicable Benefit Plan Transfer Date.
ARTICLE VI
Pension Plans
SECTION 6.01. U.S. Qualified Pension Plans. (a) (i) Assumption of Ashland Global Pension Plans. Effective as of August 1, 2016, a member of the Valvoline Group has assumed liability for the Ashland Hercules Pension Plan, and thereafter shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect to any contributions with respect to such plan and any plan-related expenses that are not payable by the Ashland Hercules Pension Plan Trust, in each case that become payable on or after August 1, 2016. Effective as of a date prior to the date hereof, a member of the Valvoline Group assumed and became the sponsor of each of the Ashland Hercules Pension Plan and the Ashland Hercules Pension Plan Trust, and thereafter any required contributions with respect to the Ashland Hercules Pension Plan and any plan-related expenses that are not payable by the Ashland Hercules Pension Plan Trust shall be made by the Valvoline Group. The Parties hereby agree that
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any required contributions with respect to the Ashland Hercules Pension Plan and any plan-related expenses that are not payable by the Ashland Hercules Pension Plan Trust, in each case that became payable prior to August 1, 2016 and had not been satisfied as of August 1, 2016, shall be Ashland Global Liabilities.
(ii) Effective as of immediately following the assumption of the sponsorship of the Ashland Hercules Pension Plan as described in the immediately preceding paragraph, (1) Valvoline has and shall cause the Ashland Hercules Pension Plan and the Ashland Hercules Pension Plan Trust to make any benefit payments required thereunder in respect of the benefits accrued or deemed accrued under the Ashland Hercules Pension Plan as of the date of such assumption and thereafter and (2) the members of the Ashland Global Group shall have no further obligations to provide the participants in the Ashland Hercules Pension Plan with benefits accrued or deemed accrued thereunder prior to, on or after the date of such assumption. Notwithstanding anything in this Agreement to the contrary, in the event that any Action results in a Liability relating to the operation of the Ashland Hercules Pension Plan prior to the assumption of the sponsorship of such plan as described in the immediately preceding paragraph, such Liability shall be allocated among the Parties in accordance with their Proportionate Share Factors; provided that, in the event such Action results in a requirement to provide pension benefits to a plan participant (or his or her dependents or beneficiaries), such benefits shall be paid from the Ashland Hercules Pension Plan Trust, rather than allocated among the Parties as described in this sentence.
(b) Spin-Off of Certain Pension Liabilities. As of a date prior to the date here of (such date, the Pension Spin-Off Date ), (i) each Hopewell Pension Plan Participant ceased to participate in or accrue additional benefits under the Ashland Hercules Pension Plan and became a participant in the CHPP, (ii) the CHPP assumed and became responsible for the benefits accrued or deemed accrued under the Ashland Hercules Pension Plan as of the Pension Spin-Off Date in respect of the Hopewell Pension Plan Participants (such benefits, the Transferred to CHPP Accrued Benefits ), (iii) Ashland Global has and shall cause the CHPP to make any required benefit payments in respect of the Transferred to CHPP Accrued Benefits and (iv) none of the members of the Valvoline Group, the Ashland Hercules Pension Plan nor the Ashland Hercules Pension Plan Trust shall have any obligation to provide the Hopewell Pension Plan Participants with benefits accrued or deemed accrued under the Ashland Hercules Pension Plan prior to, on or after the Pension Spin-Off Date.
(c) Asset Transfers. (i) Effective on or around the Pension Spin-Off Date, assets, in such form as the administrator of the Ashland Hercules Pension Plan determined in its sole discretion, in an amount (the Initial CHPP Transfer Amount ) equal to the product of (1) a reasonable estimate of the Section 414(l) Amount and (2) 0.80, as determined by an enrolled actuary selected by Ashland Global in its sole discretion (the Actuary ), were transferred from the Ashland Hercules Pension Plan Trust to the CHPP Trust.
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(ii) As soon as practicable following the Pension Spin-Off Date, the Parties shall cause an additional transfer of assets in such form as the administrator of the Ashland Hercules Pension Plan shall determine in its sole discretion, (1) from the Ashland Hercules Pension Plan Trust to the CHPP Trust in an amount equal to the Final CHPP Transfer Amount, if the Final CHPP Transfer Amount is a positive number, or (2) from the CHPP Trust to the Ashland Hercules Pension Plan Trust in an amount equal to the Final CHPP Transfer Amount, if the Final CHPP Transfer Amount is a negative number (the date of such transfer, the CHPP True-Up Transfer Date ).
(d) Filings. The Parties shall cooperate in making all appropriate filings required under the Code and ERISA in connection with the transfers described in this Section 6.01.
SECTION 6.02. Excess Benefit and Supplemental Pension Plans; Establishment of Valvoline Plans. (a) Effective as of August 1, 2016, a member of the Valvoline Group has assumed liability for each Ashland Global Excess Benefit and Supplemental Pension Plan, including those set forth on Schedule 6.02 , and shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect to any required payments under the Ashland Global Excess Benefit and Supplemental Pension Plans made after August 1, 2016 (whether relating to Valvoline Employees, Former Valvoline Employees, Ashland Global Employees or Former Ashland Global Employees and regardless of when accrued, earned or vested), including with respect to any Liabilities that became payable prior to, and have not been satisfied as of, August 1, 2016. Effective as of a date prior to the date hereof (the Excess Benefit Plan Assumption Date ), a member of the Valvoline Group assumed and became the sponsor of the Ashland Global Excess Benefit and Supplemental Pension Plans (such plans, collectively, following such assumption, the Valvoline Excess Benefit and Supplemental Pension Plans ). The Parties may mutually agree in writing that, for a period following the Excess Benefit Plan Assumption Date to be agreed by the Parties, a member of Ashland Global Group shall continue to process the payments (but not otherwise assume any Liability for such payments) under the Valvoline Excess Benefit and Supplemental Pension Plan on behalf of the applicable member of the Valvoline Group. From and after the Excess Benefit Plan Assumption Date, the members of the Valvoline Group shall be liable for all benefits accrued or deemed accrued under the Valvoline Excess Benefit and Supplemental Pension Plans as of the Excess Benefit Plan Assumption Date (whether relating to Valvoline Employees, Former Valvoline Employees, Ashland Global Employees or Former Ashland Global Employees and regardless of when accrued, earned or vested) and thereafter, and for all other Liabilities relating to the Valvoline Excess Benefit and Supplemental Pension Plans, including any obligations relating to the reporting of taxes and remitting the amounts of any such taxes required to be withheld (including any Employment Taxes) to the appropriate Governmental Authority in connection with any payments to participants in such plan. All distributions from the Valvoline Excess Benefit and Supplemental Pension Plans, to the extent applicable, shall be administered in a manner consistent with the provisions of Section 409A of the Code and the regulations promulgated thereunder. Except as required to comply with Section 409A of the Code, the members of the
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Valvoline Group shall not have any obligation to allow participants in the Valvoline Excess Benefit and Supplemental Pension Plans to accrue additional benefits under such plans from and after the Excess Benefit Plan Assumption Date.
(b) No Distributions. The Parties acknowledge that none of the transactions contemplated by this Agreement shall trigger a payment or distribution of compensation under the Ashland Global Excess Benefit and Supplemental Pension Plans (or the Valvoline Excess Benefit and Supplemental Plans) for any participant therein and, consequently, the payment or distribution of any compensation to which any such participant is entitled under such plan shall occur upon such participants separation from service from Valvoline or its Subsidiaries or Ashland Global or its Subsidiaries, as applicable, or at such other time as provided pursuant to the terms of the Valvoline Excess Benefit and Supplemental Pension Plans.
(c) Limitation of Liability. In no event shall any member of the Ashland Global Group have any responsibility for any failure of the Ashland Global Excess Benefit and Supplemental Pension Plans (or the Valvoline Excess Benefit and Supplemental Pension Plans) to be administered in accordance with their terms and applicable Law, including any failure to properly administer the accounts of the participants therein and their respective beneficiaries.
(d) No Transfer of Assets Pertaining to Excess Benefit Plan. Except as otherwise described in Section 16.01, nothing in this Agreement shall require any member of the Ashland Global Group to transfer assets or reserves with respect to the Ashland Global Excess Benefit and Supplemental Pension Plans to any member of the Valvoline Group; provided that the Parties hereby acknowledge that prior to the date hereof a member of the Valvoline Group assumed and became the sponsor of the Hercules Rabbi Trusts.
SECTION 6.03. Non-U.S. Pension Plans. The Parties agree to comply with the provisions of Schedule 6.03 .
SECTION 6.04. LESOP. Effective as of a date prior to the date hereof, a member of the Valvoline Group assumed and became the sponsor of the LESOP and the LESOP Trust and thereafter any required contributions with respect to the LESOP (whether relating to Valvoline Employees, Former Valvoline Employees, Ashland Global Employees or Former Ashland Global Employees) and any plan-related expenses that are not payable by the LESOP Trust shall be made by a member of the Valvoline Group. At a time and in a manner to be determined by Ashland Global in its sole discretion, the LESOP shall be merged with and into a Valvoline 401(k) Plan. The treatment of the LESOP offset accounts in connection with such merger and the treatment of any Ashland Global Common Stock in the LESOP prior to the Distribution shall be determined by Ashland Global in its sole discretion.
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ARTICLE VII
401(k) Plans
SECTION 7.01. Establishment of Valvoline 401(k) Plan. Effective as of no later than the applicable Benefit Plan Transfer Date, Valvoline shall establish or cause to be established one or more defined contribution plans and trusts for the benefit of the Valvoline Employees (collectively, the Valvoline 401(k) Plans ). Each Valvoline 401(k) Plan shall have terms substantially similar in all material respects to the Ashland Global 401(k) plan to which it most closely corresponds (the applicable Ashland Global 401(k) Plan ), except as otherwise determined by Ashland Global in its sole discretion. The members of the Valvoline Group shall be responsible for taking or causing to be taken all necessary, reasonable and appropriate actions to establish, maintain and administer the Valvoline 401(k) Plans so that they qualify under Section 401(a) of the Code and the related trusts thereunder are exempted from Federal income taxation under Section 501(a)(1) of the Code. For the avoidance of doubt, nothing in this Agreement shall be construed to require Valvoline to maintain any investment option which the fiduciaries of the Valvoline 401(k) Plan deem to be imprudent or inappropriate for the Valvoline 401(k) Plan or which cannot be maintained without commercially unreasonable cost or administrative burden for the Valvoline 401(k) Plan and its administrator.
SECTION 7.02. Transfer and Assumption of Liabilities. Subject to the transfer of assets described in Section 7.03 effective as of the applicable Benefit Plan Transfer Date, Valvoline and the Valvoline 401(k) Plans shall assume and be solely responsible for all Liabilities under the corresponding Ashland 401(k) Plan for or relating to Valvoline Employees. The members of the Valvoline Group shall be responsible for all ongoing rights of or relating to Valvoline Employees for future participation (including the right to make contributions through payroll deductions) in the Valvoline 401(k) Plans. The Ashland Global 401(k) Plans shall retain and be solely responsible for all Liabilities under the Ashland Global 401(k) Plans relating to Ashland Employees, Former Ashland Employees and Former Valvoline Employees.
SECTION 7.03. Trust to Trust Transfer of Assets. Effective as of each applicable Benefit Plan Transfer Date, Ashland Global shall cause the account balances (including any outstanding loan balances) in the applicable Ashland Global 401(k) Plan attributable to Valvoline Employees to be transferred in cash and in-kind (including participant loans) to the applicable Valvoline 401(k) Plan, and Valvoline shall cause the Valvoline 401(k) Plans to accept such transfer of accounts and underlying assets. Such transfer shall be conducted in accordance with Section 414(l) of the Code, Treasury Regulation Section 1.414(l)-1 and Section 208 of ERISA. Without limiting the generality of the foregoing, the fiduciaries of the Valvoline 401(k) Plans and the Ashland Global 401(k) Plans shall cooperate in good faith to effect the transfers contemplated by this Section 7.03 in an efficient and effective manner and in the best interests of participants and beneficiaries, including determining whether and to what extent any investments held under the Ashland Global 401(k) Plans (other than participant loans) shall be liquidated prior to the date of such transfer in order to enable the value of such investments to be transferred to the Valvoline 401(k) Plans in cash or cash equivalents.
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SECTION 7.04. Stock Fund Considerations. (a) To the extent that Valvoline Employees hold shares of Ashland Global Common Stock under the Valvoline 401(k) Plans, such shares will be deposited in a stock fund under the applicable Valvoline 401(k) Plan, subject to such limitations (including the ability to dispose of such shares of Ashland Global Common Stock in accordance with the terms of the Valvoline 401(k) Plans), or the removal of such stock fund, in each case, as determined solely by Valvoline or the applicable fiduciary of the Valvoline 401(k) Plan. Following the Distribution, Valvoline Employees shall not be permitted to acquire shares of Ashland Global Common Stock in any stock fund under the Valvoline 401(k) Plans, except for the shares of Ashland Global Common Stock held at the time of the Distribution.
(b) To the extent that Ashland Employees, Former Ashland Employees or Former Valvoline Employees receive shares of Valvoline Common Stock in connection with the Distribution with respect to Ashland Global Common Stock held under the Ashland Global 401(k) Plan, such shares will be deposited in the Ashland Global 401(k) Plan, subject to such limitations (including the ability to dispose of such shares of Valvoline Common Stock in accordance with the terms of the Ashland Global 401(k) Plans), or the removal of such fund, in each case, as determined solely by Ashland Global or the applicable fiduciary of the Ashland Global 401(k) Plan. Following the Distribution, Ashland Employees, Former Ashland Employees and Former Valvoline Employees shall not be permitted to acquire shares of Valvoline Common Stock fund under the Ashland Global 401(k) Plan, except for the shares of Valvoline Common Stock acquired in connection with the Distribution.
(c) Ashland Global and Valvoline shall assume sole responsibility for ensuring that their respective 401(k) plans are maintained in compliance with applicable laws (including the fiduciary requirements under ERISA) with respect to holding shares of their respective common stock and common stock of the other Party.
ARTICLE VIII
Equity-Based Incentive Compensation Awards
SECTION 8.01. Adoption of the Valvoline Equity Incentive Plan. Effective as of no later than the Initial Public Offering, Valvoline shall establish or cause to be established an equity-based incentive compensation plan (the Valvoline Equity Plan ) for purposes of awarding certain Valvoline non-employee directors, officers and employees equity-based incentive compensation on the terms and conditions set forth therein; provided that Valvoline shall not grant any equity-based incentive compensation awards pursuant to the Valvoline Equity Plan or otherwise prior to the Distribution without Ashland Globals prior written consent.
SECTION 8.02. Treatment of Outstanding Awards. The Parties shall use commercially reasonable efforts to take all actions necessary or appropriate so that
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the Ashland Global Restricted Share Units, Ashland Global Restricted Shares and Ashland Global Performance Units held by Valvoline Employees who remain employed by a member of the Valvoline Group as of immediately following the Distribution (each a, Continuing Valvoline Employee ), and the Ashland Global Stock Appreciation Rights held by Valvoline Employees (whether or not they are Continuing Valvoline Employees), shall be treated as follows, in lieu of the receipt of any shares of Valvoline Common Stock with respect to such Ashland Global Equity Awards in connection with the Distribution; provided that the provisions of this Section 8.02 shall be effected in a manner that complies with applicable law:
(a) Initial Public Offering. No adjustments shall be made to any Ashland Global Equity Awards in connection with the execution of this Agreement or the Initial Public Offering.
(b) Stock Appreciation Rights. Effective as of immediately prior to the Distribution, each award of Ashland Global Stock Appreciation Rights held by a Valvoline Employee (whether or not the Valvoline Employee is a continuing Valvoline Employee) that is outstanding and unexercised as of immediately prior to the Distribution, whether vested or unvested, shall be assumed by Valvoline and converted into an award of stock appreciation rights with respect to a number of shares of Valvoline Common Stock equal to the product of (i) the number of shares of Ashland Global Common Stock subject to such award of Ashland Global Stock Appreciation Rights as of immediately prior to the Distribution multiplied by (ii) the Equity Award Exchange Ratio, rounded down to the nearest whole share, at a base price per share equal to the quotient of (A) the base price per share of such award of Ashland Global Stock Appreciation Rights as of immediately prior to the Distribution divided by (B) the Equity Award Exchange Ratio, rounded up to the nearest whole cent, and otherwise on the same terms and conditions as were applicable to such award of Ashland Global Stock Appreciation Rights as of immediately prior to the Distribution.
(c) Restricted Share Units. Effective as of immediately prior to the Distribution, each award of Ashland Global Restricted Share Units held by a Continuing Valvoline Employee that is outstanding as of immediately prior to the Distribution shall be assumed by Valvoline and converted into an award of restricted share units with respect to a number of shares of Valvoline Common Stock equal to the product of (i) the number of shares of Ashland Global Common Stock subject to such award of Ashland Global Restricted Share Units as of immediately prior to the Distribution multiplied by (ii) the Equity Award Exchange Ratio, rounded to the nearest whole share, and otherwise on the same terms and conditions as were applicable to such award of Ashland Global Restricted Share Units as of immediately prior to the Distribution.
(d) Restricted Shares. Effective as of immediately prior to the Distribution, each award of Ashland Global Restricted Shares held by a Continuing Valvoline Employee that is outstanding as of immediately prior to the Distribution shall be assumed by Valvoline and converted into an award of a number of restricted shares of Valvoline Common Stock equal to the product of (i) the number of shares of Ashland Global Common Stock subject to such award of Ashland Global Restricted Shares as of
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immediately prior to the Distribution multiplied by (ii) the Equity Award Exchange Ratio, rounded to the nearest whole share, and otherwise on the same terms and conditions as were applicable to such award of Ashland Global Restricted Shares as of immediately prior to the Distribution.
(e) Performance Units. Effective as of immediately prior to the Distribution, each award of Ashland Global Performance Units held by a Continuing Valvoline Employee that is outstanding as of immediately prior to the Distribution shall be assumed by Valvoline and converted into an award of restricted share units with respect to a number of shares of Valvoline Common Stock equal to the product of (i) the number of shares of Ashland Global Common Stock subject to such award of Ashland Global Performance Units as of immediately prior to the Distribution, determined based on the applicable Specified Performance Factor, multiplied by (ii) the Equity Award Exchange Ratio, rounded to the nearest whole share, and otherwise on the same terms and conditions as were applicable to such award of Ashland Global Performance Units as of immediately prior to the Distribution (except that such award of restricted share units as so converted shall not be subject to any performance goals and the vesting of such award shall be based solely on the continued service of the holder thereof, subject to any terms and conditions relating to accelerated vesting upon a termination of the holders employment; provided that any terms and conditions regarding accelerated or continued vesting in connection with the holders retirement shall no longer apply following the Distribution).
(f) Compliance with Applicable Law. The Parties shall take such additional or alternative actions as deemed necessary or advisable by Ashland Global in its sole discretion in order to effectuate the foregoing provisions of this Article VIII in compliance with securities and tax Laws and other legal requirements associated with equity-based incentive compensation awards or in order to avoid adverse legal, accounting or tax consequences for the members of the Ashland Global Group, the members of the Valvoline Group or any award holders.
ARTICLE IX
Annual Bonus Awards; Retention; Individual Agreements
SECTION 9.01. Annual Bonus Awards; Retention. The members of the Valvoline Group shall be responsible for the payment of any annual bonus awards to any Valvoline Employee or Former Valvoline Employee with respect to the fiscal year ending September 30, 2016 and each fiscal year thereafter, in each case pursuant to the applicable annual bonus award program established for the Valvoline Business for such fiscal year. Valvoline shall be responsible for the payment of any retention bonus awards to each eligible Valvoline Employee and Former Valvoline Employee, whether pursuant to plans, agreements or arrangements sponsored or maintained by a member of the Ashland Global Group or a member of the Valvoline Group.
SECTION 9.02. Individual Agreements. Effective as of a date prior to the date hereof, a member of the Valvoline Group has assumed liability for each
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Individual Agreement in which any Valvoline Employee or Former Valvoline Employee, on the one hand, and any member of the Ashland Group, on the other hand, are parties, and thereafter shall be obligated to reimburse the members of the Ashland Group in accordance with Section 16.01 with respect thereto. Without limiting the generality of the foregoing, in the event that a change in control of Ashland Global shall occur following the date hereof and prior to the Distribution Date which would activate the protection afforded under the change in control agreements to which Ashland Global is a party, the members of the Valvoline Group shall be responsible for the payment of any compensation and benefits that become payable under the terms of any such agreement to any Valvoline Employee who is a party to any such agreement; provided that any compensation or benefits payable by a member of the Ashland Global Group or payable in the form of Ashland Global Common Stock shall be subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01.
ARTICLE X
Deferred Compensation Plans
SECTION 10.01. Establishment of Valvoline Deferred Compensation Plans. Effective as of August 1, 2016, a member of the Valvoline Group has assumed liability under each Ashland Global Deferred Compensation Plan, including those set forth on Schedule 10.01 , for, and shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect to, any required payments made to any non-employee member of the board of directors of Valvoline or any Valvoline Employee under the Ashland Global Deferred Compensation Plans after August 1, 2016, including with respect to any Liabilities that became payable prior to, and have not been satisfied as of, August 1, 2016. Effective as of no later than the Initial Public Offering, Valvoline shall establish or cause to be established nonqualified deferred compensation plans for the benefit of eligible Valvoline Employees and Valvoline non-employee directors (the Valvoline Deferred Compensation Plans ). The terms of the Valvoline Deferred Compensation Plans shall be substantially similar to the terms of the Ashland Global Deferred Compensation Plans, except that (a) the plan sponsor and plan administrator of the Valvoline Deferred Compensation Plans shall be a member of the Valvoline Group and (b) the Valvoline Deferred Compensation Plans for the benefit of Valvoline Employees shall not permit new deferrals of any compensation earned in calendar year 2016 (and, for the avoidance of doubt, existing deferrals shall remain in effect unless expressly provided otherwise).
SECTION 10.02. Participation in Deferred Compensation Plans; Allocation of Liabilities. (a) Except as required to comply with Section 409A of the Code, (i) the non-employee members of the board of directors of Valvoline shall be permitted to participate in the applicable Valvoline Deferred Compensation Plan as of the Initial Public Offering with respect to compensation earned for their service on the board of directors of Valvoline; provided that, in the case of any non-employee member of the board of directors of Valvoline who is set forth on Schedule 10.02 (each, a Transitioning Director ), compensation earned for his or her service on the board of directors of Valvoline for the calendar year in which the Initial Public Offering occurs shall be
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subject to such directors existing election to defer (or not to defer) his or her compensation earned for service on the board of directors of Ashland Global for such calendar year, (ii) each Transitioning Director shall be permitted to continue to participate in the applicable Ashland Global Deferred Compensation Plan with respect to compensation earned for his or her service on the board of directors of Ashland Global in accordance with such directors existing election to defer (or not to defer) and (iii) all balances to the credit of the Transitioning Directors under the applicable Ashland Global Deferred Compensation Plan shall be credited to the account of such individual under the applicable Valvoline Deferred Compensation Plan effective as of the Distribution. Valvoline and the applicable Valvoline Deferred Compensation Plan shall assume and be solely responsible for all Liabilities under the applicable Ashland Global Deferred Compensation Plan for or relating to the Transitioning Directors as of the Distribution, including all obligations relating to the reporting of taxes and remitting the amounts of any such taxes required to be withheld (including any Employment Taxes) to the appropriate Governmental Authority. All elections made by such individual under the applicable Ashland Global Deferred Compensation Plan with respect to such balances shall remain in effect under the applicable Valvoline Deferred Compensation Plan with respect to such balances, unless and until such elections are changed in accordance with Section 409A of the Code and the terms of the applicable Valvoline Deferred Compensation Plan. Any such balances that are denominated or hypothetically invested in shares of Ashland Global Common Stock as of immediately prior to the Distribution shall become denominated or hypothetically invested in shares of Valvoline Common Stock, as adjusted to preserve the value of such balance in accordance with the methodology described in Section 8.02(c).
(b) Except as required to comply with Section 409A of the Code and subject to the reimbursement obligations of the members of the Valvoline Group pursuant to Section 16.01, (i) eligible Valvoline Employees shall be permitted to continue to participate in each applicable Ashland Global Deferred Compensation Plan with respect to compensation earned in the calendar year in which the Initial Public Offering occurs, and all existing elections made by such individual under the applicable Ashland Global Deferred Compensation Plan with respect to such calendar year shall remain in effect during the portion of such calendar year that follows the Initial Public Offering, (ii) eligible Valvoline Employees shall be permitted to participate in the applicable Valvoline Deferred Compensation Plan with respect to the compensation earned in the calendar year following the calendar year in which the Initial Public Offering occurs and calendar years thereafter and (iii) all balances to the credit of the Valvoline Employees under the applicable Ashland Global Deferred Compensation Plan shall be credited to the accounts of such individuals under the applicable Valvoline Deferred Compensation Plan as of January 1, 2017. Valvoline and the applicable Valvoline Deferred Compensation Plan shall assume and be solely responsible for all Liabilities under the applicable Ashland Global Deferred Compensation Plan for or relating to such Valvoline Employees as of January 1, 2017, including all obligations relating to the reporting of taxes and remitting the amounts of any such taxes required to be withheld (including any Employment Taxes) to the appropriate Governmental Authority. All elections made by each such plan participants under the applicable Ashland Global Deferred Compensation Plan with respect to such balances shall remain in effect under the applicable Valvoline
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Deferred Compensation Plan with respect to such balances, unless and until such elections are changed in accordance with Section 409A of the Code and the terms of the applicable Valvoline Deferred Compensation Plan. Any such balances that are denominated or hypothetically invested in shares of Ashland Global Common Stock as of immediately prior to January 1, 2017 that remain so denominated or invested as of the Distribution shall become denominated or hypothetically invested in shares of Valvoline Common Stock effective as of the Distribution, as adjusted to preserve the value of such balances in accordance with the methodology described in Section 8.02(c).
SECTION 10.03. No Distributions. The Parties acknowledge that none of the transactions contemplated by this Agreement shall trigger a payment or distribution of compensation under the Ashland Global Deferred Compensation Plans or Valvoline Deferred Compensation Plans for any Valvoline Employees or Valvoline non-employee directors and, consequently, the payment or distribution of any compensation to which any such employee or non-employee director is entitled under such plans will occur upon such employees or such non-employee directors separation from service from Valvoline or its Subsidiaries, as applicable, or at such other time as provided pursuant to the terms of the applicable plan.
SECTION 10.04. Limitation of Liability. In no event shall the members of the Ashland Global Group have any responsibility for any failure of the Ashland Global Deferred Compensation Plans or the Valvoline Deferred Compensation Plans to be administered in accordance with their terms and applicable Law, including any failure to properly administer the accounts of Valvoline Employees and Valvoline non-employee directors and their respective beneficiaries in such Valvoline Deferred Compensation Plans.
SECTION 10.05. No Transfer of Assets Pertaining to Deferred Compensation Plans. Except as otherwise described in Section 16.01, nothing in this Agreement shall require any member of the Ashland Global Group or the Ashland Global Deferred Compensation Plans to transfer assets or reserves with respect to the Ashland Global Deferred Compensation Plans to any member of the Valvoline Group or the Valvoline Deferred Compensation Plans; provided that the Parties hereby acknowledge that prior to the date hereof a member of the Valvoline Group assumed and became the sponsor of the Hercules Rabbi Trusts.
ARTICLE XI
Vacation and Other Paid Time Off
SECTION 11.01. Vacation and Other Paid Time Off . Effective as of August 1, 2016, a member of the Valvoline Group has assumed Liability for vacation and other paid time off benefits accrued or earned (but not yet taken) by the Valvoline Employees as of August 1, 2016 or accrued or earned by Valvoline Employees thereafter, and shall be obligated to reimburse the members of the Ashland Global Group in accordance with Section 16.01 with respect to required payments to the Valvoline Employees in lieu of such vacation or other paid time off benefits pursuant to applicable Law or any applicable works council, collective bargaining or other labor union agreement.
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ARTICLE XII
Retiree Medical and Welfare Liabilities
SECTION 12.01. Assumption of Liabilities. Effective as of August 1, 2016, a member of the Valvoline Group (a) has assumed Liability for all post-employment retiree medical and life insurance benefits in the United States (whether relating to Valvoline Employees, Former Valvoline Employees, Ashland Global Employees or Former Ashland Global Employees and regardless of when accrued, earned or vested), including any such Liabilities arising under the Ashland Inc. Medical Plan; provided , however , that Valvoline has not assumed, and the members of the Ashland Global Group shall retain, any such Liabilities relating to post-employment retiree medical and life insurance benefits associated with any collective bargaining agreements other than those set forth on Schedule 3.01, and (b) shall be obligated to reimburse the members of the Ashland Group in accordance with Section 16.01 with respect to required payments of any such Liabilities so assumed by such member of the Valvoline Group, including any Liabilities that became payable prior to, and have not been satisfied as of, August 1, 2016.
ARTICLE XIII
Non-Solicitation
SECTION 13.01. Non-Solicitation. (a) During the period commencing on the Distribution Date and concluding on the one-year anniversary thereof, Ashland Global agrees that neither it nor any member of the Ashland Global Group shall, without Valvolines prior written consent, directly or indirectly (including through a representative of a member of the Ashland Global Group) solicit for employment or to provide services (whether as a director, officer, employee, consultant or temporary employee) any person who is at such time, or who at any time during the three-month period prior to such time had been, employed by or providing services to a member of the Valvoline Group (whether as a director, officer, employee, consultant or temporary employee), except that this Section 13.01(a) shall not preclude any member of the Ashland Global Group or any other person from entering into discussions with or soliciting any person (i) who responds to any public advertisement or general solicitation; provided that the soliciting party did not instruct such agency to target such person specifically, (ii) who initiates discussions with the soliciting party regarding such employment on his or her own initiative and without direct solicitation by the soliciting party or its representatives, or (iii) at any time after the date of such persons termination of employment or services by a member of the Valvoline Group without cause.
(b) During the period commencing on the Distribution Date and concluding on the one-year anniversary thereof, Valvoline agrees that neither it nor any member of the Valvoline Group shall, without Ashland Globals prior written consent,
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directly or indirectly (including through a representative of a member of the Valvoline Group) solicit for employment or to provide services (whether as a director, officer, employee, consultant or temporary employee) any person who is at such time, or who at any time during the three-month period prior to such time had been, employed by or providing services to a member of the Ashland Global Group, except that this Section 13.01(b) shall not preclude any member of the Valvoline Group or any other person from entering into discussions with or soliciting any person (i) who responds to any public advertisement or general solicitation; provided that the soliciting party did not instruct such agency to target such person specifically, (ii) who initiates discussions with the soliciting party regarding such employment on his or her own initiative and without direct solicitation by the soliciting party or its representatives or (iii) at any time after the date of such persons termination of employment or services by a member of the Ashland Global Group without cause.
ARTICLE XIV
Payroll Services
SECTION 14.01. Payroll Services . Subject to the obligations of the Parties as set forth in the TSA or RTSA, as applicable, as of no later than the Initial Public Offering, (a) the members of the Valvoline Group shall be solely responsible for providing payroll services (including for any payroll period already in progress) to the Valvoline Employees and Former Valvoline Employees and for any Liabilities with respect to garnishments of the salary and wages thereof and (b) the members of the Ashland Global Group shall be solely responsible for providing payroll services (including for any payroll period already in progress) to the Ashland Global Employees and Former Ashland Global Employees and for any Liabilities with respect to garnishments of the salary and wages thereof. Notwithstanding the foregoing, the Parties shall cooperate to provide such payroll services to Former Valvoline Employees.
ARTICLE XV
Cooperation; Access to Information; Litigation; Confidentiality
SECTION 15.01. Cooperation. Following the date of this Agreement, the Parties shall, and shall cause their respective Subsidiaries to, use commercially reasonable efforts to cooperate with respect to any employee compensation or benefits matters that either Party reasonably determines require the cooperation of the other Party in order to accomplish the objectives of this Agreement; provided that Ashland Global shall determine in its sole discretion which (if any) tax or securities filings, rulings or other actions to pursue prior to the Distribution regarding the treatment of Ashland Global Equity Awards in connection with the Distribution; provided , further , that any Liabilities that may be incurred as a result of the Parties taking or failing to take any such actions shall be Valvoline Liabilities if related to Valvoline Employees or Former Valvoline Employees and shall be Ashland Global Liabilities if related to Ashland Global Employees or Former Ashland Global Employees. Without limiting the generality of the preceding sentence, (a) the Parties shall cooperate in connection with any audits of any
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Benefit Plan with respect to which such Party may have Information, (b) the Parties shall cooperate in connection with any audits of their respective payroll services (whether by a Governmental Authority in the U.S. or otherwise) in connection with the services provided by one Party to the other Party, (c) the Parties shall cooperate in connection with administering the Ashland Global Benefit Plans, Valvoline Benefit Plans, Ashland Global Welfare Plans and Valvoline Welfare Plans and (d) Ashland Global and Valvoline shall cooperate in good faith in connection with the notification and consultation with works councils, labor unions and other employee representatives of employees of the Ashland Global Group and the Valvoline Group. The obligations of the Ashland Global Group and the Valvoline Group to cooperate pursuant to this Section 15.01 shall remain in effect until the later of (i) the date all audits of all Benefit Plans with respect to which a Party may have Information have been completed or (ii) the date the applicable statute of limitations with respect to such audits has expired.
SECTION 15.02. Access to Information; Litigation; Confidentiality. Article VII of the Separation Agreement is hereby incorporated into this Agreement mutatis mutandi .
ARTICLE XVI
Reimbursements
SECTION 16.01. Reimbursements by the Valvoline Group. (a) Promptly following the last business day of each calendar month ending following the date hereof, Ashland Global shall provide Valvoline with one or more invoices, in each case including reasonable substantiating documentation, that set forth the aggregate costs, if any, incurred by any member of the Ashland Global Group during such month (or, in the case of the first calendar month ending after the date hereof, the aggregate costs incurred by any member of the Ashland Global Group on or following August 1, 2016) relating to compensation and benefits provided to the Valvoline Employees and Former Valvoline Employees, including:
(i) as a result of participation in the Ashland Global Benefit Plans or pursuant to an Individual Agreement (including any change in control agreement described in Section 12.01), including any 401(k) employer-matching contributions and 401(k) profit-sharing contributions in an Ashland Global 401(k) Plan;
(ii) in respect of reimbursement and non-reimbursement claims incurred under the Ashland Global Welfare Plans and continued health care coverage under COBRA; and
(iii) relating to the coverage of a workers compensation claim under the Ashland Global Workers Compensation Plan (or, in the case of any Workers Compensation Event that occurs over a period both preceding and following the applicable Benefit Plan Transfer Date, the coverage of the portion of such claim relating to the time that the applicable Workers Compensation Event transpired
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prior to the applicable Benefit Plan Transfer Date (in which case the remainder of such claim shall be covered under a Valvoline Workers Compensation Plan, as described in Section 5.03, and shall not be subject to reimbursement under this Section 16.01));
as well as any costs of other obligations or Liabilities that a member of the Ashland Global Group elects to, or is compelled to, pay or otherwise satisfy that are or that pursuant to this Agreement have become the responsibility of the members of the Valvoline Group, in each case including any such Liabilities that became payable prior to, but have not been satisfied as of, August 1, 2016.
(b) The costs incurred by the members of the Ashland Global Group with respect to compensation paid to Valvoline Employees and Former Valvoline Employees in the form of Ashland Global Common Stock (whether pursuant to an Ashland Global Equity Award, an Ashland Global Deferred Compensation Plan or an Individual Agreement) shall be determined based on the closing stock price of Ashland Global Common Stock on the New York Stock Exchange Composite Tape on the date of such payment. Any reimbursement made pursuant to this Section 16.01(b) shall be treated by the Parties for all tax purposes as purchase price or partial purchase price for such shares of Ashland Global Common Stock.
(c) The costs described in clauses (ii) and (iii) of Section 16.01(a) shall be determined based on a fixed percentage of the total costs incurred under the applicable plan with respect to such period, determined in a manner that is consistent with the Parties practices for allocating such costs among the Ashland Global Business and the Valvoline Business as of the date hereof; provided that such percentage shall equal 100% in the case of the Valvoline Instant Oil Change hourly welfare benefit plans.
(d) Within 20 business days following the receipt by Valvoline of each such invoice, Valvoline shall pay Ashland Global an amount in cash equal to the aggregate amounts set forth thereon. In no event shall any member of the Valvoline Group be required to reimburse any member of the Ashland Global Group for any costs (i) that are charged directly to the members of the Valvoline Group in the ordinary course of business consistent with past practice, (ii) with respect to any Ashland Global Liabilities or (iii) for which the Ashland Global Group is reimbursed in respect of a payment provided under an Ashland Global Benefit Plan to the extent such reimbursement reduces the assets in a Hercules Rabbi Trust.
(e) All invoices provided pursuant to this Article XVIII shall be denominated in U.S. dollars.
(f) For the avoidance of doubt, no reimbursement made pursuant to this Section 16.01 shall be treated by the Parties for tax purposes as a distribution from Valvoline to Ashland Global immediately prior to the Distribution or as consideration for any property contributed to a member of the Valvoline Group in connection with the transactions contemplated by this Agreement, the Separation Agreement and the Ancillary Agreements.
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ARTICLE XVII
Termination
SECTION 17.01. Termination. This Agreement may be terminated by Ashland Global at any time, in its sole discretion, prior to the Separation (as defined in the Separation Agreement); provided that this Agreement shall automatically terminate upon the termination of the Separation Agreement in accordance with its terms.
SECTION 17.02. Effect of Termination. In the event of any termination of this Agreement in accordance with Section 17.01, none of the Parties (or any of their directors or officers) shall have any Liability or further obligation to any other Party under this Agreement.
ARTICLE XVIII
Miscellaneous
SECTION 18.01. Counterparts; Entire Agreement; Corporate Power. This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and a facsimile or PDF signature shall constitute an original for all purposes.
SECTION 18.02. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective Subsidiaries, Affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.
SECTION 18.03. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Partys assets, or (b) the sale of all or substantially all of such Partys assets; provided , however , that the assignee expressly assumes in writing all of the obligations of the assigning Party under
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this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party. No assignment permitted by this Section 18.03 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
SECTION 18.04. Third-Party Beneficiaries. Except for the indemnification rights under the Separation Agreement of any Ashland Global Indemnitee or Valvoline Indemnitee (as such terms are defined in the Separation Agreement) in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any Person (including any Valvoline Employee, Former Valvoline Employee, Ashland Global Employee or Former Ashland Global Employee, or any beneficiary or dependent thereof) except the Parties hereto any rights or remedies hereunder and (b) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person (including any Valvoline Employee, Former Valvoline Employee, Ashland Global Employee or Former Ashland Global Employee, or any beneficiary or dependent thereof) with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement and (c) nothing contained in this Agreement shall be treated as an amendment to any Valvoline Benefit Plan or Ashland Global Benefit Plan or prevent the members of the Valvoline Group or the members of the Ashland Global Group from amending or terminating any Benefit Plans.
SECTION 18.05. Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service, or (c) upon the earlier of confirmed receipt or the fifth business day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Ashland Global, to:
ASHLAND HOLDINGS INC.
50 E. RiverCenter Blvd.
Covington, KY 41011
Attn: Peter J. Ganz
e-mail: PGanz@ashland.com
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Susan Webster and Thomas E. Dunn
e-mail: swebster@cravath.com, tdunn@cravath.com
Facsimile: (212) 474-3700
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If to Valvoline, to:
VALVOLINE INC.
3499 Blazer Parkway
Lexington, KY 40509
Attn: Julie M. ODaniel
e-mail: JMODaniel@valvoline.com
Either Party may, by notice to the other Party, change the address to which such notices are to be given.
SECTION 18.06. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.
SECTION 18.07. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION 18.08. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the liabilities for the breach of any obligations in this Agreement shall survive the Initial Public Offering and the Distribution, as applicable, and shall remain in full force and effect.
SECTION 18.09. Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at Law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
SECTION 18.10. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.
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SECTION 18.11. Interpretation. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms hereof, herein and herewith and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules hereto) and not to any particular provision of this Agreement. Article, Section or Schedule references are to the articles, sections and schedules of or to this Agreement unless otherwise specified. Any capitalized terms used in any Schedule to this Agreement but not otherwise defined therein shall have the meaning as defined in this Agreement. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time, as permitted by Section 18.10. The word including and words of similar import when used in this Agreement shall mean including, without limitation, unless the context otherwise requires or unless otherwise specified. The word or shall not be exclusive. All references here in to the Distribution and the Distribution Date shall be construed to refer to an Other Disposition (as defined in the Separation Agreement) or the date of an Other Disposition, as applicable.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives.
ASHLAND GLOBAL HOLDINGS INC., | ||
By |
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Name: | ||
Title: | ||
VALVOLINE INC., | ||
By |
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Name: | ||
Title: |
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT (this Agreement ) made and entered into as of [Date], 2016, between Ashland Global Holdings Inc., a Delaware corporation ( Ashland ), and Valvoline Inc., a Kentucky corporation (the Company ).
WHEREAS, the Company is offering and selling to the public (the IPO ) by means of a Registration Statement (File No. 333-211720) initially filed with the Securities and Exchange Commission (the SEC ) on Form S-1 on May 31, 2016 (the Registration Statement ) shares of common stock, par value $0.01 per share, of the Company (the Common Stock );
WHEREAS, in connection with the IPO, Ashland and the Company have entered into a Separation Agreement of even date herewith (the Separation Agreement ) and certain other ancillary agreements;
WHEREAS, Ashland currently owns all of the issued and outstanding shares of the Common Stock of the Company;
WHEREAS, Ashland intends to preserve its ability to evaluate strategic options with respect to its remaining ownership interest in the Company after the IPO consistent with its rights and obligations under the Separation Agreement, including pursuant to Section 5.02 thereunder after the Separation Date (as defined in the Separation Agreement); and
WHEREAS, Ashland and the Company desire to make certain arrangements to provide Ashland with registration rights with respect to the Common Stock that it holds.
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and intending to be legally bound hereby, the parties hereby agree as follows:
Section 1. Effectiveness of Agreement.
1.1 Effective Time. This Agreement shall become effective upon the Separation Date (the Effective Time ).
1.2 Shares Covered. This Agreement covers all shares of Common Stock that are beneficially owned by Ashland as of the Effective Time (the Shares ). The Shares shall include any securities issued or issuable with respect to the Shares by way of a stock dividend or a stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.
Ashland and any Permitted Transferees (as defined in Section 2.5 ) are each referred to herein as a Holder and collectively as the Holders and the Holders of Shares proposed to be included in any registration under this Agreement are each referred to herein as a Selling Holder and collectively as the Selling Holders .
Section 2. Demand Registration.
2.1 Notice. Upon the terms and subject to the conditions set forth herein, upon written notice of any Holder requesting that the Company effect the registration under the Securities Act of 1933, as amended (the Securities Act ), of any or all of the Shares held by it, which notice shall specify the intended method or methods of disposition of such Shares (which methods may include, without limitation, a Shelf Registration (as such term is defined in Section 2.6 )), the Company will, within five business days of receipt of such notice from any Holder, give written notice of the proposed registration to all other Holders, if any, and will use its commercially reasonable efforts to effect (at the earliest reasonable date) the registration under the Securities Act of such Shares (and the Shares of any other Holders joining in such request as are specified in a written notice received by the Company within 15 days after receipt of the Companys written notice of the proposed registration) for disposition in accordance with the intended method or methods of disposition stated in such request (each registration request pursuant to this Section 2.1 is sometimes referred to herein as a Demand Registration ); provided , however , that:
(a) the Company shall not be obligated to effect registration with respect to Shares pursuant to this Section 2.1 in violation of Section 3(i) of the underwriting agreement entered into in connection with the IPO or (ii) within 60 days after the effective date of a previous registration, other than a Shelf Registration, effected with respect to Shares pursuant to this Section 2 ;
(b) if at the time a Demand Registration is requested pursuant to this Section 2 , the Company determines in the good faith judgment of the general counsel of the Company, to be confirmed within 7 days by the Companys board of directors (the Board ), that (i) such Demand Registration would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential and the disclosure of which would have a material adverse effect on the Company or (ii) the Company is unable to comply with SEC requirements for effectiveness of such Demand Registration (a Disadvantageous Condition ), the Company may postpone the filing or effectiveness (but not the preparation) of such registration until the earlier of (i) 7 days after the date on which the Disadvantageous Condition no longer exists, or (ii) 75 days after the Company makes such determination; provided , however , that the Company may delay a Demand Registration pursuant to this Section 2.1(b) no more than once during any 12 month period following the Separation Date; provided further that the postponement rights in this Section 2.1(b) and Section 4.3(a) and the holdback obligation in Section 4.5(c) shall not be applicable to the Holders for more than a total of 120 days during any 12 month period;
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(c) the number of the Shares originally requested to be registered pursuant to any registration requested pursuant to this Section 2 shall cover Shares with an aggregate Fair Market Value as of the date of the notice delivered to the Company pursuant to this Section 2.1 of at least $75,000,000 million (for purposes of this Agreement, Fair Market Value shall mean, as of any date, the closing price per share of the Common Stock on the New York Stock Exchange ( NYSE ) on the trading day immediately preceding such date); and
(d) if the intended method of disposition is a Demand Registration and is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Shares requested to be included in such offering exceeds the number of Shares which can be sold in an orderly manner in such offering within a price range acceptable to the Holders of a majority of the Shares initially requesting such registration or without materially adversely affecting the market for the Common Stock, the Company shall include in such registration the number of Shares requested by Holders of a majority of the Shares to be included therein which, in the opinion of such Holders based upon advice of the managing underwriters, can be sold in an orderly manner within the price range of such offering and without materially adversely affecting the market for the Common Stock, pro rata among the respective Holders thereof on the basis of the amount of Shares owned by each Holder requesting inclusion of Shares in such registration.
2.2 Registration Expenses. All Registration Expenses (as defined in Section 8 ) for any registration requested pursuant to this Section 2 (including any registration that is delayed or withdrawn) shall be paid by the Company.
2.3 Selection of Professionals. The Holders of a majority of the Shares included in any Demand Registration shall have the right to select the investment banker(s) and manager(s) to underwrite or otherwise administer the offering, provided that, such investment banker(s) and managers(s) are of national standing and reputation (the Investment Bankers ). The Holders of a majority of the Shares included in any Demand Registration shall have the right to select the financial printer and counsel for the Selling Holders. The Company shall select its own outside counsel and independent auditors.
2.4 Third Person Shares. The Company shall have the right to cause the registration of securities for sale for the account of any Person (as defined in Section 6(e) ) (including the Company) other than the Selling Holders (the Third Person Shares ) in any registration of the Shares requested pursuant to this Section 2 so long as the Third Person Shares are disposed of in accordance with the intended method or methods of disposition requested pursuant to this Section 2 .
If a Demand Registration in which the Company proposes to include Third Person Shares is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Shares and Third Person Shares requested to be included in such offering exceeds the number of Shares and Third Person
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Shares which can be sold in an orderly manner in such offering within a price range acceptable to the Holders of a majority of the Shares initially requesting such registration or without materially adversely affecting the market for the Common Stock (the Maximum Number ), the Company shall not include in such registration any Third Person Shares unless all of the Shares initially requested to be included therein are so included, and then only to the extent of the Maximum Number.
2.5 Permitted Transferees. As used in this Agreement, Permitted Transferees shall mean any transferee, whether direct or indirect, of Shares that (i) (x) as of the time of transfer of the Shares to such transferee is, and as of immediately prior to the sale of Shares pursuant to the Demand Registration or Piggyback Registration (as defined in Section 3.1 below), as the case may be, will be, a member of the Ashland Global Group (as defined in the Separation Agreement), (y) is a third-party lender participating in an equity-for-debt exchange (i.e. any transfer of Valvoline Common Stock by Ashland Global to one or more third-party lenders in repayment of indebtedness of Ashland Global or any subsidiary thereof) owed to such lenders) (or an Affiliate of such third-party lender) or (z) acquires at least 5% of the issued and outstanding shares of Valvoline Common Stock as of the time of such acquisition and executes an agreement to be bound by this Agreement, a copy of which shall be furnished to the Company and (ii) is designated by Ashland (or a subsequent Holder) in a written notice to the Company as provided for in Section 9.3 . Any Permitted Transferees of the Shares shall be subject to and bound by all of the terms and conditions herein applicable to Holders. The notice required by this Section 2.5 shall be signed by both the transferring Holder and the Permitted Transferees so designated and shall include an undertaking by the Permitted Transferees to comply with the terms and conditions of this Agreement applicable to Holders.
2.6 Shelf Registration; Distribution. With respect to any Demand Registration, the requesting Holders may, but shall not be required to, request the Company to effect a registration of the Shares (a) under a registration statement pursuant to Rule 415 under the Securities Act (or any successor rule) (a Shelf Registration ); or (b) in the form of a Distribution or Other Disposition (as defined in the Separation Agreement). The Company shall use its commercially reasonable efforts to comply with any such request.
2.7 SEC Form; Information. The Company shall use its commercially reasonable efforts to cause Demand Registrations to be registered on Form S-3 (or any successor form), and if the Company is not then eligible under the Securities Act to use Form S-3, such Demand Registrations shall be registered on Form S-1 (or any successor form). The Company shall use its commercially reasonable efforts to become eligible to use Form S-3 and, after becoming eligible to use Form S-3, shall use its commercially reasonable efforts to remain so eligible. All such Demand Registrations shall comply with the applicable requirements of the Securities Act and the SECs rules and regulations thereunder, and, together with each prospectus included, filed or otherwise furnished by the Company in connection therewith, shall not contain any untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company shall timely file
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all reports on Forms 10-K, 10-Q and 8-K (or any successor forms), and all material required to be filed, pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act ), to the extent that such filing shall be a condition to the initial filing or continued use or effectiveness of any Demand Registration or to the extent required to enable any Holder to sell Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act (or any similar rule or regulation hereafter promulgated by the SEC). From and after the date hereof through the earlier of the expiration or termination of this Agreement or the date upon which the Ashland Global Group ceases to own any Shares, the Company shall forthwith upon written request furnish any Holder (i) a written statement by the Company as to whether it has complied with such requirements and, if not, the specifics thereof, (ii) a copy of the most recent annual or quarterly report of the Company and (iii) such other reports and documents filed by the Company with the SEC as such Holder may reasonably request in availing itself of an exemption for the sale of Shares without registration under the Securities Act.
2.8 Other Registration Rights. The Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, whether pursuant to demand, piggyback or other rights, unless such rights are subject and subordinate to the rights of the Holders under this Agreement.
2.9 Withdrawal. The Holders may withdraw a Demand Registration at any time and under any circumstances.
Section 3. Piggyback Registrations.
3.1 Notice and Registration. If the Company proposes to register any of its securities for public sale under the Securities Act (whether proposed to be offered for sale by the Company or any other Person), on a form and in a manner that would permit registration of the Shares for sale to the public under the Securities Act (a Piggyback Registration ), it will give at least 20 days advance written notice to the Holders of its intention to do so, and upon the written request of any or all of the Holders delivered to the Company within 15 days after the giving of any such notice (which request shall specify the Shares intended to be disposed of by such Holders), the Company will use its commercially reasonable efforts to effect, in connection with the registration of such other securities, the registration under the Securities Act of all of the Shares which the Company has been so requested to register by such Holders (which shall then become Selling Holders), to the extent required to permit the disposition (in accordance with the same method of disposition as the Company proposes to use to dispose of the other securities) of the Shares to be so registered; provided , however , that:
(a) if, at any time after giving such written notice of its intention to register any of its other securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such other securities, the Company may, at its election, give written notice of such determination to the Selling Holders (or, if
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prior to delivery of the Holders written request described above in this Section 3.1 , the Holders) and thereupon the Company shall be relieved of its obligation to register such Shares in connection with the registration of such other securities (but not from its obligation to pay Registration Expenses to the extent incurred in connection therewith as provided in Section 3.3 ), without prejudice, however, to the rights (if any) of any Selling Holders immediately to request (subject to the terms and conditions of Section 2 ) that such registration be effected as a registration under Section 2 or to include such Shares in any subsequent Piggyback Registration pursuant to this Section 3 ;
(b) the Company shall not be required to effect any registration of the Shares under this Section 3 incidental to the registration of any of its securities (i) on Form S-4 or S-8 or any successor or similar forms, (ii) relating to equity securities issuable upon exercise of employee stock or similar options or in connection with any employee benefit or similar plan of the Company or (iii) in connection with an acquisition of, or an investment in, another entity by the Company;
(c) if a Piggyback Registration is an underwritten registration on behalf of the Company (whether or not selling security holders are included therein) and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in such offering without materially adversely affecting the marketability of the offering or the market for the Common Stock (the Piggyback Maximum Number ), the Company shall include the following securities in such registration up to the Piggyback Maximum Number and in accordance with the following priorities: (w) first, the securities the Company proposes to sell, (x) second, up to the number of Shares requested to be included in such registration by Ashland, (y) third, up to the number of Shares requested to be included in such registration, pro rata among the Selling Holders (other than Ashland) of such Shares on the basis of the number of Shares owned by each such Selling Holder and (z) fourth, up to the number of any other securities requested to be included in such registration;
(d) no registration of the Shares effected under this Section 3 shall relieve the Company of its obligation to effect a registration of Shares pursuant to Section 2 ; and
(e) any Selling Holder may withdraw any or all of its Shares from a Piggyback Registration at any time under any circumstances.
3.2 Selection of Professionals. If any Piggyback Registration is an underwritten offering, the Company shall select the Investment Bankers to administer any such underwritten offering. The Holders of a majority of the Shares included in any such Piggyback Registration shall have the right to select counsel for the Selling Holders. The Company shall select its own outside counsel and independent auditors.
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3.3 Registration Expenses. The Company will pay all of the Registration Expenses in connection with any registration pursuant to this Section 3 .
Section 4. Registration Procedures.
4.1 Registration and Qualification. If and whenever the Company is required to use its commercially reasonable efforts to effect the registration of any of the Shares under the Securities Act as provided in Sections 2 and 3 , including an underwritten offering pursuant to a Shelf Registration, the Company shall use its commercially reasonable efforts to:
(a) as promptly as practicable (and, in any event within 30 days (in the case of a registration statement on Form S-3) or 90 days (in the case of all other registration statements)) after the date of any demand under Section 2 , prepare and file with the SEC a registration statement with respect to such Shares and cause such registration statement to become effective as soon as practicable after the initial filing thereof (provided that, before filing a registration statement or prospectus or any amendment or supplement thereto, the Company shall furnish to the Selling Holders and the underwriters or dealer managers, if any, copies of all such documents proposed to be filed (which documents shall be subject to the review and comment of such counsel) and the Company shall not file with the SEC any registration statement or prospectus or amendments or supplements thereto to which the Selling Holders or the underwriters or dealer managers, if any, shall reasonably object);
(b) except in the case of a Shelf Registration effected on Form S-3, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all of the Shares until the earlier of (i) such time as all of such Shares have been disposed of in accordance with the intended methods of disposition set forth in such registration statement or (ii) the expiration of 120 days after such registration statement becomes effective, plus the number of days that any filing or effectiveness has been delayed under Section 2.1(b) ;
(c) in the case of a Shelf Registration effected on Form S-3, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Shares subject thereto for a period ending on the earlier of (i) 36 months after the effective date of such registration statement plus the number of days that any filing or effectiveness has been delayed under Section 2.1(b) and/or suspended under Section 4.3(a) and (ii) the date on which all the Shares subject thereto have been sold pursuant to such registration statement (the Shelf Effective Period );
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(d) furnish to the Selling Holders and to any underwriter(s) such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus and such other documents as the Selling Holders or such underwriter(s) may reasonably request;
(e) register or qualify all of the Shares covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Selling Holders or any underwriter of such Shares shall reasonably request, and do any and all other acts and things which may be necessary or advisable to enable the Selling Holders or any underwriter to consummate the disposition in such jurisdictions of the Shares covered by such registration statement, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction;
(f) (i) furnish to the Selling Holders, addressed to them, an opinion of counsel for the Company and (ii) furnish to the Selling Holders, addressed to them, a cold comfort letter signed by the independent public accountants who have certified the Companys financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuers counsel and in accountants letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Selling Holders may reasonably request, in each case, in form and substance and as of the dates reasonably satisfactory to the Selling Holders;
(g) enter into such customary agreements (including, if applicable, an underwriting agreement containing customary provisions for indemnification and contribution covering the underwriters and their affiliates) and take such other actions as the Selling Holders shall reasonably request in order to expedite or facilitate the disposition of such Shares (it being understood that the relevant Selling Holders may be parties to any such underwriting agreement and may, at their option, require that the Company make to and for the benefit of such Selling Holders the representations, warranties and covenants of the Company which are being made to and for the benefit of such underwriters);
(h) notify the Selling Holders and the managing underwriter(s), if any and (if requested) confirm such advice in writing and provide copies of the relevant documents, as soon as reasonably practicable after notice thereof is received by the Company (A) when the applicable registration statement or any amendment
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thereto has been filed or becomes effective, when the applicable prospectus or any amendment or supplement to such prospectus has been filed, (B) of any comments (written or oral) by the SEC or any request by the SEC or any other federal or state governmental authority (written or oral) for amendments or supplements to such registration statement or such prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or any order preventing or suspending the use of any preliminary or final prospectus or the initiation or threatening of any proceedings for such purposes, (D) if, at any time, the representations and warranties of the Company in any applicable underwriting agreement or dealer manager agreement cease to be true and correct and in all material respects and (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for offering or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose;
(i) comply with all applicable rules and regulations of the SEC, and make generally available to its security holders, as soon as reasonably practicable after the effective date of the relevant registration statement (and in any event within 90 days after the end of such twelve month period described hereafter), an earnings statement (which need not be audited) covering the period of at least twelve consecutive months beginning with the first day of the Companys first calendar quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(j) immediately notify the Selling Holders and the managing underwriter(s), if any, at any time when a prospectus relating to a registration pursuant to Section 2 or 3 is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and at the request of the Selling Holders or the underwriter(s) prepare and file with the SEC (and furnish to the Selling Holders and the underwriter(s) or dealer manager(s) a reasonable number of copies of) a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading;
(k) permit any Selling Holder(s) comprising holders of a majority of the Shares to be included in such registration, in their sole and exclusive judgment, to participate in the preparation of such registration or comparable statement (including but not limited to having prompt access to any SEC comment letters or other communications in connection with such registration and the Companys responses thereto) and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such Selling Holder(s) and their counsel should be included;
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(l) provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;
(m) provide a CUSIP number for all such Shares, not later than the effective date of the relevant registration statement;
(n) make reasonably available its employees and personnel for participation in road shows and other marketing efforts and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the Companys businesses and the requirements of the marketing process) in the marketing of such Shares in any underwritten offering;
(o) cooperate with the relevant Selling Holders and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Shares to be sold, and cause such Shares to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Shares to the underwriters or, if not an underwritten offering, in accordance with the instructions of the relevant Selling Holders at least three business days prior to any sale of Shares and instruct any transfer agent and registrar of Shares to release any stop transfer orders in respect thereof;
(p) take all such other commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of such Shares;
(q) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided , however , that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable;
(r) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such registration statement for sale in any jurisdiction, the Company shall use its reasonable best efforts promptly to obtain the withdrawal of such order;
(s) in the case of a Demand Registration relating to an underwritten offering, cause the senior executive officers of the Company, as selected by mutual agreement of the Company and the Selling Holders to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto, including participation of such officers in road show presentations, except to the extent that such participation materially interferes with the management of the Companys business; provided that the effectiveness period for any Demand Registration shall be increased on a day-for-day basis by the period of time that management cannot participate; and
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(t) cause the Shares covered by such registration statement to be registered with or approved by such other government agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Shares.
The Company may require the Selling Holders to furnish the Company with such information regarding the Selling Holders and the distribution of such Shares as the Company may from time to time reasonably request in writing and as shall be required by law, the SEC or any securities exchange on which any shares of Common Stock are then listed for trading in connection with any registration.
Each Selling Holder will as promptly as reasonably practicable notify the Company at any time when a prospectus relating thereto is required to be delivered (or deemed delivered) under the Securities Act, of the occurrence of an event, of which such Selling Holder has knowledge, relating to such Selling Holder or its disposition of Shares thereunder requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered (or deemed delivered) to the purchasers of such Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading.
Ashland agrees, and any other Selling Holder agrees by acquisition of such Shares, that, upon receipt of any written notice from the Company of the occurrence of any event of the kind described in Section 4.1(j) , such Selling Holder will forthwith discontinue disposition of Shares pursuant to such registration statement until such Selling Holders receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.1(j) , or until such Selling Holder is advised in writing by the Company that the use of the prospectus may be resumed, and if so directed by the Company, such Selling Holder will deliver to the Company (at the Companys expense) all copies, of the prospectus covering such Shares current at the time of receipt of such notice. In the event the Company shall give any such notice, the period during which the applicable registration statement is required to be maintained effective shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Shares covered by such registration statement either receives the copies of the supplemented or amended prospectus contemplated by Section 4.1(j) or is advised in writing by the Company that the use of the prospectus may be resumed.
No Selling Holder may participate in any underwritten offering or registered exchange offer hereunder unless such Selling Holder (i) agrees to sell such Selling Holders securities on the basis provided in any underwriting arrangements or dealer manager agreements approved by the Company or other Persons entitled to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, dealer manager agreements, and other documents reasonably required under the terms of such underwriting arrangements or this Agreement.
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4.2 Underwriting. If requested by the underwriters for any underwritten offering in connection with a registration requested hereunder (including any registration under Section 3 which involves, in whole or in part, an underwritten offering), the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements with respect to that offering, including, without limitation, indemnities, contribution and the provision of opinions of counsel and accountants letters to the effect and to the extent provided in Section 4.1(f) . The Company may require that the Shares requested to be registered pursuant to Section 3 be included in such underwriting on the same terms and conditions as shall be applicable to the other securities being sold through underwriters under such registration; provided , however , that no Selling Holder shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such Holder and such Holders intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 6 hereof. The Selling Holders shall be parties to any such underwriting agreement, and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Selling Holders.
4.3 Blackout Periods for Shelf Registrations.
(a) At any time when a Shelf Registration effected pursuant to Section 2 relating to the Shares is effective, upon written notice from the Company to the Selling Holders that the Company has determined in the good faith judgment of the general counsel of the Company, to be confirmed within 7 days by the Board, that (i) the Selling Holders sale of the Shares pursuant to the Shelf Registration would require the disclosure of material information that the Company has a bona fide business purpose for preserving as confidential and the disclosure of which would have a material adverse effect on the Company or (ii) the Company is unable to comply with SEC requirements for continued use or effectiveness of the Shelf Registration (in the case of either clause (i) or (ii), for convenience, referred to as an Information Blackout ), the Selling Holders shall suspend sales of the Shares pursuant to such Shelf Registration until the earlier of (A) the date upon which such material information is disclosed to the public or ceases to be material (or the Company otherwise complies with applicable SEC requirements), (B) 75 days after the general counsel of the Company made such good faith determination (as subsequently confirmed by the Board) unless resuming use of the Shelf Registration is then prohibited by applicable SEC rules or published interpretations, or (C) such time as the Company notifies the Selling Holders that sales pursuant to such Shelf Registration may be resumed (the number of days from such suspension of sales of the Selling Holders until the day when such sales may be resumed hereunder is hereinafter called a Sales Blackout Period ). The postponement rights in this Section 4.3(a) and Section 2.1(b) and the holdback obligation in Section 4.5(c) shall not be applicable to the Holders for more than a total of 120 days during any 12 month period
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(b) If there is an Information Blackout and the Selling Holders do not notify the Company in writing of their desire to cancel such Shelf Registration, the period set forth in Section 4.1(c)(i) shall be extended for a number of days equal to the number of days in the Sales Blackout Period. The fact that a Sales Blackout Period is required under this Section 4.3 or SEC rules shall not relieve the contractual duty of the Company as set forth in Section 2.7 to file timely reports and otherwise file material required to be filed under the Exchange Act.
4.4 Listing and Other Requirements. In connection with the registration of any offering of the Shares pursuant to this Agreement, the Company agrees to use its commercially reasonable efforts to effect the listing of such Shares on any securities exchange on which any shares of the Common Stock are then listed and otherwise facilitate the public trading of such Shares. The Company will take all other lawful actions reasonably necessary and customary under the circumstances to expedite and facilitate the disposition by the Selling Holders of Shares registered pursuant to this Agreement as described in the prospectus relating thereto, including without limitation timely preparation and delivery of stock certificates in appropriate denominations and furnishing any required instructions or legal opinions to the Companys transfer agent in connection with Shares sold or otherwise distributed pursuant to an effective registration statement.
4.5 Holdback Agreements.
(a) The Company shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to, and during the 90-day period beginning on, the effective date of any registration statement in connection with a Demand Registration (other than a Shelf Registration) or a Piggyback Registration, except pursuant to registrations on Form S-8 or S-4 or any successor form or unless the underwriters managing any such public offering otherwise agree.
(b) If the Holders of Shares notify the Company in writing that they intend to effect an underwritten sale of Shares registered pursuant to a Shelf Registration pursuant to Section 2 hereof, the Company shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for its equity securities, during the seven days prior to, and during the 90-day period beginning on, the date specified in such notice for such proposed sale, except pursuant to registrations on Form S-8 or Form S-4 or any successor form or unless the underwriters managing any such public offering otherwise agree.
(c) If the Company completes an underwritten registration with respect to any of its securities (whether offered for sale by the Company or any other Person) on a form and in a manner that would have permitted registration of the Shares, if no Holder requested the inclusion of any Shares in such registration, and if the Company gives each
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Holder at least 20 days prior written notice of the approximate date on which such offering is expected to be commenced, the Holders shall not effect any public sales or distributions of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, until the termination of the holdback period required from the Company by any underwriters in connection with such previous registration, provided that the holdback period applicable to the Holders shall (i) in no event be longer than a period of seven days prior to, and during the 90-day period beginning on the effective date of such registration statement, (ii) not apply to any Distribution under the Separation Agreement, (iii) not apply to any Holder owning less than 10% of the Companys outstanding voting securities, (iv) not apply unless all directors and officers of the Company and holders of 10% or more of the Companys outstanding voting securities are bound by the same holdback restrictions as are intended to apply to the Holders and (v) not apply unless the directors and executive officers of the Company are subject to substantially comparable restrictions as those proposed to be imposed on the Holders; provided that for the purposes of clause (iii), all Ashland Global Group members shall be treated as a single Selling Holder. The holdback obligation in this Section 4.5(c) and the postponement rights in Section 2.1(b) and Section 4.3(a) shall not be applicable to the Holders for more than a total of 120 days during any 12 month period.
Section 5. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement registering the Shares under the Securities Act and each sale of the Shares thereunder, the Company will give each Selling Holder and the underwriters, if any, and their respective counsel and accountants representing such Selling Holders and underwriters, access to its financial and other records, pertinent corporate documents and properties of the Company and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of the Selling Holders and such underwriters or such counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that for purposes of this Section 5 , all Ashland Global Group members shall be treated as a single Selling Holder.
Section 6. Indemnification and Contribution.
(a) In the event of any registration of any of the Shares hereunder, the Company will enter into customary indemnification arrangements to indemnify and hold harmless each of the Selling Holders, each of their respective directors and officers, each Person who participates as an underwriter in the offering or sale of such securities, each officer and director of each underwriter, and each Person, if any, who controls each such Selling Holder or any such underwriter within the meaning of the Securities Act (collectively, the Covered Persons ) against any losses, claims, damages, liabilities and expenses, joint or several, to which such Person may be subject under the Securities Act or otherwise insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any related registration statement filed under the Securities Act, any preliminary prospectus or final prospectus
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included therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse each such Covered Person, as incurred, for any legal or any other expenses reasonably incurred by such Covered Person in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided , however , that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus or final prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company after the Separation Date by such Selling Holder or such underwriter specifically for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such Covered Person and shall survive the transfer of such securities by the Selling Holders. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (a) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 6 , but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 6 provides for indemnification in such case, or (b) contribution under the Securities Act may be required on the part of any such Selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 6 ; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Shares offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other Selling Holders are responsible for the remaining portion; provided , however , that, in any such case: (i) no such Holder will be required to contribute any amount in excess of the net amount of proceeds of all such Shares offered and sold by such Holder pursuant to such registration statement and (ii) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.
(b) Each of the Selling Holders, by virtue of exercising its respective registration rights hereunder, agrees and undertakes to enter into customary indemnification arrangements to indemnify and hold harmless (in the same manner and to the same extent as set forth in clause (a) of this Section 6 ) the Company, its directors and officers, each Person who participates as an underwriter in the offering or sale of such securities, each officer and director of each underwriter, and each Person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any
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preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, if such statement or omission is contained in written information furnished by such Selling Holder to the Company specifically for inclusion in such registration statement or prospectus; provided , however , that the obligation for each Selling Holder to indemnify shall be several and not joint, and shall be limited to the net amount of proceeds received by such Selling Holder from the sale of Shares pursuant to such registration statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or Person and shall survive the transfer of the registered securities by the Selling Holders.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification ( provided , however , that the failure to give prompt notice shall not impair any Persons rights to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without the indemnifying partys consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to (as a result of a conflict of interest, as determined in the indemnified partys reasonable judgment), or who elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.
(d) Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity, or any department, agency or political subdivision thereof.
(e) The rights and obligations of the Company and the Selling Holders under this Section 6 shall survive the termination of this Agreement.
Section 7. Benefits and Termination of Registration Rights. (a) The Holders may exercise the registration rights granted hereunder in such manner and proportions as they shall agree among themselves. The registration rights hereunder shall cease to apply to any particular Shares and such securities shall cease to be Shares when: (i) a registration statement with respect to the sale of such Shares shall have become effective under the Securities Act and such Shares shall have been disposed of in accordance with such registration statement; (ii) such Shares shall have been sold to the public pursuant to Rule 144 under the Securities Act (or any successor provision); (iii) such Shares shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force or (iv) such Shares shall have ceased to be outstanding.
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(b) If any Shares are held in non-certificated book-entry form and are subject to any stop transfer or similar instructions or restrictions, the Company shall, at the request of the applicable Holder, promptly cause such stop transfer or similar instructions or restrictions to be promptly terminated and removed if (i) such Shares are registered for resale under the Securities Act or (b) the applicable Holder provides the Company with reasonable assurance that such Shares can be sold, assigned or transferred pursuant to Rule 144 or otherwise without registration under the applicable requirements of the Securities Act, including, if requested by the Company, an opinion of outside legal counsel, reasonably acceptable to the Company, to such effect. Following the effective date of any Registration Statement pursuant to which Shares are registered for resale, the Company shall cause any stop transfer or similar instructions or restrictions relating to such Shares to be terminated and removed.
Section 8. Registration Expenses. As used in this Agreement, the term Registration Expenses means all expenses incident to the Companys performance of or compliance with the registration requirements set forth in this Agreement including, without limitation, the following:
(a) the fees, disbursements and expenses of the Companys counsel and accountants in connection with the registration of the Shares to be disposed of under the Securities Act;
(b) all expenses in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to the underwriters;
(c) the cost of printing and producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda, any selling agreements and any amendments thereto or other documents in connection with the offering, sale or delivery of the Shares to be disposed of;
(d) all expenses in connection with the qualification of the Shares to be disposed of for offering and sale under state securities laws, including the fees and disbursements of counsel for the underwriters in connection with such qualification and in connection with any blue sky and legal investment surveys;
(e) the filing fees incident to securing any required review by the NYSE and any other securities exchange on which the Common Stock is then traded or listed of the terms of the sale of the Shares to be disposed of and the trading or listing of all such Shares on each such exchange;
(f) the costs of preparing stock certificates;
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(g) the costs and charges of the Companys transfer agent and registrar; and
(h) the fees and disbursements of any custodians or agents.
Registration Expenses shall not include (i) underwriting discounts and underwriters commissions attributable to the Shares being registered for sale on behalf of the Selling Holders, which shall be paid by the Selling Holders and (ii) the fees, disbursements and expenses of the Selling Holders counsel and accountants in connection with the registration of the Shares to be disposed of under the Securities Act.
Section 9. Miscellaneous.
9.1 Adjustments Affecting Registrable Securities . The Company agrees that it shall not effect or permit to occur any combination or subdivision of Common Stock which would adversely affect the ability of any Holder of any Shares to include such Shares in any registration contemplated by this Agreement or the marketability of such Shares in any such registration. The Company agrees that it will take all reasonable steps necessary to effect a subdivision of shares if in the reasonable judgment of (a) the majority of Holders or (b) the managing underwriter for the relevant offering, such subdivision would enhance the marketability of the Shares. Each Holder agrees to vote all of its shares in a manner, and to take all other actions necessary, to permit the Company to carry out the intent of the preceding sentence including, without limitation, voting in favor of an increase in the share capital.
9.2 Rule 144 . The Company covenants that (i) upon such time as it becomes, and so long as it remains, subject to the reporting provisions of the Exchange Act, it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including, but not limited to, the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the Securities Act) and (ii) it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (B) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.
9.3 Ownership Reporting . The Company agrees that it will provide assistance to the Holders (or the ultimate beneficial owners of the Common Shares held by such Holders) in connection with the filing of beneficial ownership reports on Schedule 13D or Schedule 13G (or any successor form) or any amendment thereto pursuant to Rule 13d-1 under the Exchange Act, including the payment of any reasonable fees or expenses incurred in connection therewith.
18
9.4 Nominees for Beneficial Owners . If Shares are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its option, be treated as the Holder of such Shares for purposes of any request or other action by any Holder pursuant to this Agreement (or any determination of any number or percentage of shares constituting Shares held by any Holder contemplated by this Agreement), provided that the Company shall have received assurances reasonably satisfactory to it of such beneficial ownership.
9.5 Entire Agreement. This Agreement, the Separation Agreement, all the other Ancillary Agreements (as defined in the Separation Agreement) and all other Exhibits and Schedules attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof.
9.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
9.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by telecopy with answer back, by express or overnight mail delivered by a nationally recognized air courier (delivery charges prepaid), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:
If to Ashland:
Ashland Global Holdings Inc.
50 E. RiverCenter Blvd.
Covington, KY 41011
Attn: Peter J. Ganz, Esq.
e-mail: PGanz@ashland.com
with a copy to:
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attn: Thomas E. Dunn
e-mail: TDunn@cravath.com
Facsimile: (212) 474-3700
If to the Company:
Valvoline Inc.
3499 Blazer Parkway
Lexington, KY 40509
Attn: Julie M. ODaniel, Esq.
e-mail: JMODaniel@valvoline.com
19
or to such other address as the party to whom notice is given may have previously furnished to the others in writing in the manner set forth above. Any notice or communication delivered in person shall be deemed effective on delivery. Any notice or communication sent by telecopy shall be deemed effective on the day at the place such notice or communication is received if confirmed by return facsimile. Any notice or communication sent by air courier shall be deemed effective on the day at the place at which such notice or communication is received if delivery is confirmed by the air courier. Any notice or communication sent by registered or certified mail shall be deemed effective on the fifth business day at the place from which such notice or communication was mailed following the day on which such notice or communication was mailed.
9.8 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its legal representatives and successors, and each affiliate of such party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other Person, other than any Permitted Transferee, any rights or remedies of any nature whatsoever under or by reason of this Agreement.
9.9 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.
9.10 Assignment. This Agreement may not be assigned by any party hereto other than by Ashland to a Permitted Transferee as provided for in Section 2.5 ; provided further that Ashland may assign this Agreement in connection with a merger transaction in which Ashland is not the surviving entity, or the sale of all or substantially all of its assets.
9.11 Jurisdiction. If any dispute, controversy or claim arises out of or in connection with this Agreement, the parties irrevocably (a) consent and submit to the exclusive jurisdiction of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York, (b) waive any objection to that choice of forum based on venue or to the effect that the forum is not convenient and (c) WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO TRIAL OR ADJUDICATION BY JURY. Any party hereto may make service on another party by sending or delivering a copy of the process to the party to be served at the address and in the manner provided for the giving of notices in Section 9.3 . Nothing in this Section 9.7 , however, shall affect the right to serve legal process in any other manner permitted by law.
9.12 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.
20
9.13 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto in the exercise of any right hereunder shall impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor shall any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.14 Amendment. No change, amendment or waiver will be made to this Agreement, except by an instrument in writing signed on behalf of each of the parties hereto.
9.15 Authority. Each of the parties hereto represents to the other that:
(a) it has the corporate or other requisite power and authority to execute, deliver and perform this Agreement;
(b) the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate or other action;
(c) it has duly and validly executed and delivered this Agreement; and
(d) this Agreement is a legal, valid and binding obligation, enforce-able against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and general equity principles.
9.16 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. All references made herein to the Company as a party which operate as of a time following the Effective Time shall be deemed to refer to the Company and its subsidiaries as a single party.
[SIGNATURES ON FOLLOWING PAGE]
21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date and year first written above.
ASHLAND GLOBAL HOLDINGS INC., |
||
By |
||
Name: |
||
Title: |
VALVOLINE INC., |
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by |
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Name: |
||
Title: |
[Signature Page to Registration Rights Agreement]
Exhibit 10.7
Revision 12/1/15
SUPPLIER TERMS & CONDITIONS AGREEMENT
Product Line | NAPA Oil | HQ Abbr | NO | TAMS Abbr | NOL |
Effective Date | January 1, 2016 | Replaces | September 15, 2014 |
SUPPLIER
Supplying Company | Valvoline, business of Ashland Inc. (Valvoline) |
Division of | Ashland Inc. |
Address | 3499 Blazer Parkway | P.O. Box |
City, State, Zip | Lexington, KY 40509 |
Phone Number | 859-357-7777 | Fax Number | 859-357-7912 |
MANUFACTURERS OPERATIONS MANUAL
x Supplier has received the appropriate number of copies of this manual.
x Supplier agrees to all policies outlined in this manual.
TERMS
Invoices & Charges | Credit Memos (Supplier Debits by JDE DCs) | |||||||||||||||
¨ |
Length: | Prox., Net EOM |
¨ |
Credit Memo Terms Same as Invoice Terms | ||||||||||||
¨ |
% Trade Discount |
x |
Other: | [***] | ||||||||||||
¨ |
Confirmed Receivables 2% 6th 15th Prox |
¨ |
Supplier Debit Terms Same as Invoice Terms | |||||||||||||
x |
Other: |
[***] |
x |
Other: | [***] |
x | Buyer is a division or subsidiary of Genuine Parts Company (GPC). In the event the Supplier owes any past due indebtedness to any other unit (including all divisions and subsidiaries) of GPC, then any amounts that the Buyer owes the Supplier may be offset against such indebtedness and the Buyer shall be obligated to pay to the Supplier only the net amount after application of such setoff. |
DC FREIGHT POLICY
Minimum Order | Truckload (Can be combined in pallet quantities with VAL. & ZRX.) |
x | Freight Prepaid by Supplier (FOB Destination) | |
¨ |
Unbundled LTL Shipments : Supplier has agreed to allow GPC to direct the outbound freight from Supplier to NAPA Distribution Centers and stores. In exchange, Genuine Parts Company Transportation & Logistics GPCTL) will deliver a monthly invoice for freight charges equal to % of purchases as reported on the monthly Manufacturer Sales Report by the Supplier. This amount covers all duties, brokerage fees, etc., associated with these lanes. GPC shall be responsible for damages to cargo during transit. GPC shall assume title on NAPA DC shipments upon delivery at the final destination. GPC shall assume title on Store Directs / FOTAB shipments once product has been tendered to the carrier by Supplier |
|
¨ | Parcel Shipments - GPC UPS Account : On Special (JOEI) orders shipped parcel, where freight is not included in the cost of goods, Supplier agrees to ship these orders under the GPC UPS account number. GPC shall be responsible for damages to cargo during transit and will assume title upon shipment. |
STORE DIRECT SHIP
x Allowed ¨ Not Allowed
(1) | Jobber Discount: [***] Off Regular Goldenrod Cost | FOTAB | FD052 | |||||||
D.C. Discount (from Supplier): | [***] Off Normal D.C. Cost | |||||||||
Minimum Order Requirement: | [***] | |||||||||
(2) | Jobber Discount: [***] Off Regular Goldenrod Cost | FOTAB | FD515 | |||||||
D.C. Discount (from Supplier): | [***] Off Normal D.C. Cost | |||||||||
Minimum Order Requirement: | [***] |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 1 of 7 |
*** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Revision 12/1/15
STORE DIRECT SHIP (Continued)
(3) | Jobber Discount: % Off Regular Goldenrod Cost | FOTAB |
|
|||||
D.C. Discount (from Supplier): % Off Normal D.C. Cost |
Minimum Order Requirement: |
|
(4) | Jobber Discount: % Off Regular Goldenrod Cost | FOTAB |
|
|||||
D.C. Discount (from Supplier): % Off Normal D.C. Cost |
Minimum Order Requirement: |
|
Prepaid Freight (FOB Origin)? | ||||||||
48 Contiguous States |
x Yes | ¨ No (Explain) |
Direct to Store |
|||||
Alaska |
x Yes | ¨ No (Explain) |
Direct to Store |
|||||
Hawaii |
x Yes | ¨ No (Explain) |
Direct to Store |
|||||
Export |
x Yes | ¨ No (Explain) |
Direct to Store |
REPORTED SALES PROGRAMS
1. | Master Installer/Fleet (Products Included): |
N/A |
||||
A. Jobber Rebate: % of Price Sheet |
||||||
B. D.C. Rebate: % of Price Sheet |
||||||
C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
|
2. | Government (Products Included): |
N/A |
||||
A. Jobber Rebate: % of Price Sheet |
||||||
B. D.C. Rebate: % of Price Sheet |
||||||
C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
|
3. | Tool Day (Products Included): |
N/A |
||||
A. Jobber Rebate: % of Price Sheet |
||||||
B. D.C. Rebate: % of Price Sheet |
||||||
C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
|
4. | Export (Products Included): |
N/A |
||||
A. Jobber Rebate: % of Price Sheet |
||||||
B. D.C. Rebate: % of Price Sheet |
||||||
C. Registration Required: ¨ Yes ¨ No |
||||||
D. Qualifications (Explain): |
|
|||||
¨ Program qualifies for collective override |
STOCK ADJUSTMENT AND OBSOLESCENCE PROTECTION (See Attached)
¨ Standard NAPA Stock Adjustment and Obsolescence Plan |
No handling charge |
Two returns per year |
|||||
No cap on return amounts |
One additional obsolete and S return per year |
|||||
No off-setting order required |
Contact: |
x | Other (Explain): |
Obsoletes returns only. No overstocks allowed. |
||||||
x | Authorization for returns will be provided to Centralized Purchasing within 10 business days. | |||||||
x | All returns will be credited at current price at the time of the return. | |||||||
x | Credit will be issued within 30 days of supplier receiving returned product. | |||||||
x | All recalls, obsolete, and defect returns will be credited at current price and returned freight collect. | |||||||
x | All recalls and obsolete merchandise will be returned regardless of package quantity provided that the product is in saleable condition. |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 2 of 7 |
Revision 12/1/15
CHANGEOVER PROGRAMS
1.
|
Store
|
|||||||||
N/A |
Stock Lift |
¨ Relabel |
||||||||
¨ |
Other Explain: |
|||||||||
2.
|
Installer
|
|||||||||
N/A |
Stock Lift |
¨ Relabel |
||||||||
¨ |
Other Explain: |
|||||||||
WARRANTY POLICY
N/A | Destroy in Field - NO HAZARDOUS MATERIAL TO BE DESTROYED IN THE FIELD |
N/A | Return to 3 rd Party Defective Handler (Selected by GPC) |
Segment: | Length of Warranty: | |||||||
Segment: | Length of Warranty: | |||||||
Segment: | Length of Warranty: |
x | Warranties must be submitted in both paper & electronic form. Submit electronic warranty information to the GPC Catalog Department in the format that they have defined. Any changes to warranty policies must be communicated at least 60 days prior to change date. |
LABOR CLAIM POLICY
¨ |
No Labor Claim Policy |
|||||
¨ |
All Labor Claims administered directly by Supplier |
|||||
x |
Standard NAPA Instant Labor Claim Policy |
|||||
¨ |
Other (Explain) |
|||||
¨ |
Labor Claim Policy changes must be submitted in both paper & electronic form. Submit electronic labor claim policy information to the GPC Catalog Department in the format that they have defined. Any changes to warranty policies must be communicated at least 60 days prior to change date. |
CORES
N/A | All cores returned in the box will be issued as received, no core banks. | |||||||
¨ |
Other core return limitations/instructions. | |||||||
REGULATORY COMMUNICATIONS
x | Electronic versions of MSDS sheets will be provided for all products that require one, per Catalog Department specifications. | |
x | Proper DOT shipping information will be provided for hazardous materials. | |
x | For all products that require any type of warning label and are sold to GPC in bulk packaging, individual units must carry the same warning label if there is a chance that they may be sold individually. | |
x | Supplier agrees to communicate all relevant information to GPC regarding products that may be restricted by law for sale, distribution or use. |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 3 of 7 |
Revision 12/1/15
REGULATORY COMMUNICATIONS (Continued)
x | We currently do not offer items to GPC that are regulated for sale, use or distribution under any of the regulatory categories described above. However, we certify that we will provide such information, as required, should any of our products become subject to regulation. In the event we add items to our product offering that are subject to regulations, such information will be provided at least 60 days prior to the addition. | |
x | All product and product labeling adheres to Californias Proposition 65. | |
BARCODING
|
||
x | We agree to barcode all products using the GTIN (EAN/UCC-14) standard and provide data files to enable use of the codes. | |
PRICE CHANGES
|
||
x | We agree to review all price changes with the GPC Pricing Department prior to implementation. The Pricing Department needs at least 60 days notice of any price change. We also understand that a complete price review must occur between the supplier and GPC before any price change can occur. If (1) the Supplier provides notice of a proposed price change (90 days in advance) as set forth above and (2) the Supplier has supplied products to GPC under this Agreement for a period of three successive months, the Supplier agrees to supply products to GPC in the ordinary course for a period of 90 days, at which point in time GPC will either agree to the proposed price change or discontinue the supply relationship. | |
NEW NUMBER ADDITION
|
||
x | We agree to introduce new numbers into the NAPA system under the following criteria/procedures: | |
1.) | Announce before or at the same time as suppliers other customers. | |
2.) | New number announcement criteria: Add coverage for all vehicles with a minimum registration of N/A vehicles within N/A months after initial vehicle production | |
3.) | All new numbers must be reviewed by the Product Department and adhere to the procedures listed in the Price Changes section. | |
4.) | All new numbers must be supported with the proper computer cataloging (if applicable) before announcement | |
5.) | Supplier must have adequate inventory on hand before a new number is announced. | |
COMPUTER CATALOG
|
||
1.) | Supplier must adhere to publication schedule and timelines for catalog data deliveries. | |
2.) | Supplier is required to provide electronic catalog data using GPCs catalog data format. | |
3.) | Updates to electronic data will be supplied as soon as available for new parts, new coverage, supercessions, or corrections. New information may not be provided to any other channel - internal or external - before it is available in the NAPA electronic catalog. | |
4.) | Supplier is required to provide an electronic image for every part, and abide by GPCs image production guidelines. | |
5.) | Supplier is required to provide an electronic warranty for every part. | |
6.) | Supplier is required to provide an electronic MSDS sheet for every applicable part number. | |
7.) | Supplier is required to provide an electronic part number interchange for all parts, using at a minimum the OE number. | |
8.) | Supplier will abide by the discrepancy/error guidelines. ( Please see attached letter from Jim Smith dated 6/1/12 .) | |
x | We agree to the above. |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 4 of 7 |
Revision 12/1/15
PAPER CATALOG
1.) | Supplier agrees to provide printed catalogs according to GPC specifications as outlined in the paper catalog standards document. | |
2.) | Supplier agrees to publish a new catalog annually. In the event this is not practical, the supplier may publish a new catalog every two years and a supplement in the off year. | |
3.) | Supplier agrees to provide the catalog analyst with a PDF version of the catalog proof BEFORE publication, so that required approval by GPC is received. |
[N/A] | We agree to the above. |
PRICE SHEETS
[N/A] | We agree to provide GPC with an electronic (PDF) price sheet after every price adjustment. Specifications can be obtained from the GPC Pricing Department. We also agree to print paper copies of this price sheet, upon request from a specific store. |
SUPPLIER SERVICE METRICS (See Attached)
We agree to provide [***] or better unit order fill. The following service penalties will be assessed for order fill less than [***]:
Order Fill |
Chargeback |
Order Fill |
Chargeback |
Order Fill |
Chargeback |
|||||
[***]
|
[***] | [***] | [***] | [***] | [***] | |||||
[***] | [***] | [***] | [***] | |||||||
[***] | [***] | [***] | [***] |
x | Order fill parameters have been explained. (Refer to the Supplier Service Level sheet that is attached.) GPC agrees to give 30 days written notice in the event Supplier Service Metrics are changed. | |
NAPA agrees that Supplier will not be assessed any service penalties, nor shall they be liable for any additional costs, fees, expenses, or other damages in the event that Supplier is not able to meet the Order Fill obligations as a result of a Force Majeure event. | ||
A Force Majeure event shall mean a cause or event that is not reasonably foreseen or caused by or under the control of the Supplier, including acts of God, fires, floods, explosions, riots, wars, terrorism, vandalism, or government actions. |
ORDER TURNAROUND
x | We agree to ship all DC stock orders within 4 business days, including the day transmitted via EDI. | |
x | We agree to ship all Jobber Direct orders within 4 business days, including the day transmitted via EDI. |
ELECTRONIC COMMERCE
x | We agree to receive and acknowledge all DC and Jobber Direct orders submitted via GPCs EDI Compliance Standards. | |
x | We agree to send invoice & shipment data for DC Stock and Jobber Direct & Special Orders as required under GPCs EDI Standards. | |
x | We agree to send credit memo data as required under GPCs EDI standards. | |
x | We agree to accept Master Installer claim data, including applicable registration data, as required under GPCs EDI Standards. | |
x | We agree to accept RGNs (NAPA Legacy DCs) for Returned Goods and other claims as required under GPCs EDI Standards. | |
x | We agree to accept Debits (NAPA JDE Infrastructure DCs) for Returned Goods and other claims as required under NAPAs EDI Standards. | |
x | We agree to participate in the supplier JOEI system. |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 5 of 7 |
*** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Revision 12/1/15
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 6 of 7 |
Revision 12/1/15
OTHER TERMS & CONDITIONS
|
||||||||
We agree to support/provide the following: | ||||||||
x | Tech Service Line (Phone # 800-354-8957) Must be published in both paper & electronic catalogs. | |||||||
x | EXPO | |||||||
x | NAPAsalesteam.com | |||||||
x |
Manufacturers Sales Report (monthly)
|
|||||||
INDEMNITY / TRADEMARKS / INSURANCE
|
||||||||
x | Indemnity Agreement has been signed. | |||||||
x | Trademark License Agreement has been signed. | |||||||
x | Certificate of insurance has been provided. | |||||||
Certificate of insurance must include: | ||||||||
1. | Comprehensive General Liability coverage, including Product Liability/completed Operations Hazard with a minimum limit of $5,000,000 per occurrence. | |||||||
2. | Broad form Suppliers endorsement naming National Automotive Parts Association and Genuine Parts Company as an additional insured. | |||||||
3.
|
Mandatory 30-day notice of cancellation to: GPC Headquarters / Attn: Product Department
|
|||||||
SUPPLIER CODE OF CONDUCT
|
||||||||
x |
We have read and agree to abide by GPCs Supplier Code of Conduct.
|
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 7 of 7 |
Revision 12/1/15
Product Line Name: |
NAPA Oil |
Supplier: |
Valvoline, a business of Ashland Inc. |
Effective Date: |
January 1, 2016 |
CORPORATE DISCOUNTS AND ALLOWANCES
x |
NAPA National Advertising Allowance: [***] of net D.C. purchases paid to NAPA National Advertising Program in semi-annual payments. This is calculated on the previous years net D.C. purchases. | |||||
¨ |
J.S.A.; Based on your % of net DC purchases (i.e., 1% of total GPC purchases = 1% of JSA bill). | |||||
¨ |
AutoCare Rebate: The rebate percentage paid by NAPA (or GPC) to each account varies based on the sales volume of the account. Your rebate payment to NAPA (or GPC) is based on sales of your product to the NAPA AutoCare Centers. AutoCare rebates are paid quarterly by NAPA (or GPC). | |||||
x |
New Distribution Addendum | |||||
¨ |
Major Accounts Rebate: The percentage paid by NAPA (or GPC) to each account varies based on individual contractual relationships. Your rebate payment to NAPA (or GPC) is based on sales of your product to the NAPA Major Accounts. Major Account rebates may be paid monthly or quarterly by NAPA (or GPC). | |||||
x |
Sales Group: Balkamp SSG Commission: 0.0 % (Sales credit line codes 104) | |||||
¨ |
Core Handling: 75¢ per unit | |||||
x |
Classification Book Charges: $700 per printed page; 116 part numbers per page. | |||||
x |
Merchandising Center Rent Support: Based on your % of total net DC purchases (i.e., 1% of total NAPA purchases = 1% of Merchandising Center rent bill). | |||||
x |
Addendum A |
By completion and signature of this agreement |
Valvoline, a business of Ashland Inc. |
and GPC agree to all terms and conditions | ||
stated within this SUPPLIER TERMS & CONDITIONS AGREEMENT. |
Supplier: | ||||
Greg David |
||||
Printed | ||||
Vice President of Sales |
||||
Title | ||||
/s/ Gregory David |
2-9-16 |
|||
Signature | Date | |||
Genuine Parts Company (GPC): | ||||
Glenn Goodnough |
||||
Printed | ||||
Senior Market Manager |
||||
Title | ||||
|
|
|||
Signature | Date |
Effective Date: January 1, 2016 | Supplier GD | GPC | NOL Page 8 of 7 |
*** | Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
NAPA STOCK REGULATION AND
OBSOLESCENCE PREVENTION PLAN
1. | Each part number of each NAPA Manufacturers line will be assigned a classification letter in accordance with the guidelines used by the GPC Classification Department. Each manufacturers line will be reviewed at least once each year by the GPC Classification Department with the assistance of the NAPA Manufacturer, for the purpose of making any necessary revisions to the classification letters of the part numbers in that line. After each of the three classification sections have been reviewed, a revised customized classification section book will be published. |
All new numbers will be reviewed with the GPC Classification Department prior to their announcement for the purpose of establishing the proper classification symbol.
2. | NAPA Distribution Centers have the privilege of making at least one stock adjustment and one clean-up of obsolete merchandise return to the manufacturer each year with no handling charge. The Distribution Center will furnish the manufacturer a list of part numbers and quantities to be returned. No merchandise will be returned to the factory until the request for return has been approved. The manufacturer will approve the return requests within two weeks of receiving the request. |
3. | No part number will be discontinued by the manufacturer without appearing as obsolete in one issue of the NAPA Classification Book. The Distribution Centers should return all obsolete parts within the calendar year in which they are printed obsolete in the NAPA Classification Book. The Distribution Centers may return to the factory within 60 days of purchase, without handling charge, any part classified as obsolete at the time of purchase. |
4. | All merchandise returned to the factory must be received in undamaged and saleable condition, except obsolete merchandise, transportation charges prepaid. |
5. | The NAPA Manufacturer will issue to the NAPA Distribution Center a credit within 30 days for the returned merchandise based on the current Distribution Center net prices in effect at the time of the receipt of the merchandise. No handling charge will be assessed on the returned merchandise. |
6. | The NAPA Distribution Center will maintain a stock of all part numbers classified W, WW, A, B, C or D. The distribution Center may stock at their discretion any part numbers classified S. The Distribution Center should also maintain a stock of all H, M, T, XA, XB, XC and XD classified items. |
NAPA SUPPLIER SERVICE LEVEL
GPCs former Supplier Service Level methodology was changed after all of APGs Distribution Centers completed the conversion to the J.D. Edwards ERP system. The most significant changes were to:
1. | Implement a standard unit-based order fill measurement compared to the former line-based measurement. |
2. | Insure that each order was included for measurement. To accomplish this, the monthly report places focus on when orders are received (or Jobber Directs/Special Orders are billed) rather than when orders were placed a vast departure from the former reporting logic. |
3. | Expect supplier acknowledgement of every item ordered on every PO either as shipped or cancelled (or backordered when a temporary ship/backorder agreement is in force). |
Order Fill measurement is calculated by dividing the number of units shipped by the number of units ordered. To arrive at the most effective measurement for DC Stock Replenishment orders , the following business rules are applied to this calculation:
| GPC expects every DC Stock Replenishment order to be filled 100% complete within two business days of receiving them. Therefore, every item is included for measurement. |
| All Receipts occurring in the calendar reporting month are included for measurement. |
| Orders must be two months old or less to be included for measurement. This time frame will be expanded to accommodate backorders, promotional orders and upgrade orders in the next release. |
| Item Units received by the expected delivery date are counted as shipped, while Items received after the expected delivery date are counted as not shipped. This does not currently account for the extended lead time necessary to accommodate promotional or upgrade orders. Until this issue is addressed in the next release, all late orders will be excluded from monthly reporting. |
| Item Units Cancelled by the supplier are counted as not shipped. |
| Item Units not shipped or cancelled by the expected delivery date and still open when the monthly service report is generated are considered Orphaned-Open units and are counted as not shipped. |
| Item Units not shipped or cancelled by the expected delivery date but forced closed by APG before the monthly service report is generated are considered Orphaned-Closed units and are counted as not shipped. |
| Lead Time is a significant factor in determining the timely delivery of supplier orders. Distribution Center Lead Time for weekly stock orders is calculated using the average delivery lead time of all purchase orders received over a rolling 3 months by supplier/DC. The resulting lead time value is used to calculate an expected delivery date for each PO. Our intention in the current state is not to count late shipments against the supplier. Ultimately, we intend to assess service penalties for shipments that are Late based on expected delivery dates. This metric will be tracked and reported for several months before late penalties are assessed against any supplier. |
Other Considerations
| Open quantities of ordered items that have not reached their expected ship date are included in the next reporting month. |
| When APG is compelled to cancel an entire order, all SKU quantities on the order are excluded from service level measurement. This is done to protect suppliers order fill percent . |
| Item Units Received in excess of the quantity originally ordered are adjusted to reflect the new higher shipped quantity. This avoids inflating the service level percent in the units-based calculation. |
| The current software does not recognize backordered items, and will consider them as Orphaned-Open units in the first reporting month, and as Orphaned-Closed if fulfilled in the subsequent reporting month. |
| All Items on an order are considered in the monthly service level reporting with no exclusions or masking logic applied to previously canceled quantities. |
Direct and Special Order Service Level Expectations
GPC expects that every Jobber Direct Ship Order will be processed, shipped and invoiced within two business days of a supplier receiving the order. In addition:
| NAPA Jobbers expect their orders to arrive at their place of business within 10 working days of the date their order was placed. |
| Jobber Direct orders cross-docked thru a NAPA Distribution Center are given the same expected delivery date as a DC Stock Replenishment order. |
| Reasonable exceptions for arrival dates are expected when orders are destined for Hawaii and Alaska Jobbers. |
Jobber Special Orders are expected to be invoiced the same day they are received. In addition:
| Exception to same day invoicing is acceptable when a special order is received after a published cutoff time. |
| Each special order is expected to arrive at the NAPA Store within the normal time frame given for the method of transportation specified when their order was placed. |
| Special orders cross-docked thru a NAPA Distribution Center (or shipped WOG) are given the same expected delivery date as a DC Stock Replenishment order. |
Please Note: Jobber Direct Ship and Special Orders are presently not included in supplier order fill reporting. This measure will be included for service level penalty when the software is released.
Please Note: Quaker City Distribution Center orders are not included in service measurements at this time. Until that happens, all suppliers are expected to provide the same level of service to all NAPA Distribution Centers.
SUPPLIER CODE OF CONDUCT
At Genuine Parts Company (GPC), we are committed to a standard of excellence in every aspect of our business, to ethical and responsible conduct in all of our operations, to the respect of the rights of all individuals, and to respect for the environment. We expect our Suppliers to share these same commitments. At a minimum, GPC requires that Supplier meet the following standards:
Compensation . Supplier must comply with all applicable wage and hour laws and regulations, including those relating to minimum wages, overtime, and other elements of compensation, and will provide all legally mandated benefits. If local laws do not provide for overtime pay, Supplier will, at a minimum, pay regular wages for overtime work.
Hours of Work . Supplier will maintain reasonable work hours in compliance with all applicable wage and hour laws and regulations. Suppliers will not require employees to work more than any limits on regular and overtime hours allowed by any applicable local law.
Forced Labor/Prison Labor . Supplier will not use forced or involuntary labor, including prison, bonded, indentured, or otherwise.
Child Labor . Supplier will not use child labor. Child is any person who is younger than 15 (or 14 where the local law allows), or younger than the age for completing compulsory education where such age is higher than 15. Supplier will comply with all applicable laws and regulations regarding the employment of young persons who do not fall within this definition of child.
Coercion and Harassment . Supplier will treat each employee with dignity and respect, and will not use corporal punishment, threats of violence, or other forms of physical, sexual, psychological, or verbal harassment or abuse.
Discrimination . Supplier will not discriminate in hiring practices or any other term or condition of work on the basis of race, color, national or ethnic origin, gender, religion, disability, age, or other similar factors.
Concern for the Environment . Supplier will comply with all applicable environmental laws and regulations.
Compliance with Applicable Laws . Supplier will comply with all laws and regulations applicable to Suppliers business, as well as the applicable standards of its industry, including those pertaining to the manufacture, pricing, sale, distribution, and exportation of merchandise. If industry standards exceed local legal requirements, GPC will favor Suppliers who meet the industry standards. Supplier will not violate or infringe upon the intellectual property rights of any third party, and will not engage in any activities, such as bribery of local officials, which would violate any applicable U.S. laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act. Supplier will comply will all applicable customs laws and regulations, to include all labeling and warning requirements on merchandise.
Subcontracting . Supplier will not use subcontractors unless each subcontractor has entered into a written agreement to comply with this Code of Conduct, and Supplier can provide GPC with a copy of this written agreement upon request.
Monitoring and Compliance . Supplier authorizes GPC or our designated agents (including third parties) to engage in monitoring activities to confirm compliance with this Code of Conduct, to include on-site inspection of facilities and review of books and records relating to employment matters. Notwithstanding such authorization, GPC does not assume any duty to monitor or ensure compliance with this Code of Conduct, and Supplier acknowledges and agrees that Supplier is solely responsible for full compliance with this Code of Conduct by its officers, directors, managers and employees.
Termination of Relationship . Any Supplier who fails or refuses to comply with this Code of Conduct is subject to the immediate cancellation of all outstanding orders, refusal or return of any shipment, and termination of its business relationship with GPC.
Publication . Supplier will ensure that the provisions of this Code of Conduct are adequately conveyed to all employees, and will post a copy of this Code in the local language and in a place readily accessible to employees, at all times.
Agents and Brokers . In the event GPC uses an Agent or Broker to arrange for product to be supplied to GPC by any Supplier, the Agent or Broker shall ensure that this Code of Conduct is provided to the Supplier, and will take all necessary actions to ensure that the Supplier, as well as the officers and employees of the Agent or Broker, comply in all respects with the terms of this Code of Conduct.
Supplier acknowledges and agrees that GPC may require Supplier to reaffirm this Code of Conduct, or execute a new Code of Conduct, from time to time and that this Code of Conduct replaces and supplants any prior Code of Conduct governing Suppliers relationship with GPC. As a duly authorized officer or director of Supplier, the undersigned acknowledges that he/she has read this Code of Conduct and understands that Suppliers business relationship with GPC is based on Suppliers full compliance with this Code of Conduct. The undersigned understands that Suppliers failure to abide by the terms of this Code of Conduct may result in GPCs immediate cancellation or termination of any and all outstanding agreements and purchase orders between GPC and Supplier, including, without limitation, GPCs cancellation of orders for goods in process or scheduled to be made at the time of cancellation or termination, whether involving raw materials, work in process or finished goods, or merchandise in Suppliers, GPCs or a third partys possession.
READ, UNDERSTOOD AND AGREED TO 2-9, 2016.
SUPPLIER NAME: | Valvoline, a business of Ashland Inc. | |||
SUPPLIER SIGNATURE: | /s/ Greg David | |||
PRINTED NAME: | Greg David | |||
TITLE: | Vice President of Sales |
NEW DISTRIBUTION ADDENDUM
Product Name NAPA Oil HQ Abbr NO TAMS Abbr NOL
Effective Date January 1, 2016
New Store Program
¨ Participate x Decline
Description of Discount | ||
Special Instructions |
Changeover Program
¨ Participate x Decline
Description of Discount | ||
Special Instructions |
Change of Ownership Program
¨ Participate x Decline
Description of Discount | ||
Special Instructions |
Supplier Representative | GPC Representative | |||||||||||
Greg David | Glenn Goodnough | |||||||||||
Printed Name | Printed Name | |||||||||||
Vice President of Sales | Senior Market Manager | |||||||||||
Title | Title | |||||||||||
/s/ Greg David | ||||||||||||
Signature | Signature | |||||||||||
This document replaces any new store program agreed to as part of pervious Supplier Terms & Conditions Agreement by checking boxes under Corporate Discounts and Allowances or the New Greenfield Store Launch Fund Addendum
Revision 12/1/15
SUPPLIER TERMS & CONDITIONS AGREEMENT
Addendum A
Supplier: Valvoline, a business of Ashland Inc. Effective Date: January 1, 2016
MANUFACTURER SPECIAL ALLOWANCES
PROGRAM |
PAYMENT |
REASON |
PAID TO |
PAYMENT FREQUENCY |
||||
NAPA Oil | [***] | Competitive Bid | Member Companies | Monthly | ||||
NAPA Oil | [***] | Competitive Bid | Member Companies | Monthly | ||||
NAPA Oil | [***] | Competitive Bid | Member Companies | Annually | ||||
NAPA Oil | [***] | Competitive Bid | Member Companies | Monthly | ||||
NAPA Oil | [***] | In lieu of prompt pay discount | Member Companies | Monthly | ||||
SUPPLIER RULES FOR CALCULATING ABOVE REBATE(S): |
SUBMITTED BY:
Manufacturer | Greg David | |||||
Printed | ||||||
/s/ Greg David | ||||||
Signed | Date | |||||
GPC | Glenn Goodnough | |||||
Printed | ||||||
Signed | Date |
*** | Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
Revision 12/1/15
|
Jim Smith Director NAPA Catalog Services Automotive Parts Group 2999 Circle 75 Parkway Atlanta, Georgia 30339 (770) 956-2780 |
To: All NAPA Suppliers
Date: August 1, 2012
CC: Ken Ingram, Scott LeProhon, Brad Moore, Robbie Robinson, Byron Frantz, Mike Briggs
Re: New Discrepancy Process Guidelines
Dear Supplier,
The NAPA catalog discrepancy system has been in place since 1987. The rules of the discrepancy system have only slightly changed since that time. These rules are being expanded to other data sets, which can affect more suppliers. It is crucial that you review these guidelines to be sure you have the processes in place to rapidly respond to any discrepancies, thus avoiding delinquency fines.
Since 2004, NAPA has provided other vehicle types to suppliers so that application data can be provided for those vehicles. Ample time has been allowed for suppliers to populate these vehicles. Therefore, effective August 1, 2012, eligible vehicles are being expanded to include ALL vehicles and ALL vehicle types in the NAPA vehicle table.
The discrepancy criteria are:
| Any NAPA products which have been previously approved by the NAPA product department that do not appear in cataloging are eligible for discrepancies. |
| NAPA Store Counter Personnel are eligible to fill out and submit discrepancy forms whenever they encounter missing or inaccurate information. |
| NAPA Stores will no longer have a limit of 50 valid discrepancies. |
| Missing or inaccurate vehicle application data is eligible, as well as missing or inaccurate images, interchange, MSDS, or warranty . If this data appears in print form anywhere in the industry, or in electronic form anywhere in the industry (including competitor sites or older NAPA catalogs), but does not exist in the NAPA PartsPRO SE catalog, the discrepancy is valid. |
| Once a discrepancy form is submitted, the NAPA Catalog Data Analyst reviews the discrepancy for validity, and then sends valid discrepancies to the supplier for review. |
| Suppliers have 14 calendar days from the date notified to respond. If deemed valid, the supplier will pay $30 for each valid discrepancy (invoicing is generated once a month). If the supplier deems the discrepancy invalid and the catalog analyst agrees, no invoice will occur. |
| If the supplier does not respond within 14 calendar days, the discrepancy is deemed valid regardless and the supplier will be invoiced $30. Then for each 30 day period forward, until an accurate response is received, the supplier will be fined $500. |
| For valid discrepancies, if the corrected data is not received within 30 days from the date originally notified, the supplier will be invoiced $500, then for each subsequent 30 day period with no response. |
Counterpersons are paid a bounty if they are the first to submit a valid discrepancy. In the end, the cost to pay one counterperson is small compared to the numerous lost sales resulting from faulty or missing data. Your adherence to our discrepancy policies are required as part of your arrangement sheet. Thank you in advance for abiding by these policies.
Sincerely,
Jim Smith
Revision 12/1/15
MANUFACTURER CHANGE FORM
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HQ Abbr |
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TAMS Abbr |
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Date |
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Requested By |
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New Supplier | ¨ | Change of Address or Contact | ¨ | Other | ¨ | Change of Product Lines |
¨ |
Discontinued Supplier |
¨ |
Effective Date |
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(Date Supplier should be added or deleted from NAPA correspondence) |
Supplying Company |
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Address |
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Division Of |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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Contact |
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Replaces* |
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Address |
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E-Mail Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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MISCELLANEOUS INFO |
NAPA Product Lines |
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Other Names |
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Primary NAPA Name |
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USF Processors for Defectives? Yes ¨ No ¨ |
Additional Comments |
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ACCOUNTS RECEIVABLE INFO |
Contact |
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Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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CATALOG INFO |
Contact |
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Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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EDI INFO |
Contact |
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Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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INVOICE INFO |
Contact |
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Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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PRICING INFO |
Contact |
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Address |
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E-Mail Address |
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P.O. Box |
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City, State, Zip |
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Phone Number |
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Fax Number |
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FOR ACCOUNTING DEPARTMENT ONLY |
ID# |
Entity# |
Exhibit 10.8
Revision 12/1/15
SUPPLIER TERMS & CONDITIONS AGREEMENT
Product Line | Valvoline Oil | HQ Abbr | VAR | TAMS Abbr | VAL |
Effective Date | January 1, 2016 | Replaces | January 1, 2010 |
SUPPLIER
Supplying Company | Valvoline, business of Ashland Inc. (Valvoline) |
Division of | Ashland Inc. |
Address | 3499 Blazer Parkway | P.O. Box |
City, State, Zip | Lexington, KY 40509 |
Phone Number | 859-357-7777 | Fax Number | 859-357-7912 |
MANUFACTURERS OPERATIONS MANUAL
x Supplier has received the appropriate number of copies of this manual.
x Supplier agrees to all policies outlined in this manual.
TERMS
Invoices & Charges | Credit Memos (Supplier Debits by JDE DCs) | |||||||||||||
x |
Length: | [***] | Prox., Net EOM |
¨ |
Credit Memo Terms Same as Invoice Terms | |||||||||
x |
[***] Trade Discount |
x |
Other: |
[***] |
||||||||||
¨ |
Confirmed Receivables 2% 6th 15th Prox |
¨ |
Supplier Debit Terms Same as Invoice Terms | |||||||||||
¨ |
Other: |
x |
Other: |
[***] |
x | Buyer is a division or subsidiary of Genuine Paris Company (GPC). In the event the Supplier owes any past due indebtedness to any other unit (including all divisions and subsidiaries) of GPC, then any amounts that the Buyer owes the Supplier may be offset against such indebtedness and the Buyer shall be obligated to pay to the Supplier only the net amount after application of such setoff. |
DC FREIGHT POLICY
Minimum Order | Truckload (Can be combined in pallet quantities with NOL & ZRX.) |
x | Freight Prepaid by Supplier (FOB Destination) | |
¨ | Unbundled LTL Shipments : Supplier has agreed to allow GPC to direct the outbound freight from Supplier to NAPA Distribution Centers and stores. In exchange, Genuine Parts Company Transportation & Logistics (GPCTL) will deliver a monthly invoice for freight charges equal to % of purchases as reported on the monthly Manufacturer Sales Report by the Supplier. This amount covers all duties, brokerage fees, etc., associated with these lanes. GPC shall be responsible for damages to cargo during transit. GPC shall assume title on NAPA DC shipments upon delivery at the final destination. GPC shall assume title on Store Directs / FOTAB shipments once product has been tendered to the carrier by Supplier | |
¨ | Parcel Shipments - GPC UPS Account : On Special (JOEI) orders shipped parcel, where freight is not included in the cost of goods, Supplier agrees to ship these orders under the GPC UPS account number. GPC shall be responsible for damages to cargo during transit and will assume title upon shipment. |
STORE DIRECT SHIP
x Allowed ¨ Not Allowed
(1) | Jobber Discount: [***] Off Regular Goldenrod Cost | FOTAB | FD052 | |||||||
D.C. Discount (from Supplier): | [***] Off Normal D.C. Cost | |||||||||
Minimum Order Requirement: |
[***] |
|||||||||
[***] | ||||||||||
(2) | Jobber Discount: [***] Off Regular Goldenrod Cost | FOTAB | FD515 | |||||||
D.C. Discount (from Supplier): | [***] Off Normal D.C. Cost | |||||||||
Minimum Order Requirement: |
[***] |
|||||||||
Minimum Order Requirement: |
[***] |
Effective Date: January 1, 2016 | Supplier GD |
GPC |
VAL Page 1 of 7 |
*** | Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
Revision 12/1/15
STORE DIRECT SHIP (Continued)
(3) | Jobber Discount: % Off Regular Goldenrod Cost | FOTAB |
|
|||||
D.C. Discount (from Supplier): % Off Normal D.C. Cost |
Minimum Order Requirement: |
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(4) | Jobber Discount: % Off Regular Goldenrod Cost | FOTAB |
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|||||
D.C. Discount (from Supplier): % Off Normal D.C. Cost |
Minimum Order Requirement: |
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Prepaid Freight (FOB Origin)? | ||||||||
48 Contiguous States |
x Yes | ¨ No (Explain) |
Direct to Store |
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Alaska |
x Yes | ¨ No (Explain) |
Direct to Store |
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Hawaii |
x Yes | ¨ No (Explain) |
Direct to Store |
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Export |
x Yes | ¨ No (Explain) |
Direct to Store |
REPORTED SALES PROGRAMS
1. | Master Installer/Fleet (Products Included): |
N/A |
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A. Jobber Rebate: % of Price Sheet |
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B. D.C. Rebate: % of Price Sheet |
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C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
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2. | Government (Products Included): |
N/A |
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A. Jobber Rebate: % of Price Sheet |
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B. D.C. Rebate: % of Price Sheet |
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C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
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3. | Tool Day (Products Included): |
N/A |
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A. Jobber Rebate: % of Price Sheet |
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B. D.C. Rebate: % of Price Sheet |
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C. Registration Required: ¨ Yes ¨ No |
D. Qualifications (Explain): |
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4. | Export (Products Included): |
N/A |
||||
A. Jobber Rebate: % of Price Sheet |
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B. D.C. Rebate: % of Price Sheet |
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C. Registration Required: ¨ Yes ¨ No |
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D. Qualifications (Explain): |
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|||||
¨ Program qualifies for collective override |
STOCK ADJUSTMENT AND OBSOLESCENCE PROTECTION (See Attached)
x Standard NAPA Stock Adjustment and Obsolescence Plan |
No handling charge |
Two returns per year |
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No cap on return amounts |
One additional obsolete and S return per year |
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No off-setting order required |
Contact: |
x | Other (Explain): |
Obsoletes returns only. No overstocks allowed. |
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x | Authorization for returns will be provided to Centralized Purchasing within 10 business days. | |||||||
x | All returns will be credited at current price at the time of the return. | |||||||
x | Credit will be issued within 30 days of supplier receiving returned product. | |||||||
x | All recalls, obsolete, and defect returns will be credited at current price and returned freight collect. | |||||||
x | All recalls and obsolete merchandise will be returned regardless of package quantity provided that the product is in saleable condition. |
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 2 of 7 |
Revision 12/1/15
CHANGEOVER PROGRAMS
1.
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Store
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N/A |
Stock Lift |
¨ Relabel |
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¨ |
Other Explain: |
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2.
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Installer
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N/A |
Stock Lift |
¨ Relabel |
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¨ |
Other Explain: |
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WARRANTY POLICY
N/A | Destroy in Field - NO HAZARDOUS MATERIAL TO BE DESTROYED IN THE FIELD |
N/A | Return to 3 rd Party Defective Handler (Selected by GPC) |
Segment: | Length of Warranty: | |||||||
Segment: | Length of Warranty: | |||||||
Segment: | Length of Warranty: |
x | Warranties must be submitted in both paper & electronic form. Submit electronic warranty information to the GPC Catalog Department in the format that they have defined. Any changes to warranty policies must be communicated at least 60 days prior to change date. |
LABOR CLAIM POLICY
¨ |
No Labor Claim Policy |
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¨ |
All Labor Claims administered directly by Supplier |
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x |
Standard NAPA Instant Labor Claim Policy |
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¨ |
Other (Explain) |
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¨ |
Labor Claim Policy changes must be submitted in both paper & electronic form. Submit electronic labor claim policy information to the GPC Catalog Department in the format that they have defined. Any changes to warranty policies must be communicated at least 60 days prior to change date. |
CORES
N/A | All cores returned in the box will be issued as received, no core banks. | |||||||
¨ |
Other core return limitations/instructions. | |||||||
REGULATORY COMMUNICATIONS
x | Electronic versions of MSDS sheets will be provided for all products that require one, per Catalog Department specifications. | |
x | Proper DOT shipping information will be provided for hazardous materials. | |
x | For all products that require any type of warning label and are sold to GPC in bulk packaging, individual units must carry the same warning label if there is a chance that they may be sold individually. | |
x | Supplier agrees to communicate all relevant information to GPC regarding products that may be restricted by law for sale, distribution or use. |
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 3 of 7 |
Revision 12/1/15
REGULATORY COMMUNICATIONS (Continued)
x | We currently do not offer items to GPC that are regulated for sale, use or distribution under any of the regulatory categories described above. However, we certify that we will provide such information, as required, should any of our products become subject to regulation. In the event we add items to our product offering that are subject to regulations, such information will be provided at least 60 days prior to the addition. | |
x | All product and product labeling adheres to Californias Proposition 65. | |
BARCODING
|
||
x | We agree to barcode all products using the GTIN (EAN/UCC-14) standard and provide data files to enable use of the codes. | |
PRICE CHANGES
|
||
x | We agree to review all price changes with the GPC Pricing Department prior to implementation. The Pricing Department needs at least 60 days notice of any price change. We also understand that a complete price review must occur between the supplier and GPC before any price change can occur. If (1) the Supplier provides notice of a proposed price change (90 days in advance) as set forth above and (2) the Supplier has supplied products to GPC under this Agreement for a period of three successive months, the Supplier agrees to supply products to GPC in the ordinary course for a period of 90 days, at which point in time GPC will either agree to the proposed price change or discontinue the supply relationship. | |
NEW NUMBER ADDITION
|
||
x | We agree to introduce new numbers into the NAPA system under the following criteria/procedures: | |
1.) | Announce before or at the same time as suppliers other customers. | |
2.) | New number announcement criteria: Add coverage for all vehicles with a minimum registration of N/A vehicles within N/A months after initial vehicle production | |
3.) | All new numbers must be reviewed by the Product Department and adhere to the procedures listed in the Price Changes section. | |
4.) | All new numbers must be supported with the proper computer cataloging (if applicable) before announcement | |
5.) | Supplier must have adequate inventory on hand before a new number is announced. | |
COMPUTER CATALOG
|
||
1.) | Supplier must adhere to publication schedule and timelines for catalog data deliveries. | |
2.) | Supplier is required to provide electronic catalog data using GPCs catalog data format. | |
3.) | Updates to electronic data will be supplied as soon as available for new parts, new coverage, supercessions, or corrections. New information may not be provided to any other channel - internal or external - before it is available in the NAPA electronic catalog. | |
4.) | Supplier is required to provide an electronic image for every part, and abide by GPCs image production guidelines. | |
5.) | Supplier is required to provide an electronic warranty for every part. | |
6.) | Supplier is required to provide an electronic MSDS sheet for every applicable part number. | |
7.) | Supplier is required to provide an electronic part number interchange for all parts, using at a minimum the OE number. | |
8.) | Supplier will abide by the discrepancy/error guidelines. ( Please see attached letter from Jim Smith dated 6/1/12. ) | |
x | We agree to the above. |
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 4 of 7 |
Revision 12/1/15
PAPER CATALOG
1.) | Supplier agrees to provide printed catalogs according to GPC specifications as outlined in the paper catalog standards document. | |
2.) | Supplier agrees to publish a new catalog annually. In the event this is not practical, the supplier may publish a new catalog every two years and a supplement in the off year. | |
3.) | Supplier agrees to provide the catalog analyst with a PDF version of the catalog proof BEFORE publication, so that required approval by GPC is received. |
[N/A] | We agree to the above. |
PRICE SHEETS
[N/A] | We agree to provide GPC with an electronic (PDF) price sheet after every price adjustment. Specifications can be obtained from the GPC Pricing Department. We also agree to print paper copies of this price sheet, upon request from a specific store. |
SUPPLIER SERVICE METRICS (See Attached)
We agree to provide [***] or better unit order fill. The following service penalties will be assessed for order fill less than [***]:
Order Fill |
Chargeback |
Order Fill |
Chargeback |
Order Fill |
Chargeback |
|||||
[***] | [***] | [***] | [***] | [***] | [***] | |||||
[***] | [***] | [***] | [***] | |||||||
[***] | [***] | [***] | [***] |
x | Order fill parameters have been explained. (Refer to the Supplier Service Level sheet that is attached.) GPC agrees to give 30 days written notice in the event Supplier Service Metrics are changed. | |
NAPA agrees that Supplier will not be assessed any service penalties, nor shall they be liable for any additional costs, fees, expenses, or other damages in the event that Supplier is not able to meet the Order Fill obligations as a result of a Force Majeure event. | ||
A Force Majeure event shall mean a cause or event that is not reasonably foreseen or caused by or under the control of the Supplier, including acts of God, fires, floods, explosions, riots, wars, terrorism, vandalism, or government actions. |
ORDER TURNAROUND
x | We agree to ship all DC stock orders within 4 business days, including the day transmitted via EDI. | |
x | We agree to ship all Jobber Direct orders within 4 business days, including the day transmitted via EDI. |
ELECTRONIC COMMERCE
x | We agree to receive and acknowledge all DC and Jobber Direct orders submitted via GPCs EDI Compliance Standards. | |
x | We agree to send invoice & shipment data for DC Stock and Jobber Direct & Special Orders as required under GPCs EDI Standards. | |
x | We agree to send credit memo data as required under GPCs EDI standards. | |
x | We agree to accept Master Installer claim data, including applicable registration data, as required under GPCs EDI Standards. | |
x | We agree to accept RGNs (NAPA Legacy DCs) for Returned Goods and other claims as required under GPCs EDI Standards. | |
x | We agree to accept Debits (NAPA JDE Infrastructure DCs) for Returned Goods and other claims as required under NAPAs EDI Standards. | |
x | We agree to participate in the supplier JOEI system. |
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 5 of 7 |
*** Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Revision 12/1/15
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 6 of 7 |
Revision 12/1/15
OTHER TERMS & CONDITIONS
|
||||||||
We agree to support/provide the following: | ||||||||
x | Tech Service Line (Phone # 800-354-8957) Must be published in both paper & electronic catalogs. | |||||||
x | EXPO | |||||||
x | NAPAsalesteam.com | |||||||
x |
Manufacturers Sales Report (monthly)
|
|||||||
INDEMNITY / TRADEMARKS / INSURANCE
|
||||||||
x | Indemnity Agreement has been signed. | |||||||
x | Trademark License Agreement has been signed. | |||||||
x | Certificate of insurance has been provided. | |||||||
Certificate of insurance must include: | ||||||||
1. | Comprehensive General Liability coverage, including Product Liability/completed Operations Hazard with a minimum limit of $5,000,000 per occurrence. | |||||||
2. | Broad form Suppliers endorsement naming National Automotive Parts Association and Genuine Parts Company as an additional insured. | |||||||
3.
|
Mandatory 30-day notice of cancellation to: GPC Headquarters / Attn: Product Department
|
|||||||
SUPPLIER CODE OF CONDUCT
|
||||||||
x |
We have read and agree to abide by GPCs Supplier Code of Conduct.
|
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 7 of 7 |
Revision 12/1/15
Product Line Name: |
Valvoline Oil |
Supplier: |
Valvoline, business of Ashland Inc. (Valvoline) |
Effective Date: |
January 1, 2016 |
CORPORATE DISCOUNTS AND ALLOWANCES
x |
NAPA National Advertising Allowance: [***] of net D.C. purchases paid to NAPA National Advertising Program in semi-annual payments. This is calculated on the previous years net D.C. purchases.
|
|||||
N/A |
J.S.A.; Based on your % of net DC purchases (i.e., 1% of total GPC purchases = 1% of JSA bill). | |||||
x |
AutoCare Rebate: The rebate percentage paid by NAPA (or GPC) to each account varies based on the sales volume of the account. Your rebate payment to NAPA (or GPC) is based on sales of your product to the NAPA AutoCare Centers. AutoCare rebates are paid quarterly by NAPA (or GPC). | |||||
x |
New Distribution Addendum
|
|||||
N/A |
Major Accounts Rebate: The percentage paid by NAPA (or GPC) to each account varies based on individual contractual | |||||
relationships. Your rebate payment to NAPA (or GPC) is based on sales of your product to the NAPA Major Accounts. Major Account rebates may be paid monthly or quarterly by NAPA (or GPC). | ||||||
x |
Sales Group: Balkamp SSG (See Addendum A) Commission: 0.3 %
|
|||||
N/A |
Core Handling: 75¢ per unit. | |||||
x |
Classification Book Charges: $700 per printed page; 116 part numbers per page. | |||||
x |
Merchandising Center Rent Support: Based on your % of total net DC purchases (i.e., 1% of total NAPA purchases = 1% of Merchandising Center rent bill). | |||||
x |
Addendum A |
By completion and signature of this agreement |
Valvoline, a business of Ashland Inc. |
and GPC agree to all terms and conditions | ||
stated within this SUPPLIER TERMS & CONDITIONS AGREEMENT. |
Supplier: | ||||
Greg David |
||||
Printed | ||||
Vice President of Sales |
||||
Title | ||||
/s/ Gregory David |
2-9-16 |
|||
Signature | Date | |||
Genuine Parts Company (GPC): | ||||
Glenn Goodnough |
||||
Printed | ||||
Senior Market Manager |
||||
Title | ||||
|
|
|||
Signature | Date |
Effective Date: January 1, 2016 | Supplier GD | GPC | VAL Page 8 of 7 |
*** | Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
NAPA STOCK REGULATION AND
OBSOLESCENCE PREVENTION PLAN
1. | Each part number of each NAPA Manufacturers line will be assigned a classification letter in accordance with the guidelines used by the GPC Classification Department. Each manufacturers line will be reviewed at least once each year by the GPC Classification Department with the assistance of the NAPA Manufacturer, for the purpose of making any necessary revisions to the classification letters of the part numbers in that line. After each of the three classification sections have been reviewed, a revised customized classification section book will be published. |
All new numbers will be reviewed with the GPC Classification Department prior to their announcement for the purpose of establishing the proper classification symbol.
2. | NAPA Distribution Centers have the privilege of making at least one stock adjustment and one clean-up of obsolete merchandise return to the manufacturer each year with no handling charge. The Distribution Center will furnish the manufacturer a list of part numbers and quantities to be returned. No merchandise will be returned to the factory until the request for return has been approved. The manufacturer will approve the return requests within two weeks of receiving the request. |
3. | No part number will be discontinued by the manufacturer without appearing as obsolete in one issue of the NAPA Classification Book. The Distribution Centers should return all obsolete parts within the calendar year in which they are printed obsolete in the NAPA Classification Book. The Distribution Centers may return to the factory within 60 days of purchase, without handling charge, any part classified as obsolete at the time of purchase. |
4. | All merchandise returned to the factory must be received in undamaged and saleable condition, except obsolete merchandise, transportation charges prepaid. |
5. | The NAPA Manufacturer will issue to the NAPA Distribution Center a credit within 30 days for the returned merchandise based on the current Distribution Center net prices in effect at the time of the receipt of the merchandise. No handling charge will be assessed on the returned merchandise. |
6. | The NAPA Distribution Center will maintain a stock of all part numbers classified W, WW, A, B, C or D. The distribution Center may stock at their discretion any part numbers classified S. The Distribution Center should also maintain a stock of all H, M, T, XA, XB, XC and XD classified items. |
NAPA SUPPLIER SERVICE LEVEL
GPCs former Supplier Service Level methodology was changed after all of APGs Distribution Centers completed the conversion to the J.D. Edwards ERP system. The most significant changes were to:
1. | Implement a standard unit-based order fill measurement compared to the former line-based measurement. |
2. | Insure that each order was included for measurement. To accomplish this, the monthly report. places focus on when orders are received (or Jobber Directs/Special Orders are billed) rather than when orders were placed - a vast departure from the former reporting logic. |
3. | Expect supplier acknowledgement of every item ordered on every PO - either as shipped or cancelled (or backordered when a temporary ship/backorder agreement is in force). |
Order Fill measurement is calculated by dividing the number of units shipped by the number of units ordered. To arrive at the most effective measurement for DC Stock Replenishment orders , the following business rules are applied to this calculation:
| GPC expects every DC Stock Replenishment order to be filled 100% complete within two business days of receiving them. Therefore, every item is included for measurement. |
| All Receipts occurring in the calendar reporting month are included for measurement. |
| Orders must be two months old or less to be included for measurement. This time frame will be expanded to accommodate backorders, promotional orders and upgrade orders in the next release. |
| Item Units received by the expected delivery date are counted as shipped, while Items received after the expected delivery date are counted as not shipped. This does not currently account for the extended lead time necessary to accommodate promotional or upgrade orders. Until this issue is addressed in the next release, all late orders will be excluded from monthly reporting. |
| Item Units Cancelled by the supplier are counted as not shipped. |
| Item Units not shipped or cancelled by the expected delivery date and still open when the monthly service report is generated are considered Orphaned-Open units and are counted as not shipped. |
| Item Units not shipped or cancelled by the expected delivery date but forced closed by APG before the monthly service report is generated are considered Orphaned-Closed units and are counted as not shipped. |
| Lead Time is a significant factor in determining the timely delivery of supplier orders. Distribution Center Lead Time for weekly stock orders is calculated using the average delivery lead time of all purchase orders received over a rolling 3 months by supplier/DC. The resulting lead time value is used to calculate an expected delivery date for each PO. Our intention in the current state is not to count late shipments against the supplier. Ultimately, we intend to assess service penalties for shipments that are Late based on expected delivery dates. This metric will be tracked and reported for several months before late penalties are assessed against any supplier. |
Other Considerations
| Open quantities of ordered items that have not reached their expected ship date are included in the next reporting month. |
| When APG is compelled to cancel an entire order, all SKU quantities on the order are excluded from service level measurement. This is done to protect suppliers order fill percent . |
| Item Units Received In excess of the quantity originally ordered are adjusted to reflect the new higher shipped quantity. This avoids inflating the service level percent in the units-based calculation. |
| The current software does not recognize backordered items, and will consider them as Orphaned-Open units in the first reporting month, and as Orphaned-Closed if fulfilled in the subsequent reporting month. |
| All Items on an order are considered in the monthly service level reporting with no exclusions or masking logic applied to previously canceled quantities. |
Direct and Special Order Service Level Expectations
GPC expects that every Jobber Direct Ship Order will be processed, shipped and invoiced within two business days of a supplier receiving the order. In addition:
| NAPA Jobbers expect their orders to arrive at their place of business within 10 working days of the date their order was placed. |
| Jobber Direct orders cross-docked thru a NAPA Distribution Center are given the same expected delivery date as a DC Stock Replenishment order. |
| Reasonable exceptions for arrival dates are expected when orders are destined for Hawaii and Alaska Jobbers. |
Jobber Special Orders are expected to be invoiced the same day they are received. In addition:
| Exception to same day invoicing is acceptable when a special order is received after a published cutoff time. |
| Each special order is expected to arrive at the NAPA Store within the normal time frame given for the method of transportation specified when their order was placed. |
| Special orders cross-docked thru a NAPA Distribution Center (or shipped WOG) are given the same expected delivery date as a DC Stock Replenishment order. |
Please Note: Jobber Direct Ship and Special Orders are presently not included in supplier order fill reporting. This measure will be included for service level penalty when the software is released.
Please Note: Quaker City Distribution Center orders are not included in service measurements at this time. Until that happens, all suppliers are expected to provide the same level of service to all NAPA Distribution Centers.
SUPPLIER CODE OF CONDUCT
At Genuine Parts Company (GPC), we are committed to a standard of excellence in every aspect of our business, to ethical and responsible conduct in all of our operations, to the respect of the rights of all individuals, and to respect for the environment. We expect our Suppliers to share these same commitments. At a minimum, GPC requires that Supplier meet the following standards:
Compensation . Supplier must comply with all applicable wage and hour laws and regulations, including those relating to minimum wages, overtime, and other elements of compensation, and will provide all legally mandated benefits. If local laws do not provide for overtime pay, Supplier will, at a minimum, pay regular wages for overtime work.
Hours of Work . Supplier will maintain reasonable work hours in compliance with all applicable wage and hour laws and regulations. Suppliers will not require employees to work more than any limits on regular and overtime hours allowed by any applicable local law.
Forced Labor/Prison Labor . Supplier will not use forced or involuntary labor, including prison, bonded, indentured, or otherwise.
Child Labor . Supplier will not use child labor. Child is any person who is younger than 15 (or 14 where the local law allows), or younger than the age for completing compulsory education where such age is higher than 15. Supplier will comply with all applicable laws and regulations regarding the employment of young persons who do not fall within this definition of child.
Coercion and Harassment . Supplier will treat each employee with dignity and respect, and will not use corporal punishment, threats of violence, or other forms of physical, sexual, psychological, or verbal harassment or abuse.
Discrimination . Supplier will not discriminate in hiring practices or any other term or condition of work on the basis of race, color, national or ethnic origin, gender, religion, disability, age, or other similar factors.
Concern for the Environment . Supplier will comply with all applicable environmental laws and regulations.
Compliance with Applicable Laws . Supplier will comply with all laws and regulations applicable to Suppliers business, as well as the applicable standards of its industry, including those pertaining to the manufacture, pricing, sale, distribution, and exportation of merchandise. If industry standards exceed local legal requirements, GPC will favor Suppliers who meet the industry standards. Supplier will not violate or infringe upon the intellectual property rights of any third party, and will not engage in any activities, such as bribery of local officials, which would violate any applicable U.S. laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act. Supplier will comply will all applicable customs laws and regulations, to include all labeling and warning requirements on merchandise.
Subcontracting . Supplier will not use subcontractors unless each subcontractor has entered into a written agreement to comply with this Code of Conduct, and Supplier can provide GPC with a copy of this written agreement upon request.
Monitoring and Compliance . Supplier authorizes GPC or our designated agents (including third parties) to engage in monitoring activities to confirm compliance with this Code of Conduct, to include on-site inspection of facilities and review of books and records relating to employment matters. Notwithstanding such authorization, GPC does not assume any duty to monitor or ensure compliance with this Code of Conduct, and Supplier acknowledges and agrees that Supplier is solely responsible for full compliance with this Code of Conduct by its officers, directors, managers and employees.
Termination of Relationship . Any Supplier who fails or refuses to comply with this Code of Conduct is subject to the immediate cancellation of all outstanding orders, refusal or return of any shipment, and termination of its business relationship with GPC.
Publication . Supplier will ensure that the provisions of this Code of Conduct are adequately conveyed to all employees, and will post a copy of this Code in the local language and in a place readily accessible to employees, at all times.
Agents and Brokers . In the event GPC uses an Agent or Broker to arrange for product to be supplied to GPC by any Supplier, the Agent or Broker shall ensure that this Code of Conduct is provided to the Supplier, and will take all necessary actions to ensure that the Supplier, as well as the officers and employees of the Agent or Broker, comply in all respects with the terms of this Code of Conduct.
Supplier acknowledges and agrees that GPC may require Supplier to reaffirm this Code of Conduct, or execute a new Code of Conduct, from time to time and that this Code of Conduct replaces and supplants any prior Code of Conduct governing Suppliers relationship with GPC. As a duly authorized officer or director of Supplier, the undersigned acknowledges that he/she has read this Code of Conduct and understands that Suppliers business relationship with GPC is based on Suppliers full compliance with this Code of Conduct. The undersigned understands that Suppliers failure to abide by the terms of this Code of Conduct may result in GPCs Immediate cancellation or termination of any and all outstanding agreements and purchase orders between GPC and Supplier, including, without limitation, GPCs cancellation of orders for goods in process or scheduled to be made at the time of cancellation or termination, whether involving raw materials, work in process or finished goods, or merchandise in Suppliers, GPCs or a third partys possession.
READ, UNDERSTOOD AND AGREED TO 2-9, 2016.
SUPPLIER NAME: | Valvoline, a business of Ashland Inc. | |||
SUPPLIER SIGNATURE: | /s/ Greg David | |||
PRINTED NAME: | Greg David | |||
TITLE: | Vice President of Sales |
NEW DISTRIBUTION ADDENDUM
Product Name Valvoline Oil HQ Abbr VAR TAMS Abbr VAL
Effective Date January 1, 2016
New Store Program
x Participate ¨ Decline
Description of Discount | 100% / $3K Combined Cap w/ZRX | |
Special Instructions |
Changeover Program
x Participate ¨ Decline
Description of Discount | 10% / $1K Combined Cap w/ZRX | |
Special Instructions |
Change of Ownership Program
x Participate ¨ Decline
Description of Discount | 10% / $1K Combined Cap w/ZRX | |
Special Instructions |
Supplier Representative | GPC Representative | |||||||||||
Greg David | Glenn Goodnough | |||||||||||
Printed Name | Printed Name | |||||||||||
Vice President of Sales | Senior Market Manager | |||||||||||
Title | Title | |||||||||||
/s/ Greg David | ||||||||||||
Signature | Signature | |||||||||||
This document replaces any new store program agreed to as part of pervious Supplier Terms & Conditions Agreement by checking boxes under Corporate Discounts and Allowances or the New Greenfield Store Launch Fund Addendum
Revision 12/1/15
SUPPLIER TERMS & CONDITIONS AGREEMENT
Addendum A
Supplier: Valvoline Effective Date: January 1, 2016
MANUFACTURER SPECIAL ALLOWANCES
PROGRAM |
PAYMENT |
REASON |
PAID TO |
PAYMENT FREQUENCY |
||||
VAL | [***] | In lieu of MA Rebate | GPC/NAPA | Monthly | ||||
SUPPLIER RULES FOR CALCULATING ABOVE REBATE(S): |
SUBMITTED BY:
Manufacturer | Greg David | |||||
Printed | ||||||
/s/ Greg David | 2-9-16 | |||||
Signed | Date | |||||
GPC | Glenn Goodnough | |||||
Printed | ||||||
Signed | Date |
*** | Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. |
Revision 12/1/15
|
Jim Smith Director NAPA Catalog Services Automotive Parts Group 2999 Circle 75 Parkway Atlanta, Georgia 30339 (770) 956-2780 |
To: All NAPA Suppliers
Date: August 1, 2012
CC: Ken Ingram, Scott LeProhon, Brad Moore, Robbie Robinson, Byron Frantz, Mike Briggs
Re: New Discrepancy Process Guidelines
Dear Supplier,
The NAPA catalog discrepancy system has been in place since 1987. The rules of the discrepancy system have only slightly changed since that time. These rules are being expanded to other data sets, which can affect more suppliers. It is crucial that you review these guidelines to be sure you have the processes in place to rapidly respond to any discrepancies, thus avoiding delinquency fines.
Since 2004, NAPA has provided other vehicle types to suppliers so that application data can be provided for those vehicles. Ample time has been allowed for suppliers to populate these vehicles. Therefore, effective August 1, 2012, eligible vehicles are being expanded to include ALL vehicles and ALL vehicle types in the NAPA vehicle table.
The discrepancy criteria are:
| Any NAPA products which have been previously approved by the NAPA product department that do not appear in cataloging are eligible for discrepancies. |
| NAPA Store Counter Personnel are eligible to fill out and submit discrepancy forms whenever they encounter missing or inaccurate information. |
| NAPA Stores will no longer have a limit of 50 valid discrepancies. |
| Missing or inaccurate vehicle application data is eligible, as well as missing or inaccurate images, interchange, MSDS, or warranty . If this data appears in print form anywhere in the industry, or in electronic form anywhere in the industry (including competitor sites or older NAPA catalogs), but does not exist in the NAPA PartsPRO SE catalog, the discrepancy is valid. |
| Once a discrepancy form is submitted, the NAPA Catalog Data Analyst reviews the discrepancy for validity, and then sends valid discrepancies to the supplier for review. |
| Suppliers have 14 calendar days from the date notified to respond. If deemed valid, the supplier will pay $30 for each valid discrepancy (invoicing is generated once a month). If the supplier deems the discrepancy invalid and the catalog analyst agrees, no invoice will occur. |
| If the supplier does not respond within 14 calendar days, the discrepancy is deemed valid regardless and the supplier will be invoiced $30. Then for each 30 day period forward, until an accurate response is received, the supplier will be fined $500. |
| For valid discrepancies, if the corrected data is not received within 30 days from the date originally notified, the supplier will be invoiced $500, then for each subsequent 30 day period with no response. |
Counterpersons are paid a bounty if they are the first to submit a valid discrepancy. In the end, the cost to pay one counterperson is small compared to the numerous lost sales resulting from faulty or missing data. Your adherence to our discrepancy policies are required as part of your arrangement sheet. Thank you in advance for abiding by these policies.
Sincerely,
Jim Smith
Revision 12/1/15
MANUFACTURER CHANGE FORM
|
HQ Abbr |
|
TAMS Abbr |
|
Date |
|
Requested By |
|
New Supplier | ¨ | Change of Address or Contact | ¨ | Other | ¨ | Change of Product Lines |
¨ |
Discontinued Supplier |
¨ |
Effective Date |
|
(Date Supplier should be added or deleted from NAPA correspondence) |
Supplying Company |
|
Address |
|
Division Of |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
|
Contact |
|
Replaces* |
|
Address |
|
E-Mail Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
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MISCELLANEOUS INFO |
NAPA Product Lines |
|
Other Names |
|
Primary NAPA Name |
|
USF Processors for Defectives? Yes ¨ No ¨ |
Additional Comments |
|
ACCOUNTS RECEIVABLE INFO |
Contact |
|
|
Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
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CATALOG INFO |
Contact |
|
Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
|
EDI INFO |
Contact |
|
Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
|
INVOICE INFO |
Contact |
|
Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
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PRICING INFO |
Contact |
|
Address |
|
E-Mail Address |
|
P.O. Box |
|
City, State, Zip |
|
Phone Number |
|
Fax Number |
|
FOR ACCOUNTING DEPARTMENT ONLY |
ID# |
Entity# |
Exhibit 10.9
CREDIT AGREEMENT
Dated as of July 11, 2016,
among
VALVOLINE FINCO ONE LLC,
as the Initial Borrower,
THE BANK OF NOVA SCOTIA,
as Administrative Agent, Swing Line Lender
and an L/C Issuer,
CITIBANK, N.A.,
as Syndication Agent,
and
The Other Lenders and L/C Issuers Party Hereto
CITIGROUP GLOBAL MARKETS INC.,
THE BANK OF NOVA SCOTIA,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, and
MORGAN STANLEY SENIOR FUNDING, INC.,
as Joint Lead Arrangers and Joint Book Managers,
and
DEUTSCHE BANK SECURITIES INC.,
GOLDMAN SACHS BANK USA,
JPMORGAN CHASE BANK, N.A.,
PNC CAPITAL MARKETS LLC, and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Arrangers and Co-Managers
TABLE OF CONTENTS
Page |
||||
ARTICLE I | ||||
DEFINITIONS AND ACCOUNTING TERMS |
2 | |||
1.01 |
Defined Terms |
2 | ||
1.02 |
Other Interpretive Provisions |
40 | ||
1.03 |
Accounting Terms |
41 | ||
1.04 |
Rounding |
41 | ||
1.05 |
Times of Day |
41 | ||
1.06 |
Letter of Credit Amounts |
41 | ||
1.07 |
Currency Equivalents Generally |
41 | ||
1.08 |
Limited Condition Acquisitions |
42 | ||
ARTICLE II | ||||
THE COMMITMENTS AND CREDIT EXTENSIONS |
42 | |||
2.01 |
The Loans |
42 | ||
2.02 |
Borrowings, Conversions and Continuations of Loans |
43 | ||
2.03 |
Letters of Credit |
44 | ||
2.04 |
Swing Line Loans |
52 | ||
2.05 |
Prepayments |
55 | ||
2.06 |
Termination or Reduction of Commitments |
57 | ||
2.07 |
Repayment of Loans |
58 | ||
2.08 |
Interest |
59 | ||
2.09 |
Fees |
60 | ||
2.10 |
Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate |
60 | ||
2.11 |
Evidence of Debt |
61 | ||
2.12 |
Payments Generally; Administrative Agents Clawback |
61 | ||
2.13 |
Sharing of Payments by Lenders |
63 | ||
2.14 |
Incremental Facilities |
64 | ||
2.15 |
Defaulting Lenders |
68 | ||
2.16 |
Extended Loans and Commitments |
70 | ||
2.17 |
Refinancing Amendments |
72 | ||
ARTICLE III | ||||
TAXES, YIELD PROTECTION AND ILLEGALITY |
78 | |||
3.01 |
Taxes |
78 | ||
3.02 |
Illegality |
82 | ||
3.03 |
Inability to Determine Rates |
82 | ||
3.04 |
Increased Costs; Reserves on Eurodollar Rate Loans |
83 | ||
3.05 |
Compensation for Losses |
84 | ||
3.06 |
Mitigation Obligations; Replacement of Lenders |
84 | ||
3.07 |
Survival |
85 |
-i-
Page |
||||
ARTICLE IV | ||||
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS |
85 | |||
4.01 |
Conditions to Effective Date |
85 | ||
4.02 |
Conditions to Funding Date |
86 | ||
4.03 |
Conditions to All Credit Extensions |
92 | ||
ARTICLE V | ||||
REPRESENTATIONS AND WARRANTIES |
93 | |||
5.01 |
Existence, Qualification and Power |
93 | ||
5.02 |
Authorization; No Contravention |
93 | ||
5.03 |
Governmental Authorization; Other Consents |
93 | ||
5.04 |
Binding Effect |
94 | ||
5.05 |
Financial Statements; No Material Adverse Effect |
94 | ||
5.06 |
Litigation |
94 | ||
5.07 |
No Default |
94 | ||
5.08 |
Ownership of Property; Liens; Investments |
94 | ||
5.09 |
Environmental Matters |
95 | ||
5.10 |
Insurance |
96 | ||
5.11 |
Taxes |
96 | ||
5.12 |
ERISA Compliance |
96 | ||
5.13 |
Subsidiaries; Equity Interests; Loan Parties; Charter Documents |
97 | ||
5.14 |
Margin Regulations; Investment Company Act |
97 | ||
5.15 |
Disclosure |
98 | ||
5.16 |
Compliance with Laws |
98 | ||
5.17 |
Intellectual Property; Licenses, Etc . |
98 | ||
5.18 |
Solvency |
98 | ||
5.19 |
Casualty, Etc . |
98 | ||
5.20 |
Labor Matters |
98 | ||
5.21 |
Collateral Documents |
99 | ||
5.22 |
Designated Senior Debt |
100 | ||
5.23 |
USA Patriot Act |
100 | ||
5.24 |
Anti-Money Laundering Laws |
100 | ||
5.25 |
Sanctions and Anti-Corruption |
100 | ||
ARTICLE VI | ||||
AFFIRMATIVE COVENANTS |
101 | |||
6.01 |
Financial Statements |
101 | ||
6.02 |
Certificates; Other Information |
102 | ||
6.03 |
Notices |
104 | ||
6.04 |
Payment of Obligations |
105 | ||
6.05 |
Preservation of Existence, Etc . |
105 | ||
6.06 |
Maintenance of Properties |
105 | ||
6.07 |
Maintenance of Insurance |
105 | ||
6.08 |
Compliance with Laws |
106 | ||
6.09 |
Books and Records |
106 | ||
6.10 |
Inspection Rights |
106 | ||
6.11 |
Use of Proceeds |
106 |
-ii-
Page |
||||
6.12 |
Compliance with Environmental Laws |
107 | ||
6.13 |
Preparation of Environmental Reports |
107 | ||
6.14 |
Designation as Senior Debt |
108 | ||
6.15 |
Designation of Unrestricted Subsidiaries |
108 | ||
6.16 |
Compliance with Anti-Terrorism Laws; Anti-Corruption Laws and Sanctions |
108 | ||
6.17 |
Covenant to Guarantee Obligations and Give Security |
109 | ||
6.18 |
Further Assurances |
111 | ||
ARTICLE VII | ||||
NEGATIVE COVENANTS |
112 | |||
7.01 |
Liens |
112 | ||
7.02 |
Indebtedness |
115 | ||
7.03 |
Investments |
117 | ||
7.04 |
Fundamental Changes |
119 | ||
7.05 |
Dispositions |
119 | ||
7.06 |
Restricted Payments |
121 | ||
7.07 |
Change in Nature of Business |
122 | ||
7.08 |
Transactions with Affiliates |
122 | ||
7.09 |
Burdensome Agreement |
122 | ||
7.10 |
Use of Proceeds |
123 | ||
7.11 |
Financial Covenants |
123 | ||
7.12 |
Amendments of Organization Documents |
123 | ||
7.13 |
Accounting Changes |
123 | ||
7.14 |
Separation and Spin-Off Covenant |
123 | ||
ARTICLE VIII | ||||
EVENTS OF DEFAULT AND REMEDIES |
123 | |||
8.01 |
Events of Default |
123 | ||
8.02 |
Remedies upon Event of Default |
126 | ||
8.03 |
Application of Funds |
126 | ||
ARTICLE IX | ||||
ADMINISTRATIVE AGENT |
127 | |||
9.01 |
Appointment and Authority |
127 | ||
9.02 |
Rights as a Lender |
128 | ||
9.03 |
Exculpatory Provisions |
128 | ||
9.04 |
Reliance by Administrative Agent |
129 | ||
9.05 |
Delegation of Duties |
129 | ||
9.06 |
Resignation of Administrative Agent |
129 | ||
9.07 |
Non-Reliance on Administrative Agent and Other Lenders |
130 | ||
9.08 |
No Other Duties, Etc . |
130 | ||
9.09 |
Administrative Agent May File Proofs of Claim |
131 |
||
9.10 |
Collateral and Guaranty Matters |
131 | ||
9.11 |
Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements |
132 | ||
9.12 |
Withholding |
132 |
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Page |
||||
ARTICLE X | ||||
MISCELLANEOUS |
133 | |||
10.01 |
Amendments, Etc . |
133 | ||
10.02 |
Notices; Effectiveness; Electronic Communications |
135 | ||
10.03 |
No Waiver; Cumulative Remedies; Enforcement |
137 | ||
10.04 |
Expenses; Indemnity; Damage Waiver |
137 | ||
10.05 |
Payments Set Aside |
139 | ||
10.06 |
Successors and Assigns |
140 | ||
10.07 |
Treatment of Certain Information; Confidentiality |
144 | ||
10.08 |
Right of Setoff |
145 | ||
10.09 |
Interest Rate Limitation |
146 | ||
10.10 |
Counterparts; Integration; Effectiveness |
146 | ||
10.11 |
Survival of Representations and Warranties |
146 | ||
10.12 |
Severability |
146 | ||
10.13 |
Replacement of Lenders |
147 | ||
10.14 |
Governing Law; Jurisdiction; Etc . |
147 | ||
10.15 |
WAIVER OF JURY TRIAL |
148 | ||
10.16 |
No Advisory or Fiduciary Responsibility |
148 | ||
10.17 |
Electronic Execution of Assignments and Certain Other Documents |
149 | ||
10.18 |
USA PATRIOT Act |
149 | ||
10.19 |
Acknowledgment and Consent to Bail-In of EEA Financial Institutions |
149 | ||
SIGNATURES |
S-1 |
-iv-
SCHEDULES
1.01(a) |
Tax Matters Agreement |
|
1.01(b) |
Unrestricted Subsidiaries |
|
2.01 |
Commitments and Applicable Percentages |
|
2.03(a) |
Existing Letters of Credit |
|
4.02(g) |
Transition Services Agreements |
|
4.02(h) |
Liabilities |
|
5.06 |
Litigation |
|
5.09 |
Environmental Matters |
|
5.11 |
Tax Sharing Agreements |
|
5.12 |
ERISA Compliance |
|
5.20 |
Labor Matters |
|
7.01 |
Existing Liens |
|
7.02 |
Existing Indebtedness |
|
7.03 |
Existing Investments |
|
7.09 |
Burdensome Agreements |
|
7.14(a) |
Separation Affiliate Agreements |
|
10.02 |
Administrative Agents Office, Account, Certain Addresses for Notices |
EXHIBITS
Form of
A-1 |
Committed Loan Notice |
|
A-2 |
Swing Line Loan Notice |
|
B-1 |
Term A Note |
|
B-2 |
Revolving Credit Note |
|
B-3 |
Swing Line Note |
|
C |
Compliance Certificate |
|
D-1 |
Assignment and Assumption |
|
D-2 |
Administrative Questionnaire |
|
E |
Guaranty |
|
F |
Security Agreement |
|
G-1 |
Perfection Certificate |
|
G-2 |
Perfection Certificate Supplement |
|
H-1 |
Opinion Matters Counsel to Loan Parties |
|
H-2 |
Opinion Matters In-house Counsel |
|
H-3 |
Opinion Matters Local Counsel to Loan Parties |
|
I |
Intercompany Note Subordination Agreement |
|
J |
Report of Letter of Credit Information |
|
K |
Non-Bank Certificate |
|
L |
Valvoline Joinder Agreement |
|
M |
Mortgage |
-v-
CREDIT AGREEMENT
This CREDIT AGREEMENT (this Agreement ) is entered into as of July 11, 2016, among VALVOLINE FINCO ONE LLC, a Delaware limited liability company (the Initial Borrower ), each lender from time to time party hereto (collectively, the Lenders and individually, a Lender ) and each L/C Issuer (as this and other capitalized terms used in these Preliminary Statements are defined in Section 1.01 below) from time to time party hereto, THE BANK OF NOVA SCOTIA, as Administrative Agent, Swing Line Lender and an L/C Issuer and CITIBANK, N.A., as Syndication Agent.
PRELIMINARY STATEMENTS:
1. Ashland Inc., a Kentucky corporation ( Ashland ), formed Valvoline US LLC, a Delaware limited liability company, which in turn formed the Initial Borrower. Ashland intends to reorganize the Valvoline Business such that Valvoline, itself a newly created entity, is the owner, directly or indirectly, of substantially all of the Valvoline Business. Following the consummation of such reorganization, the Initial Borrower will merge (the Newco Merger ) with and into Valvoline with Valvoline being the surviving entity, at which time Valvoline will execute a joinder to this Agreement and become the Borrower hereunder. The transactions described in this paragraph 1 (together with the Senior Notes Issuer Merger) shall be collectively referred to as the Valvoline Reorganization .
2. Ashland, Valvoline and their respective subsidiaries will be reorganized (the Ashland Reorganization ) under a new public company, Ashland Global Holdings Inc., a Delaware corporation ( Ashland Global ). In addition, certain other assets and liabilities will be transferred (the Transfer ) among Ashland, Ashland Global, Valvoline and their respective subsidiaries.
3. Ashland intends to repay the term loan A loans and/or permanently reduce the revolving credit commitments, in an aggregate principal amount of up to $1,000,000,000 with at least $400,000,000 in the form of permanent revolving commitment reductions, in each case under Ashlands Credit Agreement, dated as of June 23, 2015 (as amended, supplemented or otherwise modified from time to time, the Existing Ashland Credit Agreement ), among Ashland, The Bank of Nova Scotia, as administrative agent, each lender party thereto and the other agents party thereto (the Existing Ashland Debt Repayment and, together with the Separation (including the payment of related fees and expenses), the Transactions ).
4. The Initial Senior Notes Issuer will issue the Senior Notes and, substantially concurrently with the Newco Merger, will merge (the Senior Notes Issuer Merger ) with and into Valvoline with Valvoline being the surviving entity and becoming the Senior Notes Issuer.
5. The Borrower has requested that, from time to time, (i) the Term A Lenders make term loans to the Borrower, (ii) the Revolving Credit Lenders make revolving credit loans to the Borrower, (iii) the Swing Line Lender issue swing line loans to the Borrower and (iv) each L/C Issuer issue letters of credit for the account of the Borrower and its Subsidiaries, in each case to provide ongoing working capital and for other general corporate purposes of the Borrower and its Subsidiaries (including investments and acquisitions permitted hereunder) and to pay transaction fees and expenses and to finance the Transactions and, in furtherance of the foregoing, the Lenders and Swing Line Lender have indicated their willingness to lend and each L/C Issuer has indicated its willingness to issue letters of credit, in each case, on the terms and subject to the conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:
Additional Lender means, at any time, any bank, other financial institution or institutional lender or investor that, in any case, is not an existing Lender and that agrees to provide any portion of any (a) Incremental Commitments or Incremental Loans in accordance with Section 2.14 or (b) Refinancing Commitments or Refinancing Loans in accordance with Section 2.17 ; provided that each Additional Lender shall be subject to the approval of the Administrative Agent, such approval not to be unreasonably withheld or delayed, solely to the extent that any such consent would be required from the Administrative Agent under Section 10.06(b)(iii)(B) for an assignment of Loans to such Additional Lender, and in the case of Incremental Revolving Credit Commitments and Refinancing Revolving Credit Commitments with respect to the Revolving Credit Facility, the Swing Line Lender and each L/C Issuer, such approval not to be unreasonably withheld or delayed, solely to the extent such consent would be required from the Swing Line Lender or such L/C Issuer under Section 10.06(b)(iii)(C) for any assignment of Loans or Commitments to such Additional Lender.
Administrative Agent means Scotiabank in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as appropriate, account as set forth on Schedule 10.02 , or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
Administrative Fee Letter means the fee letter agreement, dated as of or about the date hereof, among the Initial Borrower and the Administrative Agent.
Administrative Questionnaire means an Administrative Questionnaire in substantially the form of Exhibit D-2 or any other form approved by the Administrative Agent.
Affiliate means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Agent Parties has the meaning specified in Section 10.02(c) .
Aggregate Commitments means, at any time, the Commitments of all the Lenders at such time.
Agreement has the meaning specified in the introductory paragraph hereto.
All-In Yield means, as to any Indebtedness, the yield thereof, whether in the form of interest rate, margin, original issue discount, upfront fees, a Eurodollar or Base Rate floor, or otherwise, in each case, incurred or payable by the Borrower generally to all the lenders of such Indebtedness; provided that upfront fees and original issue discount shall be equated to interest rate based upon an assumed four year average life to maturity on a straight-line basis (e.g., 100 basis points of original issue discount equal 25 basis points of interest rate for a four year average life to maturity); provided further that All-In Yield shall exclude any structuring, ticking, unused line, commitment, amendment, underwriting and arrangers fees and other similar fees not paid generally to all lenders in the primary syndication of such Indebtedness.
-2-
Anti-Corruption Laws means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
Anti-Money Laundering Laws has the meaning assigned to such term in Section 5.24.
Anti-Terrorism Laws has the meaning assigned to such term in Section 5.23.
Applicable Fee Rate means the Applicable Fee Rate as determined pursuant to the definition of the term Applicable Rate.
Applicable Percentage means (a) in respect of the Term A Facility, with respect to any Term A Lender at any time, (i) prior to the Funding Date, the percentage (carried out to the ninth decimal place) of the Term A Facility represented by the principal amount of such Term A Lenders Term A Commitments at such time and (ii) on and after the Funding Date, the percentage (carried out to the ninth decimal place) of the Term A Facility represented by the principal amount of such Term A Lenders Term A Loans at such time and (b) in respect of the Revolving Credit Facility, with respect to any Revolving Credit Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Credit Facility represented by such Revolving Credit Lenders Revolving Credit Commitment at such time. If the Commitment of each Revolving Credit Lender to make Revolving Credit Loans and the obligation of the L/C Issuers to make L/C Credit Extensions have been terminated pursuant to Section 2.06 or Section 8.02 , or if the Revolving Credit Commitments have expired, then the Applicable Percentage of each Revolving Credit Lender in respect of the Revolving Credit Facility shall be determined based on the Applicable Percentage of such Revolving Credit Lender in respect of the Revolving Credit Facility most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender in respect of each Facility is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
Applicable Rate means (i) for each day from the Funding Date until a Compliance Certificate is first delivered hereunder pursuant to Section 6.02 , 1.375% per annum for Base Rate Loans, 2.375% per annum for Eurodollar Rate Loans and Letter of Credit Fees and 0.375% per annum for the Applicable Fee Rate and (ii) for each day thereafter, the applicable percentage per annum set forth in the table below, with the applicable Tier for such day being the higher Tier determined by reference to (x) the Consolidated First Lien Net Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b) and (y) the higher of the corporate credit rating of the Borrower from S&P or Moodys, in each case then in effect; provided that if the then applicable corporate credit rating from S&P is at least two Tiers higher than the then applicable corporate credit rating from Moodys, or vice versa, then the applicable corporate credit rating for purposes of determining the Applicable Rate shall be one Tier higher than the lower of the two corporate credit ratings; provided , further , that if the Tier determined pursuant to clause (x) above is at least two Tiers higher than the Tier determined pursuant to clause (y) above, or vice versa, then the applicable Tier for purposes of determining the Applicable Rate shall be one Tier higher than the lower of the two Tiers:
Tier |
Corporate Credit Rating
of the Borrower |
Consolidated
First Lien Net Leverage Ratio |
Applicable
Rate (Eurodollar Rate and Letter of Credit Fees) |
Applicable
Rate (Base Rate) |
Applicable Fee
Rate |
|||||||||||||
S&P | Moodys | |||||||||||||||||
I |
³ BBB- | ³ Baa3 | £ 0.50x | 1.500 | % | 0.500 | % | 0.200 | % | |||||||||
II |
BB+ | Ba1 |
> 0.50x but
£ 1.00x |
1.750 | % | 0.750 | % | 0.250 | % | |||||||||
III |
BB | Ba2 |
> 1.00x but
£
1.50x |
2.125 | % | 1.125 | % | 0.300 | % | |||||||||
IV |
BB- | Ba3 |
> 1.50x but
£
2.50x |
2.375 | % | 1.375 | % | 0.375 | % | |||||||||
V |
£ B+ | £ B1 | > 2.50x | 2.500 | % | 1.500 | % | 0.500 | % |
-3-
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated First Lien Net Leverage Ratio or corporate credit rating shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b) or a change in the corporate credit rating of the Borrower, as applicable; provided , however , that if a Compliance Certificate is not delivered within three Business Days after the date when due in accordance with such Section, then Tier V shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.
Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b) .
Applicable Revolving Credit Percentage means with respect to any Revolving Credit Lender at any time, such Revolving Credit Lenders Applicable Percentage in respect of the Revolving Credit Facility at such time.
Appropriate Lender means, at any time, (a) with respect to any of the Term A Facility or the Revolving Credit Facility, a Lender that has a Commitment with respect to such Facility or holds a Term A Loan or a Revolving Credit Loan, respectively, at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuers and (ii) if any Letters of Credit have been issued pursuant to Section 2.03(a) , the Revolving Credit Lenders and (c) with respect to the Swing Line Sublimit, (i) the Swing Line Lender and (ii) if any Swing Line Loans are outstanding pursuant to Section 2.04(a) , the Revolving Credit Lenders.
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arrangers means, collectively, (a) Citigroup Global Markets Inc., The Bank of Nova Scotia, Merrill Lynch, Pierce, Fenner & Smith Incorporated (or any other registered broker-dealer wholly-owned by Bank of America Corporation to which all or substantially all of Bank of America Corporations or any of its subsidiaries investment banking, commercial lending services or related businesses may be transferred following the date of this Agreement) and Morgan Stanley Senior Funding, Inc., each in its capacities as joint lead arranger and joint book manager, and (b) Deutsche Bank Securities Inc., Goldman Sachs Bank USA, JPMorgan Chase Bank, N.A., PNC Capital Markets LLC and U.S. Bank National Association, each in its capacities as co-arranger and co-manager.
Ashland has the meaning specified in the Preliminary Statements.
Ashland Business means Ashlands specialty ingredients and performance materials business.
Ashland Chemco means Ashland Chemco Inc., a Delaware corporation.
-4-
Ashland Chemco Internal Spin-off refers to the transaction or series of transactions pursuant to which Valvoline will distribute the shares of Ashland Chemco, a newly formed entity that will ultimately be the direct parent of Ashland, to Ashland Global, such that Ashland Global holds the Valvoline Business exclusively through Valvoline and Ashland Global holds Ashland and the Ashland Business exclusively through Ashland Chemco.
Ashland Global has the meaning specified in the Preliminary Statements.
Ashland Reorganization has the meaning specified in the Preliminary Statements.
Assignee Group means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b) ), and accepted by the Administrative Agent, in substantially the form of Exhibit D-1 or any other form approved by the Administrative Agent.
Attributable Indebtedness means, on any date, but without duplication, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.
Audited Financial Statements means the audited combined balance sheet and the related combined statements of operations and comprehensive income, invested equity and cash flows, including the notes thereto, of the Valvoline Business, each for the fiscal years of the Valvoline Business ended September 30, 2013, September 30, 2014 and September 30, 2015.
Available Amount means, on any date (the Available Amount Reference Time ), an amount equal to (a) the sum of (i) (A) 50% of the Consolidated Net Income for all fiscal quarters of the Borrower for which Consolidated Net Income is positive (commencing with the fiscal quarter in which the Funding Date occurs) that have ended on or prior to such date for which financial statements shall have been delivered to the Administrative Agent pursuant to Section 6.01(a) or 6.01(b) (treated as one continuous accounting period), less (B) 100% of the Consolidated Net Income for all fiscal quarters of the Borrower for which Consolidated Net Income is negative (commencing with the fiscal quarter in which the Funding Date occurs) that have ended on or prior to such date for which financial statements shall have been delivered to the Administrative Agent pursuant to Section 6.01(a) or 6.01(b) (treated as one continuous accounting period), (ii) the net cash proceeds from the issuance of common stock of the Borrower after the Funding Date, other than any such issuance to a Subsidiary, to an employee stock ownership plan or to a trust established by the Borrower or any of its Subsidiaries for the benefit of their employees and other than any such issuance in an initial public offering pursuant to a registration statement filed with the SEC in accordance with the Securities Act, plus (iii) to the extent not already included in the calculation of Consolidated Net Income, the aggregate amount of returns (in each case, to the extent made in cash or Cash Equivalents) received by the Borrower or any Subsidiary from any Investment to the extent such Investment was made using the Available Amount during the period from and including the Business Day immediately following the Funding Date through and including the Available Amount Reference Time minus (b) without duplication, the sum of the portion of the Available Amount previously utilized pursuant to Section 7.03(j) and/or 7.06(g) .
-5-
Available Amount Reference Time has the meaning specified in the definition of Available Amount.
Available Incremental Amount has the meaning specified in Section 2.14(e) .
Availability Period means, in respect of the Revolving Credit Facility, the period from and including the Funding Date to the earliest of (i) the Business Day prior to the Maturity Date for the Revolving Credit Facility, (ii) the date of termination of the Revolving Credit Commitments pursuant to Section 2.06 , and (iii) the date of termination of the commitment of each Revolving Credit Lender to make Revolving Credit Loans and of the obligation of each L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02 .
Bail-In Action means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
Bail-In Legislation means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
Base Rate means for any date of determination and subject to Section 3.03 , a rate per annum equal to the highest of (a) the Federal Funds Rate on such day plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Scotiabank as its prime rate and (c) the Eurodollar Rate for an Interest Period of one month beginning on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1% per annum ( provided that if such rate is less than zero then such percentage per annum shall be deemed to be 0% per annum ) . The prime rate is a rate set by Scotiabank based upon various factors including Scotiabanks costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Scotiabank shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Loan means a Revolving Credit Loan or a Term A Loan that bears interest based on the Base Rate.
Borrower means (i) initially, the Initial Borrower and (ii) following the consummation of the Newco Merger, Valvoline.
Borrower Materials has the meaning specified in Section 6.02 .
Borrowing means a Revolving Credit Borrowing, a Swing Line Borrowing or a Term A Borrowing, as the context may require.
Building has the meaning set forth in Section 4.02(b)(vi)(F).
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
-6-
Capitalized Leases means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.
Cash Collateralize means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, one or more of the L/C Issuers and the Lenders, as collateral for L/C Obligations or obligations of Lenders to fund participations in respect of the L/C Obligations, cash or deposit account balances or, if the applicable L/C Issuer benefiting from such collateral shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent and (b) each applicable L/C Issuer. Cash Collateral shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
Cash Equivalents means any of the following:
(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States is pledged in support thereof;
(b) time deposits with, or insured certificates of deposit or bankers acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States, any State thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the Laws of the United States, any State thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(c) commercial paper issued by any Person organized under the laws of any State of the United States and rated at least Prime-2 (or the then equivalent grade) by Moodys or at least A-2 (or the then equivalent grade) by S&P, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(d) Investments, classified in accordance with GAAP as current assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moodys or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition;
(e) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (b) above; and
(f) in the case of any Foreign Subsidiary, investments which are similar to the items specified in subsections (a) through (e) of this definition made in the ordinary course of business.
Cash Management Agreement means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.
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Cash Management Bank means any Person that, at the time it enters into a Cash Management Agreement, is the Administrative Agent, an Arranger, a Lender or an Affiliate of any of the foregoing, in its capacity as a party to a Cash Management Agreement.
Casualty Event means any event that gives rise to the receipt by the Borrower or any of its Subsidiaries of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.
Change in Law means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided , however , that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued or implemented.
Change of Control means an event or series of events by which:
(a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) (other than Ashland Global or any of its wholly-owned Subsidiaries) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have beneficial ownership of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an option right )), directly or indirectly, of 35% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or
(b) (i) prior to the consummation of the Valvoline Spin-off, during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of Ashland Global cease to be composed of individuals (x) who were members of that board or equivalent governing body on the first day of such period, (y) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (x) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (z) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i)(x) and (i)(y) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (ii) following the consummation of the Valvoline Spin-off, during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (x) who were members of that board or equivalent governing body on the first day of such period, (y) whose election or nomination to that board or equivalent governing body was approved by individuals
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referred to in clause (x) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (z) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (ii)(x) and (ii)(y) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; or
(c) a change of control or any comparable term under, and as defined in, any Indebtedness exceeding the Threshold Amount shall have occurred.
Class means, (i) with respect to any Loan, whether such Loan is a Revolving Credit Loan, a Term A Loan, an Incremental Revolving Loan, an Incremental Term Loan, a Refinancing Revolving Loan, a Refinancing Term Loan or an Extended Maturity Loan and (ii) with respect to any Commitment, whether such Commitment is a Revolving Credit Commitment, a Term A Commitment, an Incremental Revolving Credit Commitment, an Incremental Term Commitment, a Refinancing Revolving Credit Commitment, a Refinancing Term Commitment or an Extended Maturity Commitment. Extended Maturity Loans that have different terms and conditions (together with the Extended Maturity Commitments in respect thereof) shall be construed to be in different Classes.
Code means the Internal Revenue Code of 1986.
Collateral means all of the Collateral, Mortgaged Properties and Trust Property referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.
Collateral Documents means, collectively, the Security Agreement, the Mortgages, each of the other mortgages, collateral assignments, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent pursuant to the other Collateral Documents, Section 6.17 or 6.18 , to grant a valid, perfected security interest in any property as collateral for the Obligations, and each of the other agreements, instruments or documents that creates or purports to create a security interest or Lien in favor of the Administrative Agent for the benefit of the Secured Parties.
Commitment means a Term A Commitment or a Revolving Credit Commitment, as the context may require, and, in the event of the creation of an Incremental Term Loan Commitment or Incremental Revolving Credit Commitment pursuant to Section 2.14 , an Extended Maturity Commitment pursuant to Section 2.16 or a Refinancing Revolving Credit Commitment or Refinancing Term Commitment pursuant to Section 2.17 , shall also include the commitments to such Incremental Term Loan Commitment, such Incremental Revolving Credit Commitment, such Extended Maturity Commitment, such Refinancing Revolving Credit Commitment or such Refinancing Term Commitment, as the case may be.
Committed Loan Notice means a notice of (a) a Revolving Credit Borrowing, (b) a Term A Borrowing, (c) a conversion of Loans from one Type to the other, or (d) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a) , which, if in writing, shall be substantially in the form of Exhibit A-1 .
Commodity Exchange Act means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
Compliance Certificate means a certificate substantially in the form of Exhibit C .
Consolidated EBITDA means, for any Measurement Period, an amount equal to Consolidated Net Income for such Measurement Period plus (a) proceeds of business interruption insurance received during such period, but only to the extent not included in Consolidated Net Income plus (b) the following
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to the extent deducted in calculating such Consolidated Net Income, but without duplication and in each case for such Measurement Period: (i) Consolidated Interest Charges, (ii) the provision for Federal, State, local and foreign income taxes payable, (iii) depreciation and amortization expense, (iv) asset impairment charges, (v) expenses reimbursed by third parties (including through insurance and indemnity payments), (vi) fees and expenses incurred in connection with any Permitted Receivables Facility, any proposed or actual issuance of any Indebtedness or Equity Interests (including upfront fees and original issue discount), or any proposed or actual acquisitions, investments, asset sales or divestitures permitted hereunder, in each case that are expensed, (vii) non-cash restructuring and integration charges and cash restructuring and integration charges; provided that the aggregate amount of all cash restructuring and integration charges shall not exceed 15% of Consolidated EBITDA in any Measurement Period, calculated immediately before giving effect to the addback in this clause (vii), (viii) non-cash stock expense and non-cash equity compensation expense, (ix) other expenses or losses, including purchase accounting entries such as the inventory adjustment to fair value, reducing such Consolidated Net Income which do not represent a cash item in such period or any future period, (x) expenses or losses in respect of discontinued operations of the Borrower or any of its Subsidiaries, (xi) any unrealized losses attributable to the application of mark to market accounting in respect of Swap Contracts and (xii) with respect to any Disposition for which pro forma effect is required to be given pursuant to the definition of Pro Forma Basis, any loss thereon, and minus (c) the following to the extent included in calculating such Consolidated Net Income, but without duplication and in each case for such Measurement Period: (i) Federal, State, local and foreign income tax credits, (ii) all non-cash gains or other items increasing Consolidated Net Income, (iii) gains in respect of discontinued operations of the Borrower or any of its Subsidiaries, (iv) any unrealized gains for such period attributable to the application of mark to market accounting in respect of Swap Contracts and (v) with respect to any Disposition for which pro forma effect is required to be given pursuant to the definition of Pro Forma Basis, any gain thereon. For purposes of calculating Consolidated EBITDA hereunder, Consolidated Net Income shall be calculated on a Pro Forma Basis. For all purposes hereunder, Consolidated EBITDA shall be calculated on a Pro Forma Basis unless otherwise specified.
Consolidated First Lien Net Leverage Ratio means, as of any date of determination, the ratio of (a) Consolidated Indebtedness that is secured on a first priority basis as of such date minus the amount of the Borrowers and its Subsidiaries unrestricted cash and Cash Equivalents as of such date that are or would be included on a balance sheet of the Borrower and its Subsidiaries as of such date to (b) Consolidated EBITDA of the Borrower and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.
Consolidated Indebtedness means, at any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, the sum of, without duplication (a) the outstanding principal amount of all obligations (as calculated under GAAP), whether current or long-term, for borrowed money (including Obligations in respect of the Loans hereunder), reimbursement obligations for amounts drawn under letters of credit and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all direct (but, for the avoidance of doubt, not contingent) obligations arising under bankers acceptances and bank guaranties (c) all Attributable Indebtedness, and (d) without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (c) above of Persons other than the Borrower or any Subsidiary. For purposes hereof, the Consolidated Indebtedness of the Borrower and the Subsidiaries shall include any of the items in clauses (a) through (d) above of any other entity (including any partnership in which the Borrower or any consolidated Subsidiary is a general partner) to the extent the Borrower or such consolidated Subsidiary is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of that item expressly provide that such Person is not liable therefor. For all purposes hereunder, Consolidated Indebtedness shall (i) be calculated on a Pro Forma Basis unless otherwise specified and (ii) include all outstandings of the Borrower and its Subsidiaries under any Permitted Receivables Facility (but excluding the intercompany obligations owed by a Special Purpose Finance Subsidiary to the Borrower
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or any other Subsidiary in connection therewith). Notwithstanding the foregoing, the principal amount outstanding at any time of any Indebtedness included in Consolidated Indebtedness issued with original issue discount shall be the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, but such Indebtedness shall be deemed incurred only as of the date of original issuance thereof.
Consolidated Interest Charges means, for any Measurement Period, the excess of (a) the sum, without duplication, of (i) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, and, solely for purposes of compliance with the Consolidated Interest Coverage Ratio test set forth in Section 7.02(m) , in connection with Guaranteed Indebtedness (as reasonably determined by the Borrower), (ii) cash payments made in respect of obligations referred to in clause (b)(ii) below, (iii) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by the Borrower and its Subsidiaries on a consolidated basis for such Measurement Period and (iv) all interest, premium payments, debt discount, fees, charges and related expenses in connection with the Permitted Receivables Facility, minus (b) to the extent included in such consolidated interest expense for such Measurement Period, the sum, without duplication, of (i) extinguishment charges relating to the early extinguishment of Indebtedness or obligations under Swap Contracts, (ii) noncash amounts attributable to the amortization of debt discounts or accrued interest payable in kind, (iii) noncash amounts attributable to amortization or write-off of capitalized interest or other financing costs paid in a previous period, (iv) interest income treated as such in accordance with GAAP and (v) fees and expenses, original issue discount and upfront fees, in each case of or by the Borrower and its Subsidiaries on a consolidated basis for such Measurement Period. For all purposes hereunder, Consolidated Interest Charges shall be calculated on a Pro Forma Basis unless otherwise specified.
Consolidated Interest Coverage Ratio means, at any date of determination, the ratio of (a) Consolidated EBITDA of the Borrower and its Subsidiaries on a consolidated basis to (b) Consolidated Interest Charges, in each case for the most recently completed Measurement Period for which financial statements have been delivered pursuant to Section 6.01 .
Consolidated Net Income means, at any date of determination, the net income (or loss) of the Borrower and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period; provided that Consolidated Net Income shall exclude (a) the net income of any Subsidiary during such Measurement Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary during such Measurement Period (unless such restrictions on dividends or similar distributions have been legally and effectively waived), except that the Borrowers equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income, (b) any after-tax income (or after-tax loss) for such Measurement Period of any Person if such Person is not a Subsidiary, except that the Borrowers equity in such income of any such Person for such Measurement Period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such Measurement Period to the Borrower or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to the Borrower as described in clause (a) of this proviso), (c) any after-tax gain or after-tax loss realized as a result of the cumulative effect of a change in accounting principles or the implementation of new accounting standards related to revenue and lease accounting, (d) any after-tax gain or after-tax loss attributable to any foreign currency hedging arrangements or currency fluctuations, (e) after-tax extinguishment charges relating to the early extinguishment of Indebtedness and obligations under Swap Contracts and after-tax extinguishment charges relating to upfront fees and original issue discount on Indebtedness,
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(f) any pension or other post-retirement after-tax gain or after-tax expense for such Measurement Period; provided , further , that Consolidated Net Income shall be reduced by the amount of any cash payments made during such Measurement Period relating to pension and other post-retirement costs (except for any payments made in respect of the funding of pension plans in excess of the amount of required regulatory contributions for such Measurement Period (as reasonably determined by the Borrower)) and (g) fees, expenses and non-recurring charges related to the Transactions and the Valvoline Spin-off; provided that, Consolidated Net Income shall exclude the impact of the Separation and the Valvoline Spin-off.
Consolidated Net Leverage Ratio means, as of any date of determination, the ratio of (a) Consolidated Indebtedness as of such date minus the amount of the Borrowers and its Subsidiaries unrestricted cash and Cash Equivalents as of such date that are or would be included on a balance sheet of the Borrower and its Subsidiaries as of such date to (b) Consolidated EBITDA of the Borrower and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period for which financial statements have been delivered pursuant to Section 6.01 .
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Corrective Extension Amendment has the meaning specified in Section 2.16(d) .
Credit Extension means each of the following: (a) a Borrowing or (b) an L/C Credit Extension.
Debt Rating means the Borrowers corporate credit rating without third party credit enhancement; provided that the Debt Rating in effect on any date is that in effect at the close of business on such date.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
Default Rate means (a) when used with respect to Obligations other than Loans or Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate applicable to Base Rate Loans under the Revolving Credit Facility plus (iii) 2% per annum; (b) when used with respect to a Loan, an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum; and (c) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.
Defaulting Lender means, subject to Section 2.15(b) , any Lender that (a) has failed to perform any of its funding obligations hereunder, including in respect of its Term A Loans, Revolving Credit Loans or participations in L/C Obligations or Swing Line Loans, within two Business Days of the date required to be funded by it hereunder, unless such obligation is the subject of a good faith dispute, (b) has
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notified the Borrower, or the Administrative Agent or any Lender that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by the Administrative Agent, to confirm in a manner satisfactory to the Administrative Agent that it will comply with its funding obligations ( provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such confirmation by the Administrative Agent), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment or (iv) become the subject of a Bail-In Action; provided that, for the avoidance of doubt, a Lender shall not be a Defaulting Lender solely by virtue of (i) the ownership or acquisition of any Equity Interest in such Lender or any direct or indirect parent company thereof by a Governmental Authority or (ii) in the case of a Solvent Person, the precautionary appointment of an administrator, guardian, custodian or other similar official by a Governmental Authority under or based on the Law of the country where such Person is subject to home jurisdiction supervision if applicable Law requires that such appointment not be publicly disclosed, in any such case, where such ownership or action does not (A) result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or (B) permit such Person (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
Designated Non-Cash Consideration means the fair market value of non-cash consideration received by the Borrower or a Subsidiary in connection with a Disposition pursuant to Section 7.05 that is designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer, setting forth the basis of such valuation (which amount will be reduced by the fair market value of the portion of the non-cash consideration converted to cash within 180 days following the consummation of such Disposition).
Determination Date has the meaning specified in the definition of Pro Forma Basis.
Disposition or Dispose means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
Disqualified Equity Interests means any Equity Interest which, by its terms (or by the terms of any security or other Equity Interest into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (i) matures or is mandatorily redeemable (other than solely for Equity Interests which are not otherwise Disqualified Equity Interests) pursuant to a sinking fund or otherwise, (ii) is redeemable at the option of the holder thereof (other than solely for Equity Interests which are not otherwise Disqualified Equity Interests) in whole or in part, (iii) provides for scheduled payments of dividends to be made in cash, or (iv) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case prior to the date that is 91 days after the latest maturity date of the Loans and Commitments then outstanding, except, in the cases of clauses (i) and (ii), if as a result of a change of control or asset sale, but only if any rights of the holders thereof upon the occurrence of such change of control or asset sale are subject to the prior payment in full of all Obligations (other than contingent indemnification obligations), the cancellation or expiration of all Letters of Credit and the termination of the Aggregate Commitments.
Dollar and $ mean lawful money of the United States.
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Domestic Subsidiary means any Subsidiary that is organized under the Laws of the United States, any State thereof or the District of Columbia.
EEA Financial Institution means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
EEA Member Country means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
EEA Resolution Authority means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
Effective Date means the date on which the conditions precedent set forth in Section 4.01 have been satisfied in full or waived in accordance with the terms hereof.
Eligible Assignee means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii) , (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii) ).
Engagement Letter means that engagement letter, dated as of June 1, 2016, between Ashland and Citigroup Global Markets Inc.
Environment means ambient air, indoor air, surface water, groundwater, land surface and subsurface strata and natural resources such as wetlands, flora and fauna.
Environmental Audit has the meaning specified in Section 6.13(c) .
Environmental Claim has the meaning specified in Section 5.09(iv) .
Environmental Laws means the common law and any and all Federal, State, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, licenses, agreements or governmental restrictions relating to pollution or the protection of the Environment or human health (to the extent related to exposure to Hazardous Materials) or the generation, handling, use, storage, treatment, transport, Release or threat of Release of any Hazardous Materials, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage or treatment of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Environmental Permit means any permit, approval, identification number, license or other authorization required under any Environmental Law.
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Equity Interests means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination; provided that Equity Interests shall not include any securities to the extent constituting Indebtedness for purposes of this Agreement.
ERISA means the Employee Retirement Income Security Act of 1974.
ERISA Affiliate means any trade or business (whether or not incorporated) under common control with the Borrower or any Subsidiary solely within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Borrower, any Subsidiary or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower, any Subsidiary or any ERISA Affiliate from a Multiemployer Plan, the receipt by the Borrower, any Subsidiary or any ERISA Affiliate of any notice concerning the imposition of withdrawal liability (as defined in Part 1 of Subtitle E of Title IV of ERISA) or notification that a Multiemployer Plan is, or is expected to be, insolvent or in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 of ERISA); (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan, (e) with respect to a Pension Plan, the failure to satisfy the minimum funding standard of Section 412 of the Code; (f) the failure to make by its due date a required contribution under Section 430(j) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (g) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could result in liability to the Borrower or any Subsidiary; or (h) the imposition by the PBGC of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower, any Subsidiary or any ERISA Affiliate.
EU Bail-In Legislation Schedule means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
Eurodollar Rate means,
(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to (i) the ICE LIBOR Rate ( ICE LIBOR ), as published on the applicable Bloomberg screen page (or such other commercially available source providing quotations of ICE LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period or (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Scotiabank and
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with a term equivalent to such Interest Period would be offered by Scotiabanks London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; and
(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to (i) ICE LIBOR, at approximately 11:00 a.m., London time, determined two (2) Business Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Scotiabanks London Branch to major banks in the London interbank eurodollar market at their request at the date and time of determination;
provided that if the Eurodollar Rate provided for in clauses (a) or (b) is less than zero, then the Eurodollar Rate shall be deemed to be 0%.
Eurodollar Rate Loan means a Revolving Credit Loan or a Term A Loan that bears interest at a rate based on the Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01 .
Excluded Subsidiary means (a) any Foreign Subsidiary, (b) any Foreign Subsidiary Holding Company, (c) any direct or indirect Subsidiary of a Foreign Subsidiary or a Foreign Subsidiary Holding Company, (d) any partnership for Tax purposes in which a Foreign Subsidiary or a Foreign Subsidiary Holding Company is a partner, (e) any Immaterial Subsidiary, (f) any Subsidiary that is not a Wholly Owned Subsidiary of the Borrower, (g) any Regulated Subsidiary, (h) any Special Purpose Finance Subsidiary and (i) any other Subsidiary to the extent that a Guarantee of the Obligations by such Subsidiary would be prohibited by applicable Law or contract or would require governmental (including regulatory) consent, approval, license or authorization to provide such Guarantee (unless such consent, approval, license or authorization has been received and, in any event, only for so long as such restriction exists, and with respect to any such contractual restriction, only to the extent existing on the Effective Date or on the date the applicable Person becomes a Subsidiary and not entered into in contemplation thereof.
Excluded Swap Guarantor means any Guarantor all or a portion of whose Guarantee of, or grant of a security interest to secure, any Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof).
Excluded Swap Obligations means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantors failure for any reason to constitute an eligible contract participant as defined in the Commodity Exchange Act at the time the Guarantee of such Guarantor becomes effective with respect to such Swap Obligation or such Swap Obligation becomes secured by such security interest. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
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Excluded Taxes means, with respect to the Administrative Agent, any Lender, any L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of any Loan Party under any Loan Document, (a) Taxes imposed on or measured by its net income (however denominated), and franchise, capital, gross receipts or net worth Taxes imposed on it in lieu of net income Taxes (other than any such gross receipts Taxes that are withholding Taxes), in each case as a result of such recipient being organized under the laws of, or having its applicable Lending Office located in, the jurisdiction imposing such Taxes (or any political subdivision thereof) or as a result of any other present or former connection between such recipient and the jurisdiction imposing such Taxes (other than any such connection arising solely from such recipient having executed, delivered, or become a party to, performed its obligations or received payments under, received or perfected a security interest under, entered into any other transaction pursuant to or enforced any Loan Documents), (b) any branch profits Taxes under Section 884(a) of the Code, or any similar Tax, in each case imposed by a jurisdiction described in clause (a), (c) any backup withholding Tax that is required by the Code to be withheld from amounts payable to such Lender or L/C Issuer, (d) in the case of a Lender or L/C Issuer (other than with respect to any interest in any Loan or Commitment acquired pursuant to an assignment request by the Borrower under Section 10.13 ), any U.S. Federal withholding Tax that is required to be imposed on amounts payable to or for the account of such Lender or L/C Issuer pursuant to the Laws in force at the time such Lender or L/C Issuer becomes a party hereto (or designates a new Lending Office) or, with respect to any additional interest in any Commitment, or any Loan not funded pursuant to a Commitment by such Lender or L/C Issuer, acquired after such Lender or L/C Issuer becomes a party hereto, at the time such additional interest was acquired by such Lender or L/C Issuer, except to the extent that such Lender or L/C Issuer (or its assignor, if any) was entitled, immediately prior to the designation of a new Lending Office or the acquisition of such interest (or additional interest) by assignment, as applicable, to receive additional amounts from a Loan Party with respect to such withholding Tax pursuant to Section 3.01(a)(2) , (e) any Tax that is attributable to such Lenders or L/C Issuers failure to comply with Section 3.01(e) and (f) any U.S. Federal withholding Tax imposed pursuant to FATCA.
Existing Ashland Credit Agreement has the meaning specified in the Preliminary Statements.
Existing Ashland Debt Repayment has the meaning specified in the Preliminary Statements.
Existing Class has the meaning specified in Section 2.16(a) .
Existing Letters of Credit means the letters of credit listed on Schedule 2.03(a) .
Extended Maturity Commitments has the meaning specified in Section 2.16(a) .
Extended Maturity Loans has the meaning specified in Section 2.16(a) .
Extending Lender has the meaning specified in Section 2.16(b) .
Extension Amendment has the meaning specified in Section 2.16(c) .
Extension Election has the meaning specified in Section 2.16(b) .
Extension Maximum Amount has the meaning specified in Section 2.16(b) .
Extension Request has the meaning specified in Section 2.16(a) .
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Facility means the respective facility and commitments used in making Loans and credit extensions hereunder, it being understood that as of the date of this Agreement there are four Facilities, i.e., the Term A Facility, the Revolving Credit Facility, the Swing Line Sublimit and the Letter of Credit Sublimit.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), and any current and future regulations or other official interpretations thereof, any agreements entered into pursuant to Section 1471(b) of the current Code (or any amended or successor version described above) and, for the avoidance of doubt, any intergovernmental agreements in respect thereof (and any legislation, regulations or other official guidance adopted by a Governmental Authority implementing such intergovernmental agreements).
Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Scotiabank on such day on such transactions as determined by the Administrative Agent.
Flood Insurance Laws means, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor status thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto and (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto.
Flood Hazard Notice has the meaning set forth in Section 4.02(b)(vi)(F) .
Flood Hazard Property has the meaning set forth in Section 4.02(b)(vi)(F) .
Flood Insurance Requirements has the meaning set forth in Section 6.07(b) .
Foreign Casualty Event has the meaning specified in Section 2.05(b)(v) .
Foreign Disposition has the meaning specified in Section 2.05(b)(v) .
Foreign Government Scheme or Arrangement has the meaning specified in Section 5.12(d) .
Foreign Line of Credit Agreement means any agreement to provide loans and letters of credit to a Foreign Subsidiary of the Borrower that is designated in the instrument governing such line of credit or in a separate letter of designation delivered to the Administrative Agent as a foreign line of credit under this Agreement and notified to the Administrative Agent as such.
Foreign Line of Credit Bank means any Person that is a Lender or an Affiliate of a Lender, in its capacity as a party to a Foreign Line of Credit Agreement permitted under Article VI or VII .
Foreign Plan has the meaning specified in Section 5.12(d) .
Foreign Subsidiary means a Subsidiary organized under the Laws of a jurisdiction other than the United States, any State thereof or the District of Columbia.
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Foreign Subsidiary Holding Company means any Subsidiary substantially all of whose assets consist of Equity Interests and/or Indebtedness of one or more Foreign Subsidiaries and/or Subsidiaries described in this definition.
Franchisee Loan Facility Guaranty means any guaranty of a loan facility agreement or arrangement to provide financing to franchisees in the Valvoline Business.
Franchisee Loan Facility Guaranty Beneficiary means any Person that, at the time it gets the benefit of a Franchisee Loan Facility Guaranty, is the Administrative Agent, an Arranger, a Lender or an Affiliate of any of the foregoing, in its capacity as a beneficiary of a Franchisee Loan Facility Guaranty.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Fronting Exposure means, at any time there is a Defaulting Lender, (a) with respect to any L/C Issuer, such Defaulting Lenders Applicable Revolving Credit Percentage of the outstanding L/C Obligations other than L/C Obligations as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swing Line Lender, such Defaulting Lenders Applicable Revolving Credit Percentage of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders.
Fund means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
Funding Date means the date, on or after the Effective Date, on which the conditions precedent set forth in Section 4.02 have been satisfied in full or waived in accordance with the terms hereof.
GAAP means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state, local, county, province or otherwise and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Governmental Real Property Disclosure Requirements means any requirement of Law or any Governmental Authority requiring notification to the buyer, lessee, mortgagee, assignee or other transferee of any real property, facility, establishment or business, or notification, registration or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage, assignment or other transfer (including any transfer of control) of any real property, facility, establishment or business, of the actual or threatened presence or release in or into the Environment, or the use, disposal or handling of Hazardous Material on, at, under or near the real property, facility, establishment or business to be sold, leased, mortgaged, assigned or transferred.
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Guarantee means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a corresponding meaning.
Guarantors means, collectively, the Subsidiaries of the Borrower listed on Schedule 1(a) of the Perfection Certificate and each other Subsidiary of the Borrower that shall be required to execute and deliver a guaranty or guaranty supplement pursuant to Section 6.17 (in each case, excluding any Excluded Subsidiary).
Guaranty means, collectively, the Guaranty made by the Guarantors in favor of the Secured Parties, substantially in the form of Exhibit E , together with each other guaranty and guaranty supplement delivered pursuant to Section 6.17 .
Hazardous Materials means all explosive or radioactive substances or wastes and all other substances, wastes, pollutants, chemicals, compounds, materials, or contaminants of any nature and in any form, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls and radon gas regulated pursuant to, or which can give rise to liability under, any Environmental Law.
Hedge Bank means any Person that, at the time such Swap Contract was entered into, was the Administrative Agent, an Arranger, a Lender or an Affiliate of any of the foregoing, in its capacity as a party to such Swap Contract.
Immaterial Subsidiary means, as of any date of determination, any Subsidiary that, together with its Subsidiaries on a consolidated basis, during (or, in the case of assets, as of the last day of) the twelve months preceding such date of determination accounts for (or to which may be attributed) 5.0% or less of the net income or assets (determined on a consolidated basis) of the Borrower and its Subsidiaries during (or, in the case of assets, as of the last day of) such twelve month period; provided that, as of any date of determination, the aggregate consolidated net income or assets for all Immaterial Subsidiaries during (or, in the case of assets, as of the last day) of the twelve months preceding such date of determination shall not exceed 7.5% of the total net income or assets of the Borrower and its Subsidiaries during (or, in the case of assets, as of the last day of) such twelve month period, and if the aggregate consolidated net income or assets for all Immaterial Subsidiaries during (or, in the case of assets, as of the last day) of such period so exceeds such threshold, then one or more of the Immaterial Subsidiaries (as determined by the Borrower) shall for all purposes of this Agreement be deemed to be Material Subsidiaries until such excess shall have been eliminated.
Incremental Amendment has the meaning specified in Section 2.14(d) .
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Incremental Commitments has the meaning specified in Section 2.14(a) .
Incremental Equivalent Debt means Indebtedness issued, incurred or otherwise obtained by the Borrower in respect of one or more series of senior unsecured notes, senior secured first lien or junior lien notes or subordinated notes (in each case issued in a public offering, Rule 144A or other private placement or bridge financing in lieu of the foregoing (and any Registered Equivalent Notes issued in exchange therefor)) or junior lien or unsecured loans that, in each case, if secured, will be secured by Liens on the Collateral on an equal priority (in the case of notes) or junior priority basis (in the case of notes or loans) with the Liens on Collateral securing the Obligations, and that are issued or made in lieu of Incremental Commitments; provided that (i) the aggregate principal amount of all Incremental Equivalent Debt shall not, together with the aggregate principal amount of Incremental Term Loans and Incremental Revolving Credit Commitments, exceed the Available Incremental Amount, (ii) such Incremental Equivalent Debt shall not be Guaranteed by any Person other than a Loan Party, (iii) in the case of Incremental Equivalent Debt that is secured, the obligations in respect thereof shall not be secured by any Lien on any asset of the Borrower or any Subsidiary other than any asset constituting Collateral, (iv) if such Incremental Equivalent Debt is secured, such Incremental Equivalent Debt shall be subject to an intercreditor agreement reasonably acceptable to the Administrative Agent and the Borrower and (v) such Incremental Equivalent Debt shall not mature earlier than the Maturity Date with respect to the then existing Term Loan A Facility and shall have a Weighted Average Life to Maturity not shorter than the remaining Weighted Average Life to Maturity of the then existing Term A Loans on the date of incurrence of such Incremental Equivalent Debt; provided , further , that Incremental Equivalent Debt may be incurred in the form of a bridge or other interim credit facility intended to be refinanced or replaced with long-term indebtedness meeting the requirements of clauses (i) through (v) of this definition (so long as such credit facility includes customary rollover provisions) on or prior to the first anniversary of the incurrence of such bridge or other credit facility, in which case, clause (v) of the first proviso in this definition shall not prohibit the inclusion of customary terms for bridge facilities, including customary mandatory prepayment, repurchase or redemption provisions.
Incremental Facility Closing Date has the meaning specified in Section 2.14(e) .
Incremental Lenders has the meaning specified in Section 2.14(c) .
Incremental Loan has the meaning specified in Section 2.14(b) .
Incremental Revolving Credit Commitments has the meaning specified in Section 2.14(a) .
Incremental Revolving Credit Facility has the meaning specified in Section 2.14(a) .
Incremental Revolving Credit Lender has the meaning specified in Section 2.14(c) .
Incremental Revolving Loan has the meaning specified in Section 2.14(b) .
Incremental Term Commitments has the meaning specified in Section 2.14(a) .
Incremental Term Lender has the meaning specified in Section 2.14(c) .
Incremental Term Loan Facility has the meaning specified in Section 2.14(a) .
Incremental Term Loan has the meaning specified in Section 2.14(b) .
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Indebtedness means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar instruments, except to the extent that such instruments support Indebtedness of the type referred to in subclause (i) of the parenthetical in clause (d) of this defined term;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services (other than (i) trade accounts payable in the ordinary course of business, (ii) any earn-out or similar obligation that is a contingent obligation or that is not reasonably determinable as of the applicable date of determination and (iii) any earn-out or similar obligation that is not a contingent obligation and that is reasonably determinable as of the applicable date of determination to the extent that (A) such Person is indemnified for the payment thereof by a Solvent Person reasonably acceptable to the Administrative Agent or (B) amounts to be applied to the payment therefor are in escrow);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) (i) all Attributable Indebtedness of such Person and (ii) all obligations of such Person under any Permitted Receivables Facility (but excluding intercompany obligations owed by a Special Purpose Finance Subsidiary to the Borrower or any other Subsidiary in connection therewith);
(g) all Disqualified Equity Interests in such Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and
(h) all Guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. Notwithstanding the foregoing, the principal amount outstanding at any time of any Indebtedness issued with original issue discount shall be the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, but such Indebtedness shall be deemed incurred only as of the date of original issuance thereof.
Indemnified Taxes means all Taxes other than Excluded Taxes.
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Indemnitee has the meaning specified in Section 10.04(b) .
Information has the meaning specified in Section 10.07 .
Initial Borrower has the meaning specified in the introductory paragraph hereto.
Initial Senior Notes Issuer means Valvoline Finco Two LLC, a Delaware limited liability company.
Insurance Policies means the insurance policies and coverages required to be maintained by each Loan Party which is an owner of Mortgaged Property with respect to the applicable Mortgaged Property pursuant to Section 6.07 and all renewals and extensions thereof.
Insurance Requirements means, collectively, all provisions of the Insurance Policies and all requirements of the issuer of any of the Insurance Policies.
Intercompany Note Subordination Agreement means a subordination agreement substantially in the form of Exhibit I or any other form approved by the Administrative Agent and the Borrower.
Interest Payment Date means, (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which such Loan was made; provided , however , that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan or Swing Line Loan, the last Business Day of each March, June, September and December and the Maturity Date of the Facility under which such Loan was made (with Swing Line Loans being deemed made under the Revolving Credit Facility for purposes of this definition).
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date that is (x) one, two, three or six months thereafter, as selected by the Borrower in its Committed Loan Notice, or twelve months thereafter, upon (in the case of twelve months) approval of all Lenders under the applicable Facility, or (y) such other period thereafter that is less than twelve months, as requested by the Borrower and approved by all of the Lenders under the applicable Facility; provided that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date of the Facility under which such Loan was made.
Notwithstanding the foregoing, the initial Interest Period or Interest Periods for the Credit Extensions to be made on the Funding Date may, at the election of the Borrower, end on the last day of a calendar month, as indicated in the applicable Committed Loan Notice.
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Investment means, as to any Person, any acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
IP Rights has the meaning specified in Section 5.17 .
IRS means the United States Internal Revenue Service.
ISP means, with respect to any Letter of Credit, the International Standby Practices 1998 published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
Issuer Documents means, with respect to any Letter of Credit, collectively, the Letter of Credit Application relating to such Letter of Credit and all other documents, agreements and instruments entered into by the applicable L/C Issuer and the Borrower (or any Subsidiary) or in favor of such L/C Issuer and relating to such Letter of Credit.
Latest Maturity Date means, at any date of determination, the latest maturity or expiration date applicable to any Loan or Commitment hereunder at such time.
Laws means, collectively, all international, foreign, Federal, State and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
L/C Advance means, with respect to each Revolving Credit Lender, such Lenders funding of its participation in any L/C Borrowing in accordance with its Applicable Revolving Credit Percentage.
L/C Borrowing means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Credit Borrowing.
L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
L/C Issuer means each of (i) Scotiabank and (ii) each other Lender (or an Affiliate thereof) designated by the Borrower from time to time (with the consent of such Lender or Affiliate) and reasonably acceptable to the Administrative Agent, in such Lenders or Affiliates capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder; provided that any L/C Issuer may agree to be an L/C Issuer with respect to up to a face amount of Letters of Credit less than the Letter of Credit Sublimit pursuant to a separate agreement between such L/C Issuer and the Borrower.
L/C Obligations means, at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including
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all L/C Borrowings. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the amount so remaining available to be drawn.
LCA Election has the meaning specified in Section 1.08 .
LCA Test Date has the meaning specified in Section 1.08 .
Lender and Lenders have the meanings specified in the introductory paragraph hereto (other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption) and, as the context requires, includes the Swing Line Lender. For avoidance of doubt, each Additional Lender is a Lender to the extent any such Person has executed and delivered an Incremental Amendment or a Refinancing Amendment, as the case may be, and to the extent such Incremental Amendment or Refinancing Amendment shall have become effective in accordance with the terms hereof and thereof.
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
Letter of Credit means any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit.
Letter of Credit Application means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by an L/C Issuer.
Letter of Credit Expiration Date means the day that is seven days prior to the Maturity Date then in effect for the Revolving Credit Facility (or, if such day is not a Business Day, the next preceding Business Day).
Letter of Credit Fee has the meaning specified in Section 2.03(i) .
Letter of Credit Sublimit means an amount equal to $100,000,000. The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Credit Facility.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any financing lease having substantially the same economic effect as any of the foregoing).
Limited Condition Acquisition has the meaning specified in Section 1.08 .
Loan means an extension of credit by a Lender to the Borrower under Article II in the form of a Term A Loan, a Revolving Credit Loan or a Swing Line Loan.
Loan Documents means, collectively, (a) this Agreement and any amendment, waiver or consent under this Agreement in accordance with Section 10.01 , (b) the Notes, (c) the Guaranty, (d) the Collateral Documents, (e) the Administrative Fee Letter, (f) the Engagement Letter, (g) each Issuer Document, (h) any Incremental Amendment and (i) any Refinancing Amendment.
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Loan Increase means a Term Loan A Increase or Revolving Commitment Increase.
Loan Parties means, collectively, the Borrower and the Guarantors.
Majority in Interest , when used in reference to Lenders of any Class, means, at any time, (a) in the case of the Revolving Credit Lenders, Lenders holding more than 50% of the sum of the Total Outstandings with respect to the Revolving Credit Facility (with the aggregate amount of each Revolving Credit Lenders risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed held by such Revolving Credit Lender and not by the Letter of Credit Issuer or the Swing Line Lender for purposes of this definition) and the aggregate unused Revolving Credit Commitments at such time and (b) in the case of the Term A Lenders, Lenders holding more than 50% of the Total Outstandings with respect to the Term A Facility at such time; provided that, in each case, the unused Revolving Credit Commitments of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Majority in Interest.
Material Adverse Effect means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or condition (financial or otherwise) of, prior to the consummation of the Newco Merger, the Valvoline Business, and, after the consummation of the Newco Merger, the Borrower and its Subsidiaries, taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
Material Subsidiary means any Subsidiary that is not an Immaterial Subsidiary.
Maturity Date means (a) with respect to the Revolving Credit Facility, the date that is five years after the Funding Date and (b) with respect to the Term A Facility, the date that is five years after the Funding Date; provided , however , that, in either case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day; provided further that, in the case of each of clause (a) and (b), if the Funding Date occurs more than 6 months after the Effective Date, then the Maturity Date shall be automatically shortened by the number of calendar days that elapse between (i) the date that is 6 months after the Effective Date and (ii) the Funding Date.
Measurement Period means, at any date of determination, the most recently completed four fiscal quarters of the Borrower.
Moodys means Moodys Investors Service, Inc. and any successor thereto.
Mortgage Policies has the meaning specified in Section 4.02(b)(vi)(B) .
Mortgaged Property means (a) each fee-owned real property that, together with any improvements thereon, individually has a fair market value of at least $10,000,000 (as reasonably determined by the Borrower) as of the Funding Date and (b) each fee-owned real property, if any, which shall be subject to a mortgage delivered after the Funding Date pursuant to Section 6.17 or Section 6.18 .
Mortgages has the meaning specified in Section 4.02(b)(vi) .
Multiemployer Plan means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower, any Subsidiary or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
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Net Cash Proceeds means:
(a) with respect to any Disposition by the Borrower or any of its Subsidiaries, or any Casualty Event, the excess, if any, of (i) the sum of cash received in connection with such transaction (including any cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received), it being agreed that any Cash Equivalents received in connection with such transaction shall, upon its conversion to cash, be deemed to be cash for purposes of this definition, over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents, secured Incremental Equivalent Debt and secured Refinancing Equivalent Debt), (B) out-of-pocket commissions, fees, transfer Taxes and other expenses (including attorneys fees) incurred by the Borrower or such Subsidiary in connection with such transaction, (C) Taxes paid or reasonably estimated to be payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith; provided that, if the amount of any estimated Taxes pursuant to subclause (C) exceeds the amount of Taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds as and when such excess is reasonably determined by the Borrower with finality and (D) payments required to be made to holders of minority interests in any related Subsidiaries as a result of such transaction; and
(b) with respect to the incurrence or issuance of any Indebtedness by the Borrower or any of its Subsidiaries, the excess of (i) the sum of the cash received in connection with such transaction over (ii) the underwriting discounts and commissions, and other out-of-pocket expenses (including attorneys fees), incurred by the Borrower or such Subsidiary in connection therewith.
New Refinancing Revolving Credit Commitments has the meaning specified in Section 2.17(a) .
New Refinancing Term Commitments has the meaning specified in Section 2.17(a) .
Newco Merger has the meaning specified in the Preliminary Statements.
Note means a Term A Note, a Revolving Credit Note or a Swing Line Note, as the context may require.
Non-Bank Certificate has the meaning specified in Section 3.01(e)(2)(ii)(IV) .
Obligations means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party or its Subsidiaries arising under any Loan Document or otherwise with respect to any Loan, Letter of Credit, Secured Cash Management Agreement, Secured Foreign Line of Credit Agreement, Secured Franchisee Loan Facility Guaranty or Secured Hedge Agreement, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Notwithstanding the foregoing, in the case of any Excluded Swap Guarantor, Obligations shall not include Excluded Swap Obligations of such Excluded Swap Guarantor.
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OFAC has the meaning specified in the definition of Sanctions.
Organization Documents means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
Other Taxes means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes or any other excise or property Taxes or similar Taxes arising from any payment made hereunder or under any other Loan Document or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes imposed by a jurisdiction described in clause (a) of the definition of Excluded Taxes with respect to an assignment (other than an assignment made pursuant to Section 3.06).
Outstanding Amount means (a) with respect to Term A Loans, Revolving Credit Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof on such date after giving effect to any borrowings and prepayments or repayments of Term A Loans, Revolving Credit Loans and Swing Line Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
Participant has the meaning specified in Section 10.06(d) .
Participant Register has the meaning specified in Section 10.06(d) .
PBGC means the Pension Benefit Guaranty Corporation and any successor entity performing similar functions.
Pension Plan means any employee pension benefit plan (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by the Borrower, any Subsidiary or any ERISA Affiliate or to which the Borrower, any Subsidiary or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
Perfection Certificate means a certificate in the form of Exhibit G-1 or any other form approved by the Administrative Agent, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise.
Perfection Certificate Supplement means a certificate supplement in the form of Exhibit G-2 or any other form approved by the Administrative Agent.
Permitted Encumbrance has the meaning given to such term (or any substantially similar term) in the Mortgages.
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Permitted Junior Secured Refinancing Debt has the meaning specified in Section 2.17(h)(i) .
Permitted Pari Passu Secured Refinancing Debt has the meaning specified in Section 2.17(h)(i) .
Permitted Receivables Facility means any one or more receivables financings of the Borrower or any Subsidiary thereof (including any Foreign Subsidiaries of the Borrower) in which the Borrower or such Subsidiary sells, conveys or otherwise contributes Permitted Securitization Transferred Assets to a Special Purpose Finance Subsidiary, which Special Purpose Finance Subsidiary then (i) sells (as determined in accordance with GAAP) any such Permitted Securitization Transferred Assets (or an interest therein) to one or more Receivables Financiers, (ii) borrows from such Receivables Financiers and secures such borrowings by a pledge of such Permitted Securitization Transferred Assets or (iii) otherwise finances its acquisition of such Permitted Securitization Transferred Assets and, in connection therewith, conveys an interest in such Permitted Securitization Transferred Assets (and possibly all of the Special Purpose Finance Subsidiarys property and assets) to such Receivables Financiers; provided that (1) such receivables financing shall not involve any recourse to the Borrower or any of its other Subsidiaries (other than the Special Purpose Finance Subsidiary) for any reason other than (A) repurchases of non-eligible receivables and related assets, (B) customary indemnifications (which shall in no event include indemnification for credit losses on Permitted Securitization Transferred Assets sold to the Special Purpose Finance Subsidiary) and (C) a customary limited recourse guaranty by the Borrower of the obligations of any Subsidiary thereof becoming an originator under such Permitted Receivables Facility delivered in favor of the Special Purpose Finance Subsidiary, (2) the Administrative Agent shall be reasonably satisfied with the structure of and documentation for any such transaction and that the terms of such transaction, including the discount at which receivables are sold, the term of the commitment of the Receivables Financier thereunder and any termination events, shall be (in the good faith understanding of the Administrative Agent) consistent with those prevailing in the market for similar transactions involving a receivables originator/servicer of similar credit quality and a receivables pool of similar characteristics, and (3) the documentation for such transaction shall not be amended or modified in any material respect without the prior written approval of the Administrative Agent, subject, in the case of any such facility under which a Foreign Subsidiary is the seller, conveyor or contributor of Permitted Securitization Transferred Assets, to variances to the foregoing that are customary under the Laws and procedures of the foreign jurisdiction to which such facility is subject and that are acceptable to the Administrative Agent.
Permitted Refinancing means, with respect to any Person, any modification, refinancing, refunding, renewal, replacement or extension of any Indebtedness or other obligation of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness or other obligation so modified, refinanced, refunded, renewed, replaced or extended except by an amount equal to unpaid accrued interest and premium thereon plus other amounts paid, and fees and expenses reasonably incurred, in connection with such modification, refinancing, refunding, renewal, replacement or extension and by an amount equal to any existing commitments unutilized thereunder, unless such excess is applied against and utilizes an available basket under Section 7.02 , (b) if applicable, such modification, refinancing, refunding, renewal, replacement or extension (i) has a final maturity date equal to or later than the earlier of (x) 91 days after the Latest Maturity Date and (y) the final maturity date of the Indebtedness or other obligation being modified, refinanced, refunded, renewed, replaced or extended and (ii) has a Weighted Average Life to Maturity (calculated solely for the period between the date of issuance of such Indebtedness or other obligation and the latest maturity date of the Loans and Commitments then outstanding) equal to or greater than the Weighted Average Life to Maturity of the Indebtedness or other obligation being modified, refinanced, refunded, renewed, replaced or extended (calculated solely for the period between the date of issuance of such Indebtedness or other obligation and the latest maturity date of the Loans and Commitments then outstanding), (c) at the time thereof and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing, (d) if such Indebtedness or other obligation being modified,
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refinanced, refunded, renewed, replaced or extended is subordinated in right of payment to the Obligations, such modification, refinancing, refunding, renewal, replacement or extension is subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness or obligation being modified, refinanced, refunded, renewed, replaced or extended, (e) the terms and conditions (including, if applicable, as to collateral but excluding as to subordination, interest rate and redemption premium) of any such modified, refinanced, refunded, renewed, replaced or extended Indebtedness or other obligation, taken as a whole, are market terms on the date such Indebtedness is incurred (as determined in good faith by the Borrower) or are not materially less favorable to the Borrower or the Lenders than the terms and conditions of the Indebtedness or other obligation being modified, refinanced, refunded, renewed, replaced or extended, taken as a whole; provided that a certificate of a Responsible Officer delivered to the Administrative Agent at least five Business Days prior to the incurrence of such Indebtedness or other obligation, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or other obligation or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Administrative Agent notifies the Borrower within such five Business Day period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees), (f) such modification, refinancing, refunding, renewal, replacement or extension is incurred by the Person who is the primary obligor of the Indebtedness being modified, refinanced, refunded, renewed, replaced or extended and there shall be no additional obligors on such modification, refinancing, refunding, renewal, replacement or extension than the obligors on the Indebtedness being modified, refinanced, refunded, renewed, replaced or extended and (g) such modification, refinancing, refunding, renewal, replacement or extension shall not be secured by any asset that does not secure the Indebtedness being modified, refinanced, renewed, replaced or extended.
Permitted Securitization Transferred Assets means, with respect to the Borrower or any Subsidiary (other than a Special Purpose Finance Subsidiary), the Borrowers or such Subsidiarys accounts receivable, notes receivable or residuals, together with certain assets relating thereto (including any deposit accounts receiving collection on such receivables) and the right to collections thereon.
Permitted Unsecured Refinancing Debt has the meaning specified in Section 2.17(h)(i) .
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan (as such term is defined in Section 3(3) of ERISA) established or maintained by the Borrower or any Subsidiary or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.
Platform has the meaning specified in Section 6.02 .
Pro Forma Basis means, with respect to any calculation or determination for the Borrower for any Measurement Period, that in making such calculation or determination on the specified date of determination (the Determination Date ):
(a) pro forma effect will be given to any Indebtedness incurred by the Borrower or any of its Subsidiaries (including by assumption of then outstanding Indebtedness or by a Person becoming a Subsidiary) ( Incurred ) after the beginning of the Measurement Period and on or before the Determination Date to the extent the Indebtedness is outstanding or is to be Incurred on the Determination Date, as if such Indebtedness had been Incurred on the first day of the Measurement Period;
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(b) pro forma calculations of interest on Indebtedness bearing a floating interest rate will be made as if the rate in effect on the Determination Date (taking into account any Swap Contract applicable to the Indebtedness) had been the applicable rate for the entire reference period;
(c) Consolidated Interest Charges related to any Indebtedness no longer outstanding or to be repaid or redeemed on the Determination Date (only to the extent that the obligations giving rise to Consolidated Interest Charges will not be obligations of the Borrower or any Subsidiary following the Determination Date), except for Consolidated Interest Charges accrued during the reference period under a revolving credit to the extent of the commitment thereunder (or under any successor revolving credit) in effect on the Determination Date (including, for the avoidance of doubt, Permitted Receivables Facilities), will be excluded as if such Indebtedness was no longer outstanding or was repaid or redeemed on the first day of the Measurement Period; and
(d) pro forma effect will be given to any investment, acquisition or disposition by the Borrower and its Subsidiaries of companies, divisions or lines of businesses that qualify as reportable segments or discontinued operations, as those two terms are defined by GAAP, or that exceed 15% of Consolidated EBITDA for the Measurement Period, including any investment or acquisition or disposition of a company, division or line of business since the beginning of the reference period by a Person that became or ceased to be a Subsidiary after the beginning of the Measurement Period, that have occurred since the beginning of the Measurement Period and before the Determination Date as if such events had occurred, and, in the case of any disposition, the proceeds thereof applied, on the first day of the Measurement Period (including expected cost savings (without duplication of actual cost savings) to the extent (i) such cost savings would be permitted to be reflected in pro forma financial information complying with the requirements of GAAP and Article 11 of Regulation S-X under the Securities Act of 1933 as interpreted by the Staff of the SEC, and as certified by a Responsible Officer or (ii) in the case of an acquisition, such cost savings are reasonably identifiable and factually supportable and have been realized or are reasonably expected to be realized within 365 days following such acquisition; provided that (A) the Borrower shall have delivered to the Administrative Agent a certificate of the chief financial officer of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, certifying that such cost savings meet the requirements set forth in this clause (ii), together with reasonably detailed evidence in support thereof, and (B) if any cost savings included in any pro forma calculations based on the expectation that such cost savings will be realized within 365 days following such acquisition shall at any time cease to be reasonably expected to be so realized within such period, then on and after such time pro forma calculations required to be made hereunder shall not reflect such cost savings). To the extent that pro forma effect is to be given to an acquisition or disposition of a company, division or line of business, the pro forma calculation will be based upon the most recent four full fiscal quarters for which the relevant financial information is available.
Public Lender has the meaning specified in Section 6.02 .
Rating Agency means each of Moodys and S&P.
Receivables Financier means one or more Persons who are not Subsidiaries or Affiliates of the Borrower and who are regularly engaged in the business of receivables securitization, which may include one or more asset-backed commercial paper conduits or commercial banks.
Re-Domestication Requirements means, with respect to any transaction effecting a re-domestication of the Borrowers jurisdiction of formation referred to in Section 7.04(e) , the following:
(a) the Borrower shall have delivered to the Administrative Agent written notice of such re-domestication not less than thirty (30) days prior to the effective date thereof (or such shorter period to which the Administrative Agent may in its discretion agree), which notice shall contain an explicit description of such re-domestication, including an identification of the Person into which the Borrower would merge (the Transaction Party );
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(b) the Borrower shall have delivered to the Administrative Agent such additional information relating to such transaction, the structure and procedures thereof and the Transaction Party as the Administrative Agent may reasonably request;
(c) the Transaction Party shall be newly formed specially for the purpose of such re-domestication and shall have no assets, liabilities or business other than solely incidental to the re-domestication, and shall be duly formed, validly existing and in good standing under the Laws of the United States, one of its States, the District of Columbia, or other jurisdiction approved by the Administrative Agent in its discretion and the Lenders;
(d) all of the shareholders, members or partners, as applicable, of the Borrower immediately prior to such merger or assignment shall be all of the shareholders, members or partners, as applicable, of the Transaction Party immediately after such merger or assignment (except for variances therefrom, if any, arising from fractional shares or other interests);
(e) the Borrower shall have delivered to the Administrative Agent evidence reasonably satisfactory to the Administrative Agent that by operation of law or contract, immediately after such merger or assignment, the Transaction Party shall accede to and assume all of the Indebtedness, liabilities and other Obligations of the Borrower under and pursuant to this Agreement and each of the other Loan Documents;
(f) the Borrower and the Transaction Party shall have executed and delivered to the Administrative Agent and the Lenders such confirmations, joinders, assumptions and other agreements as the Administrative Agent may reasonably require to confirm such Indebtedness, liabilities and Obligations of the Transaction Party and the perfection and priority of the Liens granted under the Collateral Documents; and
(g) the Administrative Agent and the Lenders shall have received such opinions of counsel, documents and certificates as the Administrative Agent may reasonably request relating to the organization, existence, good standing and authorization of the Transaction Party, the validity and enforceability of such indebtedness, liabilities and other obligations against the Transaction Party, the incumbency of officers or other Persons executing Loan Documents on behalf of the Transaction Party, and such other matters relating to the Borrower, the Transaction Party, its Subsidiaries, the Loan Documents or the re-domestication transaction as the Administrative Agent may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel and know your customer information with respect to the Transaction Party reasonably requested by the Administrative Agent and the Lenders.
Refinanced Debt has the meaning specified in Section 2.17(a) .
Refinanced Loans has the meaning specified in Section 2.17(h)(i) .
Refinancing Amendment has the meaning specified in Section 2.17(f) .
Refinancing Commitments has the meaning specified in Section 2.17(a) .
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Refinancing Equivalent Debt has the meaning specified in Section 2.17(h)(i) .
Refinancing Facility Closing Date has the meaning specified in Section 2.17(d) .
Refinancing Lenders has the meaning specified in Section 2.17(c) .
Refinancing Loan has the meaning specified in Section 2.17(b) .
Refinancing Loan Request has the meaning specified in Section 2.17(a) .
Refinancing Revolving Credit Commitments has the meaning specified in Section 2.17(a) .
Refinancing Revolving Credit Lender has the meaning specified in Section 2.17(c) .
Refinancing Revolving Loan has the meaning specified in Section 2.17(b) .
Refinancing Term Commitments has the meaning specified in Section 2.17(a) .
Refinancing Term Lender has the meaning specified in Section 2.17(c) .
Refinancing Term Loan has the meaning specified in Section 2.17(b) .
Register has the meaning specified in Section 10.06(c) .
Registered Equivalent Notes means, with respect to any notes originally issued in a Rule 144A or other private placement transaction under the Securities Act, substantially identical notes (having the same Guarantees) issued in a dollar-for-dollar exchange therefor pursuant to an exchange offer registered with the SEC.
Regulated Subsidiary means any Subsidiary of the Borrower that is (i) created primarily for the purposes of, and whose primary activities shall consist of, financing or insuring risks of the Borrower or the Borrowers Subsidiaries or (ii) prohibited by applicable Law from entering into the Guaranty.
Related Parties means, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Persons Affiliates.
Release means any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing or migrating of any Hazardous Material into or through the Environment, or into, from or through any building, facility or structure.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.
Request for Credit Extension means (a) with respect to a Borrowing, conversion or continuation of Term A Loans or Revolving Credit Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.
Required Lenders means, as of any date of determination, Lenders holding more than 50% of the sum of the (a) Total Outstandings (with the aggregate amount of each Revolving Credit Lenders risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed held by such Revolving Credit Lender and not by the Letter of Credit Issuer or the Swing Line Lender for purposes
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of this definition) and (b) aggregate unused Commitments; provided that the unused Commitments of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
Responsible Officer means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer, vice president or manager of debt of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. Unless otherwise specified, Responsible Officer shall refer to a Responsible Officer of the Borrower.
Restricted Payment means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to any Persons stockholders, partners or members (or the equivalent of any thereof).
Revolving Commitment Increase has the meaning specified in Section 2.14(a) .
Revolving Credit Borrowing means a borrowing consisting of simultaneous Revolving Credit Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Revolving Credit Lenders pursuant to Section 2.01(b) or pursuant to an Incremental Amendment.
Revolving Credit Commitment means, as to each Revolving Credit Lender, its obligation to (a) make Revolving Credit Loans to the Borrower pursuant to Section 2.01(b) , (b) purchase participations in L/C Obligations and (c) purchase participations in Swing Line Loans in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Revolving Credit Lenders name on Schedule 2.01 under the caption Revolving Credit Commitment or opposite such caption in the Assignment and Assumption pursuant to which such Revolving Credit Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. The term Revolving Credit Commitment will be deemed to include Revolving Commitment Increases in the event of the creation of an Incremental Revolving Credit Commitment pursuant to Section 2.14 . As of the Effective Date, the aggregate principal amount of the Revolving Credit Commitments is $450,000,000.
Revolving Credit Facility means, at any time, the aggregate amount of the Revolving Credit Lenders Revolving Credit Commitments at such time.
Revolving Credit Lender means, at any time, any Lender that has a Revolving Credit Commitment at such time.
Revolving Credit Loan has the meaning specified in Section 2.01(b) .
Revolving Credit Note means a promissory note made by the Borrower in favor of a Revolving Credit Lender evidencing Revolving Credit Loans made by such Revolving Credit Lender, substantially in the form of Exhibit B-2 .
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Sanctioned Country means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (which, at the time of this Agreement, include Crimea, Cuba, Iran, North Korea, Sudan and Syria).
Sanctioned Person means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC, the U.S. Department of State, or by the United Nations Security Council, the European Union, any European Union member state where the Borrower maintains manufacturing facilities or Her Majestys Treasury of the United Kingdom, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clause (a) or (b).
Sanctions means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Treasury Department ( OFAC ) or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state where the Borrower maintains manufacturing facilities or Her Majestys Treasury of the United Kingdom.
S&P means Standard & Poors Ratings Services, a division of McGraw-Hill Financial, Inc., and any successor thereto.
Scotiabank means The Bank of Nova Scotia and its successors.
SEC means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
Secured Cash Management Agreement means any Cash Management Agreement by and between the Borrower or any of its Subsidiaries and any Cash Management Bank.
Secured Foreign Line of Credit Agreement means any Foreign Line of Credit Agreement by and between any of the Borrowers Foreign Subsidiaries and any Foreign Line of Credit Bank; provided that the aggregate amount of Indebtedness under Secured Foreign Line of Credit Agreements shall not exceed $25,000,000.
Secured Franchisee Loan Facility Guaranty means any Franchisee Loan Facility Guaranty by the Borrower or any of its Subsidiaries in favor of any Franchisee Loan Facility Guaranty Beneficiary; provided that the aggregate amount of Indebtedness under Secured Franchisee Loan Facility Guaranties shall not exceed $16,000,000.
Secured Hedge Agreement means any Swap Contract required or permitted under Article VII by and between the Borrower or any of its Subsidiaries and any Hedge Bank.
Secured Parties means, collectively, the Administrative Agent, the Lenders, the L/C Issuers, the Hedge Banks party to a Secured Hedge Agreement, the Cash Management Banks party to a Secured Cash Management Agreement, the Franchisee Loan Facility Guaranty Beneficiaries having the benefit of a Secured Franchisee Loan Facility Guaranty, the Foreign Line of Credit Banks party to a Secured Foreign Line of Credit Agreement, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05 , and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
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Security Agreement means a Security Agreement substantially in the form of Exhibit F among the Loan Parties and the Administrative Agent for the benefit of the Secured Parties.
Senior Notes means $375,000,000 of senior unsecured notes issued by the Senior Notes Issuer; provided that the Senior Notes shall not be guaranteed by any Person that is not a Guarantor (except that, prior to the Funding Date, the Senior Notes may guaranteed by Ashland on a senior unsecured basis).
Senior Notes Documents means any indenture among the Senior Notes Issuer, any guarantors party thereto and a trustee with respect to the Senior Notes, the Senior Notes and all other agreements, instruments and other documents pursuant to which the Senior Notes have been or will be issued or otherwise setting forth the terms of the Senior Notes.
Senior Notes Issuer means initially, the Initial Senior Notes Issuer, and following the consummation of the Senior Notes Issuer Merger, Valvoline.
Senior Notes Issuer Merger has the meaning specified in the Preliminary Statements.
Separation means, collectively, the Valvoline Reorganization, the Ashland Reorganization, the Transfer, the Ashland Chemco Internal Spin-off and the initial public offering of the stock of Valvoline (the Valvoline IPO ).
Solvent and Solvency mean, with respect to any Person on any date of determination, that on such date, and after giving effect to any right of contribution, indemnification, reimbursement or similar right from or among the Loan Parties, (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that then meets the criteria for recognition contained in Accounting Standard Codification 450 (formerly Statement of Financial Accounting Standards No. 5).
Special Purpose Finance Subsidiary means any Subsidiary created solely for the purposes of, and whose sole activities shall consist of, acquiring and financing Permitted Securitization Transferred Assets pursuant to a Permitted Receivables Facility, and any other activity incidental thereto.
Subsidiary of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Borrower. The term Subsidiary shall not include Unrestricted Subsidiaries designated in compliance with Section 6.15 until re-designated as a Subsidiary in compliance therewith, except for purposes of Sections 5.09 , 5.11 , 5.12 , 5.16 , 5.24 and 5.25 , including the definitions used in such Sections. Notwithstanding the foregoing, the term Subsidiary
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when related to the Borrower shall not include Ashland, Ashland Chemco and their respective Subsidiaries (other than, for the avoidance of doubt, any Subsidiaries that hold assets related to Valvoline Business). For purposes of Articles V , VI , VII and VIII and all the definitions used in such Articles, all of the references to the Borrower and/or the Borrower and/or its Subsidiaries, shall be references to, prior to the consummation of the Newco Merger, the entities constituting the Valvoline Business, and after the consummation of the Newco Merger, the Borrower and/or the Borrower and/or its Subsidiaries.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement ), including any such obligations or liabilities under any Master Agreement.
Swap Obligation means any obligation to pay or perform under any agreement, contract or transaction that constitutes a swap within the meaning of §1a(47) of the Commodity Exchange Act.
Swap Termination Value means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
Swing Line Borrowing means a borrowing of a Swing Line Loan pursuant to Section 2.04 .
Swing Line Lender means Scotiabank in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
Swing Line Loan has the meaning specified in Section 2.04(a) .
Swing Line Loan Notice means a notice of a Swing Line Borrowing pursuant to Section 2.04(b) , which, if in writing, shall be substantially in the form of Exhibit A-2 .
Swing Line Note means a promissory note made by the Borrower in favor of the Swing Line Lender evidencing Swing Line Loans made by the Swing Line Lender, substantially in the form of Exhibit B-3 .
Swing Line Sublimit means an amount equal to the lesser of (a) $10,000,000 and (b) the Revolving Credit Facility. The Swing Line Sublimit is part of, and not in addition to, the Revolving Credit Facility.
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Synthetic Debt means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds (including any minority interest transactions that function primarily as a borrowing) but are not otherwise included in the definition of Indebtedness or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.
Synthetic Lease Obligation means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
Tax Matters Agreement means the tax matter agreement substantially as described in Schedule 1.01(a) .
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term A Borrowing means a borrowing consisting of simultaneous Term A Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Term A Lenders pursuant to Section 2.01(a) or pursuant to an Incremental Amendment.
Term A Commitment means, as to each Term A Lender, its obligation to make Term A Loans to the Borrower pursuant to Section 2.01(a) in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Term A Lenders name on Schedule 2.01 under the caption Term A Commitment or opposite such caption in the Assignment and Assumption pursuant to which such Term A Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement (including pursuant to an Incremental Amendment or a Refinancing Amendment). As of the Effective Date, the aggregate principal amount of the Term A Commitments is $875,000,000.
Term A Facility means, at any time, the aggregate principal amount of the Term A Commitments and the Term A Loans of all Term A Lenders outstanding at such time.
Term A Lender means, at any time, any Lender that holds a Term A Commitment or Term A Loans at such time.
Term A Loan means an advance made by any Term A Lender under the Term A Facility, including any Term A Loan Increase.
Term A Loan Increase has the meaning specified in Section 2.14(a) .
Term A Note means a promissory note made by the Borrower in favor of a Term A Lender evidencing Term A Loans made by such Term A Lender, substantially in the form of Exhibit B -1 .
Threshold Amount means $100,000,000.
Total Outstandings means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
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Total Revolving Credit Outstandings means, on any date, the aggregate Outstanding Amount of all Revolving Credit Loans, L/C Obligations and Swing Line Loans on such date.
Transactions has the meaning specified in the Preliminary Statements.
Type means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
UCC means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, UCC means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
United States and U.S. mean the United States of America.
Unreimbursed Amount has the meaning specified in Section 2.03(c)(i) .
Unrestricted Subsidiary means (i) each Subsidiary listed on Schedule 1.01(b) , (ii) any Subsidiary designated by a Responsible Officer as an Unrestricted Subsidiary in accordance with Section 6.15 subsequent to the Funding Date and (iii) each Subsidiary of an Unrestricted Subsidiary.
USA Patriot Act means the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), as amended, and all regulations thereunder.
Valvoline means Valvoline Inc., a Kentucky corporation.
Valvoline Business means Ashlands automotive, commercial and industrial lubricant and automotive chemical business substantially as described in the Valvoline Form S-1.
Valvoline Form S-1 means the Valvoline Inc. Form S-1 Registration Statement (#333-211720), as filed on May 31, 2016.
Valvoline Joinder Agreement means the joinder to this Agreement, substantially in the form of Exhibit L , executed by Valvoline in favor of the Administrative Agent.
Valvoline Reorganization has the meaning specified in the Preliminary Statements.
Valvoline Spin-off means a distribution by Ashland Global of the stock of Valvoline described in Section 355 of the Code.
Voting Stock means Equity Interests of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time Equity Interests of any other class or classes shall have or might have voting power by reason or the happening of any contingency).
Weighted Average Life to Maturity means, when applied to any Indebtedness or other obligation at any date, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required
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payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (ii) the then outstanding principal amount of such Indebtedness or other obligation.
Wholly Owned Subsidiary means, with respect to any Person at any date, a Subsidiary of such Person of which securities or other ownership interests representing 100% of the Equity Interests (other than directors qualifying shares) are, as of such date, owned, controlled or held by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more wholly owned Subsidiaries of such Person.
Withholding Agent means any Loan Party, the Administrative Agent and any other withholding agent within the meaning of U.S. Treasury Regulation Sections 1.1441-7 and 1.1473-1.
Write-Down and Conversion Powers means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
1.02 Other Interpretive Provisions . With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include , includes and including shall be deemed to be followed by the phrase without limitation . The word will shall be construed to have the same meaning and effect as the word shall . Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Persons successors and assigns, (iii) the words herein , hereof and hereunder , and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word from means from and including ; the words to and until each mean to but excluding ; and the word through means to and including .
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
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(d) When used herein, the phrase to the knowledge of (or words of similar import), when applied to the Borrower, shall mean the actual knowledge of any Responsible Officer thereof or such knowledge that a Responsible Officer should have in the carrying out of his or her duties with ordinary care.
(e) For purposes of determining the applicable Tier of the grid in clause (a) of the definition of the term Applicable Rate, the highest Tier is Tier I and the lowest Tier is Tier V.
1.03 Accounting Terms .
(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.
(b) Changes in GAAP . If at any time any change in GAAP or the application thereof would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP or application thereof, as the case may be (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein or application thereof, as the case may be and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP or application thereof, as the case may be. Anything in this Agreement to the contrary notwithstanding, no effect shall be given to any change in GAAP arising out of a change described in the Accounting Standard Update Exposure Drafts related to Leases, Revenue Recognition and Financial Instruments or any other substantially similar pronouncement.
1.04 Rounding . Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day . Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
1.06 Letter of Credit Amounts . Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided , however , that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, upon satisfaction of any and all conditions precedent to such automatic increase, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.07 Currency Equivalents Generally . Any amount specified in this Agreement (other than in Articles II , IX and X ) or any of the other Loan Documents to be in Dollars shall also include the equivalent of such amount in any currency other than Dollars, such equivalent amount thereof in the applicable
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currency to be determined by the Administrative Agent at such time on the basis of the Spot Rate (as defined below) for the purchase of such currency with Dollars. For purposes of this Section 1.07 , the Spot Rate for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date of such determination; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.
1.08 Limited Condition Acquisitions . For purposes of (a) determining compliance with any provision of the Loan Documents which requires the calculation of a financial ratio, (b) determining compliance with representations, warranties, Defaults or Events of Default or (c) testing availability under baskets set forth in the Loan Documents, in each case, in connection with an acquisition by the Borrower or any of its Subsidiaries of any assets, business or Person permitted to be acquired by the Loan Documents, in each case whose consummation is not conditioned on the availability of, or on obtaining, third party financing (any such acquisition, a Limited Condition Acquisition ), at the option of the Borrower (the Borrowers election to exercise such option in connection with any Limited Condition Acquisition, an LCA Election ), the date of determination of whether any such action is permitted hereunder shall be deemed to be the date the definitive agreements for such Limited Condition Acquisition are entered into (the LCA Test Date ), and if, after giving pro forma effect to the Limited Condition Acquisition and the other transactions to be entered into in connection therewith as if they had occurred at the beginning of the most recent test period ending prior to the LCA Test Date, the Borrower could have taken such action on the relevant LCA Test Date in compliance with such ratio, basket, representation or warranty, then such ratio, basket, representation or warranty shall be deemed to have been complied with for the purposes of determining whether such acquisition is permitted. For the avoidance of doubt, if the Borrower has made an LCA Election and any of the ratios or baskets for which compliance was determined or tested as of the LCA Test Date are subsequently exceeded as a result of fluctuations in any such ratio or basket (including due to fluctuations of the target of any Limited Condition Acquisition) at or prior to the consummation of the relevant transaction or action, such baskets or ratios will not be deemed to have been exceeded as a result of such fluctuations. If the Borrower has made an LCA Election for any Limited Condition Acquisition, then in connection with any subsequent calculation of any ratio or basket on or following the relevant LCA Test Date and prior to the earlier of (i) the date on which such Limited Condition Acquisition is consummated or (ii) the date that the definitive agreement for such Limited Condition Acquisition is terminated or expires without consummation of such Limited Condition Acquisition, any such ratio or basket shall be calculated on a pro forma basis assuming such Limited Condition Acquisition and other transactions in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) had been consummated.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 The Loans .
(a) The Term A Borrowing . Subject to the terms and conditions set forth herein, each Term A Lender severally agrees to make a single loan to the Borrower on the Funding Date in an amount in Dollars not to exceed such Term A Lenders Term A Commitment. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. Term A Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
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(b) The Revolving Credit Borrowings . Subject to the terms and conditions set forth herein, each Revolving Credit Lender severally agrees to make loans in Dollars (each such loan, a Revolving Credit Loan ) to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lenders Revolving Credit Commitment; provided , however , that after giving effect to any Revolving Credit Borrowing, (i) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility, and (ii) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Revolving Credit Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Revolving Credit Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lenders Revolving Credit Commitment. Within the limits of each Revolving Credit Lenders Revolving Credit Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01(b) , prepay under Section 2.05 , and reborrow under this Section 2.01(b) . Revolving Credit Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
2.02 Borrowings, Conversions and Continuations of Loans .
(a) Each Term A Borrowing, each Revolving Credit Borrowing, each conversion of Term A Loans or Revolving Credit Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than (i) 1:00 p.m. three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) 1:00 p.m. on the requested date of any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $1,000,000 in excess thereof; provided that, in each case, a Borrowing consisting of Eurodollar Rate Loans that results from a continuation of an outstanding Borrowing consisting of Eurodollar Rate Loans may be in an aggregate principal amount that is equal to such outstanding Borrowing. Except as provided in Section 2.03(c) , each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $300,000 or a whole multiple of $100,000 in excess thereof; provided that, in each case, a Base Rate Loan may be in an aggregate amount that is equal to the entire unused balance of the applicable Commitment. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Term A Borrowing, a Revolving Credit Borrowing, a conversion of Term A Loans or Revolving Credit Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Term A Loans or Revolving Credit Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Term A Loans or Revolving Credit Loans shall be made as Base Rate Loans or, in the case of an outstanding Eurodollar Rate Loan, shall be continued as a Eurodollar Rate Loan with an Interest Period of the same duration as the expiring Interest Period. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a Eurodollar Rate Loan.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each applicable Lender of the amount of its Applicable Percentage under the applicable Facility of
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the applicable Term A Loans or Revolving Credit Loans, as the case may be, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a) . In the case of a Term A Borrowing or a Revolving Credit Borrowing, each Appropriate Lender shall make the amount of its Loan available in immediately available funds at the Administrative Agents Office not later than 3:00 p.m. on the Business Day specified in the applicable Committed Loan Notice; provided that in the case of a Term A Borrowing or a Revolving Credit Borrowing on the Funding Date, each Appropriate Lender shall make the amount of its Loan available in immediately available funds at the Administrative Agents Office not later than one hour after the Administrative Agent provides notice of the satisfaction of the conditions to the initial funding on the Funding Date. Upon satisfaction (or waiver in accordance with Section 10.01 ) of the applicable conditions set forth in Section 4.03 (and, if such Borrowing is the initial Credit Extension, Section 4.02 ), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Scotiabank with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to the Administrative Agent by the Borrower; provided , however , that if, on the date a Committed Loan Notice with respect to a Revolving Credit Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Revolving Credit Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrower as provided above.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. If an Event of Default has occurred and is continuing, no Loans of any Class may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of a Majority in Interest of the Lenders of such Class.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Scotiabanks prime rate used in determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Term A Borrowings, all conversions of Term A Loans from one Type to the other, and all continuations of Term A Loans as the same Type, there shall not be more than six Interest Periods in effect in respect of the Term A Facility. After giving effect to all Revolving Credit Borrowings, all conversions of Revolving Credit Loans from one Type to the other and all continuations of Revolving Credit Loans as the same Type, there shall not be more than six Interest Periods in effect in respect of the Revolving Credit Facility. After giving effect to all Borrowings in respect of any Incremental Revolving Credit Facility and any Incremental Term Loan Facility, there shall not be more than six (6) additional Interest Periods in effect in respect of such Facility. After giving effect to all Borrowings in respect of any Facility comprised of Refinancing Loans, there shall not be more than six (6) additional Interest Periods in effect in respect of such Facility.
2.03 Letters of Credit .
(a) The Letter of Credit Commitment .
(i) Subject to the terms and conditions set forth herein, (A) each L/C Issuer agrees, in reliance upon the agreements of the Revolving Credit Lenders set forth in this Section 2.03 , (1) from time to time on any Business Day during the period from the Funding Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrower or its Subsidiaries (other than a Special Purpose Finance Subsidiary), and to amend or extend Letters of Credit previously issued by it, in accordance
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with Section 2.03(b) , and (2) to honor drawings under the Letters of Credit; and (B) the Revolving Credit Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower or its Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility, (y) the aggregate Outstanding Amount of the Revolving Credit Loans of any Revolving Credit Lender, plus such Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans, shall not exceed such Lenders Revolving Credit Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers and its Subsidiaries ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower and its Subsidiaries may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. After the Funding Date, all Existing Letters of Credit shall be deemed to have been issued pursuant hereto, and from and after the Funding Date shall be subject to and governed by the terms and conditions hereof.
(ii) No L/C Issuer shall issue any Letter of Credit if:
(A) subject to Section 2.03(b)(iii) , the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless a Majority in Interest of the Revolving Credit Lenders have approved such expiry date; or
(B) the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Revolving Credit Lenders have approved such expiry date.
(iii) No L/C Issuer shall be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing such Letter of Credit, or any Law applicable to such L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or request that such L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such L/C Issuer is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which such L/C Issuer in good faith deems material to it;
(B) the issuance of such Letter of Credit would violate in any material respect one or more policies of such L/C Issuer applicable to letters of credit generally and customary for issuers of letters of credit;
(C) except as otherwise agreed by the Administrative Agent and such L/C Issuer, such Letter of Credit is in an initial stated amount less than $10,000;
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(D) such Letter of Credit is to be denominated in a currency other than Dollars;
(E) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder; or
(F) (x) a default of any Lenders obligations to fund under Section 2.03(c) exists or (y) any Revolving Credit Lender is at such time a Defaulting Lender hereunder, in each case unless such L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to such L/C Issuer (in its sole discretion) with the Borrower or such Lender to eliminate such L/C Issuers actual or reasonably determined potential Fronting Exposure (after giving effect to Sections 2.15(a)(iv ) and 2.15(a)(v) ) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or such Letter of Credit and all other L/C Obligations as to which such L/C Issuer has actual or reasonably determined potential Fronting Exposure.
(iv) No L/C Issuer shall be under any obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
(v) Each L/C Issuer shall act on behalf of the Revolving Credit Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and each L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by such L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and the Issuer Documents pertaining to such Letters of Credit as fully as if the term Administrative Agent as used in Article IX included such L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to such L/C Issuer.
(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the applicable L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer. Such Letter of Credit Application must be received by the applicable L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the applicable L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to the applicable L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the applicable L/C Issuer may reasonably request. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the applicable L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the applicable L/C Issuer may reasonably request.
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(ii) Promptly after receipt of any Letter of Credit Application, the applicable L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the applicable L/C Issuer has received written notice from any Revolving Credit Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with such L/C Issuers usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the applicable L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Revolving Credit Lenders Applicable Revolving Credit Percentage times the amount of such Letter of Credit.
(iii) If the Borrower so requests in any applicable Letter of Credit Application, the applicable L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an Auto-Extension Letter of Credit ); provided that any such Auto-Extension Letter of Credit must permit such L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the Non-Extension Notice Date ) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable L/C Issuer, the Borrower shall not be required to make a specific request to such L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Revolving Credit Lenders shall be deemed to have authorized (but may not require) the applicable L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided , however , that such L/C Issuer shall not permit any such extension if (A) such L/C Issuer has determined that it would not be permitted, or would have no obligation at such time, to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven Business Days before the Non-Extension Notice Date from the Administrative Agent, any Revolving Credit Lender or the Borrower that one or more of the applicable conditions specified in Section 4.03 is not then satisfied, and in each such case directing such L/C Issuer not to permit such extension.
(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the applicable L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
(v) For so long as any Letter of Credit issued by an L/C Issuer other than Scotiabank is outstanding, such L/C Issuer shall deliver to the Administrative Agent on the last Business Day of each calendar month, and on each date that an L/C Credit Extension occurs with respect to any such Letter of Credit, a report in the form of Exhibit J hereto, appropriately completed with the information for every outstanding Letter of Credit issued by such L/C Issuer.
(c) Drawings and Reimbursements; Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable L/C Issuer shall notify the Borrower and the Administrative Agent thereof. Not later than 11:00 a.m. on the date of any payment by the applicable L/C Issuer under a
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Letter of Credit (each such date, an Honor Date ), the Borrower shall reimburse such L/C Issuer through the Administrative Agent in an amount in Dollars equal to the amount of such drawing; provided that, if notice of such drawing is not provided to the Borrower prior to 9:00 a.m. on the Honor Date, then the Borrower shall reimburse such L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing on the next succeeding Business Day and such extension of time shall be reflected in computing fees in respect of the applicable Letter of Credit. If the Borrower fails to so reimburse such L/C Issuer by such time, the Administrative Agent shall promptly notify each Revolving Credit Lender of the Honor Date, the amount of the unreimbursed drawing (the Unreimbursed Amount ), and the amount in Dollars of such Revolving Credit Lenders Applicable Revolving Credit Percentage thereof. In such event, the Borrower shall be deemed to have requested a Revolving Credit Borrowing of Base Rate Loans to be disbursed on the Honor Date (or the next succeeding Business Day, as the case may be) in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Revolving Credit Commitments and the conditions set forth in Section 4.03 (other than the delivery of a Committed Loan Notice). Any notice given by an L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
(ii) Each Revolving Credit Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the applicable L/C Issuer at the Administrative Agents Office in an amount equal to its Applicable Revolving Credit Percentage of the Unreimbursed Amount not later than 2:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii) , each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan under the Revolving Credit Facility to the Borrower in such amount. The Administrative Agent shall remit the funds so received to such L/C Issuer.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.03 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the applicable L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Revolving Credit Lender shall make the payment set forth in Section 2.03(c)(ii) regardless of the satisfaction of the conditions set forth in Section 4.03 and such Revolving Credit Lenders payment to the Administrative Agent for the account of such L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03 .
(iv) Until each Revolving Credit Lender funds its Revolving Credit Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the applicable L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lenders Applicable Revolving Credit Percentage of such amount shall be solely for the account of such L/C Issuer.
(v) Each Revolving Credit Lenders obligation to make Revolving Credit Loans or L/C Advances to reimburse the applicable L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c) , shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against such L/C Issuer, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse such L/C Issuer for the amount of any payment made by such L/C Issuer under any Letter of Credit, together with interest as provided herein.
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(vi) If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of any L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii) , such L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to such L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by such L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by such L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lenders committed Loan included in the relevant committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of such L/C Issuer submitted to any Revolving Credit Lender (through the Administrative Agent) with respect to any amounts owing under this Section 2.03(c)(vi) shall be conclusive absent manifest error.
(d) Repayment of Participations.
(i) At any time after any L/C Issuer has made a payment under any Letter of Credit and has received from any Revolving Credit Lender such Lenders L/C Advance in respect of such payment in accordance with Section 2.03(c) , if the Administrative Agent receives for the account of such L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Revolving Credit Percentage thereof in Dollars in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of any L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by such L/C Issuer in its discretion), each Revolving Credit Lender shall pay to the Administrative Agent for the account of such L/C Issuer its Applicable Revolving Credit Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Obligations Absolute . The obligation of the Borrower to reimburse the applicable L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement or any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), such L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
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(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) any payment by such L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by such L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or
(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any of its Subsidiaries;
provided that the foregoing shall not excuse any L/C Issuer from liability to the Borrower or any Subsidiary to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are waived by the Borrower or such Subsidiary to the extent permitted by applicable Law) suffered by the Borrower or such Subsidiary that are caused by such L/C Issuers gross negligence or willful misconduct.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrowers instructions or other irregularity, the Borrower will immediately notify the applicable L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against such L/C Issuer and its correspondents unless such notice is given as aforesaid.
(f) Role of L/C Issuer . Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuers shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuers shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Revolving Credit Lenders or a Majority in Interest of the Revolving Credit Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided , however , that this assumption is not intended to, and shall not, preclude the Borrowers pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, the Administrative Agent, any of their respective Related Parties or any correspondent, participant or assignee of any L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e) ; provided , however , that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against an L/C Issuer, and an L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such L/C Issuers willful misconduct or gross negligence or such L/C Issuers willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the L/C Issuers may accept documents that appear on their face to be in order, without responsibility for further investigation,
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regardless of any notice or information to the contrary, and the L/C Issuers shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.
(g) Cash Collateral . Upon the request of any L/C Issuer, (i) if the applicable L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, (ii) if, after the issuance of any Letter of Credit, any Revolving Credit Lender becomes a Defaulting Lender or (iii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, then the Borrower shall, in each case, as promptly as practicable (and in any event within two Business Days) Cash Collateralize, as applicable, in an amount sufficient to cover all Fronting Exposure (after giving effect to Section 2.15(a)(iv) and any Cash Collateral provided by the Defaulting Lender), (A) the then Outstanding Amount of all L/C Obligations or (B) in the case of clause (ii) above, the Applicable Revolving Credit Percentage of such Defaulting Lender of the then Outstanding Amount of all L/C Obligations, or, in the case of clause (iii), provide a back-to-back letter of credit in a face amount at least equal to the then undrawn amount of such L/C Obligation from an issuer and in form and substance reasonably satisfactory to the applicable L/C Issuer. Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder. The Borrower hereby grants to the Administrative Agent, for the benefit of the applicable L/C Issuer and the Revolving Credit Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at the Administrative Agent or the applicable L/C Issuer. If at any time the Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Administrative Agent or the applicable L/C Issuer or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent or the applicable L/C Issuer, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the applicable L/C Issuer. To the extent that, at any time, the amount of Cash Collateral exceeds the aggregate Outstanding Amount of all L/C Obligations at such time and so long as no Event of Default has occurred and is continuing, the excess shall be promptly refunded to the Borrower.
(h) Applicability of ISP and UCP . Unless otherwise expressly agreed by the applicable L/C Issuer and the Borrower when a Letter of Credit is issued (including any such agreement applicable to an Existing Letter of Credit), (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by the International Chamber of Commerce at the time of issuance, shall apply to each commercial Letter of Credit.
(i) Letter of Credit Fees . The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable Revolving Credit Percentage a Letter of Credit fee (the Letter of Credit Fee ) for each Letter of Credit equal to the Applicable Rate times the daily amount available to be drawn under such Letter of Credit; provided , however , any Letter of Credit Fees otherwise payable for the account of a Defaulting Lender with respect to any Letter of Credit as to which such Defaulting Lender has not provided Cash Collateral satisfactory to the L/C Issuer pursuant to this Section 2.03 shall be payable, to the maximum extent permitted by applicable Law, to the other Lenders in accordance with the upward adjustments in their respective Applicable Revolving Credit Percentages allocable to such Letter of Credit pursuant to Section 2.15(a)(iv) , with the balance of such fee, if any, payable to the L/C Issuer for its own account. For purposes of computing the daily amount
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available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . Letter of Credit Fees shall be (i) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Majority in Interest of the Revolving Credit Lenders, while any Event of Default pursuant to Section 8.01(a) exists, all overdue Letter of Credit Fees shall accrue at the Default Rate.
(j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer . The Borrower shall pay directly to the respective L/C Issuer for its own account a fronting fee with respect to each Letter of Credit issued by such L/C Issuer, at a rate separately agreed to between the Borrower and such L/C Issuer, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee shall be due and payable on the tenth Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06 . In addition, the Borrower shall pay directly to such L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
(k) Conflict with Issuer Documents . In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
(l) Letters of Credit Issued for Subsidiaries . Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrower shall be obligated to reimburse the applicable L/C Issuer hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account of Subsidiaries inures to the benefit of the Borrower, and that the Borrowers business derives substantial benefits from the businesses of such Subsidiaries.
2.04 Swing Line Loans .
(a) The Swing Line . Subject to the terms and conditions set forth herein, the Swing Line Lender agrees it may, in reliance upon the agreements of the other Revolving Credit Lenders set forth in this Section 2.04 , in its sole discretion make loans in Dollars (each such loan, a Swing Line Loan ) to the Borrower from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Revolving Credit Percentage of the Outstanding Amount of Revolving Credit Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lenders Revolving Credit Commitment; provided that the Swing Line Lender shall be under no obligation to make Swing Line Loans at any time if any Lender is at such time a Defaulting Lender hereunder (unless that Defaulting Lenders participation in the Swing Line Loan would be reallocated, in full, to non-Defaulting Lenders in accordance with Section 2.15(a)(iv) ); provided , further , however , that after giving effect to any Swing Line Loan, (i) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility at such time and (ii) the aggregate Outstanding
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Amount of the Revolving Credit Loans of any Revolving Credit Lender at such time, plus such Revolving Credit Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations at such time, plus such Revolving Credit Lenders Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans at such time shall not exceed such Revolving Credit Lenders Revolving Credit Commitment, and provided , further , that the Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.04 , prepay under Section 2.05 , and reborrow under this Section 2.04 . Each Swing Line Loan shall bear interest only at a rate based on the Base Rate. Immediately upon the making of a Swing Line Loan, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Revolving Credit Lenders Applicable Revolving Credit Percentage times the principal amount of such Swing Line Loan.
(b) Borrowing Procedures . Each Swing Line Borrowing shall be made upon the Borrowers irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date or such later time on the requested borrowing date as may be approved by the Swing Line Lender in its sole discretion, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Revolving Credit Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the first and the second provisos to the first sentence of Section 2.04(a) , or (B) that one or more of the applicable conditions specified in Section 4.03 is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrower.
(c) Refinancing of Swing Line Loans . (i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Revolving Credit Lender make a Base Rate Loan in an amount equal to such Lenders Applicable Revolving Credit Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02 , without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Revolving Credit Facility and the conditions set forth in Section 4.03 . The Swing Line Lender shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Revolving Credit Lender shall make an amount equal to its Applicable Revolving Credit Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agents Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii) , each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.
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(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Credit Borrowing in accordance with Section 2.04(c)(i) , the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Revolving Credit Lenders fund its risk participation in the relevant Swing Line Loan and each Revolving Credit Lender shall make the payment set forth in Section 2.04(c)(i) regardless of the satisfaction of the conditions set forth in Section 4.03 and such Revolving Credit Lenders payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.
(iii) If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i) , the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lenders Revolving Credit Loan included in the relevant Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.
(iv) Each Revolving Credit Lenders obligation to make Revolving Credit Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swing Line Loans, together with interest as provided herein.
(d) Repayment of Participations . (i) At any time after any Revolving Credit Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Revolving Credit Lender its Applicable Revolving Credit Percentage thereof in the same funds as those received by the Swing Line Lender.
(ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Revolving Credit Lender shall pay to the Swing Line Lender its Applicable Revolving Credit Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
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(e) Interest for Account of Swing Line Lender . The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Revolving Credit Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Revolving Credit Lenders Applicable Revolving Credit Percentage of any Swing Line Loan, interest in respect of such Applicable Revolving Credit Percentage shall be solely for the account of the Swing Line Lender.
(f) Payments Directly to Swing Line Lender . The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
2.05 Prepayments .
(a) Optional .
(i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Term A Loans and Revolving Credit Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. (1) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (2) on the date of prepayment of Base Rate Loans; (B) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (C) any prepayment of Base Rate Loans shall be in a principal amount of $300,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment with respect to each Class of Loans to be prepaid and the Type(s) of Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each applicable Lender of its receipt of each such notice, and of the amount of such Lenders ratable portion of such prepayment (based on such Lenders Applicable Percentage in respect of the relevant Facility). If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided that a notice of optional prepayment may state that such notice is conditional upon the effectiveness of any facility or instrument refinancing all or a portion of the outstanding Term A Loans or Revolving Credit Loans and Revolving Credit Commitments or upon the consummation of an acquisition transaction, in which case such notice of prepayment may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date) if such condition is not satisfied. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05 .
(ii) Each prepayment of the outstanding Term A Loans pursuant to Section 2.05(a)(i) shall be applied to the then remaining principal repayment installments of the Term A Facility as the Borrower directs, and each prepayment of Term A Loans and Revolving Credit Loans shall be paid to the Lenders in accordance with their respective Applicable Percentages in respect of each of the relevant Facilities.
(iii) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment and (B) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.
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(b) Mandatory .
(i) If the Borrower or any of its Subsidiaries Disposes of any property (other than any Disposition of any property permitted by Section 7.05(a) , (b) , (c) , (d) , (e) , (f) , (h) , (i) , (j) , (k) or (l)) or any Casualty Event occurs, which results in the realization by such Person of Net Cash Proceeds, the Borrower shall prepay an aggregate principal amount of Term A Loans equal to 100% of such Net Cash Proceeds (or, if the Borrower or any of its Subsidiaries has incurred Indebtedness that is permitted under Section 7.02 that is secured, on an equal and ratable basis with the Term A Loans, by a Lien on the Collateral permitted under Section 7.01, and such Indebtedness is required to be prepaid or redeemed with the net proceeds of any such Disposition or Casualty Event, then such lesser percentage of such Net Cash Proceeds such that such Indebtedness receives no greater than a ratable percentage of such Net Cash Proceeds based on the aggregate principal amount of Term A Loans and such Indebtedness then outstanding) promptly, but in any event within five Business Days, after the later of (A) receipt thereof by such Person and (B) the expiration of the 5-day period provided below (such prepayments to be applied as set forth in clause (iii) and subject to clauses (iv) and (v) below); provided , however , that with respect to any such Net Cash Proceeds received by or paid to or for the account of the Borrower or any of its Subsidiaries, at the election of the Borrower (as notified by the Borrower to the Administrative Agent not more than 5 days after receiving the Net Cash Proceeds therefrom), and so long as no Default shall have occurred and be continuing, the Borrower or such Subsidiary (x) may reinvest all or any portion of such Net Cash Proceeds in assets that are used or useful in the business of the Borrower and its Subsidiaries so long as within 12 months after the receipt of such Net Cash Proceeds such reinvestment shall have been completed or (y) may enter into a binding commitment to reinvest all or any portion of such Net Cash Proceeds in such assets so long as such binding commitment is entered into within 12 months after the receipt of such Net Cash Proceeds and within 18 months after the receipt of such Net Cash Proceeds such reinvestment shall have been completed, and, subject to the next succeeding proviso, no prepayment under this Section 2.05(b)(i) shall be required with respect to that portion of such Net Cash Proceeds that the Borrower elects to reinvest in accordance with the immediately preceding clause (x) or (y); and provided , further , however , that any Net Cash Proceeds not so applied in accordance with clause (x) or (y) of the immediately preceding proviso shall be promptly, but in any event within five Business Days after the end of the applicable reinvestment period, applied to the prepayment of the Term A Loans as set forth in this Section 2.05(b)(i) .
(ii) Upon the incurrence or issuance by the Borrower or any of its Subsidiaries of any Indebtedness (x) not expressly permitted to be incurred or issued pursuant to Section 7.02 or (y) that constitutes Refinancing Commitments, Refinancing Loans or Refinancing Equivalent Debt, the Borrower shall prepay an aggregate principal amount of Term A Loans equal to 100% of all Net Cash Proceeds received therefrom promptly, but in any event within five Business Days, after receipt thereof by the Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (iii) below and subject to clause (iv) below).
(iii) Each prepayment of Term A Loans pursuant to the foregoing provisions of this Section 2.05(b) shall be applied ratably to the Term A Loans then outstanding and to the principal repayment installments thereof as directed by the Borrower.
(iv) Notwithstanding any of the other provisions of clause (i) or (ii) of this Section 2.05(b) , so long as no Default under Section 8.01(a) or Section 8.01(f) , or any Event of Default, shall have occurred and be continuing, if, on any date on which a prepayment would otherwise be required to be made pursuant to clause (i) or (ii) of this Section 2.05(b) , the aggregate amount of Net Cash Proceeds required by such clause to be applied to prepay Term A Loans on such date is less than or equal to $1,000,000, the Borrower may defer such prepayment until the first date on which the aggregate amount of Net Cash Proceeds or other amounts otherwise required under clause (i) or (ii) of this Section 2.05(b) to be applied to prepay Term A Loans exceeds $1,000,000, in which case the prepayment amount shall be such excess over $1,000,000. During such deferral period the Borrower may apply all or any part of such aggregate
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amount to prepay Revolving Credit Loans and may, subject to the fulfillment of the applicable conditions set forth in Article IV , reborrow such amounts (which amounts, to the extent originally constituting Net Cash Proceeds, shall be deemed to retain their original character as Net Cash Proceeds when so reborrowed) for application as required by this Section 2.05(b) . Upon the occurrence of a Default under Section 8.01(a) or Section 8.01(f) , or an Event of Default, during any such deferral period, the Borrower shall immediately prepay the Term A Loans in the amount of all Net Cash Proceeds received by the Borrower and other amounts, as applicable, that are required to be applied to prepay Term A Loans under this Section 2.05(b) (without giving effect to the first and second sentences of this clause (iv)) but which have not previously been so applied.
(v) Notwithstanding any other provisions of this Section 2.05(b) , (A) to the extent that any or all of the Net Cash Proceeds of any Disposition by a Foreign Subsidiary giving rise to a prepayment event pursuant to Section 2.05(b)(i) (a Foreign Disposition ) or the Net Cash Proceeds of any Casualty Event from a Foreign Subsidiary (a Foreign Casualty Event ) are prohibited or delayed by applicable local Law from being repatriated to the United States, the portion of such Net Cash Proceeds so affected will not be required to be applied to prepay Term A Loans at the time provided in this Section 2.05(b) but may be retained by the applicable Foreign Subsidiary so long, but only so long, as the applicable local Law will not permit repatriation to the United States (the Borrower hereby agreeing to cause the applicable Foreign Subsidiary to promptly take all actions reasonably required by the applicable local Law to permit such repatriation), and once such repatriation of any of such affected Net Cash Proceeds is permitted under the applicable local Law, such repatriation will be promptly effected and an amount equal to such repatriated Net Cash Proceeds will be promptly (and in event not later than two (2) Business Days after such repatriation) applied (net of additional taxes payable or reserved against as a result thereof) to the prepayment of the Term A Loans pursuant to this Section 2.05(b) to the extent otherwise provided herein and (B) to the extent that the Borrower has determined in good faith that repatriation of any of or all the Net Cash Proceeds of any Foreign Disposition or any Foreign Casualty Event would have a material adverse tax consequence with respect to such Net Cash Proceeds, the Net Cash Proceeds so affected may be retained by the applicable Foreign Subsidiary.
(vi) If for any reason the Total Revolving Credit Outstandings at any time exceed the Revolving Credit Facility at such time, the Borrower shall immediately prepay Revolving Credit Loans, L/C Borrowings and Swing Line Loans and/or Cash Collateralize such L/C Obligations (other than the L/C Borrowings) in an aggregate amount equal to such excess.
(vii) Prepayments of the Revolving Credit Facility made pursuant to clause (vi) of this Section 2.05(b) , first, shall be applied ratably to the L/C Borrowings and Swing Line Loans, second, shall be applied ratably to the outstanding Revolving Credit Loans, and, third, shall be used to Cash Collateralize the remaining L/C Obligations. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrower) to reimburse the applicable L/C Issuer or the Revolving Credit Lenders, as applicable.
2.06 Termination or Reduction of Commitments .
(a) Optional . The Borrower may, upon notice to the Administrative Agent, terminate the Term A Facility, the Revolving Credit Facility, the Letter of Credit Sublimit or the Swing Line Sublimit or from time to time permanently reduce the Term A Facility, the Revolving Credit Facility, the Letter of Credit Sublimit or the Swing Line Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. three Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $4,000,000 or any whole multiple of $1,000,000 in excess thereof and (iii) the Borrower shall not terminate or reduce (A) the Revolving Credit Facility if, after giving effect thereto and to any concurrent prepayments hereunder, the Total
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Revolving Credit Outstandings would exceed the Revolving Credit Facility, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit Sublimit or (C) the Swing Line Sublimit if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of Swing Line Loans would exceed the Swing Line Sublimit. A notice of termination or reduction of the Term A Facility, the Revolving Credit Facility, the Letter of Credit Sublimit or the Swing Line Sublimit delivered by the Borrower may state that such notice is conditioned upon the effectiveness of any facility or instrument refinancing all or a portion of the outstanding Term A Commitments, Term A Loans or Revolving Credit Commitments or upon the consummation of an acquisition transaction, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied.
(b) Mandatory .
(i) Unless previously terminated in accordance with the terms hereof, the aggregate Term A Commitments shall be automatically and permanently reduced to zero at the close of business on the Funding Date.
(ii) If after giving effect to any reduction or termination of Revolving Credit Commitments under this Section 2.06 , the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the Revolving Credit Facility at such time, the Letter of Credit Sublimit or the Swing Line Sublimit, as the case may be, shall be automatically reduced by the amount of such excess.
(c) Application of Commitment Reductions; Payment of Fees . The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Term A Facility, the Letter of Credit Sublimit, the Swing Line Sublimit or the Revolving Credit Facility under this Section 2.06 . Upon any such reduction, the Term A Facility or the Revolving Credit Facility, the Term A Commitment or the Revolving Credit Commitment, as the case may be, of each Lender, shall be reduced by such Lenders Applicable Percentage in respect of the applicable Facility of such reduction amount. All fees in respect of the Revolving Credit Facility accrued until the effective date of any termination of the Revolving Credit Facility shall be paid on the effective date of such termination.
2.07 Repayment of Loans .
(a) Term A Loans . The Borrower shall repay to the Term A Lenders the aggregate principal amount of all Term A Loans outstanding on the last day of each full fiscal quarter set forth below ending after the Funding Date in the respective amounts set forth opposite such fiscal quarter (which amounts shall be reduced (i) ratably by the aggregate amount of any reduction in the Term A Commitments prior to the Funding Date and (ii) as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05(a)(ii) and Section 2.05(b)(iii) ):
Fiscal Quarter |
Amount | |||
1 st fiscal quarter |
$ | 10,937,500.00 | ||
2 nd fiscal quarter |
$ | 10,937,500.00 | ||
3 rd fiscal quarter |
$ | 10,937,500.00 | ||
4 th fiscal quarter |
$ | 10,937,500.00 | ||
5 th fiscal quarter |
$ | 10,937,500.00 | ||
6 th fiscal quarter |
$ | 10,937,500.00 | ||
7 th fiscal quarter |
$ | 10,937,500.00 | ||
8 th fiscal quarter |
$ | 10,937,500.00 |
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Fiscal Quarter |
Amount | |||
9 th fiscal quarter |
$ | 21,875,000.00 | ||
10 th fiscal quarter |
$ | 21,875,000.00 | ||
11 th fiscal quarter |
$ | 21,875,000.00 | ||
12 th fiscal quarter |
$ | 21,875,000.00 | ||
13 th fiscal quarter |
$ | 21,875,000.00 | ||
14 th fiscal quarter |
$ | 21,875,000.00 | ||
15 th fiscal quarter |
$ | 21,875,000.00 | ||
16 th fiscal quarter |
$ | 21,875,000.00 | ||
17 th fiscal quarter |
$ | 43,750,000.00 | ||
18 th fiscal quarter |
$ | 43,750,000.00 | ||
19 th fiscal quarter |
$ | 43,750,000.00 | ||
Term A Facility Maturity Date |
$ | 481,250,000.00 |
provided , however , that the final principal repayment installment of the Term A Loans shall be repaid on the Maturity Date for the Term A Facility and in any event shall be in an amount equal to the aggregate principal amount of all Term A Loans outstanding on such date.
(b) Revolving Credit Loans . The Borrower shall repay to the Revolving Credit Lenders on the Maturity Date for the Revolving Credit Facility the aggregate principal amount of all Revolving Credit Loans outstanding on such date.
(c) Swing Line Loans . The Borrower shall repay each Swing Line Loan on the earlier to occur of (i) the date ten Business Days after such Loan is made and (ii) the Maturity Date for the Revolving Credit Facility.
2.08 Interest .
(a) Subject to the provisions of Section 2.08(b) , (i) each Eurodollar Rate Loan under a Facility shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate for such Facility; (ii) each Base Rate Loan under a Facility shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for such Facility; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for the Revolving Credit Facility.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(c) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(d) The Borrower shall pay interest on each Loan in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
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2.09 Fees . In addition to certain fees described in Sections 2.03(i) and (j) :
(a) Commitment Fee . The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable Revolving Credit Percentage, a commitment fee equal to the Applicable Fee Rate times the actual daily amount by which the Revolving Credit Facility exceeds the sum of (i) the Outstanding Amount of Revolving Credit Loans and (ii) the Outstanding Amount of L/C Obligations. The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Funding Date, and on the last day of the Availability Period. The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Fee Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Fee Rate separately for each period during such quarter that such Applicable Fee Rate was in effect.
(b) Ticking Fee . The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a ticking fee equal to 0.375% per annum times the actual daily amount of the Commitments. The ticking fee shall accrue from the date that is ninety days after the Effective Date until the Funding Date and shall be due and payable on the earlier of (i) the date this Agreement and the Commitments are terminated without funding of the Loans and (ii) the Funding Date.
(c) Other Fees .
(i) The Borrower shall pay to the Administrative Agent and each Arranger for their own respective accounts, fees as separately agreed among the Borrower and the Administrative Agent or such Arranger, as the case may be. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate .
(a) All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to the Eurodollar Rate) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a) , bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
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(b) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders reasonably determine that (i) the Consolidated First Lien Net Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated First Lien Net Leverage Ratio would have resulted in higher pricing for such period, then the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders or the applicable L/C Issuer, as the case may be, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or any L/C Issuer), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or any L/C Issuer, as the case may be, under Section 2.03(c)(iii) , 2.03(i) or 2.08(b) or under Article VIII . The Borrowers obligations under this paragraph shall survive the termination of the Aggregate Commitments and the repayment of all other Obligations hereunder.
2.11 Evidence of Debt .
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lenders Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
(b) In addition to the accounts and records referred to in Section 2.11(a) , each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.12 Payments Generally; Administrative Agent s Clawback .
(a) General . All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agents Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage in respect of the relevant Facility (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lenders Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected on computing interest or fees, as the case may be.
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(b) (i) Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall have received notice from a Lender prior to the proposed time of any Borrowing of Loans that such Lender will not make available to the Administrative Agent such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02 ) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lenders Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent . Unless the Administrative Agent shall have received notice from the Borrower prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders or any L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Appropriate Lenders or the applicable L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Appropriate Lenders or the applicable L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II , and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
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(d) Obligations of Lenders Several . The obligations of the Lenders hereunder to make Term A Loans and Revolving Credit Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 10.04(c) .
(e) Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
(f) Insufficient Funds . If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, L/C Borrowings, interest and fees then due hereunder, such funds shall be applied (i) first , toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second , toward payment of principal and L/C Borrowings then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and L/C Borrowings then due to such parties.
2.13 Sharing of Payments by Lenders . If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (a) Obligations in respect of any of the Facilities due and payable to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of such Facility due and payable to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations in respect of such Facility due and payable to all Lenders hereunder and under the other Loan Documents at such time obtained by all the Lenders at such time or (b) Obligations in respect of any of such Facility owing (but not due and payable) to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of such Facility owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time) of payment on account of the Obligations in respect of such Facility owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time obtained by all of the Lenders at such time, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders in respect of such Facility ratably in accordance with the aggregate amount of Obligations in respect of such Facility then due and payable to the Lenders or owing (but not due and payable) to the Lenders, as the case may be; provided that:
(a) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(b) the provisions of this Section 2.13 shall not be construed to apply to (A) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee
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or participant, other than to the Borrower or any Subsidiary thereof in a transaction that is not consummated in accordance with Section 10.06(h) (as to which the provisions of this Section shall apply) or (C) Cash Collateral or other security given by the Borrower or any Lender to the L/C Issuer pursuant to this Agreement.
The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
2.14 Incremental Facilities .
(a) Request for Incremental Facilities . Upon notice to the Administrative Agent, the Borrower may at any time and from time to time after the Funding Date request (x) an increase in the Revolving Credit Facility (each a Revolving Commitment Increase ) or the establishment of one or more new revolving credit facilities (each an Incremental Revolving Credit Facility ; and, collectively with any Revolving Commitment Increases, the Incremental Revolving Credit Commitments ); provided that any such request for an increase shall be in a minimum amount of $5,000,000, and/or (y) an increase in the Term A Facility (each, an Term A Loan Increase ) or the establishment of one more new term loan credit facilities (each, an Incremental Term Loan Facility ; and, collectively with any Term A Loan Increases, the Incremental Term Commitments and any Incremental Term Commitments, collectively with any Incremental Revolving Credit Commitments, the Incremental Commitments ); provided that any such request for an increase shall be in a minimum amount of $5,000,000. There may be no more than eight different Classes in the aggregate of all Loans and Commitments under this Agreement without the consent of the Administrative Agent (which consent shall not be unreasonably withheld, conditioned or delayed).
(b) Incremental Loans . Any Incremental Commitments effected through the establishment of one or more new tranches of term loans or new revolving credit commitments, as applicable, made on an Incremental Facility Closing Date (other than, for the avoidance of doubt, a Loan Increase) shall be designated a separate Class of Loans and Commitments for all purposes of this Agreement. On any Incremental Facility Closing Date on which any Incremental Term Commitments of any Class are effected (including through any Term A Loan Increase), subject to the satisfaction of the terms and conditions in this Section 2.14, (i) each Incremental Term Lender of such Class shall make a Loan to the Borrower (an Incremental Term Loan ) in an amount equal to its Incremental Term Commitment of such Class and (ii) each Incremental Term Lender of such Class shall become a Lender hereunder with respect to the Incremental Term Commitment of such Class and the Incremental Term Loans of such Class made pursuant thereto. On any Incremental Facility Closing Date on which any Incremental Revolving Credit Commitments of any Class are effected (including through any Revolving Commitment Increase), subject to the satisfaction of the terms and conditions in this Section 2.14 , (i) each Incremental Revolving Credit Lender of such Class shall make its Commitment available to the Borrower (when borrowed, an Incremental Revolving Loan and collectively with any Incremental Term Loan, an Incremental Loan ) in an amount equal to its Incremental Revolving Credit Commitment of such Class and (ii) each Incremental Revolving Credit Lender of such Class shall become a Lender hereunder with respect to the Incremental Revolving Credit Commitment of such Class and the Incremental Revolving Loans of such Class made pursuant thereto. Notwithstanding the foregoing, Incremental Term Loans may have identical terms to any of the then existing Terms A Loans and be treated as the same Class as any of such Term A Loans.
(c) Incremental Lenders . Incremental Term Loans and Incremental Revolving Loans may be made, and Incremental Term Commitments and Incremental Revolving Credit Commitments may be provided, by (x) existing Lenders; provided that any existing Lender approached to provide all or a portion of
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the Incremental Commitments may elect or decline, in its sole discretion, to provide such Incremental Commitments; provided further that the Borrower will have no obligation to approach any existing Lenders to provide any Incremental Commitments or (y) Additional Lenders (each such existing Lender or Additional Lender providing such Loan or Commitment, an Incremental Term Lender or Incremental Revolving Credit Lender , as applicable, and, collectively, the Incremental Lenders ).
(d) Incremental Amendment . Incremental Commitments shall become Commitments (or in the case of an Incremental Revolving Credit Commitment to be provided by an existing Revolving Credit Lender, an increase in such Lenders applicable Revolving Credit Commitment), under this Agreement pursuant to an amendment (an Incremental Amendment ) to this Agreement and, as appropriate, the other Loan Documents, executed by the Borrower, each Incremental Lender providing such Incremental Commitments and the Administrative Agent. The Incremental Amendment may, without the consent of any other Loan Party or Lender, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.14 . In connection with any Incremental Amendment, the Borrower shall, if reasonably requested by the Administrative Agent, delivery customary reaffirmation agreements and/or such amendments to the Collateral Documents as may be reasonably requested by the Administrative Agent in order to ensure that such Incremental Loans are provided with the benefit of the applicable Loan Documents.
(e) Conditions to Effectiveness of Incremental Amendment . The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (the Incremental Facility Closing Date ) of each of the following conditions:
(i) the Borrower shall deliver to the Administrative Agent a certificate of the Borrower dated as of the Incremental Facility Closing Date signed by a Responsible Officer (A) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such Incremental Amendment, and (B) certifying that, before and after giving effect to such Incremental Amendment, (I) the representations and warranties contained in Article V and the other Loan Documents are true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) on and as of the Incremental Facility Closing Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (or in all respects, as the case may be) as of such earlier date, and except that for purposes of this Section 2.14 , the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 and except in the case of Incremental Term Loans or Incremental Revolving Credit Commitments to finance a Limited Condition Acquisition which shall, if agreed to by the relevant Incremental Lenders, only be subject to customary specified representations and warranties with respect to the Borrower and its Subsidiaries (excluding, for the avoidance of doubt, the acquired company and its Subsidiaries) and customary specified acquisition agreement representations and warranties with respect to the acquired company and its Subsidiaries;
(ii) no Event of Default (or, in the case of Incremental Term Loans or Incremental Revolving Credit Commitments to finance a Limited Condition Acquisition, no Event of Default under Sections 8.01(a) , (f) or (g)(i) ) has occurred and is continuing on and as of the Incremental Facility Closing Date and immediately after giving effect to such Incremental Term Loans or Incremental Revolving Credit Commitments and the use of proceeds thereof;
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(iii) the aggregate principal amount of the Incremental Term Loans and the Incremental Revolving Credit Commitments shall not, together with the aggregate principal amount of Incremental Equivalent Debt, exceed the sum of (A) $300,000,000 plus (B) additional amounts so long as the Consolidated First Lien Net Leverage Ratio (to include, solely for the purposes of determining availability under this clause (B), all such Incremental Term Loans, Incremental Revolving Credit Commitments and Incremental Equivalent Debt, whether or not such Incremental Term Loans, Incremental Revolving Credit Commitments or Incremental Equivalent Debt are unsecured or secured by Liens junior to the Lien securing the Obligations), on a Pro Forma Basis after giving effect to such Incremental Term Loans and Incremental Revolving Credit Commitments (in each case, other than any amounts incurred simultaneously under clause (A)) and the use of proceeds thereof, for the most recently ended Measurement Period for which financial statements are internally available does not exceed 2.00:1.00, in each case (x) with respect to any Incremental Revolving Credit Commitments, assuming a full borrowing of the Incremental Revolving Loans thereunder and (y) without netting the cash proceeds of any such Incremental Loans or Incremental Equivalent Debt (the aggregate principal amount available under clauses (A) and (B), the Available Incremental Amount ); and
(iv) in the event a Mortgaged Property exists that is a Flood Hazard Property, the Flood Insurance Requirements shall be satisfied (or re-satisfied, as applicable) with respect to such Mortgaged Property.
(f) Required Terms . The terms, provisions and documentation of the Incremental Term Loans and Incremental Term Commitments or the Incremental Revolving Loans and Incremental Revolving Credit Commitments, as the case may be, of any Class, including any Loan Increase, shall be as agreed between the Borrower and the applicable Incremental Lenders providing such Incremental Commitments, and except as otherwise set forth herein, to the extent not identical to the Term A Loans or Revolving Credit Commitments, as applicable, existing on the Incremental Facility Closing Date, shall be reasonably satisfactory to Administrative Agent, the Borrower and the Incremental Lenders providing such Incremental Commitments; provided that in the case of a Term A Loan Increase or a Revolving Commitment Increase, the terms, provisions and documentation of such Term A Loan Increase or a Revolving Commitment Increase shall be identical (other than with respect to upfront fees, OID or similar fees, it being understood that, if required to consummate such Loan Increase transaction, the interest rate margins and rate floors may be increased and additional upfront or similar fees may be payable to the lenders providing such Loan Increase) to the terms, provisions and documentation of the applicable Term A Loans or Revolving Credit Commitments being increased, in each case, as existing on the applicable Incremental Facility Closing Date. In any event:
(i) the Incremental Term Loans under any Incremental Term Loan Facility:
(A) shall rank equal or junior in right of payment of and of security with the Term A Loans and Revolving Credit Loans or may be unsecured; provided that all Incremental Term Loans that are secured by Liens that rank junior in right of payment and of security with the Term A Loans and Revolving Credit Loans shall be subject to an intercreditor agreement on terms reasonably acceptable to the Administrative Agent and the Borrower;
(B) shall not mature earlier than the Maturity Date with respect to the then existing Term Loan A Facility;
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(C) shall have a Weighted Average Life to Maturity not shorter than the remaining Weighted Average Life to Maturity of the then existing Term A Loans on the date of incurrence of such Incremental Term Loans;
(D) subject to clauses (f)(i)(B) and f(i)(C) above and clause (f)(iii) below, shall have an Applicable Rate and amortization determined by the Borrower and the applicable Incremental Term Lenders;
(E) may participate on a pro rata basis or less than pro rata basis (but not on a greater than pro rata basis) in any mandatory prepayments of then existing Term A Loans under Section 2.05 , as specified in the applicable Incremental Amendment;
(F) shall not be secured by any assets not constituting Collateral and shall not be Guaranteed by any Person other than the Guarantors; and
(G) in the case of term loan B Incremental Term Loans, may provide for customary prepayments or offers to prepay based on excess cash flow;
(ii) the Incremental Revolving Credit Commitments and Incremental Revolving Loans under any Incremental Revolving Credit Facility:
(A) shall rank equal in right of payment and of security with the Revolving Credit Loans and the Term A Loans;
(B) shall not mature earlier than the Maturity Date with respect to the then existing Revolving Credit Facility;
(C) shall provide that assignments and participations of Incremental Revolving Credit Commitments and Incremental Revolving Loans shall be governed by the same assignment and participation provisions applicable to Revolving Credit Commitments and Revolving Credit Loans existing on the Incremental Facility Closing Date;
(D) shall provide than any Incremental Revolving Credit Commitments may constitute a separate Class or Classes, as the case may be, of Commitments from the Classes constituting the applicable revolving credit commitments under this Agreement prior to the Incremental Facility Closing Date; provided at no time shall there be revolving credit commitments hereunder (including Incremental Revolving Credit Commitments and any original Revolving Credit Commitments) which have more than three different maturity dates unless otherwise agreed to be by the Administrative Agent;
(E) shall have an Applicable Rate determined by the Borrower and the applicable Incremental Revolving Credit Lenders; and
(F) shall not be secured by any assets not constituting Collateral and shall not be Guaranteed by any Person other than a Guarantor;
(iii) with respect to any Loans made under Incremental Term Commitments within twelve (12) months after the Funding Date, the All-In Yield applicable to such Incremental Term Loans shall not be greater than the applicable All-In Yield payable pursuant to the terms of this Agreement as amended through the date of such calculation with respect to the Term A Loans plus 50 basis points per annum unless the interest rate (together with, as provided in the proviso
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below, the Eurodollar or Base Rate floor) with respect to the Term A Loans is increased so as to cause the then applicable All-In Yield under this Agreement on the Term A Loans to equal the All-In Yield then applicable to such Incremental Term Loans minus 50 basis points; provided that any increase in All-In Yield on the Term A Loans due to the application of a Eurodollar or Base Rate floor on any Incremental Term Loan shall be effected solely through an increase in (or implementation of, as applicable) the Eurodollar or Base Rate floor applicable to such Loans; and
(iv) any upfront fees, arrangement fees or other similar fees for any Incremental Commitments shall be as agreed between the Borrower and the applicable Incremental Lenders providing such Incremental Commitments, subject to the immediately preceding clause (iii).
(g) Conflicting Provisions . This Section 2.14 shall supersede any provisions in Sections 2.13 or 10.01 to the contrary.
2.15 Defaulting Lenders .
(a) Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(i) Waivers and Amendments . That Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 10.01 .
(ii) Reallocation of Payments . Any payment of principal, interest, fees or other amounts received by the Administrative Agent under this Agreement for the account of that Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise, and including any amounts made available to the Administrative Agent by that Defaulting Lender), shall be applied at such time or times as may be determined by the Administrative Agent as follows: first , to the payment of any amounts owing by that Defaulting Lender to the Administrative Agent hereunder; second , to the payment on a pro rata basis of any amounts owing by that Defaulting Lender to any L/C Issuer or the Swing Line Lender hereunder; third , if so determined by the Administrative Agent or requested by any L/C Issuer, to be held as Cash Collateral for future funding obligations of that Defaulting Lender of any participation in any Letter of Credit; fourth , as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth , if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released pro rata in order to (x) satisfy obligations of that Defaulting Lender to fund Loans under this Agreement and (y) Cash Collateralize the L/C Issuers future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.03(g) ; sixth , to the payment of any amounts owing to the Lenders, the L/C Issuers or the Swing Line Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any L/C Issuer or the Swing Line Lender against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; seventh , so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lenders breach of its obligations under this Agreement; and eighth , to that Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Borrowings in respect of which that Defaulting
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Lender has not fully funded its appropriate share and (y) such Loans or L/C Borrowings were made at a time when the conditions set forth in Section 4.03 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Borrowings owed to, all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Borrowings owed to, that Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations and Swing Line Loans are held by the Lenders pro rata in accordance with the Commitments under the applicable Facility without giving effect to Section 2.15(a)(iv) . Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.15(a)(ii) shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto. Promptly (x) upon a Lender ceasing to be a Defaulting Lender in accordance with Section 2.15(b) or (y) following termination of this Agreement (including the termination of all Letters of Credit issued hereunder) and the payment of all amounts owed under this Agreement (other than unasserted contingent obligations which by their terms survive the termination of this Agreement), all remaining amounts, if any, held in a deposit account pursuant to this Section 2.15(a) shall be returned to such Lender or Defaulting Lender, as applicable.
(iii) Certain Fees . That Defaulting Lender (x) shall not be entitled to receive any commitment fee pursuant to Section 2.09(a) for any period during which such Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender) and (y) shall be limited in its right to receive Letter of Credit Fees as provided in Section 2.03 .
(iv) Reallocation of Applicable Revolving Credit Percentages to Reduce Fronting Exposure . All or any part of that Defaulting Lenders participation in L/C Obligations and Swing Line Loans shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Revolving Credit Percentages (calculated without regard to that Defaulting Lenders Commitment) but only to the extent that such reallocation does not cause the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender plus such Revolving Credit Lenders Applicable Revolving Credit Percentage (calculated without regard to that Defaulting Lenders Commitments) of the Outstanding Amount of all L/C Obligations and Swing Line Loans to exceed such Lenders Revolving Credit Commitment; provided that each such reallocation shall be given effect only if, at the date the applicable Lender becomes a Defaulting Lender, no Default or Event of Default exists. Subject to Section 10.19 , no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a non-Defaulting Lender as a result of such non-Defaulting Lenders increased exposure following such reallocation.
(v) Cash Collateral; Repayment of Swing Line Loans . If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall without prejudice to any right or remedy available to it hereunder or under Law, (x) first, prepay Swing Line Loans in an amount equal to the Swing Line Lenders Fronting Exposure with respect to such Defaulting Lender; provided that such prepayment shall be applied to reduce such Defaulting Lenders participation in such Swing Line Loans and shall not reduce any non-Defaulting Lenders participation in such Swing Line Loans, and (y) second, Cash Collateralize the L/C Issuers Fronting Exposure with respect to such Defaulting Lender in accordance with the procedures set forth in Section 2.03(g) .
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(b) Defaulting Lender Cure . If the Borrower, the Administrative Agent, each L/C Issuer and the Swing Line Lender agree in writing in their sole discretion that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), such Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swing Line Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages of the applicable Facility (without giving effect to Section 2.15(a)(iv) ), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while such Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lenders having been a Defaulting Lender.
2.16 Extended Loans and Commitments .
(a) The Borrower may at any time and from time to time request that all or any portion of the Loans and Commitments of any Class (an Existing Class ) be converted to extend the final maturity date of such Loans and Commitments (any such Loans which have been so converted, Extended Maturity Loans and any such Commitments which have been so converted, Extended Maturity Commitments ) and to provide for other terms consistent with this Section 2.16 ; provided that there may be no more than eight different Classes in the aggregate for all Loans and Commitments under this Agreement without the consent of the Administrative Agent (which consent shall not be unreasonably withheld, conditioned or delayed). In order to establish any Extended Maturity Loans and/or Extended Maturity Commitments, the Borrower shall provide a notice to the Administrative Agent (who shall provide a copy of such notice to each of the Lenders under the applicable Existing Class) (an Extension Request ) setting forth the proposed terms of the Extended Maturity Loans and/or Extended Maturity Commitments, as applicable, to be established, which shall be substantially identical to the Loans under the Existing Class from which such Extended Maturity Loans and/or Extended Maturity Commitments, as applicable, are to be converted, except that:
(i) all or any of the scheduled amortization payments of principal of the Extended Maturity Loans and/or Extended Maturity Commitments (including the maturity date) may be delayed to later dates than the scheduled amortization payments of principal of the Loans and/or Commitments (including the maturity date) of such Existing Class to the extent provided in the applicable Extension Amendment;
(ii) the Applicable Rate with respect to the Extended Maturity Loans and/or Extended Maturity Commitments may be different than the Applicable Rate for the Loans and/or Commitments of such Existing Class, in each case, to the extent provided in the applicable Extension Amendment;
(iii) the Extension Amendment may provide for amendments to the covenants that apply solely to such Extended Maturity Loans and/or Extended Maturity Commitments; provided that such amended covenants may be no more restrictive in the aggregate than the covenants applicable to the applicable Existing Class under this Agreement after giving effect to the Extension Amendment except after the Maturity Date with respect to such Existing Class; and
(iv) the Extension Amendment may provide that optional and mandatory prepayments pursuant to Section 2.05 be directed to prepay, at the Borrowers option, first, the applicable Existing Class and, second, the Extended Maturity Loans.
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Any Extended Maturity Loans and/or Extended Maturity Commitments converted pursuant to any Extension Request shall be designated a Class of Extended Maturity Loans and/or Extended Maturity Commitments for all purposes of this Agreement; provided that any Extended Maturity Loans and/or Extended Maturity Commitments converted from an Existing Class may, to the extent provided in the applicable Extension Amendment, be designated as an increase in any previously established Class.
(b) The Borrower shall provide the applicable Extension Request to all Lenders of the Existing Class at least five Business Days prior to the date on which such Lenders are requested to respond. No Lender shall have any obligation to agree to have any of its Loans and/or Commitments of any Existing Class converted into Extended Maturity Loans and/or Extended Maturity Commitments pursuant to any Extension Request. Any Lender wishing to have all or any portion of its Loans and/or Commitments under such Existing Class subject to such Extension Request converted into Extended Maturity Loans and/or Extended Maturity Commitments, as applicable (such Lender, an Extending Lender ), shall notify the Administrative Agent (an Extension Election ) on or prior to the date specified in such Extension Request of the amount of its Loans and/or Commitments under the Existing Class which it has elected to request be converted into Extended Maturity Loans and/or Extended Maturity Commitments (subject to any minimum denomination requirements reasonably imposed by the Administrative Agent); provided that for any Extension Request, the Borrower may establish a maximum amount for such Extended Maturity Loans and/or Extended Maturity Commitments (an Extension Maximum Amount ). In the event that the aggregate amount of Loans and/or Commitments under the Existing Class subject to Extension Elections exceeds the Extension Maximum Amount, then each Extending Lenders amount of consented Loans and/or Commitments subject to an Extension Election shall be reduced on a pro rata basis such that the total amount of Extended Maturity Loans and/or Extended Maturity Commitments shall equal the Extension Maximum Amount.
(c) Extended Maturity Loans and/or Extended Maturity Commitments shall be established pursuant to an amendment (an Extension Amendment ) to this Agreement among the Borrower, the Administrative Agent and each Extending Lender, which shall be consistent with the provisions set forth in paragraph (a) and (b) above (but which shall not require the consent of any other Lender other than the Extending Lenders, and which shall, in the case of Extended Maturity Commitments in respect of the Revolving Credit Facility, make appropriate modifications to this Agreement (including to the definitions of Availability Period, Revolving Credit Commitment, Fronting Exposure and Applicable Revolving Credit Percentage, and to Sections 2.03 and 2.04 ) to provide for issuance of Letters of Credit and the extension of Swing Line Loans based on such Extended Maturity Commitments and make any additional modifications, if necessary, to provide for terms applicable to Extended Maturity Commitments and Extended Maturity Loans thereunder. Only Extending Lenders will have their Loans and/or Commitments converted into Extended Maturity Loans and/or Extended Maturity Commitments and, at the Borrowers discretion, only Extending Lenders will be entitled to any increase in pricing or fees in connection with the Extension Amendment. Each Extension Amendment shall be binding on the Lenders, the Loan Parties and the other parties hereto. In connection with any Extension Amendment, the Loan Parties and the Administrative Agent shall enter into such amendments to the Collateral Documents as may be reasonable requested by the Administrative Agent (which shall not require any consent from any Lender) in order to ensure that the Extended Maturity Loans and/or Extended Maturity Commitments are provided with the benefit of the applicable Collateral Documents on a pari passu basis with the other Obligations and shall deliver such other customary documents, certificates and opinions of counsel in connection therewith as may be reasonably requested by the Administrative Agent.
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(d) In the event that the Administrative Agent determines in its sole discretion that the allocation of Extended Maturity Loans and/or Extended Maturity Commitments, in each case to a given Extending Lender, was incorrectly determined as a result of manifest administrative error in the receipt and processing of an Extension Election timely submitted by such Lender in accordance with the procedures set forth in the applicable Extension Amendment, then the Administrative Agent, the Borrower and such affected Extending Lender may (and hereby are authorized to), in their sole discretion and without the consent of any other Lender, enter into an amendment to this Agreement and the other Loan Documents (each, a Corrective Extension Amendment ), which Corrective Extension Amendment shall (i) provide for the conversion and extension of Loans and/or Commitments, as the case may be, under the Existing Class in such amount as is required to cause such Extending Lender to hold Extended Maturity Loans and/or Extended Maturity Commitments, as the case may be, of the applicable Class into which such other Loans and/or Commitments, as the case may be, were initially converted, in the amount such Extending Lender would have held had such administrative error not occurred and had such Extending Lender received the minimum allocation of the applicable Loans and/or Commitments to which it was entitled under the terms of such Extension Amendment, in the absence of such error, (ii) be subject to the satisfaction of such conditions as the Administrative Agent, the Borrower and such Extending Lender may agree (including conditions of the type required to be satisfied for the effectiveness of an Extension Amendment described in Section 2.16(c) ), and (iii) effect such other amendments of the type (with appropriate reference and nomenclature changes) described in the first sentence of Section 2.16(c) .
(e) As a condition precedent to the effectiveness of any Extension Amendment, in the event a Mortgaged Property exists that is a Flood Hazard Property, the Flood Insurance Requirements shall be satisfied (or re-satisfied, as applicable) with respect to such Mortgaged Property.
2.17 Refinancing Amendments .
(a) Refinancing Commitments . The Borrower may, at any time or from time to time after the Funding Date, by notice to the Administrative Agent (a Refinancing Loan Request ), request (A) (i) the establishment of one or more new Classes of term loans under this Agreement (any such new Class, New Refinancing Term Commitments ) or (ii) increases to one or more existing Classes of term loans under this Agreement (any such increase to an existing Class, collectively with New Refinancing Term Commitments, Refinancing Term Commitments ), or (B) (i) the establishment of one or more new Classes of revolving credit commitments under this Agreement (any such new Class, New Refinancing Revolving Credit Commitments ) or (ii) increases to one or more existing Classes of revolving credit commitments (any such increase to an existing Class, collectively with the New Refinancing Revolving Credit Commitments, Refinancing Revolving Credit Commitments , and collectively with any Refinancing Term Commitments, Refinancing Commitments ), in each case, established in exchange for, or to extend, renew, replace, repurchase, retire or refinance, in whole or in part, as selected by the Borrower, any one or more then existing Class or Classes of Loans or Commitments (with respect to a particular Refinancing Commitment or Refinancing Loan, such existing Loans or Commitments, Refinanced Debt ), whereupon the Administrative Agent shall promptly deliver a copy of each such notice to each of the applicable Lenders; provided , however , at no time shall there be revolving credit commitments under this Agreement (including Refinancing Revolving Credit Commitments and any original Revolving Credit Commitments) which have more than three different maturity dates unless otherwise agreed to by the Administrative Agent in its reasonable discretion. Each Refinancing Loan Request shall set forth the requested amount and proposed terms of the relevant Refinancing Term Loans or Refinancing Revolving Credit Commitments and identify the Refinanced Debt with respect thereto.
(b) Refinancing Loans . Any Refinancing Term Loans made pursuant to New Refinancing Term Commitments or any New Refinancing Revolving Credit Commitments made on a Refinancing Facility Closing Date shall be designated a separate Class of Refinancing Term Loans or Refinancing Revolving
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Credit Commitments, as applicable, for all purposes of this Agreement. On any Refinancing Facility Closing Date on which any Refinancing Term Commitments of any Class are effected, subject to the satisfaction of the terms and conditions in this Section 2.17 , (i) each Refinancing Term Lender of such Class shall make a term loan to the Borrower (a Refinancing Term Loan ) in an amount equal to its Refinancing Term Commitment of such Class and (ii) each Refinancing Term Lender of such Class shall become a Lender hereunder with respect to the Refinancing Term Commitment of such Class and the Refinancing Term Loans of such Class made pursuant thereto. On any Refinancing Facility Closing Date on which any Refinancing Revolving Credit Commitments of any Class are effected, subject to the satisfaction of the terms and conditions in this Section 2.17 , (i) each Refinancing Revolving Credit Lender of such Class shall make its Refinancing Revolving Credit Commitment available to the Borrower (when borrowed, a Refinancing Revolving Loan and collectively with any Refinancing Term Loan, a Refinancing Loan ) and (ii) each Refinancing Revolving Credit Lender of such Class shall become a Lender hereunder with respect to the Refinancing Revolving Credit Commitment of such Class and the Refinancing Revolving Loans of such Class made pursuant thereto.
(c) Refinancing Loan Request . Refinancing Term Loans and Refinancing Revolving Loans may be made, and Refinancing Term Commitments and Refinancing Revolving Credit Commitments may be provided, by any existing Lender (but no existing Lender will have an obligation to make any Refinancing Commitment, nor will the Borrower have any obligation to approach any existing Lender to provide any Refinancing Commitment) or by any Additional Lender (each such existing Lender or Additional Lender providing such Commitment or Loan, a Refinancing Revolving Credit Lender or Refinancing Term Lender , as applicable, and, collectively, Refinancing Lenders ).
(d) Effectiveness of Refinancing Amendment . The effectiveness of any Refinancing Amendment, and the Refinancing Commitments thereunder, shall be subject to the satisfaction on the date thereof (a Refinancing Facility Closing Date ) of each of the following conditions, together with any other conditions set forth in the Refinancing Amendment:
(i) after giving effect to such Refinancing Commitments, the conditions of Sections 4.03(a) and (b) shall be satisfied (it being understood that all references to the date of such Credit Extension or similar language in such Section 4.03 shall be deemed to refer to the applicable Refinancing Facility Closing Date),
(ii) each Refinancing Commitment shall be in an aggregate principal amount that is not less than $5,000,000 ( provided that such amount may be less than $5,000,000 if such amount is equal to (x) the entire outstanding principal amount of Refinanced Debt that is in the form of term loans or (y) the entire outstanding principal amount of Refinanced Debt (or commitments) that is in the form of revolving credit commitments), and
(iii) the Refinancing Term Loans made pursuant to any increase in any existing Class of term loans hereunder shall be added to (and form part of) each Borrowing of outstanding term loans under the respective Class so incurred on a pro rata basis (based on the principal amount of each Borrowing) so that each Lender under such Class will participate proportionately in each then outstanding Borrowing of term loans under such Class.
(e) Required Terms . The terms, provisions and documentation of the Refinancing Term Loans and Refinancing Term Commitments or the Refinancing Revolving Loans and Refinancing Revolving Credit Commitments, as the case may be, of any Class shall be as agreed between the Borrower and the applicable Refinancing Lenders providing such Refinancing Commitments, and except as otherwise set forth herein, to the extent not identical to (or constituting a part of) any Class of term loans or revolving credit commitments, as applicable, each existing on the applicable Refinancing Facility Closing
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Date, shall be consistent with clauses (i) or (ii) below, as applicable, and otherwise shall be (taken as a whole) no more favorable (as reasonably determined by the Borrower) to the Refinancing Lenders than those applicable to such Class (taken as a whole) being refinanced (except for (1) covenants or other provisions applicable only to periods after the Latest Maturity Date (as of the applicable Refinancing Facility Closing Date) and (2) pricing, fees, rate floors, optional prepayment or redemption terms), unless the Lenders under the existing Facilities are given the benefit of such terms and provisions. In any event:
(i) The Refinancing Term Loans:
(A) as of the Refinancing Facility Closing Date, shall not have a final scheduled maturity date earlier than the Maturity Date of the Refinanced Debt,
(B) shall have a Weighted Average Life to Maturity not shorter than the remaining Weighted Average Life to Maturity of the Refinanced Debt on the date of incurrence of such Refinancing Loans,
(C) shall not be Guaranteed by any Person other than a Loan Party and shall not be borrowed by any Person other than a Loan Party,
(D) shall not have a greater principal amount than the principal amount of the Refinanced Debt plus any accrued but unpaid interest and fees on such Refinanced Debt plus existing commitments unutilized under such Refinanced Debt to the extent permanently terminated at the time of incurrence of such new Refinancing Term Loans plus the amount of any tender premium or penalty or premium required to be paid under the terms of the instrument or documents governing such Refinanced Debt and any defeasance costs and any reasonable fees and expenses (including OID, upfront fees or similar fees) incurred in connection with the issuance of such Refinancing Term Loans,
(E) (I) shall rank pari passu in right of payment with the Obligations under the then existing Term A Loans and Revolving Credit Loans and (II) shall either be (x) secured by the Collateral (and shall not be secured by any assets not constituting Collateral) and shall rank pari passu or junior in right of security with the Obligations or (y) unsecured; provided that if such Indebtedness is secured, it shall be subject to an intercreditor agreement on terms reasonably satisfactory to the Administrative Agent, and
(F) may participate on a pro rata basis or less than pro rata basis (but not on a greater than pro rata basis) in any mandatory prepayments of then existing Term A Loans under Section 2.05 , as specified in the applicable Refinancing Amendment; and
(ii) the Refinancing Revolving Credit Commitments and Refinancing Revolving Loans:
(A) (I) shall rank pari passu in right of payment with the Obligations and (II) shall either be (x) secured by the Collateral (and shall not be secured by any assets not constituting Collateral) and shall rank pari passu or junior in right of security with the Obligations or (y) unsecured; provided that if such Indebtedness is secured, it shall be subject to an intercreditor agreement on terms reasonably satisfactory to the Administrative Agent,
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(B) shall not have a final scheduled maturity date earlier than, or mandatory scheduled commitment reductions prior to, the Maturity Date with respect to the Refinanced Debt,
(C) shall provide that the borrowing and repayment (except for (1) payments of interest and fees at different rates on Refinancing Revolving Credit Commitments (and related outstandings), (2) repayments required upon the Maturity Date of the Refinancing Revolving Credit Commitments and (3) repayments made in connection with a permanent repayment and termination of commitments (in accordance with clause (E) below)) of Loans with respect to Refinancing Revolving Credit Commitments after the associated Refinancing Facility Closing Date shall be made on a pro rata basis with all other then existing Revolving Credit Commitments,
(D) all Swing Line Loans and Letters of Credit shall be participated on a pro rata basis by all Lenders with Commitments in accordance with their percentage of the Revolving Credit Commitments existing on the Refinancing Facility Closing Date (without giving effect to changes thereto on an earlier Maturity Date with respect to Swing Line Loans and Letters of Credit theretofore incurred or issued),
(E) shall provide that the permanent repayment of Refinancing Revolving Loans with respect to, and termination or reduction of, Refinancing Revolving Credit Commitments after the associated Refinancing Facility Closing Date shall be made on a pro rata basis, or on a less than (but not greater than pro rata basis) pro rata basis, with all other revolving credit commitments under this Agreement, except that the Borrower shall be permitted to permanently repay and terminate Commitments in respect of any such Class of Refinancing Revolving Loans on a greater than pro rata basis as compared to any other Class of revolving credit loans under this Agreement with a later Maturity Date than such Class or in connection with any refinancing thereof permitted by this Agreement,
(F) shall provide that assignments and participations of Refinancing Revolving Credit Commitments and Refinancing Revolving Loans shall be governed by the same assignment and participation provisions applicable to Revolving Credit Commitments and Revolving Credit Loans existing on the Refinancing Facility Closing Date,
(G) shall not be Guaranteed by any Person other than a Loan Party and shall not be borrowed by any Person other than a Loan Party, and
(H) shall not have a greater principal amount of Commitments than the principal amount of the utilized Commitments of the Refinanced Debt plus any accrued but unpaid interest and fees on such Refinanced Debt plus existing commitments unutilized under such Refinanced Debt to the extent permanently terminated at the time of incurrence of such Refinancing Revolving Credit Commitments plus the amount of any tender premium or penalty or premium required to be paid under the terms of the instrument or documents governing such Refinanced Debt and any defeasance costs and any reasonable fees and expenses (including OID, upfront fees or similar fees) incurred in connection with the issuance of such Refinancing Revolving Credit Commitments or Refinancing Revolving Loans.
(f) Refinancing Amendment . Refinancing Commitments shall become additional Commitments under this Agreement pursuant to an amendment (a Refinancing Amendment ) to this Agreement
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and, as appropriate, the other Loan Documents, executed by the Borrower, each Refinancing Lender providing such Commitments and the Administrative Agent. Notwithstanding any other provision herein, in connection with any Refinancing Amendment, modifications may be made to the terms of any existing Classes to the extent providing a benefit to such existing Lenders of such existing Classes. The Refinancing Amendment may, without the consent of any other Loan Party or Lender, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.17 , including, if applicable, amendments as deemed necessary by the Administrative Agent in its reasonable judgment to effect any lien subordination and associated rights of the applicable Lenders to the extent any Refinancing Loans are to rank junior in right of security. The Borrower will use the proceeds, if any, of the Refinancing Term Loans and Refinancing Revolving Credit Commitments in exchange for, or to extend, renew, replace, repurchase, retire or refinance, and shall permanently terminate applicable commitments under, substantially concurrently, the applicable Refinanced Debt.
(g) Reallocation of Revolving Credit Exposure . Upon any Refinancing Facility Closing Date on which Refinancing Revolving Credit Commitments are effected through the establishment of a new Class of revolving credit commitments pursuant to this Section 2.17 , (a) if, on such date, there are any revolving credit loans under any revolving credit facility then outstanding under this Agreement, such revolving loans shall be prepaid from the proceeds of a new Borrowing of the Refinancing Revolving Loans under such new Class of Refinancing Revolving Credit Commitments in such amounts as shall be necessary in order that, after giving effect to such Borrowing and all such related prepayments, all revolving credit loans under all revolving credit facilities under this Agreement will be held by all Lenders under the revolving credit facilities (including Lenders providing such Refinancing Revolving Credit Commitments) ratably in accordance with their revolving credit commitments under all revolving credit facilities under this Agreement (after giving effect to the establishment of such Refinancing Revolving Credit Commitments), (b) in the case of a Revolving Credit Commitment, there shall be an automatic adjustment to the participations hereunder in Letters of Credit and Swing Line Loans held by each Lender under the revolving credit facilities so that each such Lender shares ratably in such participations in accordance with their respective revolving credit commitments hereunder (after giving effect to the establishment of such Refinancing Revolving Credit Commitments), (c) each Refinancing Revolving Credit Commitment shall be deemed for all purposes a Revolving Credit Commitment and each Loan made thereunder shall be deemed, for all purposes, a Revolving Credit Loan and (d) each Refinancing Revolving Credit Lender shall become a Lender with respect to the Refinancing Revolving Credit Commitments and all matters relating thereto. Upon any Refinancing Facility Closing Date on which Refinancing Revolving Credit Commitments are effected through the increase to any existing Class of revolving credit commitments pursuant to this Section 2.17 , if, on the date of such increase, there are any revolving credit loans outstanding, each of the Lenders under such Class shall be deemed to assign to each of the Refinancing Revolving Credit Lenders, and each of the Refinancing Revolving Credit Lenders shall purchase from each of such Lenders, at par, such interests in the Refinancing Revolving Loans outstanding on such Refinancing Facility Closing Date as shall be necessary in order that, after giving effect to all such assignments and purchases, such revolving credit loans under such Class will be held by existing Lenders under such Class and the Refinancing Revolving Credit Lenders ratably in accordance with their respective revolving credit commitments under such Class after giving effect to the addition of such Refinancing Revolving Credit Commitments to the revolving credit commitments under such Class.
(h) Refinancing Equivalent Debt .
(i) In lieu of incurring any Refinancing Term Loans, the Borrower may, upon notice to the Administrative Agent, at any time or from time to time after the Funding Date issue, incur or otherwise obtain (A) secured Indebtedness (including any Registered Equivalent Notes) in the form of one or more series of senior secured notes that are secured on a pari passu basis with the
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Obligations (but without regard to the control of remedies) (such notes, Permitted Pari Passu Secured Refinancing Debt ), (B) secured Indebtedness (including any Registered Equivalent Notes) in the form of one or more series of second lien (or other junior lien) secured notes or second lien (or other junior lien) secured loans (such notes or loans, Permitted Junior Secured Refinancing Debt ) and (C) unsecured or subordinated Indebtedness (including any Registered Equivalent Notes) in the form of one or more series of unsecured or subordinated notes or loans (such notes or loans, Permitted Unsecured Refinancing Debt and together with Permitted Pari Passu Secured Refinancing Debt and Permitted Junior Secured Refinancing Debt, Refinancing Equivalent Debt ), in each case, in exchange for, or to extend, renew, replace, repurchase, retire or refinance, in whole or in part, any existing Class or Classes of Loans (such Loans, Refinanced Loans ).
(ii) Any Refinancing Equivalent Debt:
(A) (1) shall not have a final scheduled maturity date earlier than the Maturity Date of the Refinanced Loans, (2) shall not have a Weighted Average Life to Maturity shorter than the remaining Weighted Average Life to Maturity of the Refinanced Loans, (3) shall not have scheduled amortization or payments of principal and shall not be subject to mandatory redemption, repurchase or prepayment (except with respect to change of control, excess cash flow, asset sale and casualty event mandatory offers to purchase or prepayment events and customary acceleration rights after an event of default), in each case prior to the Maturity Date of the Refinanced Loans except, in the case of Refinancing Equivalent Debt that is secured on a pari passu basis with the Obligations, to the extent any such payment, redemption, repurchase or prepayment obligation is required to be applied on a pro rata or greater than pro rata basis to any then existing term loans under this Agreement and except with respect to customary AHYDO catch-up payments, (4) shall not be Guaranteed by any Person other than a Loan Party and shall not be borrowed by any Person other than a Loan Party, (5) if in the form of subordinated Permitted Unsecured Refinancing Debt, shall be subject to a subordination agreement or provisions as reasonably agreed by the Administrative Agent and the Borrower, (6) shall not have a greater principal amount than the principal amount of the Refinanced Loans plus any accrued but unpaid interest and fees on such Refinanced Loans plus existing commitments unutilized under such Refinanced Loans to the extent permanently terminated at the time of incurrence of such new Indebtedness plus the amount of any tender premium or penalty or premium required to be paid under the terms of the instrument or documents governing such Refinanced Loans and any defeasance costs and any reasonable fees and expenses (including OID, upfront fees or similar fees) incurred in connection with the issuance of such Refinancing Equivalent Debt Loans, and (7) except as otherwise set forth in this clause (h)(ii), shall have terms and conditions (other than with respect to pricing, fees, rate floors and optional prepayment or redemption terms) which are (taken as a whole) no more favorable (as reasonably determined by the Borrower) to the lenders or holders providing such Refinancing Equivalent Debt, than those applicable to the Refinanced Loans (except for covenants or other provisions applicable only to periods after the Maturity Date of the applicable Refinanced Loans at the time of the issuance or incurrence of such Refinancing Equivalent Debt),
(B) (1) if either Permitted Pari Passu Secured Refinancing Debt or Permitted Junior Secured Refinancing Debt, shall be subject to security agreements relating to such Refinancing Equivalent Debt that are substantially the same as or more favorable to the Loan Parties than the Collateral Documents (with such differences as are reasonably satisfactory to the Administrative Agent), (2) if Permitted Pari Passu Secured Refinancing
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Debt, (x) shall be secured by the Collateral on a pari passu basis with the Obligations and shall not be secured by any property or assets other than the Collateral, and (y) shall be subject to an intercreditor agreement on terms reasonably satisfactory to the Administrative Agent, and (3) if Permitted Junior Secured Refinancing Debt, (x) shall be secured by the Collateral on a second priority (or other junior priority) basis to the Liens securing the Obligations and shall not be secured by any property or assets other than the Collateral, and (y) shall be subject to an intercreditor agreement on terms reasonably satisfactory to the Administrative Agent, and
(C) shall be incurred, and the proceeds thereof used, solely to repay, repurchase, retire or refinance substantially concurrently the Refinanced Loans and terminate all commitments thereunder.
(i) This Section 2.17 shall supersede any provisions in Section 2.13 or 10.01 to the contrary.
(j) As a condition precedent to the effectiveness of any Refinancing Amendment, in the event a Mortgaged Property exists that is a Flood Hazard Property, the Flood Insurance Requirements shall have been satisfied (or, if applicable, re-satisfied) with respect to such Mortgaged Property.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes .
(a) Payments Free of Certain Taxes; Obligation to Withhold; Payments on Account of Certain Taxes.
(1) Any and all payments by or on account of any obligation of any Loan Party hereunder or under any other Loan Document shall to the extent permitted by applicable Laws be made free and clear of and without reduction or withholding for any Taxes. If, however, applicable Laws require the applicable Withholding Agent to withhold or deduct any Tax from or with respect to any such payment, such Tax shall be withheld or deducted in accordance with such Laws as determined by such Withholding Agent upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.
(2) If the applicable Withholding Agent shall be required by applicable Laws to withhold or deduct any Taxes, then (A) such Withholding Agent shall withhold or make such deductions as are determined by such Withholding Agent to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) such Withholding Agent shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with applicable Laws, and (C) to the extent that such withholding or deduction is made on account of Indemnified Taxes imposed on or with respect to any payment by or on account of any obligation of any Loan Party under any Loan Document or on account of Other Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01 ) the Administrative Agent, the applicable Lender or the applicable L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such withholding or deduction been made; provided , however , that in the case of a Withholding Agent that is not a Loan Party or the Administrative Agent, the amount payable under this clause (C) shall not exceed the amount that would have been required to be paid had a Loan Party or the Administrative Agent been the applicable Withholding Agent.
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(b) Payment of Other Taxes by the Borrower . Without limiting the provisions of Section 3.01(a) , but without duplication, the Loan Parties shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Laws.
(c) Tax Indemnifications .
(1) Without limiting the provisions of subsection (a) or (b) above, the Borrower shall indemnify the Administrative Agent, each Lender and each L/C Issuer, and shall make payment in respect thereof within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01 ) payable by the Administrative Agent, such Lender or such L/C Issuer, as the case may be, to the extent imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of any such payment or liability delivered to the Borrower by a Lender or an L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or an L/C Issuer, shall be conclusive absent manifest error.
(2) Without limiting the provisions of subsection (a) or (b) above, each Lender and each L/C Issuer, severally and not jointly, shall indemnify the Loan Parties and the Administrative Agent, and shall make payment in respect thereof within 10 days after demand therefor, against any and all (i) Excluded Taxes attributable to such Lender or such L/C Issuer (as the case may be) that are payable by the Loan Parties or the Administrative Agent (and any reasonable expenses arising therefrom or related thereto) as a result of the failure by such Lender or such L/C Issuer, as the case may be, to deliver, or as a result of the inaccuracy, inadequacy or deficiency of, any documentation required to be delivered by such Lender or such L/C Issuer, as the case may be, to the Borrower or the Administrative Agent pursuant to Section 3.01(e) and (ii) Taxes attributable to such Lenders or such L/C Issuers failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register, in each case, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender or L/C Issuer by the Borrower or the Administrative Agent shall be conclusive absent manifest error. Each Lender and each L/C Issuer hereby authorizes the Administrative Agent or any Loan Party, as the case may be, to set off and apply any and all amounts at any time owing to such Lender or such L/C Issuer, as the case may be, under this Agreement or any other Loan Document against any amount due to the Administrative Agent or such Loan Party, as the case may be, under this clause (2). The agreements in this clause (2) shall survive the resignation and/or replacement of the Administrative Agent, any assignment of rights by, or the replacement of, a Lender or an L/C Issuer, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all Obligations.
(d) Evidence of Payments . After any payment of Taxes by a Loan Party to a Governmental Authority as provided in this Section 3.01 , such Loan Party shall deliver to the Administrative Agent for the benefit of the relevant Lender or applicable L/C Issuer or the Administrative Agent, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Status of Lenders; Tax Documentation .
(1) Each Lender and L/C Issuer shall deliver to the Borrower and to the Administrative Agent, and the Administrative Agent shall deliver to the Borrower, when reasonably requested by the
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Borrower or the Administrative Agent, as the case may be, such properly completed and executed documentation prescribed by applicable Laws or by the taxing authorities of any jurisdiction and such other reasonably requested information as will permit the Borrower or the Administrative Agent, as the case may be, to determine (A) whether or not payments made hereunder or under any other Loan Document are subject to withholding, (B) if applicable, the required rate of withholding or deduction, (C) such Lenders, such L/C Issuers or the Administrative Agents entitlement to any available exemption from, or reduction of, applicable withholding in respect of any payments to be made to such Lender, such L/C Issuer or the Administrative Agent by a Loan Party pursuant to this Agreement or any other Loan Document and (D) whether or not such Lender, such L/C Issuer or the Administrative Agent is subject to backup withholding or information reporting requirements or otherwise to establish such Lenders, such L/C Issuers or the Administrative Agents status for withholding Tax purposes in any applicable jurisdiction.
(2) Without limiting the generality of the foregoing,
(i) each Lender and each L/C Issuer that is a United States person within the meaning of Section 7701(a)(30) of the Code shall deliver to the Borrower and the Administrative Agent (in such number of signed originals as shall be reasonably requested by the recipient), on or prior to the date on which such United States person became a Lender or an L/C Issuer under this Agreement, IRS Form W-9; and
(ii) each Lender and each L/C Issuer that is not a United States person within the meaning of Section 7701(a)(30) of the Code that is entitled under the Code or any applicable treaty to an exemption from or reduction of withholding Tax with respect to any payments hereunder or under any other Loan Document shall deliver to the Borrower and the Administrative Agent (in such number of signed originals as shall be requested by the recipient), on or prior to the date on which such Lender or L/C Issuer becomes a Lender or an L/C Issuer under this Agreement, whichever of the following is applicable:
(I) in the case of a Lender and any L/C Issuer claiming the benefits of an income tax treaty to which the United States is a party, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to such tax treaty,
(II) in the case of a Lender and any L/C Issuer for whom any payments under this Agreement constitute income that is effectively connected with such Lenders or L/C Issuers conduct of a trade or business in the United States, IRS Form W-8ECI (or successor thereto),
(III) in the case of a Lender and any L/C Issuer that is not the beneficial owner of payments made under this Agreement (including a partnership or a participating Lender), (1) IRS Form W-8IMY on behalf of itself and (2) the relevant forms prescribed in clauses (i) and (ii) (I), (II), (IV) and (V) of this paragraph (e)(2) that would be required of each such beneficial owner or partner of such partnership if such beneficial owner or partner were a Lender or an L/C Issuer; provided , however , that if such Lender or such L/C Issuer is a partnership and one or more of its partners are claiming the exemption for portfolio interest under Section 881(c) or 871(h) of the Code, such Lender or such L/C Issuer may provide a Non-Bank Certificate (as described below) on behalf of such partners,
(IV) in the case of a Lender or a L/C Issuer claiming the benefits of the exemption for portfolio interest under Section 881(c) or 871(h) of the Code, (x) a certificate (substantially in the form of Exhibit K (a Non-Bank Certificate )) to the effect that such
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Lender or L/C Issuer is not (A) a bank within the meaning of Section 881(c)(3)(A) of the Code, (B) a 10 percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code or (C) a controlled foreign corporation described in Section 881(c)(3)(C) of the Code, and that no payments are effectively connected with a U.S. trade or business, and (y) IRS Form W-8BEN or IRS Form W-8BEN-E,
(V) any other form prescribed by applicable Laws or such other evidence satisfactory to the Borrower as a basis for claiming any available exemption from or reduction in withholding Tax together with such supplementary documentation as may be prescribed by applicable Laws to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made, or
(VI) if a payment made to a Lender or any L/C Issuer would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender or such L/C Issuer were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender or such L/C Issuer shall deliver to the Borrower and the Administrative Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent, such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their respective obligations under FATCA, to determine whether such Lender or such L/C Issuer has complied with such Lenders or such L/C Issuers obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this clause (VI), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(VII) Notwithstanding anything to the contrary in this Section 3.01(e)(2) , in no event will any Lender or L/C Issuer be required to provide any documentation such Lender or L/C Issuer is legally ineligible to deliver.
(3) Each Lender, L/C Issuer and Administrative Agent shall promptly notify the Borrower and the Administrative Agent of any change in circumstances which would modify or render invalid any previously delivered form or documentation or any claimed exemption or reduction and provide updated documentation (or promptly notify the Borrower and the Administrative Agent of its legal ineligibility to do so). Each Lender, L/C Issuer or Administrative Agent that has previously delivered any documentation required herein shall, upon the reasonable request of the Borrower or the Administrative Agent, deliver to the Borrower and the Administrative Agent additional copies of such form (or successor thereto) on or before the date such form expires or becomes obsolete or promptly notify the Borrower and the Administrative Agent of its legal ineligibility to do so.
(4) Upon execution of this Agreement, the Administrative Agent shall deliver to the Borrower an accurate, complete, signed copy of IRS Form W-8IMY certifying in Part I that it is a qualified intermediary and checking the boxes in Part III, Line 14a and Line 14b.
(5) Each Lender and L/C Issuer hereby authorizes the Administrative Agent to deliver to the Loan Parties and to any successor Administrative Agent any documentation provided by such Lender or L/C Issuer to the Administrative Agent pursuant to this Section 3.01(e) .
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(f) Treatment of Certain Refunds . If the Administrative Agent, any Lender or any L/C Issuer determines, in its sole discretion, that it has received a refund (in cash or applied as an offset against another cash Tax liability) of any Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 3.01 , it shall pay to such Loan Party an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 3.01 with respect to the Taxes giving rise to such refund), net of all reasonable out-of-pocket expenses (including Taxes) incurred by the Administrative Agent, such Lender or such L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that such Loan Party, upon the request of the Administrative Agent, such Lender or such L/C Issuer, agrees to repay the amount paid over to such Loan Party (plus any penalties, interest, additions to Tax or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or such L/C Issuer in the event the Administrative Agent, such Lender or such L/C Issuer is required to repay such refund to such Governmental Authority and delivers to such Loan Party evidence reasonably satisfactory to such Loan Party of such repayment. Notwithstanding anything to the contrary in paragraph (f), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This subsection shall not be construed to require the Administrative Agent, any Lender or any L/C Issuer to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Loan Party or any other Person.
3.02 Illegality . If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (without reference to clause (c) of the defined term Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
3.03 Inability to Determine Rates . If the Required Lenders determine for any reason that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period, or (c) the Eurodollar Rate for any requested Interest Period does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice; provided that any Eurodollar Rate Loan outstanding prior to such notice may remain outstanding until the end of the then-applicable Interest Period with respect thereto (without giving effect to any subsequent continuation or conversion). Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a committed Borrowing of Base Rate Loans in the amount specified therein.
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3.04 Increased Costs; Reserves on Eurodollar Rate Loans .
(a) Increased Costs Generally . If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e) ) or any L/C Issuer;
(ii) subject any Lender or any L/C Issuer to any Tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender or such L/C Issuer in respect thereof (except for Indemnified Taxes indemnifiable under Section 3.01 , Other Taxes and Excluded Taxes); or
(iii) impose on any Lender or any L/C Issuer or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or such L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or such L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or such L/C Issuer, the Borrower will pay to such Lender or such L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or such L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements . If any Lender or any L/C Issuer determines that any Change in Law affecting such Lender or such L/C Issuer or any Lending Office of such Lender or such Lenders or such L/C Issuers holding company, if any, regarding capital requirements or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders or such L/C Issuers capital or on the capital of such Lenders or such L/C Issuers holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such L/C Issuer, to a level below that which such Lender or such L/C Issuer or such Lenders or such L/C Issuers holding company could have achieved but for such Change in Law (taking into consideration such Lenders or such L/C Issuers policies and the policies of such Lenders or such L/C Issuers holding company with respect to capital adequacy or liquidity requirements), then from time to time the Borrower will pay to such Lender or such L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or such L/C Issuer or such Lenders or such L/C Issuers holding company for any such reduction suffered.
(c) Certificates for Reimbursement . A certificate of a Lender or an L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or such L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender or such L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
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(d) Delay in Requests . Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lenders or such L/C Issuers right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or such L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lenders or such L/C Issuers intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Reserves on Eurodollar Rate Loans . The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including eurodollar funds or deposits, additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan; provided the Borrower shall have received at least 10 days prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.
3.05 Compensation for Losses . Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13 ;
including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained (but excluding any loss of anticipated profits). The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this S ection 3.05 , each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders .
(a) Designation of a Different Lending Office . If any Lender requests compensation under Section 3.04 , or a Loan Party is required to pay any additional amount to any Lender, any L/C Issuer, or
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any Governmental Authority for the account of any Lender or any L/C Issuer pursuant to Section 3.01 , or if any Lender gives a notice pursuant to Section 3.02 , then such Lender or such L/C Issuer, as applicable, shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender or such L/C Issuer, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 , as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02 , as applicable, and (ii) in each case, would not subject such Lender or such L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or such L/C Issuer, as the case may be.
(b) Replacement of Lenders . If any Lender requests compensation under Section 3.04 , or if a Loan Party is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 , the Borrower may replace such Lender in accordance with Section 10.13 .
3.07 Survival . All of the Loan Parties obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder, and any resignation of the Administrative Agent or assignment by or replacement of a Lender.
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
4.01 Conditions to Effective Date . This Agreement shall become effective on the date on which each of the following conditions is satisfied or waived in accordance with the terms hereof:
(a) The Administrative Agent shall have received the following, each of which shall be originals, telecopies or other customary means of electronic transmission (e.g., pdf) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the Initial Borrower (if applicable), each dated as of the Effective Date (or, in the case of certificates of governmental officials, a recent date before the Effective Date) and each in form and substance reasonably satisfactory to the Administrative Agent and each of the Arrangers:
(i) executed counterparts of this Agreement, dated as of the Effective Date, in such number as reasonably requested by the Administrative Agent, duly executed by the Initial Borrower, the L/C Issuers, the Swing Line Lender and the Lenders party hereto on the Effective Date;
(ii) a certificate of the secretary or assistant secretary of the Initial Borrower, dated as of the Effective Date, certifying (A) that attached thereto is a true and complete copy of each current Organization Document of the Initial Borrower certified (to the extent applicable) as of a recent date by the Secretary of State of the state of its organization, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or other governing body) of the Initial Borrower authorizing the execution, delivery and performance of the Loan Documents to which the Initial Borrower is a party and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended (except as attached thereto) and are in full force and effect and (C) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of the Initial Borrower (together with a certificate of another officer as to the incumbency and specimen signature of the secretary or assistant secretary executing the certificate in this clause (ii));
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(iii) a certificate as to the good standing or equivalent of the Initial Borrower (in so-called long-form if available) as of a recent date, from the Secretary of State of the Initial Borrowers jurisdiction of organization;
(iv) a favorable opinion of (A) Cravath, Swaine & Moore LLP, special New York counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-1 with such changes thereto, and with respect to such other matters concerning the Initial Borrower and the Loan Documents, as the Arrangers may reasonably request and (B) in-house counsel to each Loan Party, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-2 with such changes thereto, and with respect to such other matters concerning the Initial Borrower and the Loan Documents, as the Arrangers may reasonably request; and
(v) a certificate signed by a Responsible Officer certifying that the condition specified in Section 4.03(a) (solely with respect to the representations and warranties to be made on the Effective Date) has been satisfied.
(b) The Borrower shall have paid all reasonable out-of-pocket fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced at least three Business Days prior to the Effective Date.
(c) The Administrative Agent and Lenders shall have received at least three business days prior to the Effective Date all documentation and other information about the Initial Borrower as has been reasonably requested in writing at least 10 days prior to the Effective Date by the Administrative Agent or Lenders that they reasonably determine is required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act.
Without limiting the generality of the provisions of the last paragraph of Section 9.03 , for purposes of determining compliance with the conditions specified in this Section 4.01 , each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender.
4.02 Conditions to Funding Date . The obligation of each L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction (or waiver in accordance with the terms hereof), or substantially concurrent satisfaction of the following conditions precedent:
(a) The Effective Date shall have occurred.
(b) The Administrative Agent shall have received the following, each of which shall be originals, telecopies or other customary means of electronic transmission (e.g., pdf) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the applicable Loan Party (if applicable), each dated as of the Funding Date (or, in the case of certificates of governmental officials, a recent date before the Funding Date) and each in form and substance reasonably satisfactory to the Administrative Agent and each of the Arrangers:
(i) executed counterparts of the Valvoline Joinder Agreement, Guaranty, the Security Agreement and the Perfection Certificate, dated as of the Funding Date, in such number as reasonably requested by the Administrative Agent, duly executed by the Loan Parties party thereto;
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(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) a certificate signed by a Responsible Officer certifying that the conditions specified in Sections 4.02(e) and (f) and Sections 4.03(a) and (b) have been satisfied;
(iv) the following personal property collateral requirements:
(A) all certificates, agreements or instruments representing or evidencing the Securities Collateral (as defined in the Security Agreement) accompanied by instruments of transfer and stock powers undated and endorsed in blank;
(B) all instruments, including Control Agreements, necessary to perfect the Administrative Agents security interest in all Deposit Accounts, all Securities Accounts, all Commodity Accounts, all Chattel Paper, all Instruments and all Investment Property of each Loan Party (as each such term is defined in the Security Agreement and to the extent required by the Security Agreement);
(C) UCC financing statements in appropriate form for filing under the UCC, filings with the United States Patent and Trademark Office and United States Copyright Office and such other documents under applicable requirements of Law in each jurisdiction as may be necessary or appropriate or, in the reasonable opinion of the Administrative Agent, desirable to perfect the Liens created, or purported to be created, by the Collateral Documents, in each case to the extent required by the applicable Collateral Document; and
(D) UCC and tax lien searches and or equivalent reports or searches, each of a recent date listing all effective financing statements, lien notices or comparable documents that name any Loan Party as debtor and that are filed in those state and county jurisdictions in which any Loan Party is organized or maintains its principal place of business and such other searches that are required by the Perfection Certificate or that the Administrative Agent deems necessary or appropriate, none of which encumber the Collateral covered or intended to be covered by the Collateral Documents (other than Liens permitted by Section 7.01 );
provided that, notwithstanding the foregoing, in no event shall any Loan Party be required to execute and deliver any Collateral Documents or other agreements governed by the laws of, or otherwise take any action to perfect any Lien under this Agreement or any other Loan Document in, any jurisdiction other than the United States, any State thereof and the District of Columbia;
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(v) evidence acceptable to the Administrative Agent of payment or arrangements for payment by the Loan Parties of all applicable recording taxes, fees, charges, costs and expenses required for the recording of the Collateral Documents;
(vi) deeds of trust, trust deeds, deeds to secure debt, and mortgages, in substantially the form of Exhibit M (with such changes as may be reasonably acceptable to the Borrower, the Administrative Agent and their respective counsel and otherwise necessary to account for local Law matters) and covering the Mortgaged Properties described in clause (a) of the definition of Mortgaged Property (together with each other mortgage delivered pursuant to Section 6.17 or 6.18 , in each case as amended, the Mortgages ), duly executed, acknowledged and delivered by the appropriate Loan Party in form suitable for filing or recording in all filing or recording offices necessary in order to create a valid first and subsisting Lien on the Mortgaged Property described therein in favor of the Administrative Agent for the benefit of the Secured Parties (subject only to the Permitted Encumbrances), together with:
(A) evidence that all filing, documentary, stamp, intangible and recording Taxes and fees have been paid or that funds for the payment thereof have been delivered to the company issuing the Mortgage Policies (as defined below) for payment of such Taxes and fees at the time of the filing or recording of such Mortgages, as applicable;
(B) fully paid American Land Title Association Loan Policies of Title Insurance, in standard form, or such other form reasonably acceptable to the Administrative Agent (the Mortgage Policies ), with endorsements and in amounts reasonably acceptable to the Administrative Agent, issued, coinsured and reinsured by title insurers acceptable to the Administrative Agent, insuring the Mortgages to be valid first and subsisting Liens on the real property described therein, free and clear of all defects and encumbrances, excepting only Permitted Encumbrances (including, without limitation, Liens permitted by Section 7.01), and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents and for zoning of the applicable property; it being understood that to the extent such zoning endorsements are not available at commercially reasonable rates a Planning and Zoning Resource Corporation Zoning and Site Requirements Summary, in form and substance acceptable to the Administrative Agent may be delivered in lieu of such endorsements) and such coinsurance and, in the event the coverages provided by the issuer of the Mortgage Policy exceed its authorized underwriting limits, reinsurance as the Administrative Agent may deem necessary or desirable;
(C) with respect to each Mortgaged Property for which the applicable Loan Party possesses a survey of real property to be mortgaged hereunder, a factually accurate affidavit for each such property for the benefit of the title insurer issuing the Mortgage Policies stating that there have been no changes in the improvements or other material matters set forth on such survey so as to cause the survey related standard exceptions to be removed from the title insurance policy applicable to such property; provided , however , if and to the extent that a Loan Party shall, in the ordinary course, obtain an updated survey or a new survey of such Mortgaged Property, such survey shall be in form and substance reasonably acceptable to the Administrative Agent, be prepared by a land surveyor duly registered and licensed in the States in which the property in question is located and be certified by such surveyor to the Administrative Agent, the title insurer and the applicable mortgagor;
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(D) a customary opinion of local counsel with respect to each Mortgage for the benefit of the Administrative Agent with respect to the enforceability and perfection of such Mortgage, a customary corporate formalities opinion of counsel for the Borrower or the relevant Loan Party, as applicable, in the state in which such Borrower or Loan Party that owns the Mortgaged Property is formed or organized and such other opinions of counsel as the Administrative Agent shall reasonably request in form reasonably acceptable to the Administrative Agent relating to the delivery of such Mortgage;
(E) with respect to each Mortgaged Property, the applicable Loan Party shall have made all necessary notifications, registrations and filings, to the extent required by, and in accordance with, all Governmental Real Property Disclosure Requirements applicable to such Mortgaged Property; and
(F) with respect to the Mortgaged Properties described in clause (a) of the definition of Mortgaged Property and any other Mortgaged Properties, a completed Life of Loan Federal Emergency Management Agency Standard Flood Hazard Determination and in the event any portion of a Mortgaged Property includes a structure with at least two walls and a roof or a building in the course of construction (each, a Building ) and, as shown in the related flood hazard determination, such Building is located in a special flood hazard area (a Flood Hazard Property ), then (1) the Administrative Agent shall deliver to the Borrower a notice about special flood hazard area status and flood disaster assistance (a Flood Hazard Notice ), and (2) the Borrower or the relevant Loan Party, as applicable, shall deliver to the Administrative Agent (i) a duly executed Flood Hazard Notice and (ii) evidence of flood insurance required by Section 6.07(c);
provided that, if the requirements set forth in subclauses (A) through (E) of this clause (vi) are not satisfied on or prior to the Funding Date, then such requirements shall not be conditions precedent to the Funding Date, but shall be required to be satisfied not later than 90 days (or such longer period as may be agreed by the Administrative Agent in its sole discretion) after the Funding Date;
(vii) with respect to the Mortgaged Properties described in clause (a) of the definition of Mortgaged Property and any other Mortgaged Properties, evidence that all flood insurance required to be maintained pursuant to Section 6.07(c) has been obtained (including a copy of, or a certificate as to coverage under, and a declaration page relating to, the insurance policies required by Section 6.07(c) (including flood insurance policies)), each of which (i) shall be endorsed or otherwise amended to include a standard or New York lenders loss payable or mortgagee endorsement (as applicable), (ii) identify the addresses of each property located in a special flood hazard area, (iii) indicate the applicable flood zone designation, the flood insurance coverage and the deductible relating thereto and (iv) provide that the insurer will give the Administrative Agent 45 days written notice of cancellation or non-renewal and is in effect, together with the certificates of insurance in form and substance satisfactory to the Administrative Agent, naming the Administrative Agent, on behalf of the Lenders, as an additional insured or loss payee and mortgagee, as the case may be, under all insurance policies maintained pursuant to Section 6.07(c);
(viii) a favorable opinion of (A) Cravath, Swaine & Moore LLP, special New York counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-1 with such changes thereto, and with respect to such other matters concerning the Loan Parties and the Loan Documents, as the Arrangers
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may reasonably request and (B) in-house counsel to each Loan Party, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-2 with such changes thereto, and with respect to such other matters concerning the Loan Parties and the Loan Documents, as the Arrangers may reasonably request;
(ix) a favorable opinion of local counsel in each jurisdiction where a Loan Party is organized, addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit H-3 with such changes thereto, and with respect to such other matters concerning the Loan Parties or the Loan Documents, as the Arrangers may reasonably request;
(x) a certificate of the secretary or assistant secretary of each Loan Party (other than the Initial Borrower), dated as of the Funding Date, certifying (A) that attached thereto is a true and complete copy of each current Organization Document of such Loan Party certified (to the extent applicable) as of a recent date by the Secretary of State (or other applicable Governmental Authority) of the state of its organization, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors (or other governing body) of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which such Loan Party is a party, and that such resolutions have not been modified, rescinded or amended (except as attached thereto) and are in full force and effect and (C) as to the incumbency and specimen signature of each officer executing any Loan Document or any other document delivered in connection herewith on behalf of such Loan Party (together with a certificate of another officer as to the incumbency and specimen signature of the secretary or assistant secretary executing the certificate in this clause (x)); and
(xi) a certificate as to the good standing or equivalent of each Loan Party (other than the Initial Borrower) (in so-called long-form if available) (except where such Loan Partys jurisdiction of organization does not recognize good standing or equivalent status) as of a recent date, from the Secretary of State (or other applicable Governmental Authority) of such Loan Partys jurisdiction of organization.
(xii) a certificate signed by a Responsible Officer certifying that (1) Ashland Global has received opinions or memoranda from its Tax advisors, in form and substance reasonably satisfactory to Ashland Global, to the effect that, subject to customary representations, covenants and assumptions, the U.S. domestic reorganization steps of the Separation should be Tax-free for U.S. federal income Tax purposes, which U.S. domestic reorganization steps shall include (A) the Ashland Reorganization, (B) the contribution of Ashland to Valvoline and the conversion of Ashland to a limited liability company, (C) the Ashland Chemco Internal Spin-off and (D) the spin-off of the non-U.S. operations of Valvoline pursuant to the distribution of the stock of a newly-formed U.S. corporation, and (2) Ashland Global has been advised by its applicable Tax advisor that, subject to customary representations, covenants and assumptions, such Tax advisor will be able to deliver an opinion to the effect that the distribution of the Valvoline stock to Ashland Global shareholders should be Tax-free for U.S. federal income Tax purposes, and Ashland Global has no reason to believe that such opinion will not be delivered on the date of the actual distribution (other than as a result of a change in law).
(c) (i) All fees required to be paid to the Administrative Agent and the Arrangers on or before the Funding Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before the Funding Date shall have been paid.
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(d) The Borrower shall have paid all reasonable out-of-pocket fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced at least three Business Days prior to the Funding Date.
(e) After giving effect to the Transactions, the Loan Parties and their respective Subsidiaries shall have outstanding no Indebtedness for borrowed money or preferred stock other than Indebtedness for borrowed money permitted under Section 7.02 .
(f) All material consents and approvals required to be obtained from any Governmental Authority or other Person in connection with the Transactions shall have been obtained or waived (if applicable), and all applicable waiting periods and appeal periods shall have expired.
(g) All of the assets that constitute the Valvoline Business shall have been transferred to and held by the Loan Parties and their respective Subsidiaries or shall be available for use pursuant to transition services agreements described in the Valvoline Form S-1 or in Schedule 4.02(g) (it being understood that failure to transfer immaterial assets to the Loan Parties or their respective Subsidiaries shall not cause this condition not to be satisfied so long as the financial statements provided pursuant to clause (k) below fairly present, in all material respects, the financial position of the Valvoline Business in accordance with GAAP that will be owned, directly or indirectly, by Valvoline as of the Funding Date).
(h) The Valvoline Business shall have no liabilities in excess of $200,000,000 in the aggregate other than (w) those that arise in the ordinary course of business for the Valvoline Business, (x) liabilities described in the Valvoline Form S-1, (y) the Indebtedness under this Agreement and the Senior Notes and (z) those set forth on Schedule 4.02(h) .
(i) The Newco Merger shall have occurred simultaneously or substantially simultaneously with the initial Credit Extension hereunder.
(j) After giving effect to the initial Credit Extension hereunder, the Valvoline Business shall have, on a pro forma basis, at least $350,000,000 of unrestricted cash, Cash Equivalents, unused Revolving Credit Commitments and unused commitments under any Permitted Receivables Facility.
(k) The Administrative Agent shall have received (i) the Audited Financial Statements and (ii) the audited consolidated (or combined, as the case may be) balance sheet and the related consolidated (or combined, as the case may be) statements of operations and comprehensive income, invested equity and cash flows, including the notes thereto, of, prior to the consummation of the Newco Merger, the Valvoline Business, and after the consummation of the Newco Merger, the Borrower and its Subsidiaries, for each fiscal year thereafter ended at least 90 days prior to the Funding Date. The Administrative Agent shall have received the unaudited consolidated (or combined, as the case may be) balance sheet and the related consolidated (or combined, as the case may be) statements of operations and comprehensive income, invested equity and cash flows, including the notes thereto, of, prior to the consummation of the Newco Merger, the Valvoline Business, and after the consummation of the Newco Merger, the Borrower and its Subsidiaries, for each of the first three completed fiscal quarter since the date of the most recent audited financial statements referred to in the immediately preceding sentence that has ended at least 45 days prior to the Funding Date.
(l) To the extent the Funding Date occurs after 60 days after the beginning of a fiscal year of the Borrower, a budget for the Borrower in form reasonably satisfactory to the Administrative Agent, but to include balance sheets, statements of income and sources and uses of cash, for (i) each fiscal quarter of such fiscal year prepared in reasonable detail and (ii) each of the two fiscal years of the Borrower immediately following such fiscal year, prepared in summary form, in each case, with appropriate presentation
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and discussion of the principal assumptions upon which such budgets are based, accompanied by the statement of the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that, to the good faith belief of such officer, the budget is a reasonable estimate for the periods covered thereby and, promptly when available, any significant revisions of such budget.
(m) The Guarantee by Ashland, if any, of the Senior Notes has been irrevocably released in full simultaneously or substantially simultaneously with the initial Credit Extension hereunder.
(n) After giving pro forma effect to the initial Credit Extension hereunder, the Consolidated Net Leverage Ratio of the Borrower shall be no greater than 3.50:1.00.
(o) If any Disposition of a part of the assets constituting the Valvoline Business to any Person other than Valvoline or a Subsidiary of Valvoline shall have occurred prior to the Funding Date (and such assets have not been returned to Valvoline or a Subsidiary of Valvoline prior to the Funding Date), such Disposition would have been permitted if Section 7.05 were in effect and the Borrower shall have complied with Section 2.05(b) as if such Section applied with respect to the Term A Commitments (subject to the reinvestment rights described therein).
4.03 Conditions to All Credit Extensions . The obligation of each Lender and each L/C Issuer to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurodollar Rate Loans), including on the Funding Date, is subject to the following conditions precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct in all respects) as of such earlier date, and except that for purposes of this Section 4.03 , the representations and warranties contained in Sections 5.05(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b) , respectively.
(b) No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c) The Administrative Agent, the applicable L/C Issuer or the Swing Line Lender, as the case may be, shall have received a Request for Credit Extension in accordance with the requirements hereof.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.03(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and the Lenders ( provided that the only representations and warranties that shall be made on the Effective Date shall be the representations and warranties set forth in Sections 5.01, 5.02, 5.03 and 5.04, and such representations and warranties shall be made only with respect to the Initial Borrower as of the Effective Date) that:
5.01 Existence, Qualification and Power . Each Loan Party and each of its Material Subsidiaries (a) is duly organized or formed, legally and validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and consummate the Transactions, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect.
5.02 Authorization; No Contravention . The execution, delivery and performance by each Loan Party of this Agreement and each other Loan Document, as applicable, has been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Loan Partys Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien (other than Liens created under the Loan Documents) under, or require any payment to be made under (i) any Contractual Obligation under a material contract to which such Loan Party is a party or affecting such Loan Party or the properties of such Loan Party or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Loan Party or its property is subject; or (c) violate, in any material respect, any applicable Law, except with respect to any conflict, breach, contravention or payment (but not creation of Liens) referred to in clause (b) to the extent that such conflict, breach, contravention or payment would not reasonably be expected to have a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents . On and after the Effective Date, except as already obtained, no approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person will be necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, or for the consummation of the Transactions, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) except as required by Sections 4.02 , 6.17 and 6.18 or by the applicable Collateral Documents (including the filing of UCC financing statements and other similar perfection documentation), the perfection or maintenance of the Liens created under the Collateral Documents or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except that certain filings with the Federal Communications Commission (the FCC ) may be required in connection with the grant of a security interest in FCC licenses and the exercise of remedies thereunder, in each case, except for those approvals, consents, exemptions, authorizations, actions, notices or filings the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect. As of the Funding Date, all applicable waiting periods in connection with the Transactions have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transactions or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.
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5.04 Binding Effect . This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of each Loan Party party hereto or thereto, enforceable against such Loan Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other Laws affecting creditors rights generally and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
5.05 Financial Statements; No Material Adverse Effect .
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Valvoline Business as of the date thereof and its results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Valvoline Business, as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b) The unaudited combined balance sheet of the Valvoline Business dated March 31, 2016, and the related combined statements of operations and comprehensive income, invested equity and cash flows for the fiscal quarter ended on that date (x) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (y) fairly present the financial condition of the Valvoline Business as of the date thereof and its results of operations for the period covered thereby, subject, in the case of clauses (x) and (y), to the absence of footnotes and to normal year-end audit adjustments.
(c) Since September 30, 2015, there has been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect.
5.06 Litigation . Except as set forth on Schedule 5.06 , there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against the Borrower or any of its Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Loan Document or the consummation of the Transactions, or (b) either individually or in the aggregate, if determined adversely, would reasonably be expected to have a Material Adverse Effect.
5.07 No Default . Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens; Investments .
(a) Each Loan Party and each of its Subsidiaries has good and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens permitted by Section 7.01 .
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(c) As of the date of the Perfection Certificate (which term for the purposes of this Article V shall be deemed to mean the Perfection Certificate, as most recently updated pursuant to this Agreement or another Loan Document), Schedule 7(a) of the Perfection Certificate sets forth a complete and accurate list of all items required by such schedule including real property that, together with any improvements thereon, individually has a fair market value of at least $10,000,000 (as reasonably determined by the Borrower) owned by each Loan Party, showing, in each case, as of the Funding Date the street address, county or other relevant jurisdiction, state, record owner, the value according to the applicable tax valuation thereof and the fair market value thereof.
5.09 Environmental Matters . Except as set forth on Schedule 5.09 or except as, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect:
(i) the Borrower and its Subsidiaries and their businesses, operations, facilities and properties are in compliance with, and the Borrower and its Subsidiaries have no liability under, any Environmental Laws;
(ii) the Borrower and its Subsidiaries have obtained all Environmental Permits (or shall be covered by the Environmental Permits of Ashland Global or any of its Subsidiaries) required for the conduct of their businesses and operations, and the ownership, operation and use of their facilities and properties, under Environmental Laws, and all such Environmental Permits are valid and in good standing;
(iii) (A) there has been no Release or, to the knowledge of the Borrower, threatened Release of Hazardous Materials on, at, under or from any property or facility presently owned, leased or operated by the Borrower and its Subsidiaries during the period of time when such property or facility was owned, leased or operated by the Borrower and its Subsidiaries, that could reasonably be expected to result in liability of the Borrower or any Subsidiary under, or noncompliance by the Borrower or any Subsidiary with, any Environmental Law and (B) to the knowledge of the Borrowers vice president for environmental health and safety (or equivalent successor officer otherwise named who is responsible for oversight of environmental matters) and of the Borrowers employees who report directly to such vice president, there has been no Release or threatened Release of Hazardous Materials on, at, under or from any property or facility owned, leased or operated by the Borrower and its Subsidiaries during the period of time before such property or facility was owned, leased or operated by the Borrower and its Subsidiaries, that could reasonably be expected to result in liability of the Borrower or any Subsidiary under, or noncompliance by the Borrower or any Subsidiary with, any Environmental Law;
(iv) there is no claim, notice, suit, action, complaint, demand or proceeding pending or, to the knowledge of the Borrower, threatened, against the Borrower or its Subsidiaries alleging actual or potential liability under or violation of any Environmental Law (an Environmental Claim ), and, to the knowledge of the Borrower, there are no actions, activities, occurrences, conditions, or incidents that would reasonably be expected to form the basis of such an Environmental Claim;
(v) neither the Borrower nor any of its Subsidiaries is currently obligated to perform any action or otherwise incur any expense under any Environmental Law pursuant to any Environmental Permit, order, decree, judgment or agreement by which it is bound or has assumed by contract or agreement, and none of them is conducting or financing, in whole or in part, any investigation, response or other corrective action pursuant to any Environmental Law at any facility or location; and
(vi) except as permitted pursuant to Section 7.01 , no Lien has been recorded or, to the knowledge of the Borrower, threatened, under any Environmental Law with respect to any property or other assets currently owned by the Borrower or any of its Subsidiaries.
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5.10 Insurance . The properties of the Borrower and its Subsidiaries are insured with (i) financially sound and reputable insurance companies and (ii) insurance companies that are not Affiliates of the Borrower (other than Ashmont Insurance Company, Inc., which is an Affiliate of the Borrower, the Subsidiaries of Ashmont Insurance Company, Inc. and their respective successors and assigns), in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or the applicable Material Subsidiary operates.
5.11 Taxes . The Borrower and each of its Subsidiaries have filed all Federal, State and other Tax returns and reports required to be filed, and have paid all Federal, State and other Taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted, which suspend enforcement or collection of the claim in question and for which adequate reserves have been provided in accordance with GAAP, except, where the failure to do so would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. There are no proposed Tax assessments or other Tax claims against the Borrower or any Subsidiary that would, if made, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 5.11 , neither any Loan Party nor any Domestic Subsidiary thereof is party to any tax sharing agreement, the primary subject of which is Tax, other than any tax sharing arrangements solely among the Loan Parties.
5.12 ERISA Compliance .
(a) Except as would not, either individually or in the aggregate, be expected to have a Material Adverse Effect, each Plan is in compliance with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by or will be timely filed according to the applicable determination letter cycle with the IRS with respect thereto and, to the knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification.
(b) There are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that would reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or would reasonably be expected to result in a Material Adverse Effect.
(c) Except as would not, either individually or in the aggregate, be expected to have a Material Adverse Effect or as set forth in Schedule 5.12 , (i) no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has been determined to be, or is expected to be, in at risk status (within the meaning of Section 430 of the Code), whose accumulated benefit obligation as determined under Accounting Standards Codification No. 715 is greater than or equal to $30,000,000; (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (iv) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.
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(d) Except where the failure to do so, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, with respect to each scheme or arrangement mandated by a government other than the United States (a Foreign Government Scheme or Arrangement ) and with respect to each employee benefit plan maintained or contributed to by any Loan Party or any Subsidiary of any Loan Party that is not subject to United States law (a Foreign Plan ):
(i) any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with applicable generally accepted accounting principles;
(ii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Funding Date, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and
(iii) each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
5.13 Subsidiaries; Equity Interests; Loan Parties; Charter Documents . As of the Funding Date, no Loan Party has any Subsidiaries other than those specifically disclosed in Schedule 1(a) of the Perfection Certificate and all of the outstanding Equity Interests in such Subsidiaries that are Collateral have been validly issued, are fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Schedules 9(a) and 9(b) to the Perfection Certificate free and clear of all Liens except those permitted under Section 7.01 . All of the outstanding Equity Interests in the Borrower have been validly issued, are fully paid and non-assessable. On and after the Funding Date as and when required by Section 6.17, all Subsidiaries (other than Excluded Subsidiaries, together with any other Subsidiary as of the Funding Date that is not listed on Schedule 1 to the Perfection Certificate delivered on the Funding Date) are Loan Parties. Set forth on Schedule 1 to the Perfection Certificate is a complete and accurate list of all Loan Parties as of the Funding Date, showing as of the Funding Date (as to each Loan Party) the jurisdiction of its organization, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any Loan Party that is not organized under the laws of one of the states of the United States that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. The copy of the charter of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(ii) (in the case of the Initial Borrower) or Section 4.02(b)(x) (in the case of each other Loan Party) is a true and correct copy of such document as of the Effective Date (in the case of the Initial Borrower) or the Funding Date (in the case of each other Loan Party), and is valid and in full force and effect as of the Effective Date (in the case of the Initial Borrower) or the Funding Date (in the case of each other Loan Party).
5.14 Margin Regulations; Investment Company Act .
(a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.
(b) None of the Borrower, any Person Controlling the Borrower or any Subsidiary is or is required to be registered as an investment company under the Investment Company Act of 1940.
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5.15 Disclosure . No report, financial statement, certificate or other written information furnished by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to financial estimates, projected or forecasted financial information and other forward-looking information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time of preparation, it being understood that (a) such estimates, projections, forecasts and other forward-looking information, as to future events, are not to be viewed as facts, that actual results during the period or periods covered by such estimates, projections, forecasts and forward-looking information may differ significantly from the projected or forecasted results and that such differences may be material and that such estimates, projections, forecasts and forward-looking information are not a guarantee of financial performance and (b) no representation or warranty is made with respect to information of a general economic or general industry nature.
5.16 Compliance with Laws . Except as disclosed in Schedule 5.09 , each Loan Party and each of its Subsidiaries is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.17 Intellectual Property; Licenses, Etc . Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, IP Rights ) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person, except where the failure to own or possess the right to use such IP Rights or such conflicts would not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Borrower, the conduct of their respective businesses by the Borrower or any of its Subsidiaries does not infringe upon or violate any rights held by any other Person except where such infringements or violations, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Borrower, threatened, which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.18 Solvency . After giving effect to the Transactions, (i) prior to the consummation of the Newco Merger, the Valvoline Business is Solvent and (ii) after the consummation of the Newco Merger, the Borrower is, individually and together with its Subsidiaries on a consolidated basis, Solvent.
5.19 Casualty, Etc . Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.20 Labor Matters . As of the Funding Date, except as set forth on Schedule 5.20 , there are no material collective bargaining agreements covering the employees of the Borrower or any of its Subsidiaries and neither the Borrower nor any Subsidiary has suffered any material strikes, walkouts, work stoppages or other labor difficulty with respect to the Borrower and all of its Subsidiaries within the last five years. The hours worked by and payments made to employees of the Borrower or any of its Subsidiaries
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have not been in violation in any material respect of the Fair Labor Standards Act or any other applicable Federal, State, local or foreign law dealing with such matters where such violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.21 Collateral Documents . On and after the Funding Date:
(a) The Security Agreement is effective to create in favor of the Administrative Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, the Collateral and, when (i) financing statements and other filings in appropriate form are filed in the offices specified on Schedule 5 to the Perfection Certificate and (ii) upon the taking of possession or control by the Administrative Agent of the Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Administrative Agent to the extent possession or control by the Administrative Agent is required by the Security Agreement), the Liens created by the Security Agreement shall constitute first priority (subject to Liens permitted under the Loan Documents), fully perfected Liens on, and security interests in, all right, title and interest of the grantors in the Collateral (other than such Collateral in which a security interest (A) cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction by such filings or by possession or control, as the case may be, or (B) is not required to be perfected pursuant to this Agreement or any other Loan Document), in each case subject to no Liens other than Liens permitted under the Loan Documents.
(b) When the Security Agreement or a short form thereof is filed in the United States Patent and Trademark Office and the United States Copyright Office and the filings referred to in clause (i) of Section 5.21(a) are made as provided in such clause, the Liens created by such Security Agreement shall constitute first priority (subject to Liens permitted under the Loan Documents), fully perfected Liens on, and security interests in, all right, title and interest of the grantors thereunder in Patents (as defined in the Security Agreement) registered or applied for with the United States Patent and Trademark Office or Copyrights (as defined in such Security Agreement) registered or applied for with the United States Copyright Office, as the case may be, in each case subject to no Liens other than Liens permitted under the Loan Documents.
(c) Each Collateral Document delivered pursuant to Sections 6.17 and 6.18 will, upon execution and delivery thereof, be effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties right, title and interest in and to the Collateral thereunder, and (i) when all appropriate filings or recordings are made in the appropriate offices as may be required under applicable law and (ii) upon the taking of possession or control by the Administrative Agent of such Collateral with respect to which a security interest may be perfected only by possession or control (which possession or control shall be given to the Administrative Agent to the extent required by any Collateral Document or is not required to be perfected pursuant to this Agreement or any other Loan Document), such Collateral Document will constitute first priority (subject to Liens permitted under the Loan Documents), fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral, in each case subject to no Liens other than the Liens permitted under the Loan Documents.
(d) Each Mortgage is effective to create, in favor of the Administrative Agent, for its benefit and the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, all of the Loan Parties right, title and interest in and to the Mortgaged Properties thereunder, subject only to (x) on the date of such Mortgage, Permitted Encumbrances and (y) after the date of such Mortgage, Liens permitted by Section 7.01 , and when the Mortgages are filed
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in the offices specified on Schedule 7(a) to the Perfection Certificate dated the Funding Date (or, in the case of any Mortgage executed and delivered after the Funding Date in accordance with the provisions of Sections 6.17 and 6.18 , when such Mortgage is filed in the offices specified in the local counsel opinion delivered with respect thereto in accordance with the provisions of Sections 6.17 and 6.18 ) the Mortgages shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the Mortgaged Properties, in each case prior and superior in right to any other Lien, other than (x) on the date of such Mortgage, Permitted Encumbrances and (y) after the date of such Mortgage, Liens permitted by Section 7.01 . All written information provided by or on behalf of the Borrower to the Administrative Agent and any Lender with respect to each Mortgaged Property is subject to Section 5.15 hereof.
5.22 Designated Senior Debt . The Obligations constitute Designated Senior Debt or Senior Secured Financing (or any other terms of similar meaning and import) under any Indebtedness subordinated in right of payment to the Obligations (to the extent the concept of Designated Senior Debt or Senior Secured Financing (or any similar concept) exists therein), or any subordinated Permitted Refinancing thereof (to the extent the concept of Designated Senior Debt or Senior Secured Financing (or any similar concept) exists therein).
5.23 USA Patriot Act . Neither the Borrower nor any of its Subsidiaries is in violation in any material respect of any applicable laws with respect to terrorism or money laundering ( Anti-Terrorism Laws ), including Executive Order No. 13224 on Terrorist Financing effective September 24, 2001 and the USA Patriot Act.
5.24 Anti-Money Laundering Laws . The operations of the Borrower and its Subsidiaries are and, to the knowledge of the Borrower, have, in the past three years, been conducted in compliance in all material respects with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Borrower or any of its Subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by any governmental or regulatory agency (collectively, the Anti-Money Laundering Laws ) and, as of the date hereof, no action, suit or proceeding by or before any court or governmental or regulatory agency, authority or body or any arbitrator involving the Borrower or any of its Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Borrower, threatened.
5.25 Sanctions and Anti-Corruption . (a) Neither the Borrower nor any of its Subsidiaries, nor any of their respective officers or employees, nor, to the knowledge of the Borrower, any of their respective, directors, agents or Affiliates, is a Sanctioned Person, nor is the Borrower or any of its Subsidiaries located, organized or resident in a country or territory that is a Sanctioned Country; and the Borrower will not directly or, knowingly, indirectly use the proceeds of the Credit Extensions hereunder to fund or facilitate, or lend, contribute or otherwise make available such proceeds to any Subsidiary to fund or facilitate or to any joint venture partner or other Person that the Borrower or any of its Subsidiaries knows will use such proceeds to fund or facilitate, (i) any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject or target of Sanctions or (ii) any use of such proceeds in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as Lender, Administrative Agent, L/C Issuer or otherwise) of Sanctions. The Borrower, its Subsidiaries and their respective officers and employees and, to the knowledge of the Borrower, the Borrowers directors and agents are in compliance with Sanctions in all material respects.
(b) Neither the Borrower nor any of its Subsidiaries nor, to the knowledge of the Borrower, any of its directors, officers, employees, agents or Affiliates has, in the past five years, failed to comply with
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any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable Anti-Corruption Laws. The Borrower and its Subsidiaries have instituted, maintain and enforce procedures designed to promote and ensure compliance with all applicable Anti-Corruption Laws and applicable Sanctions.
ARTICLE VI
AFFIRMATIVE COVENANTS
From and after the Funding Date, so long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than (x) contingent indemnification obligations and (y) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Lines of Credit Agreements, Secured Franchisee Loan Facility Guaranties or Secured Hedge Agreements) hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding or not otherwise provided for in full in a manner reasonably satisfactory to the applicable L/C Issuer, the Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01 , 6.02 , 6.03 , 6.11 and 6.15 ) cause each Subsidiary to:
6.01 Financial Statements . Deliver to the Administrative Agent and each Lender, in form and detail reasonably satisfactory to the Administrative Agent:
(a) promptly when available, but in any event within 90 days after the end of each fiscal year of the Borrower (or, prior to the consummation of the Newco Merger, the Valvoline Business) (commencing with the fiscal year ending September 30, 2016), a consolidated (or combined, as the case may be) balance sheet of the Borrower or the Valvoline Business, as the case may be, as at the end of such fiscal year, and the related consolidated (or combined, as the case may be) statements of operations and comprehensive income, invested equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated (or combined, as the case may be) statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any going concern or like qualification or exception or any qualification or exception as to the scope of such audit; and
(b) promptly when available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower (or, prior to the consummation of the Newco Merger, the Valvoline Business) (commencing with the fiscal quarter ending June 30, 2016), a consolidated (or combined, as the case may be) balance sheet of the Borrower or the Valvoline Business, as the case may be, as at the end of such fiscal quarter, and the related consolidated (or combined, as the case may be) statements of operations and comprehensive income, invested equity, and cash flows for such fiscal quarter and for the portion of the Borrowers or the Valvoline Business, as the case may be, fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated (or combined, as the case may be) statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of the Borrower as fairly presenting the financial condition, results of operations, shareholders equity and cash flows of the Borrower or the Valvoline Business, as the case may be, in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.
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As to any information contained in materials furnished pursuant to Section 6.02(d) , the Borrower shall not be separately required to furnish such information under Section 6.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrower to furnish the information and materials described in Sections 6.01(a) and (b) above at the times specified therein.
6.02 Certificates; Other Information . Deliver to the Administrative Agent and each Lender, in form and detail reasonably satisfactory to the Administrative Agent:
(a) concurrently with the delivery of the financial statements referred to in Section 6.01(a) , to the extent obtainable with commercially reasonable efforts, a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default under the financial covenants set forth herein or, if any such Default shall exist, stating the nature and status of such event (which certificate may be limited to the extent required by applicable accounting rules or guidelines);
(b) not later than five Business Days after the delivery of the financial statements referred to in Sections 6.01(a) and (b) , a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of the Borrower;
(c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party or any of its Subsidiaries, or any audit of any of them;
(d) promptly after the same are publicly available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;
(e) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02 ;
(f) concurrently with the delivery of each Compliance Certificate referred to in clause (b) of this Section 6.02 , a list of the Immaterial Subsidiaries determined as of the last day of the fiscal quarter of the Borrower to which such Compliance Certificate relates;
(g) promptly, and in any event within five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof, to the extent permitted by Law;
(h) promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request;
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(i) (A) upon request by the Administrative Agent, copies of: (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower, any Subsidiary or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan; (ii) the most recent actuarial valuation report for each Pension Plan; (iii) all notices received by the Borrower, any Subsidiary or any ERISA Affiliate from a Multiemployer Plan sponsor or any governmental agency concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Plan as the Administrative Agent shall reasonably request; and (B) promptly following any request therefor, copies of (i) any documents described in Section 101(k) of ERISA that the Borrower, any Subsidiary or any ERISA Affiliate may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l) of ERISA that the Borrower, any Subsidiary or any ERISA Affiliate may request with respect to any Multiemployer Plan; provided that if such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan have not been requested, the applicable entity shall promptly make a request for such documents or notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof;
(j) within 60 days after the beginning of each fiscal year of the Borrower, a budget for the Borrower in form reasonably satisfactory to the Administrative Agent, but to include balance sheets, statements of income and sources and uses of cash, for (i) each fiscal quarter of such fiscal year prepared in reasonable detail and (ii) each of the two fiscal years of the Borrower immediately following such fiscal year, prepared in summary form, in each case, with appropriate presentation and discussion of the principal assumptions upon which such budgets are based, accompanied by the statement of the chief executive officer, chief financial officer, treasurer or controller of the Borrower to the effect that, to the good faith belief of such officer, the budget is a reasonable estimate for the periods covered thereby and, promptly when available, any significant revisions of such budget;
(k) concurrently with the delivery of each Compliance Certificate referenced in clause (b) of this Section 6.02, a Perfection Certificate Supplement (or a certificate confirming that there has been no change in information since the date of the Perfection Certificate or latest Perfection Certificate Supplement); and
(l) to the extent the Borrower has one or more Subsidiaries that have been designated as Unrestricted Subsidiaries in accordance with Section 6.15 at such time, concurrently with the delivery of consolidated financial statements referred to in Sections 6.01(a) and (b) , the related unaudited consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and, if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrowers public website on the Internet or (ii) on which such documents are posted on the Borrowers behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that makes a written request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender. Except for such Compliance Certificates, the Administrative
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Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders and the L/C Issuers materials and/or information provided by or on behalf of the Borrower hereunder (collectively, Borrower Materials ) by posting the Borrower Materials on Intralinks or another similar electronic system (the Platform ) and (b) certain of the Lenders (each, a Public Lender ) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons securities. The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, the L/C Issuers and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities laws ( provided , however , that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07 ); (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated Public Side Information; and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not designated Public Side Information.
6.03 Notices . Promptly following a Responsible Officers knowledge thereof, notify the Administrative Agent (which shall furnish such notice to each Lender) of:
(a) the occurrence of any Default;
(b) any matter that has resulted or would reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower or any Subsidiary in an aggregate amount in excess of $30,000,000;
(d) any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof, including any determination by the Borrower referred to in Section 2.10(b) ; and
(e) any announcement by a Rating Agency of any change in a Debt Rating, including outlook.
Each notice pursuant to Section 6.03 (other than Section 6.03(e) ) shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating
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what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Obligations . Pay and discharge as the same shall become due and payable, all its material Tax liabilities, unless the same are being contested in good faith by appropriate proceedings diligently conducted, adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary, and such contest suspends enforcement or collection of the claim in question.
6.05 Preservation of Existence, Etc . (a) Preserve, renew and maintain in full force and effect the Borrowers and its Material Subsidiaries legal existence and good standing (or equivalent status) under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05 ; (b) take all reasonable action to maintain all rights, privileges, permits, licenses, approvals and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which would reasonably be expected to have a Material Adverse Effect.
6.06 Maintenance of Properties .
(a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; and
(b) make all necessary repairs thereto and renewals and replacements thereof; and
(c) use a standard of care typical in the industry in the operation and maintenance of its facilities,
in the case of each of (a), (b) and (c), except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
6.07 Maintenance of Insurance .
(a) Maintain with (i) financially sound and reputable insurance companies and (ii) insurance companies that are not Affiliates of the Borrower (other than Ashmont Insurance Company, Inc., which is an Affiliate of the Borrower, the Subsidiaries of Ashmont Insurance Company, Inc. and their respective successors and assigns), insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by companies engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other companies.
(b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days (or such shorter period as agreed by the Administrative Agent in its sole discretion) after receipt by the Administrative Agent of written notice thereof and (ii) so long as Valvoline maintains its own insurance policies (and not a combined policy with Ashland), which shall occur no later than January 1, 2017, name the Administrative Agent as mortgagee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of liability insurance) or loss payee (in the case of property insurance), as applicable in the case of insurance relating to Collateral.
(c) If at any time any Mortgaged Property is a Flood Hazard Property, then, prior to the effective date of the Mortgage in respect of such Flood Hazard Property, the Borrower shall, or shall cause
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each Loan Party to, (i) maintain, or cause to be maintained, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the Flood Insurance Laws and (ii) deliver to the Administrative Agent evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent and each Lender, it being acknowledged and agreed that the acceptance of a Mortgage encumbering such property by the Administrative Agent shall constitute confirmation of delivery of evidence of such compliance for purposes of this section (the requirements set forth in this paragraph (c) are referred to herein as the Flood Insurance Requirements ).
6.08 Compliance with Laws . Comply in all material respects with the requirements of all Laws (including compliance with ERISA) and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records . (a) Maintain proper books of record and account, in which full, true and correct entries in material conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.
6.10 Inspection Rights . Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its officers, and independent public accountants, at such reasonable times during normal business hours and reasonable frequency, upon reasonable advance notice to the Borrower; provided , however , that, excluding any such visits and inspections during the continuation of an Event of Default, (x) only the Administrative Agent on behalf of the Lenders may exercise rights under this Section 6.10 , (y) the first such inspection in each calendar year shall be conducted at the sole expense of the Borrower without charge to the Administrative Agent and (z) any additional such inspections in a calendar year after the first such inspection in such calendar year shall be conducted at the sole expense of the Administrative Agent without charge to the Borrower; provided, further , however , that when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the sole expense of the Borrower at any time during normal business hours and upon reasonable advance notice to the Borrower. The Administrative Agent and the Lenders shall give the Borrower the opportunity to participate in any discussions with the Borrowers accountants.
6.11 Use of Proceeds . Use the proceeds of the Credit Extensions (i) to contribute all or a portion of such proceeds to Ashland to finance the Existing Ashland Debt Repayment, (ii) to finance the Separation and the other transactions related thereto, (iii) to pay fees and expenses incurred in connection with the Transactions, (iv) to provide Letters of Credit and (v) for ongoing working capital and general corporate purposes not in contravention of any Law or of any Loan Document (including acquisitions permitted under Section 7.03 ). The Borrower will not request any Credit Extensions, and the Borrower shall not directly or, knowingly, indirectly use, and the Borrower shall procure that its subsidiaries and its and their respective directors, officers, employees and agents shall not directly or, knowingly, indirectly use, the proceeds of any Credit Extensions (a) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (b) for the purpose of funding, financing or facilitating any unlawful activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country or (c) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
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6.12 Compliance with Environmental Laws . Except where the failure to comply therewith would not reasonably be expected to have a Material Adverse Effect, comply, and, to the extent permitted by Law and attainable using commercially reasonable efforts, cause all lessees and other Persons operating or occupying its properties and facilities to comply, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations, properties and facilities; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to address Hazardous Materials at, on, under or emanating from any of its properties or facilities, in accordance with the requirements of all Environmental Laws; provided , however , that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such actions to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.
6.13 Preparation of Environmental Reports . If an Event of Default is continuing relating to Section 5.09 or Section 6.12 , or if the Administrative Agent at any time has reason to believe that there exist violations of Environmental Laws by any Loan Party or any of its Subsidiaries or that there exist any Environmental Liabilities or Environmental Claims, in each case which could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, then the following procedure shall be implemented:
(a) the Administrative Agent shall notify the Loan Parties that it intends to seek an environmental audit and/or assessment report meeting the description in subsection (c) below, and shall consult with the Loan Parties on the facts and circumstances giving rise to the intent;
(b) the Loan Parties shall have ten (10) Business Days to provide a response to and otherwise consult with the Administrative Agent and the Required Lenders;
(c) if, after the consultation described in subsections (a) and (b) above, the Administrative Agent and the Required Lenders believe it necessary, each Loan Party shall, at the request of the Required Lenders, provide to the Lenders within 60 days after such request, at the expense of the Borrower, an environmental audit and/or assessment report with respect to any such Event of Default, violation, Environmental Liability, and/or Environmental Claim ( Environmental Audit ). An Environmental Audit may include, where reasonably appropriate, soil, air, surface water and groundwater sampling and testing. The Environmental Audit shall be prepared by an environmental consulting firm reasonably acceptable to the Administrative Agent. The Environmental Audit will, as relevant, indicate the presence or absence of any such violation, and/or the presence, absence, Release or threat of Release of Hazardous Materials and shall include the estimated cost of any compliance, removal, remedial or other action required to correct any such Event of Default, or violation, and/or to address any such Environmental Liability and/or Environmental Claim;
(d) without limiting the generality of the foregoing, if the Administrative Agent determines at any time that a material risk exists that any such audit and/or report will not be provided within the time referred to above, the Administrative Agent may retain an environmental consulting firm to prepare such audit and/or report at the expense of the Borrower, and the Borrower hereby grants and agrees to cause any Subsidiary that owns, leases or operates any real property or facility described in such request to grant at the time of such request to the Administrative Agent, the Lenders, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, landlords or other Persons with interests in the applicable real property or facility, to enter onto their respective properties or facilities to undertake such an audit and/or assessment; and
(e) without limiting any term or provision of Section 10.07 , in implementing the above described procedures, the Administrative Agent and Required Lenders will undertake steps deemed reasonable by them under the circumstances to accommodate specific requests by the Loan Parties to maintain as confidential information concerning litigation or regulatory compliance strategy provided to them by the Loan Parties pursuant to this Section.
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6.14 Designation as Senior Debt . Designate all Obligations as Designated Senior Indebtedness or Senior Secured Financing (or similar term) under, and defined in, any subordinated indebtedness of the Borrower.
6.15 Designation of Unrestricted Subsidiaries . So long as no Default has occurred and is continuing, at the option of the Borrower, designate any Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Subsidiary; provided that (i) in the case of designating a Subsidiary as an Unrestricted Subsidiary, on a Pro Forma Basis, the Borrower shall be in compliance with Sections 7.11(a) and (b) for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 , (ii) the designation of a Subsidiary as an Unrestricted Subsidiary shall constitute an Investment by the Borrower therein at the date of designation in an amount equal to the net book value of the Borrowers Investment in such Subsidiary and, at the time of such designation, the aggregate amount of Investments made as a result of designations of Subsidiaries as Unrestricted Subsidiaries pursuant to this Section 6.15 shall be subject to compliance with Sections 7.03 and (iii) no Subsidiary may be re-designated an Unrestricted Subsidiary if it was previously designated an Unrestricted Subsidiary. Upon the effectiveness of the designation of a Subsidiary as an Unrestricted Subsidiary, such Unrestricted Subsidiary shall for all purposes be deemed not to be a Subsidiary under and pursuant to this Agreement or any other Loan Document, unless and until such time, if ever, as it is re-designated to be a Subsidiary as herein provided. Upon the effectiveness of the designation of a Subsidiary that is a Guarantor as an Unrestricted Subsidiary, such Subsidiary shall cease to be a Guarantor, and it shall be released from the Guaranty, the Security Agreement and any other Loan Document to which it is a party (and the Administrative Agent shall take the actions required by Section 9.10 to effect such release). The re-designation of any Unrestricted Subsidiary as a Subsidiary shall constitute the incurrence at the time of designation of any Investment, Indebtedness or Liens of such Subsidiary existing at such time; provided that, by way of clarification and not limitation, such designation shall not be construed to be an acquisition by the Borrower or the Subsidiary that is the parent of such Unrestricted Subsidiary for the purposes of Section 7.03 . Upon the effectiveness of re-designation of any Unrestricted Subsidiary as a Subsidiary, such Subsidiary shall be subject to the requirements of Section 6.17 .
6.16 Compliance with Anti-Terrorism Laws; Anti-Corruption Laws and Sanctions .
(a) The Borrower will not directly or, knowingly, indirectly (i) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to any Anti-Terrorism Law or (ii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
(b) The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
(c) The Borrower will not directly or indirectly knowingly cause or permit any of the funds of any Loan Party that are used to repay the Credit Extensions to be derived from any unlawful activity with the result that the making of the Credit Extensions would be in violation of any Anti-Terrorism Law.
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6.17 Covenant to Guarantee Obligations and Give Security .
(a) Subject to this Section 6.17 , with respect to any property acquired after the Funding Date by any Loan Party that is intended to be subject to the Lien created by any of the Collateral Documents but is not so subject, promptly (and in any event within 30 days after the acquisition thereof or 90 days with respect to any real property that is subject to the requirements of this Section 6.17 , or, in each case, such longer period as the Administrative Agent may agree in its sole discretion) (i) execute and deliver to the Administrative Agent such amendments or supplements to the relevant Collateral Documents or such other documents as the Administrative Agent shall reasonably deem necessary or advisable to grant to the Administrative Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no Liens other than Liens permitted under the Loan Documents and (ii) take all actions necessary to cause such Lien to be duly perfected to the extent required by such Collateral Document in accordance with all applicable requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. The Borrower shall otherwise take such actions and execute and/or deliver to the Administrative Agent such documents as the Administrative Agent shall reasonably require to confirm the validity, perfection and priority of the Lien of the Collateral Documents on such after-acquired properties. Notwithstanding the foregoing or anything in this Agreement (including this Section 6.17 and Section 6.18 ) or any other Loan Document to the contrary, no Loan Party shall be required to execute and deliver any Collateral Documents or other agreements governed by the laws of, or otherwise take any action to perfect any Lien under this Agreement or any other Loan Document in, any jurisdiction other than the United States, any State thereof and the District of Columbia.
(b) With respect to any Person that is or becomes a Subsidiary (other than an Immaterial Subsidiary or Special Purpose Finance Subsidiary) after the Funding Date or any Subsidiary that ceases to be an Immaterial Subsidiary or Special Purpose Finance Subsidiary, promptly (and in any event (A) within 30 days (or such longer period as the Administrative Agent may agree in its sole discretion) after such Person becomes a Subsidiary or (B) within 30 days (or such longer period as the Administrative Agent may agree in its sole discretion) after financial statements have been delivered pursuant to Section 6.01 (commencing with the financial statements for the quarter ending June 30, 2016) indicating that such Subsidiary has ceased to be an Immaterial Subsidiary or Special Purpose Finance Subsidiary, as the case may be (for the avoidance of doubt, a Subsidiarys status as an Immaterial Subsidiary need not otherwise be tested except as set forth in this Section 6.17(b) ) (i) except as provided below, deliver to the Administrative Agent the certificates, if any, representing all of the Equity Interests of such Subsidiary that are directly owned by the Borrower or a Guarantor, together with undated stock powers or other appropriate instruments of transfer executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan Party and (ii) cause such new Subsidiary (other than an Excluded Subsidiary) (A) to execute a joinder agreement to the Guaranty or such comparable documentation to become a Guarantor and a joinder agreement to the Security Agreement, substantially in the form annexed thereto and (B) to take all actions necessary or advisable in the reasonable opinion of the Administrative Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. Notwithstanding the foregoing, the Equity Interests required to be delivered to the Administrative Agent pursuant to clause (i) of this Section 6.17(b) shall not include any Equity Interests of (x) a Regulated Subsidiary or other Subsidiary, in each case in this clause (x) to the extent that the pledge of Equity Interests of such Subsidiary would be prohibited by applicable Law, (y) a joint venture to the extent that the pledge of Equity Interests of such joint venture would be prohibited by such joint ventures Organization Documents, or (z) a Foreign Subsidiary or a Foreign Subsidiary Holding Company (including Equity Interests of a Subsidiary that are held
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directly or indirectly by a Foreign Subsidiary or a Foreign Subsidiary Holding Company) other than (A) Voting Stock of any Subsidiary which is a first-tier Foreign Subsidiary or a first-tier Foreign Subsidiary Holding Company, in each case representing 65% of the total voting power of all outstanding Voting Stock of such Subsidiary and (B) 100% of the Equity Interests not constituting Voting Stock of any such Subsidiary, except that any such Equity Interests constituting stock entitled to vote within the meaning of Treasury Regulation Section 1.956-2(c)(2) shall be treated as Voting Stock for purposes of this Section 6.17(b) .
(c) Promptly grant to the Administrative Agent, within 90 days (or such longer period as the Administrative Agent may agree in its sole discretion) of the acquisition thereof, a security interest in and Mortgage on each real property owned in fee by such Loan Party as is acquired by such Loan Party after the Funding Date and that, together with any improvements thereon, individually has a fair market value of at least $10,000,000 (as reasonably determined by the Borrower), as additional security for the Secured Obligations (unless the subject property is already mortgaged to a third party to the extent permitted by Section 7.01 ); provided that the Borrower shall give prompt written notice to the Administrative Agent, which the Administrative Agent shall promptly forward to the Lenders, of the Borrowers acquisition of any such real property owned in fee (including the physical address of each Building). Such Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and shall constitute valid and enforceable perfected Liens subject only to Liens permitted under Section 7.01 . The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent required to be granted pursuant to the Mortgages and all Taxes, fees and other charges payable in connection with the recording of such Mortgages shall be paid in full. Such Loan Party shall otherwise take such actions and execute and/or deliver to the Administrative Agent such documents as the Administrative Agent shall reasonably require to confirm the validity, perfection and priority of the Lien of any existing Mortgage or new Mortgage against such after-acquired real property (including a Mortgage Policy, satisfaction of any applicable requirements set forth in Section 4.02(b)(vi), mutatis mutandis , evidence of insurance coverage (including, if applicable, flood insurance coverage required by Section 6.07(c)) required hereunder, counsel opinions (in each case, in form and substance reasonably satisfactory to the Administrative Agent) in respect of such Mortgage) and, if and to the extent that a Loan Party shall, in the ordinary course, obtain an updated survey or a new survey of any Mortgaged Property, such Loan Party shall deliver a copy of such survey to the Administrative Agent and such survey shall be in form and substance reasonably acceptable to the Administrative Agent, be prepared by a land surveyor duly registered and licensed in the States in which the property in question is located and be certified by such surveyor to the Administrative Agent. With respect to any additional Mortgaged Property that is a Flood Hazard Property, the Borrower shall have obtained confirmation from the Administrative Agent and each Lender that the flood hazard due diligence and flood insurance requirements hereunder have been met with respect to such additional Mortgaged Property (it being acknowledged and agreed that the acceptance of a Mortgage encumbering such property by the Administrative Agent shall constitute such confirmation for purposes of this section).
(d) Notwithstanding anything to the contrary in this Section 6.17 , (i) no Subsidiary shall be required to become a Guarantor in circumstances where the Administrative Agent and the Borrower reasonably agree that the cost or other consequences of providing a Guarantee of the Obligations is excessive in relation to the benefit thereof and (ii) the Collateral shall not include assets in circumstances where the Administrative Agent and the Borrower reasonably agree that the cost of obtaining pledge or security interest in such assets is excessive in relation to the benefit thereof.
(e) Notwithstanding anything to the contrary in this Section 6.17 , if any Person ceases to be a Guarantor in accordance with this Agreement as a result of a transaction permitted hereunder or as a result of becoming an Excluded Subsidiary, the Administrative Agent will, at the Borrowers expense and
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upon receipt of any certifications reasonably requested by the Administrative Agent in connection therewith and in accordance with Section 9.10 , execute and deliver to such Person such documents as such Person may reasonably request to evidence the release of such Person from its obligations hereunder and under the other Loan Documents.
(f) Notwithstanding anything herein to the contrary, the Borrower shall be permitted, at its sole option and from time to time, to designate any Immaterial Subsidiary as a Guarantor and a Loan Party upon written notice to the Administrative Agent so long as the requirements of Section 6.17(b) shall have been satisfied with respect to such Subsidiary as if it were a Subsidiary that has ceased to be an Immaterial Subsidiary, and thereafter such Immaterial Subsidiary shall be deemed to be a Guarantor and a Loan Party for all purposes of this Agreement and the other Loan Documents; provided that no Subsidiary designated as a Guarantor and a Loan Party pursuant to this Section 6.17(f) may subsequently be re-designated as an Immaterial Subsidiary.
6.18 Further Assurances . Promptly upon the reasonable request of the Administrative Agent, at the Borrowers expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Collateral Documents or otherwise deemed by the Administrative Agent reasonably necessary or desirable for the continued validity, perfection and priority of the Liens on the Collateral covered thereby subject to no other Liens except as permitted by the Loan Documents, or obtain any consents or waivers as may be necessary or appropriate in connection therewith. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (i) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, (ii) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to carry out more effectively the purposes of the Loan Documents and (iii) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so. The Borrower shall deliver or cause to be delivered to the Administrative Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent as the Administrative Agent shall reasonably deem necessary to perfect or maintain the Liens on the Collateral pursuant to the Collateral Documents. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to any Loan Document which requires any consent, approval, registration, qualification or authorization of any Governmental Authority execute and deliver all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may require.
6.19 Valvoline Joinder Agreement . Promptly following the consummation of the Newco Merger, cause Valvoline to execute a joinder (in form and substance reasonably satisfactory to the Administrative Agent) to this Agreement and, if necessary, each other Loan Document pursuant to which Valvoline acknowledges that immediately upon the consummation of the Newco Merger, Valvoline shall become the Borrower under this Agreement and the other Loan Documents and shall assume the obligations and rights of the Initial Borrower under this Agreement and the other Loan Documents.
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ARTICLE VII
NEGATIVE COVENANTS
From and after the Funding Date, so long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than (x) contingent indemnification obligations and (y) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Lines of Credit Agreements, Secured Franchisee Loan Facility Guaranties or Secured Hedge Agreements) hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding or not otherwise provided for in full in a manner reasonably satisfactory to the applicable L/C Issuer, the Borrower shall not, nor shall it permit any Subsidiary to, directly or indirectly:
7.01 Liens . Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names the Borrower or any of its Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:
(a) (x) Liens pursuant to any Loan Document, including Liens securing an L/C Issuer pursuant to Section 2.03(a)(iii)(F) and any other Liens on cash or deposits granted to the Administrative Agent or any L/C Issuer in accordance with the terms of this Agreement to Cash Collateralize the Obligations and (y) Liens securing any Incremental Equivalent Debt ( provided that such Liens do not extend to any assets that are not Collateral);
(b) Liens existing on the Funding Date and listed on Schedule 7.01 and any renewals or extensions thereof; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary, other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien and (B) proceeds and products thereof and (ii) any Permitted Refinancing of the obligations secured or benefitted thereby is permitted by Section 7.02(c) ;
(c) Liens for Taxes not yet due or, if overdue, which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP and either (A) such contest suspends enforcement or collection of the claim in question or (B) the Borrower or such Subsidiary takes such actions as are reasonably necessary to replace or substitute such Lien with a bond or equivalent surety or otherwise prevent the forfeiture or sale of the subject property or asset as a result of the enforcement or collection of the claim in question;
(d) carriers, warehousemens, mechanics, materialmens, repairmens or other like Liens arising in the ordinary course of business which secure amounts that are not overdue for a period of more than 30 days or, if more than 30 days overdue, which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP and either (A) such contest suspends enforcement or collection of the claim in question, or (B) the Borrower or such Subsidiary takes such actions as are reasonably necessary to replace or substitute such Lien with a bond or equivalent surety or otherwise prevent the forfeiture or sale of the subject property or asset as a result of the enforcement or collection of the claim in question;
(e) pledges or deposits in the ordinary course of business in connection with workers compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
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(f) deposits or other security to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations (including obligations under Environmental Laws), surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, zoning restrictions, covenants, conditions and restrictions of record, rights of third parties with respect to minerals, gas and oil, riparian rights, rights of parties under leases, and other similar encumbrances affecting real property which, in the aggregate, do not secure monetary obligations that are substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h) ;
(i) Liens securing Indebtedness used to finance the acquisition of new assets or the construction or improvement of assets; provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, other than proceeds and products thereof, (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition and (iii) after giving effect to the incurrence of any Liens in reliance on this clause (i) on a Pro Forma Basis, the Borrower shall be in compliance with Section 7.11 for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 ;
(j) Liens on Permitted Securitization Transferred Assets arising in connection with a Permitted Receivables Facility;
(k) other Liens securing Indebtedness or other obligations outstanding in an aggregate principal amount not to exceed $300,000,000;
(l) Liens securing obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract that would otherwise meet the requirements set forth in the proviso to Section 7.02(a) ;
(m) Liens attaching to earnest money deposits (or equivalent deposits otherwise named) made in connection with proposed acquisitions permitted under this Agreement;
(n) (i) set-off rights or (ii) Liens arising in connection with repurchase agreements that are Investments permitted under Section 7.03 ;
(o) Liens arising pursuant to Law in favor of a Governmental Authority in connection with the importation of goods in the ordinary course of business;
(p) the replacement, extension or renewal of any Lien permitted by clauses (i) and (j) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (other than releases thereof) (without increase in the amount or change in any direct or contingent obligor) of the Indebtedness secured thereby;
(q) Liens incurred in the ordinary course of business securing insurance premiums or reimbursement obligations under insurance policies;
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(r) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary (or of any Person not previously a Subsidiary that is merged or consolidated with or into the Borrower or a Subsidiary in a transaction permitted hereunder) after the date hereof prior to the time such Person becomes a Subsidiary (or is so merged or consolidated); provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary (or such merger or consolidation), as the case may be, (ii) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary, other than assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business and (iii) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Subsidiary (or is so merged or consolidated) and any Permitted Refinancing thereof;
(s) Liens of a collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;
(t) Liens representing any interest or title of any (i) licensor, sublicensor, lessor or sublessor and where the Borrower or any Subsidiary is a licensee, sublicensee, lessee or sublessee or (ii) lessee, sublessee, licensee or sublicensee, in the case of clauses (i) and (ii) under any lease, sublease, license or sublicense not prohibited by the terms of this Agreement and entered in to in the ordinary course of business, so long as, in the case of Liens under clause (ii), all such leases, subleases, licenses and sublicenses do not individually or in the aggregate (A) interfere in any material respect with the ordinary conduct of the business of any Loan Party or (B) materially impair the use (for its intended purposes) or the value of the property subject thereto;
(u) Liens arising from precautionary Uniform Commercial Code financing statement filings (or similar filings under applicable Law) regarding leases entered into by the Borrower or any Subsidiary in the ordinary course of business;
(v) in connection with the sale or transfer of any Equity Interests or other assets in a transaction permitted by Section 7.05 , customary rights and restrictions contained in agreements relating to such sale or transfer pending the completion thereof;
(w) in the case of (i) any Subsidiary that is not a wholly owned Subsidiary or (ii) the Equity Interests in any Person that is not a Subsidiary, any encumbrance or restriction, including any customary put and call arrangements, related to Equity Interests in such Subsidiary or such other Person set forth in the organizational documents of such Subsidiary or such other Person or any related joint venture, shareholders or similar agreement;
(x) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Borrower or any Subsidiary in the ordinary course of business and not prohibited by this Agreement;
(y) any pledge of the Equity Interests of any Unrestricted Subsidiary to secure Indebtedness of such Unrestricted Subsidiary, to the extent such pledge constitutes an Investment permitted under this Agreement;
(z) brokers Liens securing the payment of commissions in the ordinary course of business;
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(aa) Liens on the Collateral securing obligations in respect of Permitted Pari Passu Secured Refinancing Debt or Permitted Junior Secured Refinancing Debt and any Permitted Refinancing thereof; provided that any such Liens are subject to an intercreditor agreement reasonably satisfactory to the Borrower and the Administrative Agent; and
(bb) Liens on assets or property securing Indebtedness permitted under Section 7.02(e) ; provided that such Liens do not encumber any property or assets other than the property or assets financed by such Indebtedness (or the proceeds thereof).
7.02 Indebtedness . Create, incur, assume or suffer to exist any Indebtedness, except:
(a) obligations (contingent or otherwise) existing or arising under any Swap Contract; provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates, foreign exchange rates or commodity prices and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(b) Indebtedness of the Borrower owed to any Subsidiary and of any Subsidiary owed to the Borrower or any other Subsidiary, which Indebtedness shall (i) in the case of Indebtedness owed to a Loan Party, constitute Collateral under the Security Agreement, (ii) in the case of any Indebtedness owed by a Loan Party to a Subsidiary that is not a Loan Party, be subject to an Intercompany Note Subordination Agreement and (iii) in the case of any Indebtedness owed to a Loan Party by any Subsidiary that is not a Loan Party, otherwise be permitted under the provisions of Section 7.03 ;
(c) Indebtedness outstanding on the Funding Date and listed on Schedule 7.02 and any Permitted Refinancing thereof;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary, by any other Loan Party of Indebtedness of the Borrower or any other Subsidiary, and by any Subsidiary that is not a Loan Party of Indebtedness of any other Subsidiary that is not a Loan Party; provided that (i) in the case of Guarantees of Indebtedness, the Indebtedness so Guaranteed is permitted by this Section 7.02 , (ii) Guarantees by any Loan Party of Indebtedness of a Subsidiary that is not a Loan Party shall be otherwise permitted under the provisions of Section 7.03 (other than clause (e) thereof) and (iii) the Guarantees permitted under this clause (d) shall be subordinated to the Obligations of the applicable Subsidiary to the same extent and on the same terms as the Indebtedness so Guaranteed is subordinated to the Obligations;
(e) Indebtedness in respect of Capitalized Leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i) , in each case incurred to finance the acquisition of new assets or the construction or improvement of assets; provided , however , that after giving effect to the incurrence of any Indebtedness in reliance on this clause (e) on a Pro Forma Basis, the Borrower shall be in compliance with Section 7.11 for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 ;
(f) Indebtedness of any Person that becomes a Subsidiary (or that is merged or consolidated with or into the Borrower or any Subsidiary) after the Funding Date in accordance with the terms of Section 7.03 , which Indebtedness is existing at the time such Person becomes a Subsidiary (or that is merged or consolidated with or into the Borrower or any Subsidiary) (other than Indebtedness incurred solely in contemplation of such Persons becoming a Subsidiary, or being merged or consolidated with or into the Borrower or any Subsidiary);
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(g) Indebtedness to the Receivables Financiers arising under or incidental to the Permitted Receivables Facilities not to exceed $250,000,000 at any time outstanding; and to the extent that any purported sale, transfer or contribution of Permitted Securitization Transferred Assets from the Borrower or any Subsidiary to a Special Purpose Finance Subsidiary shall ever be deemed not to constitute a true sale, any Indebtedness of the applicable Special Purpose Finance Subsidiary to the Borrower and its Subsidiaries arising therefrom;
(h) Indebtedness that may be deemed to exist pursuant to any performance bond, surety, statutory appeal or similar obligation entered into or incurred by the Borrower or any of its Subsidiaries in the ordinary course of business;
(i) other Indebtedness the aggregate unpaid principal amount of which shall not at any time exceed $300,000,000;
(j) Indebtedness consisting of the financing of insurance premiums;
(k) Indebtedness (i) incurred in connection with an Investment or Disposition permitted hereunder constituting indemnification obligations or obligations in respect of purchase price or other similar adjustments and (ii) consisting of deferred compensation or other similar arrangements incurred by the Borrower or any Subsidiary in connection with an Investment permitted hereunder;
(l) Indebtedness created under this Agreement or any other Loan Document;
(m) other Indebtedness of the Loan Parties; provided that (i) no Event of Default shall exist or result therefrom, (ii) if such Indebtedness is subordinated Indebtedness, the terms of such Indebtedness provide for customary subordination of such Indebtedness to the Obligations, (iii) no Subsidiary (other than a Guarantor) is an obligor under such Indebtedness (including pursuant to any Guarantee thereof) unless such Subsidiary, substantially concurrently with becoming an obligor under such Indebtedness, becomes a Guarantor, (iv) if such Indebtedness is secured, it shall not be secured by any assets that do not constitute the Collateral and (v) after giving effect to the incurrence of any Indebtedness in reliance on this clause (m) on a Pro Forma Basis, the Consolidated Interest Coverage Ratio for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 shall not be less than 2.00:1.00;
(n) Indebtedness constituting Incremental Equivalent Debt and any Permitted Refinancing thereof;
(o) Indebtedness under the Senior Notes and any Permitted Refinancing thereof;
(p) Refinancing Equivalent Debt and any Permitted Refinancing thereof;
(q) Indebtedness incurred in connection with the Separation, provided that , such Indebtedness shall be repaid using the proceeds of the Valvoline IPO within 7 days of the date of such incurrence; and
(r) Indebtedness under Secured Foreign Line of Credit Agreements.
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7.03 Investments . Make or hold any Investments, except:
(a) Investments held by the Borrower and its Subsidiaries in the form of Cash Equivalents;
(b) loans or advances to officers, directors and employees of the Borrower and its Subsidiaries in an aggregate amount not to exceed $10,000,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;
(c) (i) Investments by the Borrower and its Subsidiaries in Loan Parties, (ii) Investments by Subsidiaries that are not Loan Parties in other Subsidiaries that are not Loan Parties, (iii) Investments by the Loan Parties in Subsidiaries that are not Loan Parties in an aggregate amount invested from the Funding Date, together with the amount of Investments by Loan Parties in Persons that are not Loan Parties pursuant to clause (g) below, not to exceed $200,000,000; provided that in the event the Borrower or any other Loan Party received a return of any such Investment pursuant to this clause (iii), an amount equal to such return shall be available for Investments in the fiscal year of Borrower in which such return is received and thereafter and (iv) Investments in joint venture entities in an aggregate amount invested not to exceed $200,000,000 during each fiscal year of the Borrower; provided that in the event the Borrower or any Subsidiary received a return of any such Investment pursuant to this clause (iv), an amount equal to such return, not to exceed the amount of the original Investment, shall be available for Investments in the fiscal year of the Borrower in which such return is received and thereafter;
(d) (i) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and (ii) Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(e) Guarantees not prohibited by Section 7.02 ;
(f) Investments (other than those referred to in Section 7.03(c)(i) ) existing on the Funding Date and set forth on Schedule 7.03 ;
(g) the purchase or other acquisition of all of the Equity Interests in, or all or substantially all of the property of, or business unit or division of, any Person that, upon the consummation thereof, will be wholly-owned directly by the Borrower or one or more of its wholly-owned Subsidiaries (including as a result of a merger or consolidation); provided that, with respect to each purchase or other acquisition made pursuant to this Section 7.03(g) :
(i) the Loan Parties and any such newly created or acquired Subsidiary shall, or will within the times specified therein, have complied with the requirements of Section 6.17 (to the extent applicable);
(ii)(A) immediately before and immediately after giving effect to any such purchase or other acquisition, no Default shall have occurred and be continuing; and (B) immediately after giving effect to such purchase or other acquisition on a Pro Forma Basis, the Borrower and its Subsidiaries shall be in compliance with all of the covenants set forth in Section 7.11 for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 ;
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(iii) as to any such acquisition involving cash consideration of more than $50,000,000 in the aggregate, the Borrower shall have delivered to the Administrative Agent, at least five Business Days prior to the date on which any such purchase or other acquisition is to be consummated, a certificate of a Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this clause (g) have been satisfied or will be satisfied, in each case to the extent required to be satisfied, on or prior to the consummation of such purchase or other acquisition; and
(iv) the aggregate amount of Investments made by Loan Parties in Persons that not become Loan Parties pursuant to this clause (g) , together with the aggregate amount of Investments by Loan Parties in Subsidiaries that are not Loan Parties pursuant to clause (c)(iii) above (after giving effect to any return on any such Investments), shall not exceed $200,000,0000;
(h) any Investment by the Borrower and its Subsidiaries in a Special Purpose Finance Subsidiary which, in the judgment of the Borrower, is prudent and reasonably necessary in connection with, or otherwise required by the terms of, any Permitted Receivables Facility;
(i) other Investments not exceeding $200,000,000 in the aggregate at any one time;
(j) other Investments; provided that, at the time each such Investment is made in reliance on this clause (j) , the aggregate amount of such Investment does not exceed the Available Amount at such time;
(k) Investments of any Person existing at the time such Person becomes a Subsidiary or consolidates or merges with the Borrower or any Subsidiary so long as such Investments were not made in contemplation of such Person becoming a Subsidiary or of such consolidation or merger;
(l) Investments made as a result of the receipt of noncash consideration from any Disposition in compliance with Section 7.05 ;
(m) Investments in the ordinary course of business consisting of endorsements for collection or deposit;
(n) Investments resulting from any pledge or deposit not prohibited by Section 7.01 ;
(o) Investments in respect of Swap Contracts of the type that satisfy the requirements set forth in the proviso to Section 7.02(a) ;
(p) any other Investments, so long as (A) immediately before and immediately after giving effect to any such Investment, no Event of Default shall have occurred and be continuing; and (B) immediately after giving effect to any such Investment, the Consolidated Net Leverage Ratio on a Pro Forma Basis for the Borrower and its Subsidiaries shall be no greater than 3.50:1.00 for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 ; and
(q) in each case to the extent constituting Investments and subject to Section 7.14 , any transactions contemplated by the Separation.
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7.04 Fundamental Changes . Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:
(a) any Subsidiary may merge or consolidate with (i) the Borrower; provided that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries; provided that when any Loan Party is merging with another Subsidiary (which may be another Loan Party), the continuing or surviving Person shall be a Loan Party;
(b) any Loan Party may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Loan Party;
(c) any Subsidiary that is not a Loan Party may Dispose of all or substantially all its assets (upon voluntary liquidation or otherwise) to (i) another Subsidiary that is not a Loan Party or (ii) a Loan Party;
(d) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, any Subsidiary may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided , however , that in each case, immediately after giving effect thereto, in the case of any such merger or consolidation to which any Loan Party (other than the Borrower) is a party, (i) a Loan Party is the surviving Person or (ii) such merger or consolidation otherwise complies with Section 7.03 ;
(e) the Borrower may merge with any other Person organized under the Laws of the United States, any State thereof or the District of Columbia, but only so long as (i) the Borrower is the continuing or surviving Person or (ii) if the Borrower is not the continuing or surviving Person, (A) such merger effects a re-domestication of the Borrowers jurisdiction of formation, (B) each of the Re-Domestication Requirements shall have been satisfied and (C) at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing;
(f) Dispositions permitted by Section 7.05 (other than (i) Dispositions permitted by Section 7.05(e)(i) and (ii) Dispositions of all or substantially all assets of the Borrower and its Subsidiaries pursuant to Section 7.05(g) ); and
(g) subject to Section 7.14 , the Borrower or any of its Subsidiaries may effect any transactions contemplated by the Separation.
7.05 Dispositions . Make any Disposition or enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete or worn out property in the ordinary course of business, or property no longer used or useful in the business of the Borrower or such Subsidiary, in each case whether now owned or hereafter acquired;
(b) Dispositions of inventory and Cash Equivalents in the ordinary course of business;
(c) Dispositions of equipment or real property other than through a lease transaction to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the
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purchase price of such replacement property or to Indebtedness incurred to acquire such replacement property; and Dispositions of equipment or real property through a lease transaction to the extent that such lease is on fair and reasonable terms in an arms-length transaction;
(d) Dispositions of property by any Subsidiary to the Borrower or any other Subsidiary or by the Borrower to any Subsidiary; provided that any Disposition involving a Subsidiary that is not a Loan Party shall be made in compliance with Section 7.08 (excluding clause (b) thereof);
(e) (i) Dispositions permitted by Section 7.04 and (ii) Dispositions for fair market value in a transaction in exchange for which an Investment permitted by Section 7.03 (other than Section 7.03(p) ) is received;
(f) licenses or sublicenses of IP Rights in the ordinary course of business and substantially consistent with past practice;
(g) Dispositions by the Borrower and its Subsidiaries not otherwise permitted under this Section 7.05 ; provided that such Dispositions are for at least 75% of the price for such asset shall be paid to the Borrower or such Subsidiary solely in cash; provided that (i) any consideration in the form of Cash Equivalents that are disposed of for cash consideration within 30 Business Days after such sale, transfer or other disposition shall be deemed to be cash consideration in an amount equal to the amount of such cash consideration for purposes of this proviso; (ii) any liabilities (as shown on the Borrowers or a Subsidiarys most recent balance sheet provided hereunder or in the footnotes thereto) of the Borrower or a Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that are assumed by the transferee with respect to the applicable sale, transfer, lease or other disposition and for which the Borrower and all the Subsidiaries shall have been validly released by all applicable creditors in writing shall be deemed to be cash consideration in an amount equal to the liabilities so assumed and (iii) any Designated Non-Cash Consideration received by the Borrower or a Subsidiary in respect of such sale, transfer, lease or other disposition having an aggregate fair market value, taken together with all other Designated Non-Cash Consideration received pursuant to this clause (iii) that is at that time outstanding, not in excess of $5,000,000 at the time of the receipt of such Designated Non-Cash Consideration, with the fair market value 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 consideration;
(h) Dispositions of Permitted Securitization Transferred Assets pursuant to any Permitted Receivables Facility;
(i) Dispositions of accounts receivable in connection with the compromise, settlement or collection thereof consistent with past practice;
(j) Dispositions of property to the extent that such property constitutes an Investment permitted by Section 7.03(d)(ii) , (l) or (m) or another asset received as consideration for the Disposition of any asset permitted by this Section 7.05 ;
(k) Dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Borrower or any Subsidiary; and
(l) subject to the Section 7.14 , any transactions contemplated by the Separation;
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provided , however , that any of the foregoing Dispositions (other than any Disposition pursuant to clause (a) , (d) , (e)(i) or (k) of this Section 7.05 ) shall be for fair market value, as determined reasonably and in good faith by, as the case may be, the Borrower or the applicable Subsidiary.
7.06 Restricted Payments . Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that, so long as no Event of Default shall have occurred and be continuing at the time of any action described below or would result therefrom:
(a) each Subsidiary may make Restricted Payments to the Borrower, any Subsidiaries of the Borrower ( provided that if the Subsidiary making such Restricted Payment is a Loan Party, then the Subsidiary to which such Restricted Payment is made shall also be a Loan Party) and any other Person that owns a direct Equity Interest in such Subsidiary, ratably according to their respective holdings of the type of Equity Interest in respect of which such Restricted Payment is being made;
(b) the Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;
(c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire its common Equity Interests with the proceeds received from the substantially concurrent issue of new common Equity Interests;
(d) the Borrower and each Subsidiary may make Restricted Payments made to shareholders of any Person (other than an Affiliate of the Borrower) acquired by merger pursuant to an acquisition permitted under this Agreement;
(e) the Borrower and each Subsidiary may make Restricted Payments not otherwise permitted under this Section 7.06 (other than Restricted Payments consisting of divisions, lines of business or the stock of Subsidiaries); provided that on a Pro Forma Basis the Borrowers Consolidated Net Leverage Ratio shall be less than 3.50:1.00 for the most recently ended Measurement Period for which financial statements have been delivered pursuant to Section 6.01 ;
(f) the Borrower and each Subsidiary may make other Restricted Payments not otherwise permitted under this Section 7.06 not exceeding $75,000,000 in the aggregate per fiscal year of the Borrower;
(g) the Borrower and each Subsidiary may make other Restricted Payments not otherwise permitted under this Section 7.06 ; provided that, at the time each such Restricted Payment is made in reliance on this clause (g) , the aggregate amount of such Restricted Payment does not exceed the Available Amount at such time;
(h) the Borrower may make cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests in the Borrower;
(i) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans or agreements for directors, officers or employees of the Borrower and its Subsidiaries that are approved in good faith by the board of directors of the Borrower;
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(j) the Borrower may repurchase Equity Interests upon the exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;
(k) subject to Section 7.14 , the Borrower or any of its Subsidiaries may make Restricted Payments contemplated by the Separation; and
(l) the Borrower and any of its Subsidiaries may make payments of amounts due and payable pursuant to the Tax Matters Agreement between Ashland Global and Valvoline entered into in connection with the Separation.
7.07 Change in Nature of Business . Engage in any material line of business substantially different from those lines of business conducted by the Borrower and its Subsidiaries on the Funding Date or any business substantially related, reasonably complementary or incidental thereto.
7.08 Transactions with Affiliates . Enter into any transaction of any kind with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arms-length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not apply to (a) transactions (i) between or among the Loan Parties (not involving any other Affiliate) and (ii) between or among the Subsidiaries that are not Loan Parties (not involving any Loan Party or any other Affiliate), (b) other transactions between or among any two or more of the Borrower and the Subsidiaries that are permitted under Section 7.03 , 7.04 or 7.05 , (c) the Permitted Receivables Facilities, (d) employment and severance arrangements between the Borrower or any Subsidiary and its officers and employees in the ordinary course of business, (e) the payment of customary fees and indemnities to directors, officers and employees of the Borrower and its Subsidiaries in the ordinary course of business, (f) Restricted Payments permitted by Section 7.06 , (g) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by the Borrowers board of directors and (h) subject to Section 7.14 , any transactions contemplated by the Separation.
7.09 Burdensome Agreement . Enter into or permit to exist any Contractual Obligation that limits the ability of (a) any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to otherwise transfer property to or invest in the Borrower or any Guarantor, (b) any Loan Party to Guarantee the Indebtedness of the Borrower (other than Contractual Obligations in agreements governing Indebtedness incurred after the Funding Date in accordance with Section 7.02 ) or (c) the Borrower or any Loan Party to create, incur, assume or suffer to exist Liens on property of such Person, in each case except for (i) any Contractual Obligations which exist on the Funding Date and are set forth on Schedule 7.09 (and any renewal, extension or replacement thereof so long as such renewal, extension or replacement does not expand the scope of such Contractual Obligations to any material extent), (ii) this Agreement, any other Loan Document and the Senior Notes Documents and any Permitted Refinancing thereof, (iii) any Contractual Obligations that are binding on a Person at the time such Person becomes a Subsidiary, so long as such Contractual Obligations were not entered into solely in contemplation of such Person becoming a Subsidiary (and any renewal, extension or replacement thereof so long as such renewal, extension or replacement does not expand the scope of such Contractual Obligations to any material extent), (iv) any Contractual Obligations that arise in connection with a Disposition permitted by Section 7.05 , (v) any Contractual Obligations that are provisions in joint venture agreements and other similar agreements applicable to joint ventures and not prohibited by the terms of this Agreement, (vi) any negative pledges and restrictions on Liens in favor of any holder of Indebtedness permitted under Section 7.02 but solely to the extent that any such negative pledge or restriction applies only to the property or assets securing such Indebtedness, (vii) any Contractual Obligations that are customary restrictions on leases, subleases, licenses, sublicenses or asset sale agreements otherwise permitted hereunder so long as such restrictions
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apply only to the assets that are the subject thereof, (viii) any Contractual Obligations that are customary provisions restricting subletting or assignment of any lease governing a leasehold interest, (ix) any Contractual Obligations that are customary provisions restricting assignment or transfer or any agreement entered into in the ordinary course of business and (x) any Contractual Obligations that exist under or by reason of applicable Law, or are required by any regulatory authority having jurisdiction over the Borrower or any Subsidiary or any of their respective businesses.
7.10 Use of Proceeds . Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
7.11 Financial Covenants .
(a) Consolidated Net Leverage Ratio . Permit the Consolidated Net Leverage Ratio as of the end of any fiscal quarter of the Borrower to be greater than 4.50:1.00.
(b) Consolidated Interest Coverage Ratio . Permit the Consolidated Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower to be less than 3.00:1.00.
7.12 Amendments of Organization Documents . Amend any of its Organization Documents in any way that has a material and adverse effect on the interests of the Lenders or the Administrative Agent.
7.13 Accounting Changes . Make any change in (a) accounting policies or reporting practices that is not an acceptable change under GAAP or (b) its fiscal year; provided that the Borrower shall be permitted, on one occasion, to change its fiscal year end (and that of its Subsidiaries) to December 31.
7.14 Separation and Spin-Off Covenant . (a) Notwithstanding anything to the contrary in Article VI or Article VII , the Borrower and its Subsidiaries may consummate the Separation so long as (i) any agreements entered into in connection with the Separation with any Affiliate of the Borrower or any of its Subsidiaries shall be as described on Schedule 7.14(a) , and (ii) immediately after giving effect to the Separation, the Valvoline Business shall have no liabilities in excess of $200,000,000 in the aggregate other than (I) those that arise in the ordinary course of business for the Valvoline Business, (II) liabilities described in the Valvoline Form S-1, (III) the Indebtedness under this Agreement and the Senior Notes and (IV) those set forth on Schedule 4.02(h) .
(b) As a condition to the consummation of the Valvoline Spin-Off, Ashland Global has received an opinion from its Tax advisor, in form and substance reasonably satisfactory to Ashland Global, to the effect that, subject to customary representations, covenants and assumptions, the distribution of the Valvoline stock to Ashland Global shareholders should be Tax-free for U.S. federal income Tax purposes.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default . Any of the following occurring or existing on or after the Effective Date shall constitute an Event of Default :
(a) Non-Payment . The Borrower or any other Loan Party fails to (i) pay when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation or deposit any funds as Cash Collateral in respect of L/C Obligations or Swing Line Loans, or (ii) pay within five Business Days after the same becomes due, any interest on any Loan or on any L/C Obligation or Swing Line Loan, or any fee due hereunder, or any other amount payable hereunder or under any other Loan Document; or
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(b) Specific Covenants . The Borrower fails, on and after the Funding Date, to perform or observe any term, covenant or agreement contained in any of Section 6.03 , 6.05(a) (solely with respect to the existence of the Borrower), 6.11 or Article VII ; or
(c) Other Defaults . Any Loan Party fails, on and after the Funding Date, to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days following the earlier of (A) notice thereof to the Borrower from the Administrative Agent or any Lender; or (B) knowledge thereof by a Responsible Officer; or
(d) Representations and Warranties . Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party in Article V , in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading in any material respect (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect shall be true and correct) when made or deemed made; or
(e) Cross-Default . (i) Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise but only after any required notice, the expiration of any permitted grace period or both) in respect of the Senior Notes or any other Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate outstanding principal amount (including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event (but only after any required notice, the expiration of any permitted grace period or both) is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; provided that this clause (e)(i)(B) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness; (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party or such Subsidiary as a result thereof is greater than the Threshold Amount; or (iii) there occurs a termination event or event of default under any Permitted Receivables Facility when the amount outstanding (including undrawn committed or available amounts) thereunder exceeds the Threshold Amount, which termination event or event of default is not cured or waived within any applicable grace period; or
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(f) Insolvency Proceedings, Etc . Any Loan Party or any Material Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment . (i) Any Loan Party or any Material Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied, in each case by judgment, against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 60 days after its issue or levy; or
(h) Judgments . There is entered against any Loan Party or any Material Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer is rated at least A- by A.M. Best Company, has been notified of the potential claim and does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(i) ERISA . (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which, when taken together with all other ERISA Events or similar events with respect to Foreign Plans that have occurred, has resulted or would reasonably be expected to result in liability of the Borrower or any Subsidiary in an aggregate amount in excess of the Threshold Amount, (ii) the Borrower, any Subsidiary or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount, or (iii) a termination, withdrawal or noncompliance with applicable law or plan terms occurs with respect to Foreign Plans and such termination, withdrawal or noncompliance, when taken together with all other terminations, withdrawals or noncompliance with respect to Foreign Plans and ERISA Events that have occurred, has resulted or would reasonably be expected to result in liability of the Borrower or any Subsidiary in an aggregate amount in excess of the Threshold Amount; or
(j) Invalidity of Loan Documents . Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person acting on behalf of a Loan Party contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or
(k) Change of Control . There occurs any Change of Control; or
(l) Collateral Documents . Any Collateral Document after execution and delivery thereof pursuant to Section 4.02 , 6.17 or 6.18 shall for any reason (other than pursuant to the terms hereof or thereof or solely as the result of acts or omissions by the Administrative Agent or any Lender) cease to create a valid and perfected first priority Lien (subject to Liens permitted by any Loan Document) on the Collateral purported to be covered thereby, except where the value of all such Collateral does not exceed $25,000,000 in the aggregate.
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8.02 Remedies upon Event of Default . If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans and any obligation of any L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and
(d) exercise on behalf of itself, the Lenders and the L/C Issuers all rights and remedies available to it, the Lenders and the L/C Issuers under the Loan Documents;
provided , however , that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of any L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
8.03 Application of Funds . After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02 ), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
First , to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III ) payable to the Administrative Agent in its capacity as such;
Second , to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuers (including fees, charges and disbursements of counsel to the respective Lenders and the applicable L/C Issuer) arising under the Loan Documents and amounts payable under Article III , ratably among them in proportion to the respective amounts described in this clause Second payable to them;
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Third , to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations arising under the Loan Documents, ratably among the Lenders and the L/C Issuers in proportion to the respective amounts described in this clause Third payable to them;
Fourth , to payment of that portion of the Obligations constituting unpaid principal of the Loans, L/C Borrowings and Obligations then owing under Secured Hedge Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Cash Management Agreements and to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit, ratably among the Lenders, the L/C Issuers, the Hedge Banks, the Foreign Line of Credit Banks, the Franchisee Loan Facility Guaranty Beneficiaries and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them; and
Last , the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law;
Subject to Section 2.03(c) , amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above and, if no Obligations remain outstanding, delivered to the Borrower.
Notwithstanding the foregoing, Obligations arising under Secured Cash Management Agreements, Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements shall be excluded from the application described above if the Administrative Agent has not received written notice of such agreements prior to the time of application of the proceeds described above, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank, Foreign Line of Credit Bank, Franchisee Loan Facility Guaranty Beneficiary or Hedge Bank, as the case may be. Each Cash Management Bank, Foreign Line of Credit Bank, Franchisee Loan Facility Guaranty Beneficiary or Hedge Bank not a party to this Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article IX hereof for itself and its Affiliates as if a Lender party hereto.
ARTICLE IX
ADMINISTRATIVE AGENT
9.01 Appointment and Authority . (a) Each of the Lenders and each L/C Issuer hereby irrevocably appoints Scotiabank to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article IX (other than Sections 9.06 and 9.10 ) are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuers, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions (other than the rights of the Borrower set forth in Sections 9.06 and 9.10 ).
(b) The Administrative Agent shall also act as the collateral agent under the Loan Documents, and each of the Lenders (including in its capacities as a potential Hedge Bank and a potential Cash Management Bank) and each of the L/C Issuers hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and such L/C Issuer for purposes of acquiring, holding
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and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as collateral agent, and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent, shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c) , as though such co-agents, sub-agents and attorneys-in-fact were the collateral agent under the Loan Documents) as if set forth in full herein with respect thereto.
9.02 Rights as a Lender . The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions . The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law;
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity;
(d) shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02 ) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or an L/C Issuer; and
(e) shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder
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or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
9.04 Reliance by Administrative Agent . The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or such L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or such L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties . The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article IX shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
9.06 Resignation of Administrative Agent . The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuers and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States, and in each case such successor shall require the consent of the Borrower at all times other than during the existence of an Event of Default under Section 8.01(f) (such consent not to be unreasonably withheld or delayed). If no such successor shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and the L/C Issuers, after consultation with the Borrower, appoint a successor Administrative Agent from among the Revolving Credit Lenders meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuers under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (b) all payments, communications and determinations provided, to be made by, to or
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through the Administrative Agent shall instead be made by or to each applicable Lender and each applicable L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor, and the retiring Administrative Agent shall cease to be entitled to all such fees upon the effectiveness of its resignation as Administrative Agent. After the retiring Administrative Agents resignation hereunder and under the other Loan Documents, the provisions of this Article IX and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
Any resignation by Scotiabank as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender, if applicable, and as reference bank with respect to all interest rates hereunder (including the Base Rate, the Eurodollar Rate and the Federal Funds Rate). Upon the acceptance of a successors appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of (x) the retiring L/C Issuer and Swing Line Lender (and the reference to Scotiabank in Section 2.03(b)(v) shall be deemed to be a reference to such successor) and (y) the retiring reference bank (and all references to Scotiabank in the relevant interest rate definitions and Section 2.03(d) shall be deemed to be references to such successor), (ii) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (iii) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.
9.07 Non-Reliance on Administrative Agent and Other Lenders . Each Lender and each L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and each L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc . Anything herein to the contrary notwithstanding, none of the Arrangers or the Syndication Agent listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except (i) in its capacity, as applicable, as the Administrative Agent, a Lender or an L/C Issuer hereunder and (ii) in the case of the Arrangers, as specified in Sections 2.09(c)(i) , 4.01(a) , 4.02(b) and (c) , 6.02 , 10.04 and 10.16 .
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9.09 Administrative Agent May File Proofs of Claim . In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations (other than Obligations under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuers and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuers and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuers and the Administrative Agent under Sections 2.03(i) and (j) , 2.09 and 10.04 ) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same in accordance with this Agreement;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each L/C Issuer to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuers, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04 .
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or any L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or any L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or any L/C Issuer or in any such proceeding.
9.10 Collateral and Guaranty Matters . Each of the Lenders (including in its capacities as a potential Cash Management Bank and a potential Hedge Bank) and each of the L/C Issuers irrevocably authorize the Administrative Agent:
(a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document, and to release any Guarantor from its obligations under the Guaranty, in each case (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than (A) contingent indemnification obligations and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the applicable L/C Issuers shall have been made) or (ii) if approved, authorized or ratified in writing in accordance with Section 10.01 ;
(b) to release any Lien on any property (or any part thereof) granted to or held by the Administrative Agent under any Loan Document that is Disposed of or to be Disposed of as part of or in connection with any Disposition permitted hereunder or under any other Loan Document (other than to a Loan Party);
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(c) to release any Guarantor from its obligations under the Guaranty or the Collateral Documents if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder;
(d) to release any Guarantor from its obligations under the Guaranty or the Collateral Documents if such Person becomes an Excluded Subsidiary as a result of a transaction permitted hereunder; and
(e) to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i) .
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agents authority to release or subordinate its interest in particular types or items of property or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10 . In each case as specified in this Section 9.10 , the Administrative Agent will, at the Borrowers expense and upon receipt of any certifications reasonably requested by the Administrative Agent in connection therewith, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10 . Without limiting the foregoing, the Administrative Agent shall release from the Lien of any Loan Document, without the consent or other action of the Lenders, property of the Loan Parties Disposed in a transaction permitted by the Loan Documents (other than in connection with any Disposition to another Loan Party).
9.11 Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements . No Cash Management Bank, Foreign Line of Credit Bank, Franchisee Loan Facility Guaranty Beneficiary or Hedge Bank that obtains the benefits of Section 8.03 , the Guaranty or any Collateral by virtue of the provisions hereof or of the Guaranty or any Collateral Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Article IX to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements unless the Administrative Agent has received written notice of such agreements prior to the time of application of the proceeds described above, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank, Foreign Line of Credit Bank, Franchisee Loan Facility Guaranty Beneficiary or Hedge Bank, as the case may be.
9.12 Withholding . To the extent required by applicable Law, the Administrative Agent may withhold from any payment to any Lender an amount equal to any applicable withholding Tax. If the IRS or any Governmental Authority asserts a claim that the Administrative Agent did not properly withhold Tax from any amount paid to or for the account of any Lender for any reason (including because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding Tax ineffective), such Lender shall indemnify and hold harmless the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without
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limiting or expanding the obligation of the Borrower to do so) for all amounts paid, directly or indirectly, by the Administrative Agent as Tax or otherwise, including any penalties, additions to Tax or interest thereon, together with all expenses incurred, including legal expenses and any out-of-pocket expenses, whether or not such Tax was correctly or legally imposed or asserted by the relevant Government Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this Article IX . The agreements in this Article IX shall survive the resignation and/or replacement of the Administrative Agent, any assignment of rights by, or the replacement of a Lender, the termination of the Loans and the repayment, satisfaction or discharge of all obligations under this Agreement. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender any refund of Taxes withheld or deducted from funds paid for the account of such Lender. For the avoidance of doubt, for purposes of this Section 9.10 , the term Lender includes any L/C Issuer.
ARTICLE X
MISCELLANEOUS
10.01 Amendments, Etc . No amendment or waiver of any provision of this Agreement or any other Loan Document (other than the Engagement Letter), and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01 (except as expressly set forth in Section 4.01 ), Section 4.02 (other than Section 4.02(c)(i) or (d) and except as expressly set forth in Section 4.02 ) or, in the case of the initial Credit Extension, Section 4.03 , without the written consent of each Lender;
(b) extend or increase the Commitment or any Loan of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02 ) without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Section 4.01 , 4.02 or 4.03 or the waiver of any Default, Event of Default or mandatory prepayment shall not constitute an extension or increase of any Commitment of any Lender);
(c) postpone any date fixed by this Agreement or any other Loan Document for (i) any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment or (ii) any scheduled reduction of any Facility hereunder or under any other Loan Document without the written consent of each affected Lender;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (v) of the second proviso to this Section 10.01 which permits amendments to any fee letter by the parties thereto) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided , however , that only the consent of the Required Lenders shall be necessary (i) to amend the definition of Default Rate or to waive any obligation of the Borrower to pay interest
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or Letter of Credit Fees at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder;
(e) change Section 2.06(c) , 2.13 or 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f) change any provision of this Section 10.01 , the definition of Majority in Interest, or the definition of Required Lenders or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender (it being understood that, with the consent of the Required Lenders or pursuant to Section 2.14 , additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Lenders on substantially the same basis as the Term A Loans and the Revolving Credit Commitments on the date hereof);
(g) impose any greater restriction on the ability of any Lender under a Facility to assign any of its rights or obligations hereunder without the written consent of each Lender directly adversely affected thereby;
(h) release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender; or
(i) release all or substantially all of the value of the Guaranty, without the written consent of each Lender, except to the extent the release of any Subsidiary from the Guaranty is permitted pursuant to Section 9.10 (in which case such release may be made by the Administrative Agent acting alone);
and provided , further , that (i) no amendment, waiver or consent shall, unless in writing and signed by Majority in Interest of the Revolving Credit Lenders in addition to the Lenders required above, waive or modify any condition precedent to the funding of Revolving Credit Loans set forth in Section 4.03 (it being understood and agreed that any amendment or waiver of, or any consent with respect to, any provision of this Agreement (other than any waiver or amendment expressly relating to Section 4.03) or any other Loan Document, including any amendment of an affirmative or negative covenant set forth herein or in any other Loan Document or any waiver of a Default or an Event of Default, shall not be deemed to be a waiver or modification of any condition precedent to funding of Revolving Credit Loans set forth in Section 4.03), (ii) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuers in addition to the Lenders required above, affect the rights or duties of the L/C Issuers under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; (iv) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement or any other Loan Document; (v) the consent of Lenders holding more than 50% of any Class of Commitments or Loans shall be required with respect to any amendment that by its terms adversely affects the rights of such Class in respect of payments or Collateral hereunder in a manner different than such amendment affects other Classes and (vi) any fee letter may only be amended, and the rights or privileges thereunder may only be waived, in a writing executed by each of the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the
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consent of the applicable Lenders other than Defaulting Lenders), except that (x) (i) the Commitment or any Loan of such Lender may not be increased or extended (or reinstated, to the extent terminated pursuant to Section 8.02 ), (ii) no date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to such Lender may be postponed and/or (iii) neither the principal of, nor the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (v) of the third proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document to such Lender may be reduced, in each case without the consent of such Lender (it being understood that a waiver of any condition precedent set forth in Section 4.01 , 4.02 or 4.03 or the waiver of any Default, Event of Default or mandatory prepayment shall not constitute an extension or increase of any Commitment of any Lender) and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender.
If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender and that has been approved by the Required Lenders, the Borrower may replace such non-consenting Lender by an assignment of such Lenders Loans and Commitments at par in accordance with Section 10.13 ; provided that such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Borrower to be made pursuant to this paragraph).
Notwithstanding anything to the contrary, any Loan Document may be waived, amended, supplemented or modified pursuant to an agreement or agreements in writing entered into by the Borrower and the Administrative Agent (without the consent of any Lender) solely to cure a defect or error, to grant a new Lien for the benefit of the Secured Parties or extend any existing Lien over additional property.
10.02 Notices; Effectiveness; Electronic Communications .
(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein or in connection with any Loan Document shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrower, the Administrative Agent, an L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02 ; and
(ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent by telecopier shall be deemed to have been given when actually received (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b) .
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(b) Electronic Communications . Notices and other communications to the Lenders and the L/C Issuers hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender or any L/C Issuer pursuant to Article II if such Lender or such L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) The Platform . THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the Agent Parties ) have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrowers or the Administrative Agents transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided , however , that in no event shall any Agent Party have any liability to the Borrower, any Lender, any L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc . Each of the Borrower and the Administrative Agent may change its address, telecopier number, telephone number or email address for notices and other communications hereunder by notice to the other parties hereto. Each other Lender, each L/C Issuer and the Swing Line Lender may change its address, telecopier number, telephone number or email address for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the Private Side Information or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance procedures and applicable Law, including
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United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the Public Side Information portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States Federal or state securities laws.
(e) Reliance by Administrative Agent, L/C Issuers and Lenders . The Administrative Agent, the L/C Issuers and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies; Enforcement . No failure by any Lender, any L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Secured Parties; provided , however , that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any L/C Issuer and the Swing Line Lender from exercising the rights and remedies that inure to its benefit (solely in its capacity as L/C Issuer or Swing Line Lender, as the case may be) hereunder and under the other Loan Documents, (c) any Lender from exercising setoff rights in accordance with Section 10.08 (subject to the terms of Section 2.13 ), or (d) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided , further , that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.13 , any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders. Each Secured Party, whether or not a party hereto, will be deemed, by its acceptance of the benefits of the Collateral and of the Guarantees of the Obligations provided under the Loan Documents, to have agreed to the foregoing provisions.
10.04 Expenses; Indemnity; Damage Waiver .
(a) Costs and Expenses . The Borrower shall pay (i) all reasonable and invoiced out-of-pocket expenses incurred by the Arrangers and Administrative Agent and their respective Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated
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hereby or thereby shall be consummated), (ii) all reasonable and invoiced out-of-pocket expenses incurred by any L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and invoiced out-of-pocket expenses incurred by the Administrative Agent, any Lender or any L/C Issuer (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or any L/C Issuer) in connection with the enforcement, during an Event of Default, or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with Loans made or Letters of Credit issued hereunder, including all such reasonable and invoiced out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower . The Borrower shall indemnify the Arrangers, the Administrative Agent (and any sub-agent thereof), each Lender and each L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee ) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of counsel for any Indemnitee, which shall be limited to one counsel to all Indemnitees (exclusive of one local counsel to all Indemnitees in each relevant jurisdiction) and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict informs the Borrower of such conflict and thereafter retains its own counsel, another counsel for such affected Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by any L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence, Release, or threat of Release of Hazardous Materials at, on, under or from any property or facility owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party or any of the Borrowers or such Loan Partys directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or such Indemnitees Subsidiaries or the officers, directors, employees, agents, advisors and other representatives of such Indemnitee or its Subsidiaries, (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for material breach in bad faith of such Indemnitees obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction or (z) resulted from any proceeding that does not involve an act or omission by the Borrower or any of its Affiliates and that is brought by an Indemnitee against any other Indemnitee other than any proceeding by or against any Indemnitee in its capacity or in fulfilling its role as the Administrative Agent or an Arranger.
(c) Reimbursement by Lenders . To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to any Arranger, the Administrative Agent (or any sub-agent thereof), any L/C Issuer or any Related Party of any
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of the foregoing, each Lender severally agrees to pay to such Arranger, the Administrative Agent (or any such sub-agent), such L/C Issuer or such Related Party, as the case may be, such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or any L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d) .
(d) Waiver of Consequential Damages, Etc . To the fullest extent permitted by applicable law, no party hereto shall assert, and each party hereto hereby waives, any claim against any Indemnitee or any Loan Party (or any of its Related Parties), on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with or as a result of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof; provided that nothing in this sentence shall limit the obligations of the Borrower set forth in Section 10.04(b) in respect of any such damages owing by any Indemnitee to a third party. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e) Payments . All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.
(f) Survival . The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, any L/C Issuer or the Swing Line Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
10.05 Payments Set Aside . To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, any L/C Issuer or any Lender, or the Administrative Agent, any L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, such L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred and (b) each Lender and each L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders and the L/C Issuers under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
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10.06 Successors and Assigns .
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 10.06(b) , (ii) by way of participation in accordance with the provisions of Section 10.06(d) , or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuers and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment(s) and the Loans (including for purposes of this Section 10.06(b) , participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts .
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders Commitment under any Facility and the Loans at the time owing to it under such Facility or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if a Trade Date is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000, in the case of any assignment in respect of the Revolving Credit Facility or $1,000,000, in the case of any assignment in respect of the Term A Facility, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided , however , that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;
(ii) Proportionate Amounts . Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under any Facility with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not apply to the Swing Line Lenders rights and obligations in respect of the Swing Line Loans; provided that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non pro rata basis;
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(iii) Required Consents . No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed; provided that the Borrower will be deemed to have consented to any such assignment if it does not respond within ten Business Days after receipt of notice of such assignment) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment, (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund or (3) such assignment is made by an Arranger during the primary syndication of the Facilities;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of (1) any Term A Commitment, Revolving Credit Commitment or Revolving Credit Loans if such assignment is to a Person that is not a Lender with a Commitment in respect of the applicable Facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender, (2) any Term A Loan to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund or (3) any Revolving Credit Commitment or Revolving Credit Loans if such assignment is to a Term A Lender that is not also a Revolving Credit Lender; and
(C) the consent of the Swing Line Lender and each L/C Issuer (such consent not to be unreasonably withheld or delayed; provided that the Swing Line Lender and each L/C Issuer will be deemed to have consented to any such assignment if it does not respond within ten Business Days after receipt of notice of such assignment) shall be required for any assignment in respect of the Revolving Credit Facility.
(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; and provided , further , that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Borrower . No such assignment shall be made to the Borrower or any of the Borrowers Affiliates or Subsidiaries, except as otherwise provided in Section 10.06(h) .
(vi) No Assignment to Natural Persons . No such assignment shall be made (A) to a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person) or (B) to any Defaulting Lender or any of its Affiliates, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (A) or (B).
(vii) Certain Additional Payments . In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable
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assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swing Line Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01 , 3.04 , 3.05 and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that, except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender shall constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d) .
(c) Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agents Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal and interest amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive, absent manifest error, and each Loan Party, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. In addition, the Administrative Agent shall maintain on the Register information regarding the designation, and revocation of designation, of any Lender as a Defaulting Lender. The Register shall be available for inspection by any Loan Party and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations . Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person, a Defaulting Lender or the Borrower or any of the Borrowers Affiliates or Subsidiaries) (each, a Participant ) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lenders participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties, the Administrative Agent, the Lenders and the L/C Issuers shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement
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and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may, as may be agreed between such Lender and such Participant, provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01 , 3.04 and 3.05 (subject to the requirements and limitations therein, including the requirements under Section 3.01(e)) (it being understood that the documentation required under Section 3.01(e) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b) ; provided that such Participant complies with the provisions of Sections 3.06 and 10.13 as if it were an assignee under Section 10.06(b) . To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender; provided such Participant complies with Section 2.13 as though it were a Lender. Each Lender shall maintain a register of the names, addresses, and the principal amounts (and stated interest) of the interests of the Participants to which such Lender has sold participations. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal and interest amounts of each Participants interest in the Loans or other Obligations under this Agreement (the Participant Register ); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participants interest in any commitments, loans, or its other obligations under this Agreement) except to the extent that such disclosure is necessary to establish that such commitment, loan, or other obligation is in registered form under Section 5f.103-(c) of the United States Treasury Regulations or, if different, under Sections 871(h) or 881(c) of the Code in connection with any Tax audit or other Tax proceeding of the Borrower. The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Limitations upon Participant Rights . A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the date such Participant acquired the applicable participation.
(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or any central bank having jurisdiction over such Lender; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) Resignation as L/C Issuer or Swing Line Lender after Assignment . Notwithstanding anything to the contrary contained herein, if Scotiabank assigns all of its Revolving Credit Commitment and Revolving Credit Loans pursuant to Section 10.06(b) , Scotiabank may, upon 30 days notice to the Borrower and the Lenders, resign as L/C Issuer and/or Swing Line Lender. In the event of any such resignation as L/C Issuer or Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender, as the case may be, hereunder; provided , however , that no failure by the Borrower to appoint any such successor shall affect the resignation of Scotiabank as L/C Issuer and/or Swing Line Lender, as the case may be, and no such appointment shall be effective until the Lender so appointed shall have accepted such appointment in writing. If Scotiabank resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations
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with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c) ). If Scotiabank resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c) . Upon the appointment of a successor L/C Issuer and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and/or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to such retiring L/C Issuer to effectively assume the obligations of such retiring L/C Issuer with respect to such Letters of Credit.
(h) Any Lender may, so long as no Default or Event of Default has occurred and is continuing, at any time, assign all or a portion of its rights and obligations with respect to Term A Loans under this Agreement to the Borrower or any Subsidiary of the Borrower through (x) Dutch auctions or other offers to purchase open to all Lenders on a pro rata basis, in each case in accordance with procedures reasonably acceptable to the Administrative Agent or (y) open market purchases on a non-pro rata basis; provided that:
(i) (x) if the assignee is a Subsidiary of the Borrower, upon such assignment, transfer or contribution, the applicable assignee shall automatically be deemed to have transferred the principal amount of such Term A Loans, plus all accrued and unpaid interest thereon, to the Borrower or (y) if the assignee is the Borrower (including through transfers set forth in clause (x)), (a) the principal amount of such Term A Loans, along with all accrued and unpaid interest thereon, so contributed, assigned or transferred to the Borrower shall be deemed automatically cancelled and extinguished on the date of such contribution, assignment or transfer, (b) the aggregate outstanding principal amount of Term A Loans of the remaining Lenders shall reflect such cancellation and extinguishing of the Term A Loans then held by the Borrower and (c) the Borrower shall promptly provide notice to the Administrative Agent of such contribution, assignment or transfer of such Term A Loans, and the Administrative Agent, upon receipt of such notice, shall reflect the cancellation of the applicable Term A Loans in the Register;
(ii) each Person that purchases any Term A Loans pursuant to clause (x) of this subsection (h) shall represent and warrant to the selling Term A Lender that it does not possess material non-public information with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term A Lenders generally (other than Term A Lenders that have elected not to receive such information) or (2) if not disclosed to the Term A Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term A Lenders decision to participate in any such assignment or (B) the market price of such Term A Loans, or shall make a statement that such representation cannot be made, in each case, with respect to any Term A Lender, except to the extent that such Term A Lender has entered into a customary big boy letter with the Borrower; and
(iii) purchases of Term A Loans pursuant to this subsection (h) may not be funded with the proceeds of Revolving Credit Loans.
10.07 Treatment of Certain Information; Confidentiality . Each of the Administrative Agent, the Lenders and the L/C Issuers agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential, and the Administrative Agent, the applicable
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Lender or the applicable L/C Issuer, as the case may be, shall be responsible for compliance by such Persons with such obligations), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process; provided that the Person that discloses any Information pursuant to this clause (c) shall, if permitted by applicable Law or legal process, notify the Borrower in advance of such disclosure or shall provide the Borrower with prompt written notice of such disclosure, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the written consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Lender, any L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Administrative Agent or any of the Lenders in connection with the administration or servicing of this Agreement, the other Loan Documents and the Commitments.
For purposes of this Section, Information means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary thereof or their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any L/C Issuer on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof; provided that, in the case of information received from a Loan Party or any such Subsidiary after the Effective Date, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent, the Lenders and the L/C Issuers acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.
10.08 Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender, each L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, such L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or such L/C Issuer, irrespective of whether or not such Lender or such L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of such Lender or such L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall
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be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.15 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, each L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, such L/C Issuer or their respective Affiliates may have. Each Lender and each L/C Issuer agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
10.09 Interest Rate Limitation . Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate ). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
10.10 Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.
10.11 Survival of Representations and Warranties . All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
10.12 Severability . If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing
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provisions of this Section 10.12 , if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, any L/C Issuer or the Swing Line Lender, as applicable, then such provisions shall be deemed to be in effect only to the extent not so limited.
10.13 Replacement of Lenders . If (w) any Lender requests compensation under Section 3.04 , (x) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 , (y) any Lender is a Defaulting Lender or (z) any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06 ; provided that the consent of the assigning Lender shall not be required in connection with any such assignment and delegation), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b) ;
(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.01 , Section 3.04 , or Section 3.05 );
(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01 , such assignment will result in a reduction in such compensation or payments thereafter; and
(d) such assignment does not conflict with applicable Laws.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
10.14 Governing Law; Jurisdiction; Etc . (a) GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION . THE BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
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MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE . THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS . EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02 . NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
10.15 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16 No Advisory or Fiduciary Responsibility . In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees, and acknowledges its Affiliates understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arms-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Administrative Agent, the Arrangers and the Lenders each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its Affiliates, or any other Person and (B) neither the Administrative Agent, the Arrangers nor any Lender has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Arrangers, the Lenders and their respective Affiliates may be engaged
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in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent, the Arrangers nor any Lender has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against the Administrative Agent, the Arrangers and the Lenders with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
10.17 Electronic Execution of Assignments and Certain Other Documents . The words execution, signed, signature, and words of like import in any Assignment and Assumption or in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
10.18 USA PATRIOT Act . Each Lender that is subject to the USA PATRIOT Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA PATRIOT Act. The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act.
10.19 Acknowledgment and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-in Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed as of the date first above written.
VALVOLINE FINCO ONE LLC, as Initial Borrower | ||
By: |
/s/ Jason L. Thompson |
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Name: Jason L. Thompson | ||
Title: Treasurer |
[Valvoline Credit Agreement]
THE BANK OF NOVA SCOTIA, as Administrative Agent, Swing Line Lender and an L/C Issuer | ||
By: |
/s/ Michelle C. Phillips |
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Name: Michelle C. Phillips | ||
Title: Director and Execution Head |
[Valvoline Credit Agreement]
[●], 2 as a Lender | ||
By: |
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Name: | ||
Title: |
2 | Signature pages for Lenders on file with Administrative Agent |
[Valvoline Credit Agreement]
EXHIBIT A-1
FORM OF COMMITTED LOAN NOTICE
Date: ,
To: | The Bank of Nova Scotia, as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The undersigned hereby requests (select one):
¨ | A Borrowing of Revolving Credit Loans. |
¨ | A Borrowing of Term A Loans. |
¨ | A conversion of [Term A Loans] [Revolving Credit Loans] from one Type to another. |
¨ | A continuation of Eurodollar Rate Loans. |
1. | On (a Business Day). |
2. | In the amount of $ . |
3. | Comprised of . 1 |
4. | For Eurodollar Rate Loans: with an Interest Period of months. |
[The Revolving Credit Borrowing requested herein complies with the proviso to the first sentence of Section 2.01(b) of the Agreement.] 2
1 | Indicate the Type of Loan to be borrowed or to which existing Term A Loans or Revolving Credit Loans are to be converted. |
2 | Include this sentence in the case of a Revolving Credit Borrowing. |
Form of Committed Loan Notice
A-1-1
The Borrower hereby represents and warrants that the conditions specified in Sections [ 4.02 and] 3 4.03(a) and (b) of the Agreement shall be satisfied on and as of the date of the applicable Credit Extension.
VALVOLINE FINCO ONE LLC | ||||
By: |
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Name: |
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Title: |
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VALVOLINE INC. 4 | ||||
By: |
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Name: |
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Title: |
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3 | Only include for initial Credit Extension on the Funding Date. |
4 | Signature block to be updated depending on which Borrower requests the applicable Credit Extension. |
Form of Committed Loan Notice
A-1-2
EXHIBIT A-2
FORM OF SWING LINE LOAN NOTICE
Date: ,
To: | The Bank of Nova Scotia, as Swing Line Lender |
The Bank of Nova Scotia, as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The undersigned hereby requests a Swing Line Loan:
1. | On (a Business Day). |
2. | In the amount of $ . |
The Swing Line Borrowing requested herein complies with the requirements of the provisos to the first sentence of Section 2.04(a) of the Agreement.
Form of Swing Line Loan Notice
A-2 -1
The Borrower hereby represents and warrants that the conditions specified in Sections 4.03(a) and (b) shall be satisfied on and as of the date of the applicable Credit Extension.
VALVOLINE INC. | ||||
By: |
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Name: |
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Title: |
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Form of Swing Line Loan Notice
A-2 -2
EXHIBIT B-1
FORM OF TERM A NOTE
$ [ ] | , |
FOR VALUE RECEIVED, the undersigned (the Borrower ), hereby promises to pay to or its registered assigns (the Lender ), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of the Term A Loan from time to time made by the Lender to the Borrower under that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The Borrower promises to pay interest on the unpaid principal amount of the Term A Loan made by the Lender from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agents Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Term A Note is one of the Term A Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Term A Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. The Term A Loan made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Term A Note and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Term A Note.
Form of Term A Note
B-1 -1-1
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[VALVOLINE FINCO ONE LLC | ||||||
By: |
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Name: |
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Title: |
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VALVOLINE INC. | ||||||
By: |
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Name: |
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Title: |
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Form of Term A Note
B-1 -1-2
LOANS AND PAYMENTS WITH RESPECT THERETO
Date |
Type of
Loan Made |
Amount of
Loan Made |
End of
Interest Period |
Amount of
Principal or Interest Paid This Date |
Outstanding
Principal Balance This Date |
Notation
Made By |
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Form of Term A Note
B-1 -3
EXHIBIT B-2
FORM OF REVOLVING CREDIT NOTE
$ [ ] | , |
FOR VALUE RECEIVED, the undersigned (the Borrower ), hereby promises to pay to or its registered assigns (the Lender ), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Revolving Credit Loan from time to time made by the Lender to the Borrower under that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The Borrower promises to pay interest on the unpaid principal amount of each Revolving Credit Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agents Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Revolving Credit Note (this Note ) is one of the Revolving Credit Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Revolving Credit Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Revolving Credit Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Form of Revolving Credit Note
B-2 -1
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[VALVOLINE FINCO ONE LLC | ||||||
By: |
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Name: |
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Title: |
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VALVOLINE INC. | ||||||
By: |
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Name: |
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Title: |
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Form of Revolving Credit Note
B-2 -2
LOANS AND PAYMENTS WITH RESPECT THERETO
Date |
Type of
Loan Made |
Amount of
Loan Made |
End of
Interest Period |
Amount of
Principal or Interest Paid This Date |
Outstanding
Principal Balance This Date |
Notation
Made By |
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Form of Revolving Credit Note
B-2 -3
EXHIBIT B-3
FORM OF SWING LINE NOTE
$ [ ] | , |
FOR VALUE RECEIVED, the undersigned (the Borrower ), hereby promises to pay to or its registered assigns (the Lender ), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of each Swing Line Loan from time to time made by the Lender to the Borrower under that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The Borrower promises to pay interest on the unpaid principal amount of each Swing Line Loan from the date of such Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agents Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Swing Line Note (this Note ) is one of the Swing Line Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. Swing Line Loans made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Note and endorse thereon the date, amount and maturity of its Swing Line Loans and payments with respect thereto.
The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Note.
Form of Swing Line Note
B-3 -1
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
VALVOLINE INC. | ||||
By: |
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Name: |
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Title: |
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Form of Swing Line Note
B-3 -2
LOANS AND PAYMENTS WITH RESPECT THERETO
Date |
Type of
Loan Made |
Amount of
Loan Made |
End of
Interest Period |
Amount of
Principal or Interest Paid This Date |
Outstanding
Principal Balance This Date |
Notation
Made By |
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Form of Swing Line Note
B-3 -3
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ,
To: | The Bank of Nova Scotia, as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of July 11, 2016 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement ; the terms defined therein being used herein as therein defined), among Valvoline Finco One LLC, a Delaware limited liability company as the Initial Borrower, the Lenders and L/C Issuers from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer, and Citibank, N.A., as Syndication Agent.
The undersigned Responsible Officer 5 hereby certifies as of the date hereof that he/she is the of the Borrower and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Borrower, and that:
[Use following paragraph 1 for fiscal year-end financial statements]
1. The Borrower has delivered as required by Section 6.01(a) of the Agreement for the fiscal year of the [Borrower][Valvoline Business] 6 ended as of the above date, together with the report and opinion of an independent certified public accountant required by such section, the [consolidated][combined] balance sheet of the [Borrower][Valvoline Business] 7 , and the related [consolidated][combined] statements of operations and comprehensive income, invested equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP.
5 | This certificate should be from the chief executive officer, chief financial officer, treasurer or controller of the Borrower. |
6 | Select this option only if the annual financial statements are delivered prior to the consummation of the Newco Merger. |
7 | Select this option only if the annual consolidated balance sheet is delivered prior to the consummation of the Newco Merger. |
Form of Compliance Certificate
C - 1
[Use following paragraph 1 for fiscal quarter-end financial statements]
1. The Borrower has delivered as required by Section 6.01(b) of the Agreement for the fiscal quarter of the [Borrower][Valvoline Business] ended as of the above date the consolidated balance sheet of the [Borrower][Valvoline Business] as at the end of such fiscal quarter, and the related [consolidated][combined] statements of operations and comprehensive income, invested equity, and cash flows for such fiscal quarter and for the portion of the [Borrowers][Valvoline Businesss] fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail. Such [consolidated][combined] statements fairly present the financial condition, results of operations, shareholders equity and cash flows of the [Borrower][Valvoline Businesss] in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.
2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the [Borrower][Valvoline Business] during the accounting period covered by such financial statements.
3. A review of the activities of the [Borrower][Valvoline Business] 8 during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower performed and observed all its Obligations under the Loan Documents, and
[select one:]
[to the knowledge of the undersigned, during such fiscal period the Borrower performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing.]
or
[to the knowledge of the undersigned, the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:]
4. The representations and warranties of the Borrower contained in Article V of the Agreement and all representations and warranties of the Borrower that are contained in any document furnished at any time under or in connection with the Loan Documents, are true and correct in all material respects (except that any representation and warranty that is qualified as to materiality or Material Adverse Effect are true and correct in all respects) on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (or true and correct in all respects, as the case may be) as of such earlier date, and except that for purposes of this
8 |
Select this option only if the financial statements are delivered prior to the consummation of the Newco Merger. |
Form of Compliance Certificate
C - 2
Compliance Certificate, the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.
5. The financial covenant analyses and other information set forth on Schedule 1 , Schedule 2 and Schedule 3 attached hereto are true and accurate on and as of the date of this Compliance Certificate.
[Remainder of page intentionally left blank].
Form of Compliance Certificate
C - 3
IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of , .
Form of Compliance Certificate
C - 4
For the Quarter/Year ended ,
( Statement Date )
SCHEDULE 1
to the Compliance Certificate
($ in 000s)
I. | Section 7.11(a) Consolidated Net Leverage Ratio. | |||||||
A. | Consolidated Indebtedness at the Statement Date 9 : | |||||||
1. | the outstanding principal amount of all obligations (as calculated under GAAP), whether current or long-term, for borrowed money (including Obligations in respect of the Loans under the Agreement), reimbursement obligations for amounts drawn under letters of credit and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments: | $ | ||||||
2. | all direct (but, for the avoidance of doubt, not contingent) obligations arising under bankers acceptances and bank guaranties: | $ | ||||||
3. | all Attributable Indebtedness: | $ | ||||||
4. | without duplication, all Guarantees with respect to outstanding Indebtedness of the types specified in Lines I.A.1 through I.A.3 above of Persons other than the Borrower or any Subsidiary: | $ | ||||||
5. | Consolidated Indebtedness at the Statement Date (Lines I.A.1 + I.A.2 + I.A.3 + I.A.4) 10 : | $ |
9 | Consolidated Indebtedness shall (i) be calculated on a Pro Forma Basis unless otherwise specified and (ii) include all outstandings of the Borrower and its Subsidiaries under any Permitted Receivables Facility (but excluding the intercompany obligations owed by a Special Purpose Finance Subsidiary to the Borrower or any other Subsidiary in connection therewith). The principal amount outstanding at any time of any Indebtedness included in Consolidated Indebtedness issued with original issue discount shall be the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, but such Indebtedness shall be deemed incurred only as of the date of original issuance thereof. |
10 | Consolidated Indebtedness of the Borrower and the Subsidiaries shall include any of the items in Line I.A.1 through Line I.A.4 above of any other entity (including any partnership in which the Borrower or any consolidated Subsidiary is a general partner) to the extent the Borrower or such consolidated Subsidiary is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of that item expressly provide that such Person is not liable therefor. |
Form of Compliance Certificate
C - 5
B. | Consolidated EBITDA for the Measurement Period ending on the Statement Date (Subject Period) 11 : | |||||||||
1. | Consolidated Net Income for the Subject Period 12 : | |||||||||
a. | the net income (loss) of the Borrower and its Subsidiaries on a consolidated basis: | $ | ||||||||
b. | the net income of any Subsidiary during such Subject Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary (unless such restrictions on dividends or similar distributions have been legally and effectively waived), other than to the extent of the Borrowers equity in any net loss of any such Subsidiary: | $ | ||||||||
c. | any after-tax income (after-tax loss) for such Subject Period of any Person if such Person is not a Subsidiary: | $ | ||||||||
d. | the Borrowers equity in such income of any such Person referred to in Line I.B.1.c for such Subject Period up to the aggregate amount of cash actually distributed by such Person during such Subject Period to the Borrower or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to the Borrower as described in Line I.B.1.b): | $ |
11 | Consolidated EBITDA shall be calculated on a Pro Forma Basis unless otherwise specified. |
12 | Consolidated Net Income shall be calculated on a Pro Forma Basis. |
Form of Compliance Certificate
C - 6
e. | any after-tax gain (after-tax loss) realized as a result of the cumulative effect of a change in accounting principles or the implementation of new accounting standards related to revenue and lease accounting: | $ | ||||||||||
f. | any after-tax gain (after-tax loss) attributable to any foreign currency hedging arrangements or currency fluctuations: | $ | ||||||||||
g. | after-tax extinguishment charges relating to the early extinguishment of Indebtedness and obligations under Swap Contracts and after-tax extinguishment charges relating to upfront fees and original issue discount on Indebtedness: | $ | ||||||||||
h. | any pension or other post-retirement after-tax gain (after-tax expense) for such Subject Period: | $ | ||||||||||
i. | the amount of any cash payments made during such Subject Period relating to pension and other post-retirement costs (other than any payments made in respect of the funding of pension plans in excess of the amount of required regulatory contributions during such Subject Period (as reasonably determined by the Borrower)): | $ | ||||||||||
j. | fees, expenses and non-recurring charges related to the Transactions and the Valvoline Spin-off: | $ | ||||||||||
k. | gain (loss) from the impact of the Separation and the Valvoline Spin-off: | $ | ||||||||||
l. | Consolidated Net Income for the Subject Period Lines (I.B.1.a I.B.1.b I.B.1.c + I.B.1.d I.B.1.e I.B.1.f + I.B.1.g I.B.1.h + I.B.1.i + I.B.1.j I.B.1.k): | $ | ||||||||||
To the extent not included in Consolidated Net Income for the Subject Period: |
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2. | proceeds of business interruption insurance received during the Subject Period: | $ |
Form of Compliance Certificate
C - 7
To the extent deducted in calculating Consolidated Net Income for the Subject Period, but without duplication and in each case for the Subject Period: | ||||||||||||
3. | Consolidated Interest Charges: | $ | ||||||||||
4. | the provision for Federal, State, local and foreign income taxes payable: | $ | ||||||||||
5. | depreciation and amortization expense: | $ | ||||||||||
6. | asset impairment charges: | $ | ||||||||||
7. | expenses reimbursed by third parties (including through insurance and indemnity payments): | $ | ||||||||||
8. | fees and expenses incurred in connection with any Permitted Receivables Facility, any proposed or actual issuance of any Indebtedness or Equity Interests (including upfront fees and original issue discount), or any proposed or actual acquisitions, investments, asset sales or divestitures permitted under the Agreement, in each case that are expensed: | $ | ||||||||||
9. | non-cash restructuring and integration charges and cash restructuring and integration charges 13 : | $ | ||||||||||
10. | non-cash stock expense and non-cash equity compensation expense: | $ | ||||||||||
11. | other expenses or losses, including purchase accounting entries such as the inventory adjustment to fair value, reducing such Consolidated Net Income which do not represent a cash item in such period or any future period: | $ | ||||||||||
12. | expenses or losses in respect of discontinued operations of Borrower or any of its Subsidiaries: | $ | ||||||||||
13. | any unrealized losses attributable to the application of mark to market accounting in respect of Swap Contracts: | $ | ||||||||||
14. | with respect to any Disposition for which pro forma effect is required to be given pursuant to the definition of Pro Forma Basis, any loss thereon: | $ |
13 | In the case of cash restructuring and integration charges, not to exceed 15% of Consolidated EBITDA in any Subject Period, calculated immediately before giving effect to the addback in this Line Item I.B.9. |
Form of Compliance Certificate
C - 8
Form of Compliance Certificate
C - 9
II. | Section 7.11(b) Consolidated Interest Coverage Ratio. | |||||||
A. | Consolidated EBITDA for the Subject Period (Line I.B.20): | $ | ||||||
B. | Consolidated Interest Charges for the Subject Period, without duplication: | |||||||
1. | all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP: | $ | ||||||
2. | cash payments made in respect of obligations referred to in Line II.B.6 below: | $ | ||||||
3. | the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by the Borrower and its Subsidiaries on a consolidated basis for such Subject Period: | $ | ||||||
4. | all interest, premium payments, debt discount, fees, charges and related expenses in connection with the Permitted Receivables Facility: | $ | ||||||
To the extent included in such consolidated interest expense for
such Subject Period, without duplication: |
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5. | extinguishment charges relating to the early extinguishment of Indebtedness or obligations under Swap Contracts: | $ | ||||||
6. | noncash amounts attributable to the amortization of debt discounts or accrued interest payable in kind: | $ | ||||||
7. | noncash amounts attributable to amortization or write-off of capitalized interest or other financing costs paid in a previous period: | |||||||
8. | interest income treated as such in accordance with GAAP: | $ | ||||||
9. | fees and expenses, original issue discount and upfront fees, in each case of or by the Borrower and its Subsidiaries on a consolidated basis for such Subject Period 14 : | $ |
14 | For all purposes hereunder, Consolidated Interest Charges shall be calculated on a Pro Forma Basis unless otherwise specified. |
Form of Compliance Certificate
C - 10
10. | Consolidated Interest Charges for the Subject Period, the excess, without duplication of ((Lines II.B.1 + II.B.2 + II.B.3 + II.B.4) (Lines II.B. 5 + II.B.6 + II.B.7 + II.B.8 + II.B.9)): | $ | ||||||||
C. | Consolidated Interest Coverage Ratio at the Statement Date (Line II.A ÷ Line II.B.10): | :1.00 | ||||||||
Minimum Consolidated Interest Coverage Ratio Required: | 3.00:1.00 |
Form of Compliance Certificate
C - 11
For the Quarter/Year ended
( Statement Date )
SCHEDULE 2
to the Compliance Certificate
($ in 000s)
Consolidated EBITDA
(in accordance with the definition of Consolidated EBITDA
as set forth in the Agreement)
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
the net income (loss) of the Borrower and its Subsidiaries on a consolidated basis |
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the net income of any Subsidiary during such Subject Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary (unless such restrictions on dividends or similar distributions have been legally and effectively waived), other than to the extent of the Borrowers equity in any net loss of any such Subsidiary |
Form of Compliance Certificate
C - 12
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
Any after-tax income (after-tax loss) for such Subject Period of any Person if such Person is not a Subsidiary |
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+ the Borrowers equity in such income of any Person referred to in the immediately preceding row for such Subject Period up to the aggregate amount of cash actually distributed by such Person during such Subject Period to the Borrower or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to the Borrower as described in the second row of this Schedule 2) |
||||||||||||||||||||
any after-tax gain (after-tax loss) realized as a result of the cumulative effect of a change in accounting |
Form of Compliance Certificate
C - 13
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
principles or the implementation of new accounting standards related to revenue and lease accounting |
||||||||||||||||||||
any after-tax gain (after-tax loss) attributable to any foreign currency hedging arrangements or currency fluctuations |
||||||||||||||||||||
+ after-tax extinguishment charges relating to the early extinguishment of Indebtedness and obligations under Swap Contracts and after-tax extinguishment charges relating to upfront fees and original issue discount on Indebtedness |
||||||||||||||||||||
any pension or other post-retirement after-tax gain (after-tax expense) for such Subject Period |
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+ the amount of any cash payments made during such Subject Period relating to pension and other post-retirement costs (except for any |
Form of Compliance Certificate
C - 14
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
payments made in respect of the funding of pension plans in excess of the amount of required regulatory contributions during such Subject Period (as reasonably determined by the Borrower)) |
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+ fees, expenses and non-recurring charges related to the Transactions and the Valvoline Spin-off |
||||||||||||||||||||
gain (loss) from the impact of the Separation and the Valvoline Spin-off |
||||||||||||||||||||
= Consolidated
|
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+ proceeds of business interruption insurance received during the Subject Period, to the extent not included in Consolidated Net Income |
||||||||||||||||||||
+ Consolidated Interest Charges (not calculated on a Pro Forma Basis) |
Form of Compliance Certificate
C - 15
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
+ provision for Federal, State, local and foreign income taxes payable |
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+ depreciation expense |
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+ amortization expense |
||||||||||||||||||||
+ asset impairment charges |
||||||||||||||||||||
+ expenses reimbursed by third parties (including through insurance and indemnity payments) |
||||||||||||||||||||
+ fees and expenses incurred in connection with the Transactions, any Permitted Receivables Facility, any proposed or actual issuance of any Indebtedness or Equity Interests (including upfront fees and original issue discount), or any proposed or actual acquisitions, investments, asset sales or divestitures permitted hereunder, in each case that are expensed |
||||||||||||||||||||
+ non-cash restructuring and integration charges and cash restructuring and integration charges 15 |
15 | In the case of cash restructuring and integration charges, not to exceed 15% of Consolidated EBITDA in any Subject Period, calculated immediately before giving effect to the addback in this line item. |
Form of Compliance Certificate
C - 16
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
+ non-cash stock expense and non-cash equity compensation expense |
||||||||||||||||||||
+ other expenses or losses, including purchase accounting entries such as inventory adjustment to fair value, reducing such Consolidated Net Income which do not represent a cash item |
||||||||||||||||||||
+ expenses or losses in respect of discontinued operations of the Borrower or any of its Subsidiaries |
||||||||||||||||||||
+ any unrealized losses attributable to the application of mark to market accounting in respect of Swap Contracts |
||||||||||||||||||||
+ with respect to any Disposition for which pro forma effect is required to be given pursuant to the definition of Pro Forma Basis, any loss thereon |
Form of Compliance Certificate
C - 17
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Quarter
Ended |
Twelve
Months Ended |
||||||||||||||||
- Federal, State, local and foreign income tax credits |
||||||||||||||||||||
- all non-cash gains or other items increasing Consolidated Net Income |
||||||||||||||||||||
- gains in respect of discontinued operations of the Borrower or any of its Subsidiaries |
||||||||||||||||||||
- any unrealized gains for such period attributable to the application of mark to market accounting in respect of Swap Contracts |
||||||||||||||||||||
- with respect to any Disposition for which pro forma effect is required to be given pursuant to the definition of Pro Forma Basis, any gain thereon |
||||||||||||||||||||
= Consolidated EBITDA |
Form of Compliance Certificate
C - 18
For the Quarter/Year ended ,
( Statement Date )
SCHEDULE 3
to the Compliance Certificate
($ in 000s)
I. |
Sections 7.03(j) and/or 7.06(g) Available Amount on any date (the Available Amount Reference Time ): |
|
||||||
A. | 50% of the Consolidated Net Income for all fiscal quarters of the Borrower for which Consolidated Net Income is positive (commencing with the fiscal quarter in which the Funding Date occurs) that have ended on or prior to such date for which financial statements shall have been delivered to the Administrative Agent pursuant to Section 6.01(a) or 6.01(b) of the Agreement (treated as one continuous accounting period): | $ | ||||||
B. | 100% of the Consolidated Net Income for all fiscal quarters of the Borrower for which Consolidated Net Income is negative (commencing with the fiscal quarter in which the Funding Date occurs) that have ended on or prior to such date for which financial statements shall have been delivered to the Administrative Agent pursuant to Section 6.01(a) or 6.01(b) of the Agreement (treated as one continuous accounting period): | $ | ||||||
C. | the net cash proceeds from the issuance of common stock of the Borrower after the Funding Date, other than any such issuance to a Subsidiary, to an employee stock ownership plan or to a trust established by the Borrower or any of its Subsidiaries for the benefit of their employees and other than any such issuance in an initial public offering pursuant to a registration statement filed with the SEC in accordance with the Securities Act: | $ | ||||||
D. | to the extent not already included in the calculation of Consolidated Net Income, the aggregate amount of returns (in each case, to the extent made in cash or Cash Equivalents) received by the Borrower or any Subsidiary from any Investment to the extent such Investment was made using the Available Amount during the period from and including the Business Day immediately following the Funding Date through and including the Available Amount Reference Time: | $ |
Form of Compliance Certificate
C - 19
E. | without duplication, the sum of the portion of the Available Amount previously utilized pursuant to Section 7.03(j) and/or 7.06(g) of the Agreement: | $ | ||||||
F. | Available Amount at the Statement Date (Lines I.A I.B + Line I.C + Line I.D Line I.E): | $ |
Form of Compliance Certificate
C - 20
EXHIBIT D-1
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this Assignment and Assumption ) is dated as of the Effective Date set forth below and is entered into by and between [the][each] 16 Assignor identified in item 1 below ([the][each, an] Assignor ) and [the][each] 17 Assignee identified in item 2 below ([the][each, an] Assignee ). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] 18 hereunder are several and not joint.] 19 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (the Credit Agreement ), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including, without limitation, the Letters of Credit included in such facilities 20 ) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity
16 | For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. |
17 | For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. |
18 | Select as appropriate. |
19 | Include bracketed language if there are either multiple Assignors or multiple Assignees. |
20 |
Include all applicable subfacilities. |
Form of Assignment and Assumption
D-1 - 1
related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest ). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1. Assignor[s] :
2. Assignee[s] :
[for each Assignee, indicate [Affiliate][Approved Fund] of [ identify Lender ]]
3. Borrower : [Valvoline Finco One LLC, a Delaware limited liability company][Valvoline Inc., a Kentucky corporation] 21
4. Administrative Agent : The Bank of Nova Scotia, as the administrative agent under the Credit Agreement
5. Credit Agreement : Credit Agreement, dated as of July 11, 2016 among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, the Lenders from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer and Citibank, N.A., as Syndication Agent.
6. Assigned Interest:
Class | Assignor[s] 22 | Assignee[s] 23 |
Aggregate
Amount of Commitment/ Loans for all Lenders 24 |
Amount of
Commitment/ Loans Assigned |
Percentage
Assigned of Commitment/ Loans 25 |
CUSIP
Number |
||||||||||||||||||
$ | $ | % |
21 | Select as applicable. After consummation of the Newco Merger and Valvoline, Inc.s assumption of the obligations of the Initial Borrower thereunder, the Borrower shall be Valvoline, Inc. |
22 | List each Assignor, as appropriate. |
23 | List each Assignee, as appropriate. |
24 | Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
25 | Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
Form of Assignment and Assumption
D-1 - 2
[7. Trade Date: ] 26
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
26 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
Form of Assignment and Assumption
D-1 - 3
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR | ||
[NAME OF ASSIGNOR] | ||
By | ||
Name: | ||
Title: | ||
ASSIGNEE | ||
[NAME OF ASSIGNEE] | ||
By: | ||
Name: | ||
Title: |
Form of Assignment and Assumption
D-1 - 4
[Consented to and] 27 Accepted:
THE BANK OF NOVA SCOTIA, as
Administrative Agent |
||
By: | ||
Name: | ||
Title: | ||
Consented to: | ||
THE BANK OF NOVA SCOTIA, as
Swing Line Lender and L/C Issuer |
||
By: | ||
Name: | ||
Title: |
27 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
Form of Assignment and Assumption
D-1 - 5
[Consented to:
[VALVOLINE FINCO ONE LLC]
[VALVOLINE INC.] 28 , as Borrower
By: |
|
|
Name: | ||
Title: ] 29 |
28 | Select as applicable. |
29 | To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. |
Form of Assignment and Assumption
D-1 - 6
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
VALVOLINE INC.
CREDIT AGREEMENT
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1. Assignor . [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is not a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee . [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06(b)(iii) , (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01(a) or 6.01(b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) if it is a Lender that is not a United States person as that term is defined in Section 7701(a)(30) of the Code, attached hereto is any documentation required to be
Form of Assignment and Assumption
D-1 - 7
delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
Form of Assignment and Assumption
D-1 - 8
CONFIDENTIAL
EXHIBIT D-2
FORM OF ADMINISTRATIVE QUESTIONNAIRE
CONFIDENTIAL
FAX ALONG WITH COMMITMENT LETTER TO : [ ] 30
FAX # [ ]
I. Borrower Name: |
[Valvoline Finco One LLC][Valvoline Inc.] 31 |
$ 450,000,000.00 |
Type of Credit Facility Revolving Credit Facility |
|
$ 875,000,000.00 |
Type of Credit Facility Term A Facility |
II. Legal Name of Lender of Record for Signature Page:
Signing Credit Agreement |
YES | NO | ||
Coming in via Assignment |
YES | NO |
III. Type of Lender: |
|
(Bank, Asset Manager, Broker/Dealer, CLO/CDO, Finance Company, Hedge Fund, Insurance, Mutual Fund, Pension Fund, Other Regulated Investment Fund, Special Purpose Vehicle, Other please specify)
IV. Domestic Address: | V. Eurodollar Address: | |||
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VI. Legal Lending Address: | ||||
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30 | To come from The Bank of Nova Scotia. |
31 | Select as applicable. After consummation of the Newco Merger and Valvoline, Inc.s assumption of the obligations of the Initial Borrower thereunder, the Borrower shall be Valvoline, Inc. |
Form of Administrative Questionnaire
D-2 - 1
CONFIDENTIAL
VII. Contact Information:
Syndicate level information (which may contain material non-public information about the Borrower and its related parties or their respective securities will be made available to the Credit Contact(s)). The Credit Contacts identified must be able to receive such information in accordance with his/her institutions compliance procedures and applicable laws, including Federal and State securities laws.
Credit Contact |
Primary Operations Contact |
Secondary Operations Contact |
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Name: |
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Title: |
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Address: |
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Telephone: |
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Facsimile: |
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E Mail Address: |
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IntraLinks E Mail Address: |
|
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Does Secondary Operations Contact need copy of notices? YES NO
Letter of Credit Contact |
Draft Documentation Contact |
Legal Counsel |
||||
Name: |
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Title: |
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|
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Address: |
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Telephone: |
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Facsimile: |
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E Mail Address: |
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Form of Administrative Questionnaire
D-2 - 2
CONFIDENTIAL
VIII. Lenders Standby Letter of Credit, Commercial Letter of Credit, and Bankers Acceptance Fed Wire Payment Instructions (if applicable):
Pay to:
|
(Bank Name) |
|
(ABA #) |
|
(Account #) |
|
(Attention) |
IX. Lenders Fed Wire Payment Instructions:
Pay to:
|
(Bank Name) |
|
(ABA #) (City/State) |
|
(Account #) (Account Name) |
|
(Attention) |
Form of Administrative Questionnaire
D-2 - 3
CONFIDENTIAL
X. Organizational Structure and Tax Status
Please refer to the enclosed withholding tax instructions below and then complete this section accordingly:
Lender Taxpayer Identification Number (TIN): -
Tax Withholding Form Delivered to The Bank of Nova Scotia*:
W-9
W-8BEN
W-8BEN-E
W-8ECI
W-8EXP
W-8IMY
Tax Contact | ||||
Name: |
|
|||
Title: |
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Address: |
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Telephone: |
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Facsimile: |
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E Mail Address: |
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NONU.S. LENDER INSTITUTIONS
1. | Corporations: |
If your institution is incorporated outside of the United States for U.S. federal income tax purposes, and is the beneficial owner of the interest and other income it receives, you must complete one of the following three tax forms, as applicable to your institution: (a) Form W-8BEN-E (Certificate of Foreign Status of Beneficial Owner), (b) Form W-8ECI (Income Effectively Connected to a U.S. Trade or Business) or (c) Form W-8EXP (Certificate of Foreign Government or Governmental Agency).
Form of Administrative Questionnaire
D-2 - 4
CONFIDENTIAL
A U.S. taxpayer identification number is required for any institution submitting a Form W-8ECI. It is also required on Form W-8BEN-E for certain institutions claiming the benefits of a tax treaty with the U.S. Please refer to the instructions when completing the form applicable to your institution. An original tax form must be submitted.
Form of Administrative Questionnaire
D-2 - 5
CONFIDENTIAL
2. | Flow-Through Entities: |
If your institution is organized outside the U.S., and is classified for U.S. federal income tax purposes as either a Partnership, Trust, Qualified or Non-Qualified Intermediary, or other non-U.S. flow-through entity, an original Form W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. branches for United States Tax Withholding) must be completed by the intermediary together with a withholding statement. Flow-through entities other than Qualified Intermediaries are required to include tax forms for each of the underlying beneficial owners (e.g., W-9 or W-8BEN or W-8BEN-E).
Please refer to the instructions when completing this form. Original tax form(s) must be submitted .
U.S. LENDER INSTITUTIONS:
If your institution is incorporated or organized within the United States, you must complete and return Form W-9 (Request for Taxpayer Identification Number and Certification). Please be advised that we require an original form W-9 .
Pursuant to the language contained in the tax section of the Credit Agreement, the applicable tax form for your institution must be completed and returned on or prior to the date on which your institution becomes a lender under this Credit Agreement. Failure to provide the proper tax form when requested will subject your institution to U.S. tax withholding.
X. The Bank of Nova Scotia Payment Instructions:
Pay to: | The Bank of Nova Scotia | |
ABA # [ ] | ||
New York, NY | ||
Account # [ ] | ||
Attn: [ ] | ||
Ref: [ ] |
Form of Administrative Questionnaire
D-2 - 6
EXHIBIT E
FORM OF GUARANTY
[Provided under separate cover].
Form of Guaranty
E - 1
EXHIBIT F
FORM OF SECURITY AGREEMENT
[Provided under separate cover].
Form of Security Agreement
F - 1
EXHIBIT G-1
[FORM OF] PERFECTION CERTIFICATE
Reference is hereby made to (i) that certain Security Agreement dated as of [●] (the Security Agreement ), by and among Valvoline Finco One LLC, a Delaware limited liability company (the Initial Borrower ), Valvoline Inc., a Kentucky corporation as, after consummation of the Newco Merger and its assumption of the obligations of the Initial Borrower under the Credit Agreement (as hereinafter defined), the Borrower (the Borrower ), the Guarantors party thereto (collectively, the Guarantors ) and the Administrative Agent (as hereinafter defined) and (ii) that certain Credit Agreement dated as of July 11, 2016 (the Credit Agreement ) among the Initial Borrower, certain other parties thereto, The Bank of Nova Scotia, as Administrative Agent (in such capacity, the Administrative Agent ), Swing Line Lender and an L/C Issuer, and Citibank, N.A. as Syndication Agent. Capitalized terms used but not defined herein have the meanings assigned in the Credit Agreement or the Security Agreement, as applicable.
As used herein, the term Companies means, collectively, the Initial Borrower, the Borrower and the Guarantors.
The undersigned hereby certify to the Administrative Agent as follows:
1. Names .
a) The exact legal name of each Company, as such name appears in its respective certificate of incorporation or any other organizational document, is set forth in Schedule 1(a) . Each Company is (i) the type of entity disclosed next to its name in Schedule 1(a) and (ii) a registered organization except to the extent disclosed in Schedule 1(a) . Also set forth in Schedule 1(a) is the organizational identification number, if any, of each Company that is a registered organization, the Federal Taxpayer Identification Number of each Company and the jurisdiction of formation of each Company.
b) Set forth in Schedule 1(b) is a list of all other corporate or organizational names used by each Company, or any other business or organization to which each Company became the successor by merger, consolidation, acquisition, change in form, nature or jurisdiction of organization or otherwise, on the Initial Borrowers and the Borrowers consolidated returns filed with the Internal Revenue Service at any time between [●] 32 and the date hereof. Except as set forth in Schedule 1(b) , no Company has changed its jurisdiction of organization at any time during the past four months.
2. Current Locations . The chief executive office of each Company is located at the address set forth in Schedule 2 hereto.
32 | To be the date that is five years before the execution/delivery of this perfection certificate. |
Form of Perfection Certificate
G-1-1
3. Extraordinary Transactions . Except for those purchases, acquisitions and other transactions described in Schedule 3 attached hereto, between [●] 33 and the date hereof, all of the Collateral constituting Accounts or Inventory with an aggregate value or purchase price per transaction greater than $10,000,000 has been originated or acquired, as applicable, by each Company in the ordinary course of business.
4. File Search Reports . Attached hereto as Schedule 4 is a true and accurate summary of file search reports from the applicable filing offices requested by the Administrative Agent (i) in each jurisdiction identified in Section 1(A) or Section 2 with respect to each legal name set forth in Section 1 and (ii) in each jurisdiction described in Schedule 1(b) or Schedule 3 relating to any of the transactions described in Schedule (1)(b) or Schedule 3 with respect to each legal name of the person or entity from which each Company purchased or otherwise acquired any of the Collateral. A true copy of each filing identified in such file search reports requested by the Administrative Agent has been delivered to the Administrative Agent to the extent available from the applicable filing offices.
5. UCC Filings . The financing statements (duly authorized by each Company constituting the debtor therein), including the indications of the Collateral, relating to the Security Agreement or the applicable Mortgage attached as Schedule 5 , and are in the appropriate forms for filing in the filing offices in the jurisdictions identified in Schedule 6 hereof.
6. Schedule of Filings . Attached hereto as Schedule 6 is a schedule of (i) the appropriate filing offices for the financing statements attached hereto as Schedule 5 , (ii) the appropriate filing offices for the filings attached hereto as Schedule 11(d) , (iii) the appropriate filing offices for the Mortgages and fixture filings relating to the Mortgaged Property set forth in Schedule 7(a) and (iv) any other actions required to create, preserve, protect and perfect the security interests in the Collateral granted to the Administrative Agent pursuant to the Collateral Documents, in each case to the extent required by the terms of the applicable Collateral Document.
7. Real Property . Attached hereto as Schedule 7 is a list of all (a) real property owned by each Company located in the United States as of the Funding Date, (b) real property located in the United States designated by the Initial Borrower, the Borrower and each Guarantor as Collateral to be encumbered by a Mortgage and fixture filing, which real property includes all real property located in the United States owned by each Company having a fair market value of not less than $10,000,000 (excluding inventory, machinery and equipment located at such property) (such real property, the Mortgaged Property) and (c) common names and addresses of each Mortgaged Property.
8. Termination Statements . Attached hereto as Schedule 8(a) are the duly authorized termination statements in the appropriate form for filing in each applicable jurisdiction identified in Schedule 8(b) hereto with respect to each Lien described therein.
33 | To be the date that is 12 months before the execution/delivery of this perfection certificate. |
Form of Perfection Certificate
G-1-2
9. Stock Ownership and Other Equity Interests . Attached hereto as Schedule 9(a) is a true and correct list of all of the authorized, and the issued and outstanding, stock, partnership interests, limited liability company membership interests or other equity interests of each Company and its Subsidiaries and the record and beneficial owners of such stock, partnership interests, membership interests or other equity interests setting forth the percentage of such equity interests pledged under the Security Agreement. Also set forth in Schedule 9(b) is each equity investment of each Company that represents 50% or less of the equity of the entity in which such investment was made setting forth the percentage of such equity interests pledged under the Security Agreement.
10. Instruments and Tangible Chattel Paper . Attached hereto as Schedule 10 is a true and correct list of all promissory notes, instruments (other than checks to be deposited in the ordinary course of business), tangible chattel paper, electronic chattel paper and other evidence of indebtedness held by each Company as of the Funding Date with a value in excess of $1,000,000, including all intercompany notes between or among any two or more Companies or any of their Subsidiaries, in each case that is required to be pledged under the Security Agreement.
11. Intellectual Property . (a) Attached hereto as Schedule 11(a ) is a schedule setting forth all of each Companys Patents and Trademarks applied for or registered with the United States Patent and Trademark Office (the USPTO ), including the name of the registered owner or applicant and the registration, application, or publication number, as applicable, of each Patent or Trademark owned by each Company.
(b) Attached hereto as Schedule 11(b) is a schedule setting forth all of each Companys United States Copyrights, including the name of the registered owner and the registration number of each Copyright owned by each Company.
(c) Attached hereto as Schedule 11(c) is a schedule setting forth all material exclusive in-bound Intellectual Property Licenses relating to Copyrights, recorded with the United States Copyright Office (the USCO ), including, but not limited to, the relevant signatory parties to each license along with the date of execution thereof and, if applicable, a recordation number or other such evidence of recordation.
12. Commercial Tort Claims . Attached hereto as Schedule 12 is a true and correct list of all Commercial Tort Claims (as defined in the Security Agreement) with a value in excess of $1,000,000 held by each Company, including a brief description thereof and stating if such commercial tort claims are required to be pledged under the Security Agreement.
13. [Reserved] .
14. [Reserved] .
15. [Reserved] .
16. Insurance . Attached hereto as Schedule 16 is a copy of the insurance certificate with a true and correct list of all property or liability insurance policies of the Companies, except those policies which the Administrative Agent has agreed may be excluded.
Form of Perfection Certificate
G-1-3
17. Other Collateral . Attached hereto as Schedule 17 is a true and correct list of all of the following types of collateral, if any, owned or held by each Company: (a) all FCC licenses, (b) all ships and boats vessels and (c) all rolling stock and trains.
[The Remainder of this Page has been intentionally left blank]
Form of Perfection Certificate
G-1-4
IN WITNESS WHEREOF , we have hereunto signed this Perfection Certificate as of this [●] day of [●], 2016.
VALVOLINE FINCO ONE LLC | ||||||
By: |
|
|||||
Name: | ||||||
Title: | ||||||
VALVOLINE INC. | ||||||
By: |
|
|||||
Name: | ||||||
Title: | ||||||
[Each of the Guarantors] | ||||||
By: |
|
|||||
Name: | ||||||
Title: |
Form of Perfection Certificate
G-1-5
Schedule 1(a)
Legal Names, Etc.
Legal Name |
Type of Entity |
Registered Organization (Yes/No) |
Organizational
|
Federal
Taxpayer
Number |
State of Formation |
|||||
34 | If none, so state. |
Form of Perfection Certificate
G-1-6
Schedule 1(b)
Prior Organizational Names
Company/Subsidiary |
Prior Name |
Date of Change |
||
Form of Perfection Certificate
G-1-7
Schedule 1(c)
Changes in Corporate Identity; Other Names
Company/Subsidiary |
Corporate Name of Entity |
Action |
Date of Action |
State of Formation |
List of All Other Names Used on the Initial Borrowers and the Borrowers consolidated returns filed with the Internal Revenue Service During Past Five Years |
|||||
Form of Perfection Certificate
G-1-8
Schedule 2
Chief Executive Offices
Company/Subsidiary |
Address |
County |
State |
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Form of Perfection Certificate
G-1-9
Schedule 3
Transactions Other Than in the Ordinary Course of Business
Company/Subsidiary |
Description of Transaction Including Parties Thereto |
Date of Transaction |
||
Form of Perfection Certificate
G-1-10
Schedule 4
File Search Reports
Company/Subsidiary |
Search Report dated |
Prepared by |
Jurisdiction |
|||
See attached.
Form of Perfection Certificate
G-1-11
Schedule 5
Copy of Financing Statements To Be Filed
See attached.
Form of Perfection Certificate
G-1-12
Schedule 6
Filings/Filing Offices
Type of Filing 35 |
Entity |
Applicable Collateral Document [Mortgage, Security Agreement or Other] |
Jurisdictions |
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35 | UCC-1 financing statement, intellectual property filing or other necessary filing. |
Form of Perfection Certificate
G-1-13
Schedule 7
Real Property
Owned Real Property
Entity of Record |
Common Name and Address |
Legal Description (if
|
To be Encumbered by Mortgage
|
|||
[ ] |
[ ] [COUNTY, STATE] |
[See Schedule A to Mortgage and/or fixture filing encumbering this property.] | [YES/NO] | |||
Form of Perfection Certificate
G-1-14
Schedule 8(a)
Attached hereto is a true copy of each termination statement filing in the appropriate form for filing in the applicable jurisdiction.
Form of Perfection Certificate
G-1-15
Schedule 8(b)
Termination Statement Filings
Debtor |
Jurisdiction |
Secured Party |
Type of Collateral |
UCC-1 File Date |
UCC-1 File Number |
|||||
Form of Perfection Certificate
G-1-16
Schedule 9
(a) Equity Interests of Companies and Subsidiaries
Current Legal Entities Owned |
Record Owner |
Certificate No. |
No. Shares/Interest |
Percent Pledged |
||||
(b) Other Equity Interests
Current Legal Entities Owned |
Record Owner |
Certificate No. |
No. Shares/Interest |
Percent Pledged |
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Form of Perfection Certificate
G-1-17
Schedule 10
Instruments and Tangible Chattel Paper
1. | Promissory Notes: |
Entity |
Principal
Amount |
Date of
Issuance |
Interest Rate | Maturity Date | ||||||||||||
2. | Chattel Paper: |
Description |
Form of Perfection Certificate
G-1-18
Schedule 11(a)
Patents and Trademarks
UNITED STATES PATENTS:
Registrations:
OWNER |
REGISTRATION NUMBER |
DESCRIPTION |
||||
Applications:
OWNER |
APPLICATION NUMBER |
DESCRIPTION |
||||
UNITED STATES TRADEMARKS:
Registrations:
OWNER |
REGISTRATION NUMBER |
TRADEMARK |
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Applications:
OWNER |
APPLICATION NUMBER |
TRADEMARK |
||||
Form of Perfection Certificate
G-1-19
Schedule 11(b)
Copyrights
UNITED STATES COPYRIGHTS
Registrations:
OWNER |
TITLE |
REGISTRATION NUMBER |
||||
Applications:
OWNER |
APPLICATION NUMBER |
|||
Form of Perfection Certificate
G-1-20
Schedule 11(c)
Copyright Licenses
Copyright Licenses:
LICENSEE |
LICENSOR |
COUNTRY/STATE |
REGISTRATION/
NUMBER |
DESCRIPTION |
||||
Form of Perfection Certificate
G-1-21
Schedule 11(d)
Intellectual Property Filings
Form of Perfection Certificate
G-1-22
Schedule 12
Commercial Tort Claims
Description |
Pledged [Yes/No] |
|
Form of Perfection Certificate
G-1-23
Schedule 16
Insurance
Form of Perfection Certificate
G-1-24
Schedule 17
Other Collateral
(a) FCC Licenses
Description |
Pledged [Yes/No] |
|||
(b) Ships, Boats and Vessels
Description |
Pledged [Yes/No] |
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(c) Rolling Stock And Trains
Description |
Pledged [Yes/No] |
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Form of Perfection Certificate
G-1-25
EXHIBIT G-2
FORM OF
PERFECTION CERTIFICATE SUPPLEMENT
Reference is hereby made to (i) that certain Security Agreement dated as of [●] (the Security Agreement ), by and among Valvoline Finco One LLC, a Delaware limited liability company (the Initial Borrower ), Valvoline Inc., a Kentucky corporation as, after consummation of the Newco Merger and its assumption of the obligations of the Initial Borrower under the Credit Agreement (as hereinafter defined), the borrower (the Borrower ), the Guarantors party thereto (collectively, the Guarantors ) and the Administrative Agent (as hereinafter defined) and (ii) that certain Credit Agreement dated as of July 11, 2016 (the Credit Agreement ) among the Initial Borrower, certain other parties thereto, The Bank of Nova Scotia, as Administrative Agent (in such capacity, the Administrative Agent ), Swing Line Lender and an L/C Issuer, and Citibank, N.A. as Syndication Agent. This Perfection Certificate Supplement, dated as of [ ], 201[ ] is delivered pursuant to Section 6.02(k) of the Credit Agreement. Capitalized terms used but not defined herein have the meanings assigned in the Credit Agreement or the Security Agreement, as applicable. As used herein, the term Companies means, collectively, the Borrower, and the Guarantors.
The undersigned hereby certify (in my capacity as [ ] and not in my individual capacity) to the Administrative Agent that, as of the date hereof, there has been no change in the information described in the Perfection Certificate delivered on the Funding Date (as supplemented by any perfection certificate supplements delivered prior to the date hereof, collectively the Prior Perfection Certificate ), other than as follows [to reflect changes, as appropriate, based on the requirements of the Prior Perfection Certificate]:
Form of Perfection Certificate Supplement
G-2-1
IN WITNESS WHEREOF , we have hereunto signed this Perfection Certificate Supplement as of this day of , 20[ ].
VALVOLINE INC. | ||||
By: |
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Name: | ||||
Title: | ||||
[Each of the Guarantors] | ||||
By: |
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Name: | ||||
Title: |
Form of Perfection Certificate Supplement
G-2-2
EXHIBIT H-1
FORM OF
OPINION MATTERS -
COUNSEL TO LOAN PARTIES
[Provided under separate cover].
Counsel to Loan Parties
H - 1
EXHIBIT H-2
FORM OF
OPINION MATTERS -
IN-HOUSE COUNSEL
[Provided under separate cover].
Opinion Matters In-house Counsel
H - 2
EXHIBIT H-3
FORM OF
OPINION MATTERS-
LOCAL COUNSEL TO LOAN PARTIES
[Provided under separate cover].
Local Counsel to Loan Parties
H - 3
EXHIBIT I
[FORM OF]
INTERCOMPANY NOTE SUBORDINATION AGREEMENT
THIS INTERCOMPANY NOTE SUBORDINATION AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this Agreement ), dated as of [●], made by each of the undersigned, to the extent a borrower from time to time from any other entity listed on the signature page hereto under the caption Payors and any additional entity that may become a Payor hereunder pursuant to a duly executed signature page hereto and agreeing to be bound hereby (each, in such capacity, a Payor ).
This agreement is an Intercompany Note Subordination Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this Agreement ) referred to in Section 7.02(b) of the Credit Agreement dated as of July 11, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ) among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, the Lenders and L/C Issuers (such terms and each other capitalized terms used but not defined herein having the meaning given it in Article I of the Credit Agreement) from time to time party thereto, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and L/C Issuer, and Citibank, N.A. as Syndication Agent, The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer (in such capacity, the Administrative Agent ), and Citibank, N.A., as Syndication Agent, and is subject to the terms thereof. Each Payee (as defined below) hereby acknowledges and agrees that the Administrative Agent may exercise all rights provided in the Credit Agreement and the Security Agreement with respect to this Agreement.
Anything in this Agreement to the contrary notwithstanding, any indebtedness owing from time to time in respect of all loans or advances (including, without limitation, pursuant to guarantees therefor or security therefor) which are owed by any Payor that is Borrower or a Guarantor to any other entity listed on the signature page hereto under the caption Payee and any additional entity that may become a Payee hereunder pursuant to a duly executed signature page hereto and agreeing to be bound hereby (each, in such capacity, a Payee ), other than the Borrower (the Subordinated Intercompany Obligations ) shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to all Obligations of such Payor under the Credit Agreement, including, without limitation, where applicable, under such Payors guarantee of the Obligations (such Obligations and other indebtedness and obligations in connection with any renewal, refunding, restructuring or refinancing thereof, including interest thereon accruing after the commencement of any proceedings referred to in clause (i) below, whether or not such interest is an allowed claim in such proceeding, being hereinafter collectively referred to as Senior Indebtedness ):
(i) In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to any Payor or to its creditors, as such, or to its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of such Payor, whether or not involving insolvency or bankruptcy, then (x) the holders of Senior Indebtedness shall be paid in full in cash
Form of Intercompany Note Subordination Agreement
I-1
in respect of all amounts constituting Senior Indebtedness before any Payee is entitled to receive (whether directly or indirectly), or make any demands for, any payment on account of this Agreement and (y) until the holders of Senior Indebtedness are paid in full in cash in respect of all amounts constituting Senior Indebtedness, any payment or distribution to which such Payee would otherwise be entitled (other than debt securities of such Payor that are subordinated, to at least the same extent as the Subordinated Intercompany Obligations, to the payment of all Senior Indebtedness then outstanding (such securities being hereinafter referred to as Restructured Debt Securities )) shall be made to the holders of Senior Indebtedness;
(ii) if any default occurs and is continuing with respect to any Senior Indebtedness (including any Default under the Credit Agreement), then no payment or distribution of any kind or character shall be made by or on behalf of the Payor or any other Person on its behalf with respect to the Subordinated Intercompany Obligations; and
(iii) if any payment or distribution of any character, whether in cash, securities or other property (other than Restructured Debt Securities), in respect of the Subordinated Intercompany Obligations shall (despite these subordination provisions) be received by any Payee in violation of clause (i) or (ii) before all Senior Indebtedness shall have been paid in full in cash, such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness (or their representatives), ratably according to the respective aggregate amounts remaining unpaid thereon, to the extent necessary to pay all Senior Indebtedness in full in cash.
To the fullest extent permitted by law, no present or future holder of Senior Indebtedness shall be prejudiced in its right to enforce the subordination of this Agreement by any act or failure to act on the part of any Payor or by any act or failure to act on the part of such holder or any trustee or agent for such holder. Each Payee and each Payor hereby agree that the subordination of the Subordinated Intercompany Obligations is for the benefit of the Administrative Agent and the Lenders and the Administrative Agent and the Lenders are obligees under this Agreement to the same extent as if their names were written herein as such and the Administrative Agent may, on behalf of the itself and the Lenders, proceed to enforce the subordination provisions herein.
Nothing contained in this Agreement is intended to or will impair, as between each Payor and each Payee, the obligations of such Payor, which are absolute and unconditional, to pay to such Payee the principal of and interest on the Subordinated Intercompany Obligations as and when due and payable in accordance with its terms, or is intended to or will affect the relative rights of such Payee and other creditors of such Payor other than the holders of Senior Indebtedness.
No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by any Payor or Payee therefrom, shall be effective unless the same shall be consented to in writing by the Administrative Agent and made in accordance with the terms of the Credit Agreement. Sections 10.14 and 10.15 of the Credit Agreement are incorporated herein, mutatis mutandis , as if a part hereof. Any provision hereof which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining
Form of Intercompany Note Subordination Agreement
I-2
provisions hereof or affecting the validity, legality or enforceability of such provision in any other jurisdiction. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.
[Remainder of the page intentionally left blank.]
Form of Intercompany Note Subordination Agreement
I-3
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
PAYORS: | ||
[List Borrower and any Guarantor that is a Payor under any intercompany debt] | ||
By: |
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Name: | ||
Title: | ||
PAYEES: | ||
[List any Subsidiary that is a Payee under any intercompany debt owing to any Payor listed above] | ||
By: |
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Name: | ||
Title: |
Form of Intercompany Note Subordination Agreement
I-4
EXHIBIT J
FORM OF
REPORT OF LETTER OF CREDIT INFORMATION
To: | The Bank of Nova Scotia. as Administrative Agent | |
Attn: | ||
Phone No.: | ||
Fax No.: | ||
Ref.: | Letters of Credit | |
Issued for the account of | ||
Or any Subsidiary thereof under the Credit Agreement dated as of [●], 2016. |
Reporting Period : / /20 through / /20
L/C No. |
Maximum
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Current
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Escalating
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Beneficiary
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Issuance
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Expiry Date |
Auto
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Auto
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Date of
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Amount of
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Type of
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Form of Report of Letter of Credit Information
J - 1
EXHIBIT K
FORM OF NON-BANK CERTIFICATE
(For Foreign Lenders That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of July 11, 2016 (as amended, supplemented or otherwise modified from time to time) (the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, each lender from time to time party thereto (collectively, the Lenders ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and L/C Issuer and the other agents party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a U.S. trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. person status on IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (i) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and (ii) the undersigned shall furnish the Borrower and the Administrative Agent a properly completed and currently effective certificate in either the calendar year in which payment is to be made by the Borrower or the Administrative Agent to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Form of Non-Bank Certificate
K - 1
[Foreign Lender] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
Form of Non-Bank Certificate
K - 2
EXHIBIT K
FORM OF NON-BANK CERTIFICATE
(For Foreign Lenders That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of July 11, 2016 (as amended, supplemented or otherwise modified from time to time) (the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, each lender from time to time party thereto (collectively, the Lenders ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and L/C Issuer and the other agents party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(e) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) neither the undersigned nor any of its partners/members claiming the portfolio interest exemption (the applicable partners/members) is a bank within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of the applicable partners/members is a ten percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, (v) none of the applicable partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or the applicable partners/members conduct of a U.S. trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of the applicable partners/members: (i) an IRS Form W-8BEN-E or W-8BEN from each partner/member that is claiming the portfolio interest exemption or (ii) and IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E or W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (i) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and (ii) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Form of Non-Bank Certificate
K - 3
[Foreign Lender] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
Form of Non-Bank Certificate
K - 4
EXHIBIT K
FORM OF NON-BANK CERTIFICATE
(For Foreign Participants That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of July 11, 2016 (as amended, supplemented or otherwise modified from time to time) (the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, each lender from time to time party thereto (collectively, the Lenders ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and L/C Issuer and the other agents party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(e) and Section 10.06(d) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. person status on IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (i) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing and (ii) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Form of Non-Bank Certificate
K - 5
[Foreign Participant] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
Form of Non-Bank Certificate
K - 6
EXHIBIT K
FORM OF NON-BANK CERTIFICATE
(For Foreign Participants That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of July 11, 2016 (as amended, supplemented or otherwise modified from time to time) (the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company, as the Initial Borrower, each lender from time to time party thereto (collectively, the Lenders ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and L/C Issuer and the other agents party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(e) and Section 10.06(d) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its partners/members are the sole beneficial owners of such participation, (iii) neither the undersigned nor any of its partners/members claiming the portfolio interest exemption (the applicable partners/members) is a bank within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of the applicable partners/members is a ten percent shareholder of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, (v) none of the applicable partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or the applicable partners/members conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of the applicable partners/members: (i) an IRS Form W-8BEN-E or W-8BEN from each partner/member that is claiming the portfolio interest exemption or (ii) and IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E or W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (i) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing and (ii) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Form of Non-Bank Certificate
K - 7
[Foreign Participant] | ||
By: |
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Name: | ||
Title: | ||
[Address] |
Dated: , 20[ ]
Form of Non-Bank Certificate
K - 8
EXHIBIT L
[FORM OF] VALVOLINE JOINDER AGREEMENT
This VALVOLINE JOINDER AGREEMENT (this Agreement ) dated as of [●], by and between VALVOLINE INC., a Kentucky corporation (and successor by merger to the Initial Borrower referred to below, Valvoline ), and THE BANK OF NOVA SCOTIA, as administrative agent under the Credit Agreement referred to below (in such capacity and together with its successors and assigns in such capacity, the Administrative Agent ).
W I T N E S S E T H:
1. Valvoline Finco One LLC, a Delaware limited liability company, is the initial borrower (the Initial Borrower ) under that certain Credit Agreement dated as of July 11, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ; the terms defined therein, unless otherwise defined herein, being used herein as therein defined) among the Initial Borrower, the Lenders from time to time party thereto, the Administrative Agent and the other agents party thereto.
2. Pursuant to the terms of the Credit Agreement, and following the consummation of the reorganization of the Valvoline Business referred to in the Credit Agreement, the Initial Borrower has concurrently herewith merged with and into Valvoline, with Valvoline being the surviving company (the Newco Merger ). In accordance therewith and pursuant to the terms hereof, Valvoline is to be the Borrower for all purposes of the Credit Agreement and the other Loan Documents effective as upon the consummation of the Newco Merger and the automatic effectiveness of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for good and valuable consideration, the receipt and adequacy of which are hereby conclusively acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Assumption . (a) Valvoline hereby assumes all of the rights and Obligations of the Initial Borrower under the Credit Agreement and hereby agrees to be unconditionally bound in respect of all duties and liabilities as Borrower under the Credit Agreement and the other Loan Documents as if Valvoline were the original Borrower thereunder (the Assumption ). Valvoline hereby agrees that it will perform and observe all obligations, covenants and agreements to be performed by the Borrower under, and it will be bound in all respects by all of the terms and conditions of, the Credit Agreement and the other Loan Documents applicable to the Borrower, without further action required on the part of any party. In addition, Valvoline assumes all liabilities and obligations of the Initial Borrower arising out of all representations, warranties, documents, instruments and certificates made or delivered by the Initial Borrower under or in connection with each Loan Document (including, without limitation, the punctual payment when due of the principal, interest and fees owing under the Loans from time to time) to which the Initial Borrower is a party.
(b)Without limitation to the other provisions hereof, Valvoline represents and warrants that (i) Valvoline and its Subsidiaries are, on a consolidated basis, both immediately before and immediately after giving effect to this Agreement, Solvent and (ii) Valvolines Obligations under the Loan Documents, in its capacity as the Borrower, after giving effect to this Agreement, constitute the legal, valid and binding obligations of Valvoline, enforceable against Valvoline in accordance with their respective terms except as such enforceability may be limited by Debtor Relief Laws and by general principles of equity and principles of good faith and fair dealing.
Form of Joinder Agreement
L - 1
(c) Upon the effectiveness of this Agreement, the Initial Borrower shall cease to be a Borrower for all purposes of the Credit Agreement and the other Loan Documents and Valvoline shall be the Borrower thereunder for all purposes. Valvoline hereby confirms its acceptance of, and consents to, all covenants, and other terms and provisions of the Credit Agreement and the other Loan Documents. Valvoline hereby makes all representations and warranties of the Borrower set forth in the Credit Agreement and the other Loan Documents.
(d) Valvoline hereby confirms and agrees that (i) notwithstanding the effectiveness of this Agreement, each of the Loan Documents (to the extent executed by the Initial Borrower prior to the date hereof) is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects and (ii) the Loan Documents (to the extent executed by the Initial Borrower prior to the date hereof) shall continue to, secure the payment of all of the Obligations.
(e) From and after the date hereof, all references in the Credit Agreement and the other Loan Documents to the Borrower shall mean a reference to Valvoline in its capacity as the Borrower.
SECTION 2. Condition to Effectiveness . This Agreement shall be effective only upon (and immediately upon) satisfaction of the following conditions: (a) receipt by the Administrative Agent of an executed counterpart of this Agreement by Valvoline, and (b) receipt by the Administrative Agent of a copy of the file-stamped certificate of merger documenting the Newco Merger.
SECTION 3. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties thereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or an electronic transmission of a .pdf copy thereof shall be effective as delivery of an original executed counterpart of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns.
SECTION 4. Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
[ Signature page follow. ]
Form of Joinder Agreement
L - 2
IN WITNESS WHEREOF, each of the parties hereto has caused this Valvoline Joinder Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.
VALVOLINE INC. | ||
By |
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Name: | ||
Title: |
Form of Joinder Agreement
L - 3
Agreed and acknowledged as of the date
Above written:
THE BANK OF NOVA SCOTIA, as | ||
Administrative Agent | ||
By |
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Name: | ||
Title: |
Form of Joinder Agreement
L - 4
EXHIBIT M
FORM OF MORTGAGE
[Provided under separate cover].
Form of Mortgage
M - 1
EXHIBIT E
[FORM OF] GUARANTY
GUARANTY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this Agreement ) dated as of [●], among the Persons listed on the signature pages hereof under the caption Guarantors, any Persons that may become Guarantors hereunder pursuant to a duly executed joinder agreement in the form attached as Exhibit A hereto (each an Additional Guarantor , collectively, the Additional Guarantors and together with the Guarantors, the Guarantors and each, a Guarantor ) and The Bank of Nova Scotia, as administrative agent (in such capacity, the Administrative Agent ) for the Secured Parties (as defined in the Credit Agreement referred to below).
Reference is made to that certain Credit Agreement dated as of July 11, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company (the Borrower ), each lender from time to time party thereto (collectively, the Lenders and individually, a Lender ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer and Citibank, N.A., as Syndication Agent. Capitalized terms used and not defined herein (including, without limitation, the term Obligations , as used in Section 1 and elsewhere herein) are used with the meanings assigned to such terms in the Credit Agreement. Pursuant to Section 4.02(b)(i) of the Credit Agreement, each Guarantor party hereto is required to execute this Agreement as a condition to the funding of the initial Loans on the Funding Date.
From time to time on and after the Funding Date, the Lenders have agreed to make Loans to the Borrower, and the L/C Issuers have agreed to issue Letters of Credit for the account of the Borrower and its Subsidiaries, in each case pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each Guarantor is a Subsidiary of the Borrower and acknowledges that it has derived and will derive substantial benefit from the making of the Loans by the Lenders to the Borrower and the issuance of the Letters of Credit by the L/C Issuers for the account of the Borrower and its Subsidiaries. As consideration therefor and in order to induce the Lenders to make Loans and the L/C Issuers to issue Letters of Credit, each Guarantor is willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee . Each Guarantor unconditionally guarantees, jointly with any other Guarantors of the Obligations and severally, as a primary obligor and not merely as a surety, the due and punctual payment of the Obligations. To the fullest extent permitted by applicable Law, each Guarantor waives notice of, or any requirement for further assent to, any agreements or arrangements whatsoever by the Secured Parties with any other person pertaining to the Obligations, including agreements and arrangements for payment, extension, renewal, subordination, composition, arrangement, discharge or release of the whole or any part of the Obligations, or for the discharge or surrender of any or all security, or for the compromise, whether by way of acceptance of part payment or otherwise, of the Obligations, and, to the fullest extent permitted by applicable Law, the same shall in no way impair each Guarantors liability hereunder.
1
SECTION 2. Obligations Not Waived . To the fullest extent permitted by applicable Law, each Guarantor waives presentment to, demand of payment from and protest to the Borrower or any other Person of any of the Obligations, and also waives notice of acceptance of its guarantee, notice of protest for nonpayment and all other formalities. To the fullest extent permitted by applicable Law, the guarantee of each Guarantor hereunder shall not be affected by (a) the failure of any Loan Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any Guarantor under the provisions of the Credit Agreement, any other Loan Document or otherwise; (b) any extension, renewal or increase of or in any of the Obligations; (c) any rescission, waiver, amendment or modification of, or any release from, any of the terms or provisions of this Agreement, the Credit Agreement, any other Loan Document, any guarantee or any other agreement or instrument, including with respect to any Guarantor under the Loan Documents; (d) the release of (or the failure to perfect a security interest in) any of the security held by or on behalf of the Administrative Agent or any other Secured Party; or (e) the failure or delay of any Secured Party to exercise any right or remedy against the Borrower or any Guarantor.
SECTION 3. Security. Each Guarantor authorizes and to the extent necessary appoints as its agent the Administrative Agent to (a) take and hold security for the payment of this Guaranty and the Obligations and exchange, enforce, waive and release any such security pursuant to the terms of any other Loan Documents; (b) apply such security and direct the order or manner of sale thereof as it in its sole discretion may determine subject to the terms of any other Loan Documents; and (c) release or substitute any one or more endorsees, other Guarantors or other obligors pursuant to the terms of any other Loan Documents. In no event shall this Section 3 require any Guarantor to grant security, except as required by the terms of the Loan Documents.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection and, to the fullest extent permitted by applicable Law, waives any right to require that any resort be had by the Administrative Agent or any other Secured Party to any of the security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Administrative Agent or any other Secured Party in favor of the Borrower or any other Person.
SECTION 5. No Discharge or Diminishment of Guaranty. To the fullest extent permitted by applicable Law and except as otherwise expressly provided in this Agreement, the Obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the payment in full in cash of the Obligations (other than (A) contingent indemnification obligations that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements)), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense (other than a defense of payment) or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the
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generality of the foregoing, the obligations of each Guarantor hereunder shall, to the fullest extent permitted by applicable Law, not be discharged or impaired or otherwise affected by the failure of the Administrative Agent or any other Secured Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document, any guarantee or any other agreement or instrument, by any amendment, waiver or modification of any provision of the Credit Agreement or any other Loan Document or other agreement or instrument, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act, omission or delay to do any other act that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the payment in full in cash of all the Obligations (other than (A) contingent indemnification obligations that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements)) or which would impair or eliminate any right of any Guarantor to subrogation.
SECTION 6. Defenses Waived. To the fullest extent permitted by applicable Law, each Guarantor waives (i) any defense based on or arising out of the unenforceability of the Obligations or any part thereof from any cause or the cessation from any cause of the liability (other than the payment in full in cash of the Obligations (other than (A) contingent liabilities that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements)) of the Borrower or any other Person in respect of the Obligations and (ii) any law or regulation of any jurisdiction or any other event affecting any term of a guaranteed obligation. Subject to the terms of the other Loan Documents, the Administrative Agent and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with the Borrower or any other Guarantor or exercise any other right or remedy available to them against the Borrower or any other Guarantor, without affecting or impairing in any way the liability of each Guarantor hereunder except to the extent the Obligations (other than (A) contingent indemnification obligations that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) have been paid in full in cash. Pursuant to and to the fullest extent permitted by applicable Law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable Law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of each Guarantor against the Borrower or any other Guarantor or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the foregoing and not in limitation of any other right that the Administrative Agent or any other Secured Party has at law or in equity against each Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Administrative Agent or such other Secured Party as designated thereby in cash an amount equal to the unpaid principal amount of such Obligations then due, together with accrued and unpaid interest and fees on such
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Obligations. Upon payment by each Guarantor of any sums to the Administrative Agent or any Secured Party as provided above, all rights of each Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior payment in full in cash of all the Obligations (other than contingent liabilities that are not yet due and payable). In addition, any Indebtedness of the Borrower or any Subsidiary now or hereafter held by each Guarantor that is required by the Credit Agreement to be subordinated to the Obligations is hereby subordinated in right of payment to the prior payment in full of the Obligations (other than contingent liabilities that are not yet due and payable). If any amount shall be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such Indebtedness, in each case, at any time when any Obligation then due and owing has not been paid, such amount shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Administrative Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents.
SECTION 8. General Limitation on Guaranty Obligations; Right of Contribution . In any action or proceeding involving any state corporate law, or any state, Federal or foreign bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent conveyance or other law affecting the rights of creditors generally, if the obligations of any Guarantor under this Agreement would otherwise be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under this Agreement, then, notwithstanding any other provision herein or in any other Loan Document to the contrary, the amount of such liability shall, without any further action by any Guarantor, any creditor or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder (including by way of set-off rights being exercised against it), such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. For purposes of the preceding sentence, each Guarantors proportionate share of any payment due hereunder shall be equal to the full payment multiplied by a fraction of which the numerator shall be the net worth of such Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Guarantors on the date hereof (or, in the case of any Additional Guarantor, the date of the joinder agreement in the form attached as Exhibit A hereto executed and delivered by such Additional Guarantor). Each Guarantors right of contribution shall be subject to the terms and conditions of Section 7 hereof. The provision of this Section 8 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the other Secured Parties, and each Guarantor shall remain liable to the Administrative Agent and the other Secured Parties for the full amount guaranteed by such Guarantor hereunder.
SECTION 9. Information. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrowers financial condition and assets, all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that each Guarantor assumes and incurs hereunder and agrees that none of the Administrative Agent or the other Secured Parties will have any duty to advise such Guarantor of information known to it or any of them regarding such circumstances or risks.
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SECTION 10. Keepwell. Each Guarantor (other than any Excluded Swap Guarantor; such non-excluded Guarantors, the Qualified ECP Guarantors ) hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Loan Party to honor all of its obligations under this Agreement in respect of Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 10 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 10, or otherwise under this Agreement, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each Qualified ECP Guarantor under this Section 10 shall remain in full force and effect until payment in full of the Obligations and termination of this Agreement and the other Loan Documents. Each Qualified ECP Guarantor intends that this Section 10 constitute, and this Section 10 shall be deemed to constitute, a keepwell, support, or other agreement for the benefit of each other Loan Party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
SECTION 11. Covenant; Representations and Warranties . Each Guarantor agrees and covenants to, and to cause each of its Subsidiaries, to take, or refrain from taking, each action that is necessary to be taken or not taken, so that no breach of the agreements and covenants contained in the Credit Agreement pertaining to actions to be taken, or not taken, by such Guarantor or any of its Subsidiaries will result. Each Guarantor represents and warrants as to itself that all representations and warranties relating to it and its Subsidiaries contained in the Credit Agreement are true and correct, provided that each reference in any such representation and warranty to the knowledge of the Borrower shall, for the purposes of this Section 11, be deemed to be a reference to such Guarantors knowledge.
SECTION 12. Termination. The Guaranties made hereunder shall terminate when (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on all Loans; (ii) each payment required to be made under the Credit Agreement in respect of any Letter of Credit; and (iii) all other Obligations then due and owing, have in each case been paid in full (other than (A) contingent indemnification obligations that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) and the Lenders have no further commitment to lend under the Credit Agreement, the L/C Obligations have been reduced to zero (other than with respect to Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the applicable L/C Issuers shall have been made) and the L/C Issuers have no further obligation to issue Letters of Credit under the Credit Agreement; provided that any such Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment, or any part thereof, on any Obligation is rescinded or must otherwise be restored by any Secured Party upon the bankruptcy or reorganization of the Borrower, the Guarantors or otherwise.
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SECTION 13. Binding Effect; Several Agreement; Assignments; Releases. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of each Guarantor that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to each Guarantor when a counterpart hereof executed on behalf of each Guarantor shall have been delivered to the Administrative Agent and a counterpart hereof shall have been executed on behalf of the Administrative Agent, and thereafter shall be binding upon each Guarantor and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of each Guarantor, the Administrative Agent and the other Secured Parties, and their respective successors and assigns, except that neither the Borrower, nor the Guarantors shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void) without the prior written consent of the Required Lenders. The Administrative Agent is hereby expressly authorized to, and agrees upon request of the Borrower it will, release any Guarantor from its obligations hereunder (including its Guaranty) in accordance with Sections 6.15 , 6.17(e) , and 9.10 of the Credit Agreement.
SECTION 14. Waivers; Amendment . (a) No failure or delay of the Administrative Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Guarantors and the Administrative Agent (with the consent of the Lenders or the Required Lenders if required under the Credit Agreement).
SECTION 15. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
SECTION 16. Notices. All communications and notices hereunder shall be in writing and given as provided in Section 10.02 of the Credit Agreement. All communications and notices hereunder to each Guarantor shall be given to it in care of the Borrower at its address set forth in Schedule 10.02 to the Credit Agreement.
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SECTION 17. Survival of Agreement; Severability . (a) All covenants, agreements, representations and warranties made by the Guarantors herein, and as of the date hereof, and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the Administrative Agent and the other Secured Parties and shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit by the L/C Issuers regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the Commitments have not been terminated.
(b) In the event that any one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
SECTION 18. Counterparts; Integration; Effectiveness. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract, and shall become effective as provided in Section 13. Delivery of an executed signature page to this Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually executed counterpart of this Agreement.
SECTION 19. Rules of Interpretation. The rules of interpretation specified in Section 1.02 of the Credit Agreement shall be applicable to this Agreement.
SECTION 20. Jurisdiction; Consent to Service of Process. (a) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable Law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law. Nothing in this Agreement shall affect any right that the Administrative Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against each Guarantor or its properties in the courts of any jurisdiction.
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(b) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 16.
(d) Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by applicable Law.
SECTION 21. Waiver of Jury Trial . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21.
SECTION 22. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Secured Party to or for the credit or the account of each Guarantor against any or all the obligations of such Guarantor now or hereafter existing under this Agreement and the other Loan Documents held by such Secured Party, irrespective of whether or not the Administrative Agent or any Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Secured Party under this Section 22 are in addition to other rights and remedies (including other rights of setoff) which such Secured Party may have.
SECTION 23. Taxes. The Guarantors, jointly and severally, shall gross up for and shall indemnify the Secured Parties against Indemnified Taxes and Other Taxes to the extent set forth in Sections 3.01 and 3.07 of the Credit Agreement.
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IN WITNESS WHEREOF , the parties hereto have duly executed this Agreement as of the day and year first above written.
[GUARANTOR NAME], as Guarantor |
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By: |
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Name: | ||||
Title: |
[Valvoline - Signature Page to Guaranty Agreement]
THE BANK OF NOVA SCOTIA, as Administrative Agent |
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By: |
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Name: | ||||
Title: |
[Valvoline - Signature Page to Guaranty Agreement]
EXHIBIT A
to the Guaranty
[Form of]
JOINDER AGREEMENT
Reference is made to that certain Credit Agreement dated as of [●], 2016 (as amended, supplemented or otherwise modified from time to time, the Credit Agreement ), among Valvoline Finco One LLC, a Delaware limited liability company (the Borrower ), each lender from time to time party thereto (collectively, the Lenders and individually, a Lender ), The Bank of Nova Scotia, as Administrative Agent, Swing Line Lender and an L/C Issuer and Citibank, N.A., as Syndication Agent. Capitalized terms used and not defined herein are used with the meanings assigned to such terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, each of the Guarantors and The Bank of Nova Scotia, as administrative agent (in such capacity, the Administrative Agent ) for the Secured Parties (as defined in the Credit Agreement) are parties to the Guaranty Agreement (the Guaranty ) dated as of the Funding Date.
WHEREAS, from time to time on and after the Funding Date the Lenders have agreed to make Loans to the Borrower, and the L/C Issuers have agreed to issue Letters of Credit for the account of the Borrower and its Subsidiaries, in each case pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement.
WHEREAS, each Guarantor is a Subsidiary of the Borrower and acknowledges that it has derived and will derive substantial benefit from the making of the Loans by the Lenders to the Borrower and the issuance of the Letters of Credit by the L/C Issuers for the account of the Borrower and its Subsidiaries.
WHEREAS, pursuant to Section 6.17(b) of the Credit Agreement, each Subsidiary (other than an Excluded Subsidiary) that was not in existence on the Funding Date is required to become a Guarantor under the Agreement by executing a joinder agreement.
WHEREAS, the undersigned Subsidiary (the New Guarantor ) is executing this joinder agreement ( Joinder Agreement ) to the Guaranty in order to induce the Lenders to make additional Revolving Credit Loans and as consideration for the Loans previously made and to induce the L/C Issuers to issue Letters of Credit and as consideration for the Letters of Credit previously issued.
NOW, THEREFORE, the Administrative Agent and the New Guarantor hereby agree as follows:
(a) Guarantee . In accordance with Section 6.17(b) of the Credit Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guaranty with the same force and effect as if originally named therein as a Guarantor.
(b) Representations and Warranties . The New Guarantor hereby (a) agrees to all the terms and provisions of the Guaranty applicable to it and its Subsidiaries as a Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof (except to the extent that such representations and warranties specifically refer to an earlier date, in which case such representations and warranties are true and correct as of such earlier date). Each reference to a Guarantor in the Guaranty shall be deemed to include the New Guarantor.
(c) Severability . Any provision of this Joinder Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(d) Counterparts . This Joinder Agreement may be executed in counterparts, each of which shall constitute an original. Delivery of an executed signature page to this Joinder Agreement by facsimile or other electronic transmission shall be as effective as delivery of a manually executed counterpart of this Joinder Agreement.
(e) No Waiver . Except as expressly supplemented hereby, the Guaranty shall remain in full force and effect.
(f) Notices . All notices, requests and demands to or upon the New Guarantor, the Administrative Agent or any Lender shall be governed by the terms of Section 10.02 of the Credit Agreement.
(g) Governing Law . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
[Signature Pages Follow]
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IN WITNESS WHEREOF , the undersigned have caused this Joinder Agreement to be duly executed and delivered by their duly authorized officers as of the day and year first above written.
[NEW GUARANTOR], as Guarantor, |
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THE BANK OF NOVA SCOTIA, as
Administrative Agent, |
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EXHIBIT F
[FORM OF] SECURITY AGREEMENT
By
VALVOLINE FINCO ONE LLC,
as the Initial Borrower
and
VALVOLINE INC.,
as the Borrower
and
THE GUARANTORS PARTY HERETO
and
THE BANK OF NOVA SCOTIA,
as Administrative Agent
Dated as of [●]
TABLE OF CONTENTS
Page | ||||||
PREAMBLE | 1 | |||||
RECITALS | 1 | |||||
AGREEMENT | 1 | |||||
ARTICLE I | ||||||
DEFINITIONS AND INTERPRETATION | ||||||
SECTION 1.1. | Definitions | 2 | ||||
SECTION 1.2. | Interpretation | 8 | ||||
SECTION 1.3. | Resolution of Drafting Ambiguities | 8 | ||||
SECTION 1.4. | Perfection Certificate | 9 | ||||
ARTICLE II | ||||||
GRANT OF SECURITY AND OBLIGATIONS | ||||||
SECTION 2.1. | Grant of Security Interest | 9 | ||||
SECTION 2.2. | Filings | 10 | ||||
ARTICLE III | ||||||
PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES; USE OF PLEDGED COLLATERAL | ||||||
SECTION 3.1. | Delivery of Certificated Securities Collateral | 11 | ||||
SECTION 3.2. | Perfection of Uncertificated Securities Collateral | 11 | ||||
SECTION 3.3. | [Reserved] | 12 | ||||
SECTION 3.4. | Other Actions | 12 | ||||
SECTION 3.5. | Joinder of Additional Guarantors; Release of Guarantors | 13 | ||||
SECTION 3.6. | Supplements; Further Assurances | 13 | ||||
ARTICLE IV | ||||||
REPRESENTATIONS, WARRANTIES AND COVENANTS | ||||||
SECTION 4.1. | Title | 14 | ||||
SECTION 4.2. | Validity of Security Interest | 14 | ||||
SECTION 4.3. | Defense of Claims; Transferability of Pledged Collateral | 14 | ||||
SECTION 4.4. | Other Financing Statements | 15 | ||||
SECTION 4.5. | Location of Inventory and Equipment | 15 | ||||
SECTION 4.6. | Due Authorization and Issuance | 15 |
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SECTION 4.7. | Consents, etc | 15 | ||||
SECTION 4.8. | Pledged Collateral | 15 | ||||
SECTION 4.9. | Insurance | 16 | ||||
SECTION 4.10. | Chief Executive Office; Change of Name; Jurisdiction of Organization | 16 | ||||
ARTICLE V | ||||||
CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL | ||||||
SECTION 5.1. | Pledge of Additional Securities Collateral | 16 | ||||
SECTION 5.2. | Voting Rights; Distributions; etc | 17 | ||||
SECTION 5.3. | Defaults, etc | 18 | ||||
SECTION 5.4. | Certain Agreements of Pledgors As Issuers and Holders of Equity Interests | 18 | ||||
ARTICLE VI | ||||||
CERTAIN PROVISIONS CONCERNING INTELLECTUAL PROPERTY COLLATERAL | ||||||
SECTION 6.1. | Grant of Intellectual Property License | 19 | ||||
SECTION 6.2. | Protection of Administrative Agents Security | 19 | ||||
SECTION 6.3. | After-Acquired Intellectual Property Collateral | 20 | ||||
SECTION 6.4. | Litigation | 20 | ||||
ARTICLE VII | ||||||
CERTAIN PROVISIONS CONCERNING RECEIVABLES | ||||||
SECTION 7.1. | Maintenance of Records | 21 | ||||
SECTION 7.2. | Legend | 21 | ||||
SECTION 7.3. | Modification of Terms, etc | 21 | ||||
SECTION 7.4. | Collection | 21 | ||||
ARTICLE VIII | ||||||
TRANSFERS | ||||||
SECTION 8.1. | Transfers of Pledged Collateral | 22 | ||||
ARTICLE IX | ||||||
REMEDIES | ||||||
SECTION 9.1. | Remedies | 22 | ||||
SECTION 9.2. | Notice of Sale | 24 | ||||
SECTION 9.3. | Waiver of Notice and Claims | 24 | ||||
SECTION 9.4. | Certain Sales of Pledged Collateral | 24 |
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SECTION 9.5. | No Waiver; Cumulative Remedies | 26 | ||||
SECTION 9.6. | Certain Additional Actions Regarding Intellectual Property | 26 | ||||
ARTICLE X | ||||||
APPLICATION OF PROCEEDS | ||||||
SECTION 10.1. | Application of Proceeds | 27 | ||||
ARTICLE XI | ||||||
MISCELLANEOUS | ||||||
SECTION 11.1. | Concerning Administrative Agent | 27 | ||||
SECTION 11.2. | Administrative Agent May Perform; Administrative Agent Appointed Attorney-in-Fact | 28 | ||||
SECTION 11.3. | Continuing Security Interest; Assignment | 29 | ||||
SECTION 11.4. | Termination; Release | 29 | ||||
SECTION 11.5. | Modification in Writing | 30 | ||||
SECTION 11.6. | Notices | 30 | ||||
SECTION 11.7. | Governing Law, Consent to Jurisdiction and Service of Process; Waiver of Jury Trial | 30 | ||||
SECTION 11.8. | Severability of Provisions | 30 | ||||
SECTION 11.9. | Execution in Counterparts | 30 | ||||
SECTION 11.10. | Business Days | 31 | ||||
SECTION 11.11. | No Credit for Payment of Taxes or Imposition | 31 | ||||
SECTION 11.12. | No Claims Against Administrative Agent | 31 | ||||
SECTION 11.13. | No Release | 31 | ||||
SECTION 11.14. | Intercreditor Agreement | 31 | ||||
SECTION 11.15. | Obligations Absolute | 31 | ||||
SIGNATURES | S-1 |
EXHIBIT 1 |
Form of Issuers Acknowledgment |
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EXHIBIT 2 |
Form of Securities Pledge Amendment |
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EXHIBIT 3 |
Form of Joinder Agreement |
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EXHIBIT 4 |
Form of Copyright Security Agreement |
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EXHIBIT 5 |
Form of Patent Security Agreement |
|
EXHIBIT 6 |
Form of Trademark Security Agreement |
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SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of [●] (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this Agreement ) made by VALVOLINE FINCO ONE LLC, a Delaware limited liability company (the Initial Borrower ), VALVOLINE INC., a Kentucky corporation, as, after consummation of the Newco Merger and its assumption of the obligations of the Initial Borrower under the Credit Agreement (as hereinafter defined), the borrower (the Borrower ), and the Guarantors from to time to time party hereto (the Guarantors ), as grantors, pledgors, assignors and debtors (the Initial Borrower and the Borrower together with the Guarantors, in such capacities and together with any successors in such capacities, the Grantors , and each, a Grantor ), in favor of THE BANK OF NOVA SCOTIA, in its capacity as administrative agent pursuant to the Credit Agreement, as pledgee, assignee and secured party (in such capacities and together with any successors in such capacities, the Administrative Agent ).
R E C I T A L S :
A. The Initial Borrower, the Administrative Agent, the other agents party thereto and the lending institutions listed therein have entered into that certain credit agreement, dated as of July 11, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ).
B. On the Funding Date, each Guarantor party hereto has, pursuant to the Guaranty, guaranteed the Obligations.
C. The Borrower and each Guarantor will receive substantial benefits from the execution, delivery and performance of the obligations under the Credit Agreement and the other Loan Documents and each is, therefore, willing to enter into this Agreement.
D. This Agreement is given by each Grantor in favor of the Administrative Agent for the benefit of the Secured Parties to secure the payment and performance of the Obligations.
E. It is a condition to (i) the obligations of the Lenders to make the Loans under the Credit Agreement, (ii) the obligations of the L/C Issuers to issue Letters of Credit and (iii) the performance of the obligations of the Secured Parties under Secured Hedge Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Cash Management Agreements that constitute Obligations that each Grantor execute and deliver the applicable Loan Documents, including this Agreement, on the Funding Date.
A G R E E M E N T :
NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor and the Administrative Agent hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1. Definitions .
Unless otherwise defined herein or in the Credit Agreement, capitalized terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC; provided that in any event, the following terms shall have the meanings assigned to them in the UCC:
Accounts ; Bank ; Chattel Paper ; Commercial Tort Claim ; Commodity Account ; Commodity Contract ; Commodity Intermediary ; Documents ; Electronic Chattel Paper ; Entitlement Order ; Equipment ; Financial Asset ; Fixtures ; Goods , Inventory ; Letter-of-Credit Rights ; Letters of Credit ; Money ; Payment Intangibles ; Proceeds ; Records ; Securities Account ; Securities Intermediary ; Security Entitlement ; Supporting Obligations ; and Tangible Chattel Paper .
Terms used but not otherwise defined herein that are defined in the Credit Agreement shall have the meanings given to them in the Credit Agreement. Section 1.02 of the Credit Agreement shall apply herein mutatis mutandis .
The following terms shall have the following meanings:
Account Debtor shall mean each Person who is obligated on a Receivable or Supporting Obligation related thereto.
Administrative Agent shall have the meaning assigned to such term in the Preamble hereof.
Agreement shall have the meaning assigned to such term in the Preamble hereof.
Borrower shall have the meaning assigned to such term in the Preamble hereof.
Collateral shall have the meaning assigned to such term in Section 2.1 hereof.
Collateral Support shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.
Contracts shall mean, collectively, with respect to each Grantor, all sale, service, performance, equipment or property lease contracts, agreements and grants and all other contracts, agreements or grants (in each case, whether written or oral, or third party or intercompany), between such Grantor and any third party, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof.
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Copyright Security Agreement shall mean an agreement substantially in the form of Exhibit 4 hereto.
Copyrights shall mean, collectively, with respect to each Grantor, all copyrights (whether statutory or common law, whether established or registered in the United States or any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished) and all copyright registrations and applications made by such Grantor, in each case, whether now owned or hereafter created or acquired by or assigned to such Grantor, together with any and all (i) rights and privileges arising under applicable law with respect to such Grantors use of such copyrights, (ii) reissues, renewals, continuations and extensions thereof and amendments thereto, (iii) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto, including damages and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present or future infringements thereof.
Credit Agreement shall have the meaning assigned to such term in Recital A hereof.
Distributions shall mean, collectively, with respect to each Grantor, all dividends, cash, options, warrants, rights, instruments, distributions, returns of capital or principal, income, interest, profits and other property, interests (debt or equity) or proceeds, including as a result of a split, revision, reclassification or other like change of the Pledged Securities, from time to time received, receivable or otherwise distributed to such Grantor in respect of or in exchange for any or all of the Pledged Securities or Intercompany Notes.
Excluded Property shall mean:
(a) any permit or license issued by a Governmental Authority to any Grantor or any other asset, in each case, only to the extent and for so long as the terms of such permit, license or any agreement or any laws or regulations applicable thereto, validly prohibit the creation by such Grantor of a security interest in such permit, license or asset in favor of the Administrative Agent (in each case after giving effect to Sections 9-406(d), 9-407(a), 9-408(a) or 9-409(a) of the UCC (or any successor provision or provisions) or any other applicable law (including the Bankruptcy Code) or principles of equity) and in the case of any such prohibition in any agreement, only to the extent existing on the Funding Date or upon the acquisition of the applicable asset or Guarantor, and not in contemplation thereof;
(b) cash used to secure letter of credit reimbursement obligations to the extent permitted by Section 7.01 of the Credit Agreement;
(c) motor vehicles and other assets subject to certificates of title to the extent a Lien thereon cannot be perfected by the filing of a financing statement;
(d) Equipment owned by any Grantor on the date hereof or hereafter acquired that is subject to a Lien securing a purchase money obligation, Capitalized Lease or Synthetic Lease Obligation permitted to be incurred pursuant to Section 7.02(e) of the Credit Agreement if the contract or other agreement in which such Lien is granted (or the documentation providing for such purchase money obligation or Capitalized Lease) validly prohibits the creation of any other Lien on such Equipment;
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(e) any intent-to-use trademark application to the extent and for so long as creation by a Grantor of a security interest therein would result in the loss by such Grantor of any material rights therein;
(f) any Permitted Securitization Transferred Assets;
(g) Equity Interests of (i) Unrestricted Subsidiaries, (ii) Regulated Subsidiaries, (iii) Special Purpose Finance Subsidiaries, (iv) Immaterial Subsidiaries, (v) any other Subsidiary to the extent that the pledge of Equity Interests of such Subsidiary would be prohibited by applicable law, (vi) a joint venture to the extent that the pledge of Equity Interests of such joint venture would be prohibited by such joint ventures Organization Documents, or (vii) a Foreign Subsidiary or a Foreign Subsidiary Holding Company (including Equity Interests of a Subsidiary that are held directly or indirectly by a Foreign Subsidiary or a Foreign Subsidiary Holding Company) other than (A) Voting Stock of any Subsidiary which is a first-tier Foreign Subsidiary or a Foreign Subsidiary Holding Company, in each case representing 65% of the total voting power of all outstanding Voting Stock of such Subsidiary and (B) 100% of the Equity Interests not constituting Voting Stock of any such Subsidiary, except that any such Equity Interests constituting stock entitled to vote within the meaning of Treasury Regulation Section 1.956-2(c)(2) shall be treated as Voting Stock for purposes of this clause (g);
(h) [reserved];
(i) any aircraft, airframes and engines, and all accessories, additions, accessions, alterations, modifications, parts, instruments, repairs and attachments affixed thereto or used in connection therewith, except to the extent perfection of a security interest therein may be accomplished by filing of financing statements in appropriate form in the applicable jurisdiction under the UCC;
(j) assets the pledge of which is prohibited by applicable law; and
(k) assets subject to Liens permitted under Sections 7.01 (f) , (i) , (m) and (r) of the Credit Agreement (or under Section 7.01(p) of the Credit Agreement to the extent relating to Liens permitted under the foregoing clauses, as well as clauses (j) and (bb) of Section 7.01 of the Credit Agreement), in each case, to the extent that the grant of a security interest hereunder on such assets would constitute or result in a breach of, or a default under, the definitive documentation creating such Liens;
provided , however , that Excluded Property shall not include any Proceeds, substitutions or replacements of any Excluded Property referred to in clauses (a), (b), (c), (e), (g), (i) or (j) (unless such Proceeds, substitutions or replacements would constitute Excluded Property referred to in clauses (a), (b), (c), (e), (g), (i) or (j)).
General Intangibles shall mean, collectively, with respect to each Grantor, all general intangibles, as such term is defined in the UCC, of such Grantor and, in any event,
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shall include (i) all of such Grantors rights, title and interest in, to and under all Contracts and insurance policies (including all rights and remedies relating to monetary damages, including indemnification rights and remedies, and claims for damages or other relief pursuant to or in respect of any Contract or the Mortgaged Property), (ii) all know-how and warranties relating to any of the Collateral, (iii) any and all other rights, claims, choses-in-action and causes of action of such Grantor against any other person and the benefits of any and all collateral or other security given by any other person in connection therewith, (iv) all guarantees, endorsements and indemnifications on, or of, any of the Collateral or any of the Mortgaged Property, (v) all lists, books, records, correspondence, ledgers, printouts, files (whether in printed form or stored electronically), tapes and other papers or materials containing information relating to any of the Collateral or any of the Mortgaged Property, including all customer or tenant lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, appraisals, recorded knowledge, surveys, studies, engineering reports, test reports, manuals, standards, processing standards, performance standards, catalogs, research data, computer and automatic machinery software and programs and the like, field repair data, accounting information pertaining to such Grantors operations or any of the Collateral or any of the Mortgaged Property and all media in which or on which any of the information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data, (vi) all licenses, consents, permits, variances, certifications, authorizations and approvals, however characterized, now or hereafter acquired or held by such Grantor, including building permits, certificates of occupancy, environmental certificates, industrial permits or licenses and certificates of operation and (vii) all rights to reserves, deferred payments, deposits, refunds, indemnification of claims and claims for tax or other refunds against any Governmental Authority.
Goodwill shall mean, collectively, with respect to each Grantor, the goodwill connected with such Grantors business, including all goodwill connected with (i) the use of and symbolized by any Trademark or Intellectual Property License with respect to any Trademark in which such Grantor has any interest, (ii) all know-how, trade secrets, customer and supplier lists, proprietary information, inventions, methods, procedures, formulae, descriptions, compositions, technical data, drawings, specifications, name plates, catalogs, confidential information and the right to limit the use or disclosure thereof by any person, pricing and cost information, business and marketing plans and proposals, consulting agreements, engineering contracts and such other assets which relate to such goodwill and (iii) all product lines of such Grantors business.
Grantor shall have the meaning assigned to such term in the Preamble hereof.
Guarantors shall have the meaning assigned to such term in the Preamble hereof.
Initial Borrower shall have the meaning assigned to such term in the Preamble hereof.
Instruments shall mean, collectively, with respect to each Grantor, all instruments, as such term is defined in Article 9, rather than Article 3, of the UCC, and shall include all promissory notes, drafts, bills of exchange or acceptances.
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Intellectual Property Collateral shall mean, collectively, the Patents, Trademarks, Copyrights, Intellectual Property Licenses and Goodwill. Notwithstanding anything to the contrary, the term Intellectual Property Collateral shall not include any Excluded Property.
Intellectual Property Licenses shall mean, collectively, with respect to each Grantor, all license agreements with, and covenants not to sue, any other party with respect to any Patent, Trademark or Copyright, whether such Grantor is a licensor or licensee under any such license, together with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages and payments for past, present or future infringements or violations thereof, (iii) rights to sue for past, present and future infringements or violations thereof and (iv) other rights to use, exploit or practice any or all of the Patents, Trademarks or Copyrights subject thereto.
Intellectual Property Security Agreements shall mean, collectively, the Copyright Security Agreements, the Patent Security Agreements and the Trademark Security Agreements.
Intercompany Notes shall mean, with respect to each Grantor, all intercompany notes held by such Grantor described in Schedule 10 to the Perfection Certificate and intercompany notes hereafter acquired by such Grantor and all certificates, instruments or agreements evidencing such intercompany notes, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof to the extent permitted pursuant to the terms hereof.
Investment Property shall mean a security, whether certificated or uncertificated, excluding, however, the Securities Collateral.
Joinder Agreement shall mean an agreement substantially in the form of Exhibit 3 hereto.
L/C Account shall mean any account established and maintained in accordance with the provisions of Section 2.03(g) of the Credit Agreement and all property from time to time on deposit in such L/C Account.
Material Intellectual Property Collateral shall mean any Intellectual Property Collateral that is material (i) to the use and operation of the Pledged Collateral or Mortgaged Property or (ii) to the business, results of operations, prospects or condition, financial or otherwise, of the Borrower and its Subsidiaries on a consolidated basis.
Mortgaged Property shall have the meaning assigned to the terms Mortgaged Property or Trust Property in the Mortgages.
Patents shall mean, collectively, with respect to each Grantor, all patents issued or assigned to, and all patent applications made by, such Grantor (whether established or registered or recorded in the United States or any other country or any political subdivision thereof), together with any and all (i) rights and privileges arising under applicable law with
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respect to such Grantors use of such patents and applications, (ii) inventions and improvements described and claimed therein, (iii) reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof and amendments thereto, (iv) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto, including damages and payments for past, present or future infringements thereof, (v) rights corresponding thereto throughout the world and (vi) rights to sue for past, present or future infringements thereof.
Patent Security Agreement shall mean an agreement substantially in the form of Exhibit 5 hereto.
Perfection Certificate shall mean that certain perfection certificate dated the date hereof, executed and delivered by each Grantor in favor of the Administrative Agent for the benefit of the Secured Parties, and each other Perfection Certificate or Perfection Certificate Supplement executed and delivered by the applicable Guarantor in favor of the Administrative Agent for the benefit of the Secured Parties contemporaneously with the execution and delivery of each Joinder Agreement executed in accordance with Section 3.5 hereof, in each case, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the Credit Agreement or upon the request of the Administrative Agent.
Permitted Liens shall have the meaning assigned to such term in Section 4.1 hereof.
Pledge Amendment shall have the meaning assigned to such term in Section 5.1 hereof.
Pledged Securities shall mean, collectively, with respect to each Grantor, (i) all issued and outstanding Equity Interests of each issuer set forth on Schedules 9(a) and 9(b) to the Perfection Certificate and noted therein as being owned by such Grantor and pledged pursuant to this Agreement, and all options, warrants, rights, agreements and additional Equity Interests of whatever class of any such issuer acquired by such Grantor (including by issuance), together with all rights, privileges, authority and powers of such Grantor relating to such Equity Interests in each such issuer or under any Organization Document of each such issuer, and the certificates, instruments and agreements representing such Equity Interests and any and all interest of such Grantor in the entries on the books of any financial intermediary pertaining to such Equity Interests, (ii) all Equity Interests of any issuer, which Equity Interests are hereafter acquired by such Grantor (including by issuance) and all options, warrants, rights, agreements and additional Equity Interests of whatever class of any such issuer acquired by such Grantor (including by issuance), together with all rights, privileges, authority and powers of such Grantor relating to such Equity Interests or under any Organization Document of any such issuer, and the certificates, instruments and agreements representing such Equity Interests and any and all interest of such Grantor in the entries on the books of any financial intermediary pertaining to such Equity Interests, from time to time acquired by such Grantor in any manner, and (iii) all Equity Interests issued in respect of the Equity Interests referred to in clause (i) or (ii) upon any consolidation or merger of any issuer of such Equity Interests; provided , however , that Pledged Securities shall not include any Excluded Property or any Equity Interests which are not required to be pledged pursuant to Section 6.17(b) of the Credit Agreement.
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Receivables shall mean all (i) Accounts, (ii) Chattel Paper, (iii) Payment Intangibles, (iv) Instruments and (v) all other rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, regardless of how classified under the UCC together with all of Grantors rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Records relating thereto; provided , however , that the term Receivables shall not include any Excluded Property.
Securities Act shall mean the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated by the SEC thereunder.
Securities Collateral shall mean, collectively, the Pledged Securities, the Intercompany Notes and the Distributions.
Trademarks shall mean, collectively, with respect to each Grantor, all trademarks (including service marks), slogans, logos, certification marks, trade dress, uniform resource locations (URLs), domain names, corporate names and trade names, whether registered or unregistered, owned by or assigned to such Grantor and all registrations and applications for the foregoing (whether statutory or common law and whether established or registered in the United States or any other country or any political subdivision thereof), together with any and all (i) rights and privileges arising under applicable law with respect to such Grantors use of any such trademarks (including service marks), slogans, logos, certification marks, trade dress, uniform resource locations (URLs), domain names, corporate names and trade names, (ii) reissues, continuations, extensions and renewals thereof and amendments thereto, (iii) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages, claims and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present and future infringements thereof.
Trademark Security Agreement shall mean an agreement substantially in the form of Exhibit 6 hereto.
Valvoline Notes shall mean all promissory notes between the Borrower and any distributor, national account customer or direct market customer of the Borrower who purchases Valvoline branded bulk lubricants and service chemicals from the Borrower (each, a Customer ), evidencing or governing the terms of any indebtedness that has been incurred by the Borrower to extend indebtedness to such Customer for the express purpose of buying additional equipment when expanding its facilities and growing its business.
SECTION 1.2. Interpretation . The rules of interpretation specified in the Credit Agreement (including Section 1.02 thereof) shall be applicable to this Agreement. In the event of any conflict between the provisions hereof and the provisions of the Credit Agreement, the provisions of the Credit Agreement shall control.
SECTION 1.3. Resolution of Drafting Ambiguities . Each Grantor acknowledges and agrees that it was represented by counsel in connection with the execution and
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delivery hereof, that it and its counsel reviewed and participated in the preparation and negotiation hereof and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party (i.e., the Administrative Agent) shall not be employed in the interpretation hereof.
SECTION 1.4. Perfection Certificate . The Administrative Agent and each Secured Party agree that the Perfection Certificate and all descriptions of Collateral, schedules, amendments, supplements thereto and Perfection Certificate Supplements are and shall at all times remain a part of this Agreement.
ARTICLE II
GRANT OF SECURITY AND OBLIGATIONS
SECTION 2.1. Grant of Security Interest . As collateral security for the payment and performance in full of all the Obligations, each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties, a lien on and security interest in all of the right, title and interest of such Grantor in, to and under the following property, wherever located, and whether now existing or hereafter arising or acquired from time to time (collectively, the Collateral ):
(i) all Accounts;
(ii) all Equipment, Goods, Inventory and Fixtures;
(iii) all Documents, Instruments and Chattel Paper;
(iv) all Letters of Credit and Letter-of-Credit Rights;
(v) all Securities Collateral;
(vi) all Investment Property;
(vii) all Intellectual Property Collateral;
(viii) the Commercial Tort Claims described on Schedule 12 to the Perfection Certificate;
(ix) all General Intangibles;
(x) all Money;
(xi) all Supporting Obligations;
(xii) all books and records relating to the Collateral; and
(xiii) to the extent not covered by clauses (i) through (xii) of this sentence, all other personal property of such Grantor, whether tangible or intangible, and all Proceeds and products of each of the foregoing and all accessions to, substitutions and
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replacements for, and rents, profits and products of, each of the foregoing, and any and all Proceeds of any insurance, indemnity, warranty or guaranty payable to such Grantor from time to time with respect to any of the foregoing.
Notwithstanding anything to the contrary contained in clauses (i) through (xiii) above, the security interest created by this Agreement shall not extend to, and the term Collateral shall not include, any Excluded Property.
SECTION 2.2. Filings .
(a) Each Grantor hereby irrevocably authorizes the Administrative Agent at any time and from time to time to file in any relevant jurisdiction any financing statements (including fixture filings) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Collateral, including (i) whether such Grantor is an organization, the type of organization and any organizational identification number issued to such Grantor, (ii) any financing or continuation statements or other documents without the signature of such Grantor where permitted by law, including the filing of a financing statement describing the Collateral as all assets now owned or hereafter acquired by the Grantor or in which the Grantor otherwise has rights (or similar language) and (iii) in the case of a financing statement filed as a fixture filing or covering Collateral constituting minerals or the like to be extracted or timber to be cut, a sufficient description of the real property to which such Collateral relates. Each Grantor agrees to provide all information described in the immediately preceding sentence to the Administrative Agent promptly upon request by the Administrative Agent.
(b) Each Grantor hereby ratifies its authorization for the Administrative Agent to file in any relevant jurisdiction any financing statements relating to the Collateral if filed prior to the date hereof.
(c) Each Grantor hereby further authorizes the Administrative Agent to file filings with the United States Patent and Trademark Office or the United States Copyright Office (or any successor office), including this Agreement, the Copyright Security Agreement, the Patent Security Agreement and the Trademark Security Agreement, or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by such Grantor hereunder and naming such Grantor, as debtor, and the Administrative Agent, as secured party.
(d) Notwithstanding anything in this Agreement to the contrary, no Grantor shall be required, and the Administrative Agent is not authorized on behalf of any such Grantor, (a) to file or take any other action (including entering into foreign-law governed agreements) or make any filings required by any jurisdiction other than the United States, any State thereof and the District of Columbia to perfect, confirm, continue, enforce or protect any security interest granted in any Collateral of such Grantor or (b) enter into any control agreements or take any actions to perfect the security interest in any Collateral by control other than with respect to Securities to the extent expressly required under Sections 3.1 or 3.2.
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ARTICLE III
PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES; USE OF COLLATERAL
SECTION 3.1. Delivery of Certificated Securities Collateral . Each Grantor represents and warrants that all certificates, agreements or instruments representing or evidencing the Securities Collateral in existence on the date hereof and required to be delivered pursuant to the Credit Agreement have been delivered to the Administrative Agent in suitable form for transfer by delivery or accompanied by duly executed instruments of transfer or assignment in blank and that the Administrative Agent has a perfected first priority security interest therein, subject only to Permitted Liens; provided that the requirements of this sentence shall apply only to Securities Collateral of issuers that are Subsidiaries. Each Grantor hereby agrees that all certificates, agreements or instruments representing or evidencing Securities Collateral acquired by such Grantor after the date hereof shall promptly (but in any event within thirty days after receipt thereof by such Grantor) be delivered to and held by or on behalf of the Administrative Agent pursuant hereto; provided that the requirements of this sentence shall apply only to Securities Collateral of issuers that are Subsidiaries. All certificated Securities Collateral shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall have the right, at any time upon the occurrence and during the continuance of any Event of Default, to endorse, assign or otherwise transfer to or to register in the name of the Administrative Agent or any of its nominees or endorse for negotiation any or all of the Securities Collateral, without any indication that such Securities Collateral is subject to the security interest hereunder. In addition, upon the occurrence and during the continuance of an Event of Default, the Administrative Agent shall have the right at any time to exchange certificates representing or evidencing Pledged Securities for certificates of smaller or larger denominations. Notwithstanding the delivery of any Excluded Property described in paragraph (g)(vii) of the definition of Excluded Property (including certificates related thereto) by or on behalf of any Grantor to the Administrative Agent, such Excluded Property shall not constitute property in which a security interest was granted.
SECTION 3.2. Perfection of Uncertificated Securities Collateral . Each Grantor represents and warrants that the Administrative Agent has a perfected first priority security interest in all uncertificated Pledged Securities pledged by it hereunder that are in existence on the date hereof, subject only to Permitted Liens. Each Grantor hereby agrees that if any of the Pledged Securities are at any time not evidenced by certificates of ownership, then each applicable Grantor shall, to the extent permitted by applicable law, (i) cause the issuer to execute and deliver to the Administrative Agent an acknowledgment of the pledge of such Pledged Securities substantially in the form of Exhibit 2 hereto or such other form that is reasonably satisfactory to the Administrative Agent, (ii) if necessary or desirable to perfect a security interest in such Pledged Securities, cause such pledge to be recorded on the equityholder register or the books of the issuer, execute any customary pledge forms or other documents necessary or appropriate to complete the pledge and give the Administrative Agent the right to transfer such Pledged Securities under the terms hereof, and (iii) after the occurrence and during the continuance of any Event of Default, upon request by the Administrative Agent, (A) cause the Organization Documents of each such issuer that is a Subsidiary of the Borrower to be amended to provide that such Pledged Securities shall be treated as securities for purposes of
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the UCC and (B) cause such Pledged Securities to become certificated and delivered to the Administrative Agent in accordance with the provisions of Section 3.1 hereof; provided that the requirements of this sentence shall apply only to the Pledge Securities of issuers that are Subsidiaries.
SECTION 3.3. [Reserved] .
SECTION 3.4. Other Actions . In order to further ensure the attachment, perfection and priority of, and the ability of the Administrative Agent to enforce, the Administrative Agents security interest in the Collateral, each Grantor represents and warrants (as to itself) as follows and agrees, in each case at such Grantors own expense, to take the following actions with respect to the following Collateral:
(a) Instruments and Tangible Chattel Paper . As of the date hereof, no amounts payable under or in connection with any of the Collateral are evidenced by any Instrument or Tangible Chattel Paper other than such Instruments and Tangible Chattel Paper listed in Schedule 10 to the Perfection Certificate or for amounts less than $1,000,000. Each Instrument and each item of Tangible Chattel Paper (other than Securities Collateral and Valvoline Notes) listed in Schedule 10 to the Perfection Certificate that is Collateral has been properly endorsed, assigned and delivered to the Administrative Agent, accompanied by instruments of transfer or assignment duly executed in blank. If any amount in excess of $1,000,000 then payable under or in connection with any of the Collateral shall be evidenced by any Instrument or Tangible Chattel Paper (other than Securities Collateral or Valvoline Notes), the Grantor acquiring such Instrument or Tangible Chattel Paper shall promptly (but in any event within thirty days after receipt thereof) endorse, assign and deliver the same to the Administrative Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Administrative Agent may from time to time specify.
(b) Investment Property and Pledged Securities . As between the Administrative Agent and the Grantors, the Grantors shall bear the investment risk with respect to the Investment Property and Pledged Securities, and the risk of loss of, damage to, or the destruction of the Investment Property and Pledged Securities, whether in the possession of, or maintained as a Security Entitlement or deposit by, or subject to the control of, the Administrative Agent, any Grantor or any other Person, except where such loss of, damage to or destruction of the Investment Property or Pledged Securities was caused by the gross negligence or willful misconduct of the Administrative Agent or other Person.
(c) [Reserved].
(d) [Reserved] .
(e) Commercial Tort Claims . As of the date hereof, each Grantor hereby represents and warrants that it holds no Commercial Tort Claims other than those listed in Schedule 12 to the Perfection Certificate. If any Grantor shall at any time hold or acquire a Commercial Tort Claim, such Grantor shall promptly (but in any event within thirty
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days after receipt thereof by such Grantor) notify the Administrative Agent in writing signed by such Grantor of the brief details thereof and grant to the Administrative Agent in such writing a security interest therein and in the Proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Administrative Agent. The requirement in the preceding sentence shall not apply to the extent that the amount of such Commercial Tort Claim does not exceed $1,000,000.
SECTION 3.5. Joinder of Additional Guarantors; Release of Guarantors .
(a) The Grantors shall cause each Subsidiary of the Borrower which, from time to time, after the date hereof shall be required to pledge any assets to the Administrative Agent for the benefit of the Secured Parties pursuant to the provisions of the Credit Agreement, to execute and deliver to the Administrative Agent (i) a Joinder Agreement and (ii) a Perfection Certificate Supplement, in each case, within the time periods required by Section 6.17 of the Credit Agreement and upon such execution and delivery, such Subsidiary shall constitute a Guarantor and a Grantor for all purposes hereunder with the same force and effect as if originally named as a Guarantor and Grantor herein. The execution and delivery of such Joinder Agreement shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor and Grantor as a party to this Agreement.
(b) If any Grantor ceases to be a Guarantor in accordance with the provisions of the Credit Agreement, the Administrative Agent will, at the Borrowers expense and upon receipt of any certifications reasonably requested by the Administrative Agent in connection therewith and in accordance with Sections 6.17(e) and 9.10 of the Credit Agreement, execute and deliver to the applicable Grantor such documents as such Grantor may reasonably request to evidence the release of such Grantor from the assignment and security interest granted hereunder and from its obligations hereunder.
SECTION 3.6. Supplements; Further Assurances . Each Grantor shall take such further actions, and execute and/or deliver to the Administrative Agent such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, as the Administrative Agent may in its reasonable judgment deem necessary or appropriate in order to create, perfect, preserve and protect the security interest in the Collateral as provided herein and the rights and interests granted to the Administrative Agent hereunder, to carry into effect the purposes hereof or better to assure and confirm the validity, enforceability and priority of the Administrative Agents security interest in the Collateral or permit the Administrative Agent to exercise and enforce its rights, powers and remedies hereunder with respect to any Collateral, including the filing of financing statements, continuation statements and other documents (including this Agreement) under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby, all in form reasonably satisfactory to the Administrative Agent and in such offices (including the United States Patent and Trademark Office and the United States Copyright Office) wherever required by law to perfect, continue and maintain the validity, enforceability and priority of the security interest in the Collateral as provided herein and to preserve the other rights and interests granted to the Administrative Agent hereunder, as against third parties, with respect to the
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Collateral. If an Event of Default has occurred and is continuing, the Administrative Agent may institute and maintain, in its own name or in the name of any Grantor, such suits and proceedings as the Administrative Agent may be advised by counsel shall be necessary or expedient to prevent any impairment of the security interest in or the perfection thereof in the Collateral. All of the foregoing shall be at the sole cost and expense of the Grantors.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Grantor represents, warrants and covenants as follows:
SECTION 4.1. Title . Except for the security interest granted to the Administrative Agent for the benefit of the Secured Parties pursuant to this Agreement and Liens permitted under Section 7.01 of the Credit Agreement ( Permitted Liens ), such Grantor owns or has rights and, as to Collateral acquired by it from time to time after the date hereof, will own or have rights in each item of Collateral in which it has granted the security interest to the Administrative Agent hereunder, free and clear of any and all Liens or claims of others (except for minor defects in title that do not interfere with Grantors ability to (i) conduct its business as currently conducted or as proposed to be conducted or to utilize such properties for their intended purposes or (ii) grant the security interest granted hereunder).
SECTION 4.2. Validity of Security Interest . The security interest in and Lien on the Collateral granted to the Administrative Agent for the benefit of the Secured Parties hereunder constitutes (a) a legal and valid security interest in all the Collateral securing the payment and performance of the Obligations, and (b) subject to the filings and other actions described in Schedule 6 to the Perfection Certificate (to the extent required to be listed on the schedules to the Perfection Certificate as of the date this representation is made or deemed made) and subject to the taking of any other action in accordance with Section 6.17 of the Credit Agreement or the terms hereof, as applicable, within the time frame prescribed by such Section 6.17 or the applicable provisions hereof, a perfected security interest in all the Collateral in which a security interest may be perfected (i) by filing, recording or registering a financial statement or analogous document in the United States (or any political subdivision thereof) and its territories or possessions pursuant to the UCC or (ii) upon the receipt and recording of the Intellectual Property Security Agreements with the United States Patent and Trademark Office and the United States Copyright Office, as applicable. The security interest and Lien granted to the Administrative Agent for the benefit of the Secured Parties pursuant to this Agreement in and on the Collateral will at all times during the term of this Agreement constitute a perfected, continuing security interest therein and be prior to any other Lien on any of the Collateral, other than Permitted Liens.
SECTION 4.3. Defense of Claims; Transferability of Collateral . Each Grantor shall, at its own cost and expense, defend title to the Collateral pledged by it hereunder and the security interest therein and Lien thereon granted to the Administrative Agent and the priority thereof against all claims and demands of all persons, at its own cost and expense, at any time claiming any interest therein adverse to the Administrative Agent or any other Secured Party other than Permitted Liens. There is no agreement, order, judgment or decree, and no
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Grantor shall enter into any agreement or take any other action, that would restrict the transferability of any of the Collateral or otherwise impair or conflict with such Grantors obligations or the rights of the Administrative Agent hereunder except to the extent permitted under the Credit Agreement.
SECTION 4.4. Other Financing Statements . It has not filed, nor authorized any third party to file (nor will there be), any valid or effective financing statement (or similar statement, instrument of registration or public notice under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral, except such as have been filed in favor of the Administrative Agent pursuant to this Agreement or in favor of any holder of a Permitted Lien with respect to such Permitted Lien or financing statements or public notices relating to the termination statements listed on Schedule 8 to the Perfection Certificate. No Grantor shall execute, authorize or permit to be filed in any public office any financing statement (or similar statement, instrument of registration or public notice under the law of any jurisdiction) relating to any Collateral, except financing statements and other statements and instruments filed or to be filed in respect of and covering the security interests granted by such Grantor to the holder of the Permitted Liens.
SECTION 4.5. [ Reserved. ]
SECTION 4.6. Due Authorization and Issuance . All of the Pledged Securities existing on the date hereof have been, and to the extent any Pledged Securities are hereafter issued, such Pledged Securities will be, upon such issuance, duly authorized, validly issued and fully paid and non-assessable to the extent applicable (it being understood that this representation is being made to the knowledge of the applicable Grantor in the case of Pledged Securities issued by Persons that are not Subsidiaries). There is no amount or other obligation owing by any Grantor to any issuer of the Pledged Securities in exchange for or in connection with the issuance of the Pledged Securities or any Grantors status as a partner or a member of any issuer of the Pledged Securities.
SECTION 4.7. Consents, etc . In the event that the Administrative Agent desires to exercise any remedies, voting or consensual rights or attorney-in-fact powers set forth in this Agreement and reasonably determines it necessary to obtain any approvals or consents of any Governmental Authority or any other person therefor, then, upon the reasonable request of the Administrative Agent, such Grantor agrees to use its commercially reasonable efforts to assist and aid the Administrative Agent to obtain as soon as practicable any necessary approvals or consents for the exercise of any such remedies, rights and powers.
SECTION 4.8. Collateral . All information set forth herein, including the schedules hereto, and all information contained in any documents, schedules and lists heretofore delivered to any Secured Party, including the Perfection Certificate and the schedules thereto, in connection with this Agreement, in each case, relating to the Collateral, is accurate and complete in all material respects in each case as of the date hereof. The Collateral described on the schedules to the Perfection Certificate constitutes all of the property of such type of Collateral owned or held by the Grantors, subject to any threshold amount or other limitation set forth in the Perfection Certificate in each case as of the date hereof.
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SECTION 4.9. Insurance . In the event that the Net Cash Proceeds of any insurance claim are paid to any Grantor after the Administrative Agent has exercised its right to foreclose after an Event of Default, such Net Cash Proceeds shall be held in trust for the benefit of the Administrative Agent and promptly (but in any event within 30 days) after receipt thereof shall be paid to the Administrative Agent for application in accordance with the Credit Agreement.
SECTION 4.10. Chief Executive Office; Change of Name; Jurisdiction of Organization . Each Grantor agrees (A) to promptly (but in the case of clauses (i) and (v) below no event less than fifteen (15) Business Days (or such later date as consented to by the Administrative Agent) following the taking of the relevant action) notify the Administrative Agent in writing of any change (i) to its legal name, (ii) in the location of any Grantors chief executive office, (iii) in its identity or organizational structure, (iv) in its organizational identification number, if any, or (v) in its jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), and agrees to clearly describe such change and provide such other information in connection therewith as the Administrative Agent may reasonably request and (B) that, prior to effecting or permitting any change referred to in clause (A) above, it shall have taken all action necessary to maintain the perfection and priority of the security interest of the Administrative Agent for the benefit of the Secured Parties in the Collateral. Each Grantor agrees to promptly provide the Administrative Agent with certified Organization Documents, if applicable, reflecting any of the changes described in the preceding sentence. Each Grantor also agrees to promptly notify the Administrative Agent of any change in the location of any office in which it maintains books or records relating to Collateral owned by it.
ARTICLE V
CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL
SECTION 5.1. Pledge of Additional Securities Collateral . Each Grantor shall, upon obtaining any Pledged Securities or Intercompany Notes (other than Intercompany Notes owing by a Regulated Subsidiary, any Subsidiary of a Regulated Subsidiary and their respective successors and assigns, in each case only to the extent prohibited by law) of any person, accept the same in trust for the benefit of the Administrative Agent and promptly (but in any event within thirty days after receipt thereof) deliver to the Administrative Agent a pledge amendment, duly executed by such Grantor, in substantially the form of Exhibit 2 hereto (each, a Pledge Amendment ), and the certificates and other documents required under Section 3.1 and Section 3.2 hereof in respect of the additional Pledged Securities or Intercompany Notes which are to be pledged pursuant to this Agreement, and confirming the attachment of the Lien hereby created on and in respect of such additional Pledged Securities or Intercompany Notes. Each Grantor hereby authorizes the Administrative Agent to attach each Pledge Amendment to this Agreement and agrees that all Pledged Securities or Intercompany Notes listed on any Pledge Amendment delivered to the Administrative Agent shall for all purposes hereunder be considered Collateral.
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SECTION 5.2. Voting Rights; Distributions; etc .
(a) So long as no Event of Default shall have occurred and be continuing and unless the Administrative Agent shall have notified the Grantors that the Grantors rights, in whole or in part, under this Section 5.2 are being suspended:
(i) Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Securities Collateral or any part thereof for any purpose not inconsistent with the terms or purposes hereof, the Credit Agreement or any other document evidencing the Obligations; provided , however , that no Grantor shall in any event exercise such rights in any manner which could reasonably be expected to have a Material Adverse Effect.
(ii) Each Grantor shall be entitled to receive and retain, and to utilize free and clear of the Lien created pursuant to this Agreement, any and all Distributions, but only if and to the extent made in accordance with the provisions of the Credit Agreement; provided , however , that any and all such Distributions consisting of rights or interests in the form of securities shall be forthwith delivered to the Administrative Agent to hold as Collateral and shall, if received by any Grantor, be received in trust for the benefit of the Administrative Agent, be segregated from the other property or funds of such Grantor and be promptly (but in any event within five days after receipt thereof) delivered to the Administrative Agent as Collateral in the same form as so received (with any necessary endorsement), in each case in accordance with Section 3.1 or Section 3.2 , as applicable.
(b) So long as no Event of Default shall have occurred and be continuing and unless the Administrative Agent shall be deemed without further action or formality to have granted to each Grantor all necessary consents relating to voting rights and shall, if necessary, upon written request of any Grantor and at the sole cost and expense of the Grantors, from time to time execute and deliver (or cause to be executed and delivered) to such Grantor all such instruments as such Grantor may reasonably request in order to permit such Grantor to exercise the voting and other rights which it is entitled to exercise pursuant to Section 5.2(a)(i) hereof and to receive the Distributions which it is authorized to receive and retain pursuant to Section 5.2(a)(ii) hereof.
(c) Upon the occurrence and during the continuance of any Event of Default, and unless the Administrative Agent shall have notified the Grantors that the Grantors rights, in whole or in part, under this Section 5.2 are being suspended:
(i) All rights of each Grantor to exercise the voting and other consensual rights it would otherwise be entitled to exercise pursuant to Section 5.2(a)(i) hereof shall immediately cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall thereupon have the sole right to exercise such voting and other consensual rights.
(ii) All rights of each Grantor to receive Distributions which it would otherwise be authorized to receive and retain pursuant to Section 5.2(a)(ii) hereof shall immediately cease and all such rights shall thereupon become vested in the Administrative Agent, which shall thereupon have the sole right to receive and hold as Collateral such Distributions. Any and all money and other property paid over to or
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received by the Administrative Agent pursuant to the provisions of this paragraph (ii) shall be retained by the Administrative Agent in an account to be established by the Administrative Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 10.1 hereof. After all Events of Default have been cured or waived and the Borrower has delivered to the Administrative Agent a certificate to that effect, the Administrative Agent shall promptly repay to each Grantor (without interest) all dividends, interest, principal or other Distributions that such Grantor would otherwise be permitted to retain pursuant to the terms of Section 5.2(a)(ii) and that remain in such account.
(d) Each Grantor shall, at its sole cost and expense, from time to time execute and deliver to the Administrative Agent appropriate instruments as the Administrative Agent may reasonably request in order to permit the Administrative Agent to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 5.2(c)(i) hereof and to receive all Distributions which it may be entitled to receive under Section 5.2(c)(ii) hereof.
(e) All Distributions which are received by any Grantor contrary to the provisions of Section 5.2(a)(ii) hereof shall be received in trust for the benefit of the Administrative Agent, shall be segregated from other funds of such Grantor and shall immediately be paid over to the Administrative Agent as Collateral in the same form as so received (with any necessary endorsement).
SECTION 5.3. Defaults, etc . Each Grantor hereby represents and warrants that (i) such Grantor is not in default in the payment of any portion of any mandatory capital contribution, if any, required to be made under any agreement to which such Grantor is a party relating to the Pledged Securities pledged by it, and such Grantor is not in violation of any other provisions of any such agreement to which such Grantor is a party, or otherwise in default or violation thereunder, (ii) no Securities Collateral pledged by such Grantor is subject to any defense, offset or counterclaim, nor have any of the foregoing been asserted or alleged against such Grantor by any person with respect thereto, and (iii) as of the date hereof, there are no certificates, instruments, documents or other writings (other than the Organization Documents and certificates representing such Pledged Securities that have been delivered to the Administrative Agent) which evidence any Pledged Securities of such Grantor.
SECTION 5.4. Certain Agreements of Grantors As Issuers and Holders of Equity Interests .
(a) In the case of each Grantor which is an issuer of Securities Collateral, such Grantor agrees to be bound by the terms of this Agreement relating to the Securities Collateral issued by it and will comply with such terms insofar as such terms are applicable to it.
(b) In the case of each Grantor which is a partner, shareholder or member, as the case may be, in a partnership, limited liability company or other entity, such Grantor hereby consents to the extent required by the applicable Organization Document to the pledge by each other Grantor, pursuant to the terms hereof, of the Pledged Securities in such partnership, limited liability company or other entity and, upon the occurrence and during the continuance of an Event of Default, to the transfer of such Pledged Securities to the Administrative Agent or its
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nominee and to the substitution of the Administrative Agent or its nominee as a substituted partner, shareholder or member in such partnership, limited liability company or other entity with all the rights, powers and duties of a general partner, limited partner, shareholder or member, as the case may be.
ARTICLE VI
CERTAIN PROVISIONS CONCERNING INTELLECTUAL
PROPERTY COLLATERAL
SECTION 6.1. Grant of Intellectual Property License . For the purpose of enabling the Administrative Agent, during the continuance of an Event of Default, to exercise rights and remedies under Article IX hereof at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Grantor hereby grants to the Administrative Agent, to the extent permitted by law or contract, an irrevocable, non-exclusive license to use or sublicense any of the Intellectual Property Collateral now owned or hereafter acquired by such Grantor, wherever the same may be located. For the avoidance of doubt, the Administrative Agent may not exercise any of its rights under such license until an Event of Default has occurred and is continuing. Subject to the execution and delivery of an appropriate commercially reasonable secrecy agreement, to the extent permitted by law or contract, such license shall include access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout hereof.
SECTION 6.2. Protection of Administrative Agent s Security . On a continuing basis, each Grantor shall, at its sole cost and expense, (i) promptly following its becoming aware thereof, notify the Administrative Agent of any adverse determination in any proceeding (except in the case of prosecution of patent applications or applications for trademark registration) or the institution of any proceeding in any Federal, state or local court or administrative body or in the United States Patent and Trademark Office or the United States Copyright Office regarding any Material Intellectual Property Collateral, such Grantors right to secure the issuance of or to register such Material Intellectual Property Collateral or its right to keep and maintain such issued Material Intellectual Property Collateral in full force and effect, (ii) maintain all Material Intellectual Property Collateral as presently used and operated except as shall be consistent with such Grantors commercially reasonable business judgment, (iii) not permit to lapse or become abandoned any Material Intellectual Property Collateral, and not settle or compromise any pending or future litigation or administrative proceeding with respect to any such Material Intellectual Property Collateral, in either case except as shall be consistent with such Grantors commercially reasonable business judgment, (iv) upon such Grantor obtaining knowledge thereof, promptly notify the Administrative Agent in writing of any event which could be reasonably expected to materially and adversely affect the value or utility of any Material Intellectual Property Collateral or the rights and remedies of the Administrative Agent in relation thereto, including a levy or threat of levy or any legal process against any Material Intellectual Property Collateral, (v) not license any Material Intellectual Property Collateral other than licenses in, or incidental to, the ordinary course of business, or amend or permit the amendment of any such licenses in a manner that materially and adversely affects the right to receive payments thereunder, or in any manner that would materially impair the value of any
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Material Intellectual Property Collateral or the Lien on and security interest in the Material Intellectual Property Collateral created therein hereby, without the consent of the Administrative Agent, (vi) continue to keep adequate records respecting all Intellectual Property Collateral consistent with past practice and (vii) using the records described in clause (vi) above, furnish to the Administrative Agent from time to time upon the Administrative Agents reasonable request therefor reasonably detailed statements and amended schedules further identifying and describing the Intellectual Property Collateral and such other materials evidencing or reports pertaining to any Intellectual Property Collateral as the Administrative Agent may from time to time reasonably request.
SECTION 6.3. After-Acquired Intellectual Property Collateral . If any Grantor shall at any time after the date hereof obtain any rights to any additional Intellectual Property Collateral, including any renewal, extension, reissue, division, continuation or continuation-in-part of any Intellectual Property Collateral, or any improvement on any Intellectual Property Collateral, or if any intent-to use trademark application is no longer subject to clause (e) of the definition of Excluded Property, the provisions hereof shall automatically apply thereto and any such item enumerated in the preceding clause shall automatically constitute Intellectual Property Collateral as if such would have constituted Intellectual Property Collateral at the time of execution hereof and be subject to the Lien and security interest created by this Agreement without further action by any party. Each Grantor shall promptly (but in any event within thirty days after receipt thereof by such Grantor) provide to the Administrative Agent written notice of any of the foregoing and confirm the attachment of the Lien and security interest created by this Agreement to any rights described above by execution of an instrument in form reasonably acceptable to the Administrative Agent and the filing of any instruments or statements as shall be reasonably necessary to create, preserve, protect or perfect the Administrative Agents security interest in such Intellectual Property Collateral to the extent required hereunder. Further, each Grantor, subject to the review of such Grantor, authorizes the Administrative Agent to modify this Agreement by amending Schedules 11(a) and 11(b) to the Perfection Certificate to include any Intellectual Property Collateral of such Grantor acquired or arising after the date hereof.
SECTION 6.4. Litigation .
(a) Unless there shall occur and be continuing any Event of Default, each Grantor shall have the right to commence and prosecute in its own name, as the party in interest, for its own benefit and at the sole cost and expense of the Grantors, such applications for protection of the Intellectual Property Collateral and suits, proceedings or other actions to prevent the infringement, counterfeiting, unfair competition, dilution, diminution in value or other damage as are necessary to protect the Intellectual Property Collateral.
(b) Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent shall have the right but shall in no way be obligated to file applications for protection of the Intellectual Property Collateral and/or bring suit in the name of any Grantor, the Administrative Agent or the Secured Parties to enforce the Intellectual Property Collateral and any license thereunder. In the event of such suit, each Grantor shall, at the reasonable request of the Administrative Agent, execute any and all documents reasonably requested by the Administrative Agent in aid of such enforcement and the Grantors shall promptly reimburse and
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indemnify the Administrative Agent for all reasonable and invoiced costs and expenses incurred by the Administrative Agent in the exercise of its rights under this Section 6.4 in accordance with Section 10.04 of the Credit Agreement.
ARTICLE VII
CERTAIN PROVISIONS CONCERNING RECEIVABLES
SECTION 7.1. Maintenance of Records . Each Grantor shall keep and maintain at its own cost and expense complete records of each Receivable, in a manner consistent with prudent business practice, including records of all payments received, all credits granted thereon, all merchandise returned and all other documentation relating thereto. Each Grantor shall, at such Grantors sole cost and expense, upon the Administrative Agents demand made at any time after the occurrence and during the continuance of any Event of Default, deliver all tangible evidence of Receivables, including all documents evidencing Receivables and any books and records relating thereto to the Administrative Agent or to its representatives (copies of which evidence and books and records may be retained by such Grantor). Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent may transfer a full and complete copy of any Grantors books, records, credit information, reports, memoranda and all other writings relating to the Receivables to and for the use by any person that has acquired or is contemplating acquisition of an interest in such Receivables or the Administrative Agents security interest therein without the consent of any Grantor.
SECTION 7.2. Legend . Each Grantor shall legend, at the reasonable request of the Administrative Agent after the occurrence and during the continuance of an Event of Default, and in form and manner satisfactory to the Administrative Agent, the Receivables and the other books, records and documents of such Grantor evidencing or pertaining to the Receivables with an appropriate reference to the fact that such Receivables have been assigned to the Administrative Agent for the benefit of the Secured Parties and that the Administrative Agent has a security interest therein.
SECTION 7.3. Modification of Terms, etc . No Grantor shall rescind or cancel any obligations evidenced by any Receivable or modify any term thereof or make any adjustment with respect thereto except in the ordinary course of business consistent with prudent business practice or as reasonably deemed in such Grantors best interest, or extend or renew any such obligations except in the ordinary course of business consistent with prudent business practice or as reasonably deemed in such Grantors best interest or compromise or settle any dispute, claim, suit or legal proceeding relating thereto or sell any Receivable or interest therein except in the ordinary course of business consistent with prudent business practice or as reasonably deemed in such Grantors best interest or otherwise as permitted under Section 7.05(i) of the Credit Agreement without the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed).
SECTION 7.4. [Reserved .]
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ARTICLE VIII
TRANSFERS
SECTION 8.1. Transfers of Collateral . No Grantor shall sell, convey, assign or otherwise dispose of, or grant any option with respect to, any of the Collateral pledged by it or in which it has granted a security interest hereunder except as permitted by the Credit Agreement.
ARTICLE IX
REMEDIES
SECTION 9.1. Remedies . Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent may from time to time exercise in respect of the Collateral, in accordance with applicable law and in addition to the other rights and remedies provided for herein or otherwise available to it, the following remedies:
(i) Personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from any Grantor or any other person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon any Grantors premises where any of the Collateral is located, remove such Collateral, remain present at such premises to receive copies of all communications and remittances relating to the Collateral and use in connection with such removal and possession any and all services, supplies, aids and other facilities of any Grantor;
(ii) Demand, sue for, collect or receive any money or property at any time payable or receivable in respect of the Collateral, including instructing the obligor or obligors on any agreement, instrument or other obligation constituting part of the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Administrative Agent, and in connection with any of the foregoing, compromise, settle, extend the time for payment and make other modifications with respect thereto; provided , however , that in the event that any such payments are made directly to any Grantor, prior to receipt by any such obligor of such instruction, such Grantor shall segregate all amounts received pursuant thereto in trust for the benefit of the Administrative Agent and shall promptly (but in no event later than one (1) Business Day after receipt thereof) pay such amounts to the Administrative Agent;
(iii) Sell, assign, grant a license to use or otherwise liquidate, or direct any Grantor to sell, assign, grant a license to use or otherwise liquidate, any and all investments made in whole or in part with the Collateral or any part thereof, and take possession of the proceeds of any such sale, assignment, license or liquidation;
(iv) Take possession of the Collateral or any part thereof, by directing any Grantor in writing to deliver the same to the Administrative Agent at any place or places so designated by the Administrative Agent, in which event such Grantor shall at its own
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expense: (A) forthwith cause the same to be moved to the place or places designated by the Administrative Agent and therewith delivered to the Administrative Agent, (B) store and keep any Collateral so delivered to the Administrative Agent at such place or places pending further action by the Administrative Agent and (C) while the Collateral shall be so stored and kept, provide such security and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition. Each Grantors obligation to deliver the Collateral as contemplated in this Section 9.1(iv) is of the essence hereof. Upon application to a court of equity having jurisdiction, the Administrative Agent shall be entitled to a decree requiring specific performance by any Grantor of such obligation;
(v) Withdraw all moneys, instruments, securities and other property in any bank, financial securities, deposit or other account of any Grantor constituting Collateral for application to the Obligations as provided in Article X hereof;
(vi) Retain and apply the Distributions to the Obligations as provided in Article X hereof;
(vii) Exercise any and all rights as beneficial and legal owner of the Collateral, including perfecting assignment of and exercising any and all voting, consensual and other rights and powers with respect to any Collateral; and
(viii) Exercise all the rights and remedies of a secured party on default under the UCC, and the Administrative Agent may also in its sole discretion, without notice except as specified in Section 9.2 hereof, sell, assign or grant a license to use the Collateral or any part thereof in one or more parcels at a public or private sale, at any exchange, brokers board or at any of the Administrative Agents offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Administrative Agent may deem commercially reasonable. The Administrative Agent or any other Secured Party or any of their respective Affiliates may be the purchaser, licensee, assignee or recipient of the Collateral or any part thereof at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold, assigned or licensed at such sale, to use and apply any of the Obligations owed to such person as a credit on account of the purchase price of the Collateral or any part thereof payable by such person at such sale. Each purchaser, assignee, licensee or recipient at any such sale shall acquire the property sold, assigned or licensed absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives, to the fullest extent permitted by law, all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Administrative Agent shall not be obligated to make any sale of the Collateral or any part thereof regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor hereby waives, to the fullest extent permitted by law, any claims against the Administrative Agent arising by reason of the fact that the price at which the Collateral or any part thereof may have been sold,
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assigned or licensed at such a private sale was less than the price which might have been obtained at a public sale, even if the Administrative Agent accepts the first offer received and does not offer such Collateral to more than one offeree.
SECTION 9.2. Notice of Sale . Each Grantor acknowledges and agrees that, to the extent notice of sale or other disposition of the Collateral or any part thereof shall be required by law, ten (10) days prior notice to such Grantor of the time and place of any public sale or of the time after which any private sale or other intended disposition is to take place shall be commercially reasonable notification of such matters. No notification need be given to any Grantor if it has signed, after the occurrence of an Event of Default, a statement renouncing or modifying any right to notification of sale or other intended disposition.
SECTION 9.3. Waiver of Notice and Claims . Each Grantor hereby waives, to the fullest extent permitted by applicable law, notice or judicial hearing in connection with the Administrative Agents taking possession or the Administrative Agents disposition of the Collateral or any part thereof, including any and all prior notice and hearing for any pre-judgment remedy or remedies and any such right which such Grantor would otherwise have under law, and each Grantor hereby further waives, to the fullest extent permitted by applicable law: (i) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Administrative Agents rights hereunder and (ii) all rights of redemption, appraisal, valuation, stay, extension or moratorium now or hereafter in force under any applicable law. The Administrative Agent shall not be liable for any incorrect or improper payment made pursuant to this Article IX in the absence of gross negligence or willful misconduct on the part of the Administrative Agent. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the applicable Grantor therein and thereto, and shall be a perpetual bar both at law and in equity against such Grantor and against any and all persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through or under such Grantor.
SECTION 9.4. Certain Sales of Collateral .
(a) Each Grantor recognizes that, by reason of certain prohibitions contained in law, rules, regulations or orders of any Governmental Authority, the Administrative Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who meet the requirements of such Governmental Authority. Each Grantor acknowledges that any such sales may be at prices and on terms less favorable to the Administrative Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such restricted sale shall be deemed to have been made in a commercially reasonable manner and that, except as may be required by applicable law, the Administrative Agent shall have no obligation to engage in public sales.
(b) Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act, and applicable state securities laws, the Administrative Agent may be compelled, with respect to any sale of all or any part of the Securities Collateral and Investment Property, to limit purchasers to persons who will agree, among other things, to acquire such Securities Collateral or Investment Property for their own account, for investment and not with a
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view to the distribution or resale thereof. Each Grantor acknowledges that any such private sales may be at prices and on terms less favorable to the Administrative Agent than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act), and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Administrative Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Securities Collateral or Investment Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would agree to do so.
(c) Notwithstanding the foregoing, each Grantor shall, upon the occurrence and during the continuance of any Event of Default, at the reasonable request of the Administrative Agent, for the benefit of the Administrative Agent, cause any registration, qualification under or compliance with any Federal or state securities law or laws to be effected with respect to all or any part of the Securities Collateral as soon as practicable and at the sole cost and expense of the Grantors. Each Grantor will use its commercially reasonable efforts to cause such registration to be effected (and be kept effective) and will use its commercially reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Securities Collateral, including registration under the Securities Act (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with all other requirements of any Governmental Authority. Each Grantor shall use its commercially reasonable efforts to cause the Administrative Agent to be kept advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, shall furnish to the Administrative Agent such number of prospectuses, offering circulars or other documents incident thereto as the Administrative Agent from time to time may request, and shall indemnify and shall cause the issuer of the Securities Collateral to indemnify the Administrative Agent and all others participating in the distribution of such Securities Collateral against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading.
(d) If the Administrative Agent determines to exercise its right to sell any or all of the Securities Collateral or Investment Property, upon written request, the applicable Grantor shall from time to time furnish to the Administrative Agent all such information as the Administrative Agent may reasonably request in order to determine the number of securities included in the Securities Collateral or Investment Property which may be sold by the Administrative Agent as exempt transactions under the Securities Act and the rules of the SEC thereunder, as the same are from time to time in effect.
(e) Each Grantor further agrees that a breach of any of the covenants contained in this Section 9.4 will cause irreparable injury to the Administrative Agent and the other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every
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covenant contained in this Section 9.4 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing.
SECTION 9.5. No Waiver; Cumulative Remedies .
(a) No failure on the part of the Administrative Agent to exercise, no course of dealing with respect to, and no delay on the part of the Administrative Agent in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, privilege or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy; nor shall the Administrative Agent be required to look first to, enforce or exhaust any other security, collateral or guaranties. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law or otherwise available.
(b) In the event that the Administrative Agent shall have instituted any proceeding to enforce any right, power, privilege or remedy under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Administrative Agent, then and in every such case, the Grantors, the Administrative Agent and each other Secured Party shall be restored to their respective former positions and rights hereunder with respect to the Collateral, and all rights, remedies, privileges and powers of the Administrative Agent and the other Secured Parties shall continue as if no such proceeding had been instituted.
SECTION 9.6. Certain Additional Actions Regarding Intellectual Property . If any Event of Default shall have occurred and be continuing, upon the written demand of the Administrative Agent, each Grantor shall execute and deliver to the Administrative Agent an assignment or assignments of the registered Patents, Trademarks and/or Copyrights and Goodwill and such other documents as are necessary or appropriate to carry out the intent and purposes hereof. Within five (5) Business Days of written notice thereafter from the Administrative Agent, each Grantor shall make available to the Administrative Agent, to the extent within such Grantors power and authority, such personnel in such Grantors employ on the date of the Event of Default as the Administrative Agent may reasonably designate to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold by such Grantor under the registered Patents, Trademarks and/or Copyrights, and such persons shall be available to perform their prior functions on the Administrative Agents behalf.
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ARTICLE X
APPLICATION OF PROCEEDS
SECTION 10.1. Application of Proceeds .
(a) The proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral or the Mortgaged Property to be applied pursuant to the exercise by the Administrative Agent of its remedies, shall be applied together with any other sums then held by the Administrative Agent pursuant to this Agreement, as set forth in Section 8.03 of the Credit Agreement.
(b) If, despite the provisions of this Agreement, any Secured Party shall receive any payment or other recovery in excess of its portion of payments on account of the Obligations to which it is then entitled in accordance with this Agreement, such Secured Party shall hold such payment or other recovery in trust for the benefit of all Secured Parties hereunder for distribution in accordance with this Section 10.1 .
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Concerning Administrative Agent .
(a) The Administrative Agent has been appointed as Administrative Agent pursuant to the Credit Agreement. The actions of the Administrative Agent hereunder are subject to the provisions of the Credit Agreement. The Administrative Agent shall have the right hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including the release or substitution of the Collateral and Mortgaged Property), in accordance with this Agreement and the Credit Agreement. The Administrative Agent may employ agents and attorneys-in-fact in connection herewith and shall not be liable for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Administrative Agent may resign and a successor Administrative Agent may be appointed in the manner provided in the Credit Agreement. Upon the acceptance of any appointment as the Administrative Agent by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent under this Agreement, and the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agents resignation, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Administrative Agent.
(b) The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if such Collateral and Mortgaged Property is accorded treatment substantially equivalent to that which the Administrative Agent, in its individual capacity, accords its own property consisting of similar instruments or interests, it being understood that neither the Administrative Agent nor any of the Secured Parties shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Securities Collateral, whether or not the Administrative Agent or any other Secured Party has or is deemed to have knowledge of such matters or (ii) taking any necessary steps to preserve rights against any person with respect to any Collateral.
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(c) The Administrative Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person, and, with respect to all matters pertaining to this Agreement and its duties hereunder, upon advice of counsel selected by it.
(d) If any item of Collateral and Mortgaged Property also constitutes collateral granted to the Administrative Agent under any other security agreement, pledge, deed of trust, mortgage or instrument of any type, in the event of any conflict between the provisions hereof and the provisions of such other security agreement, pledge, deed of trust, mortgage or instrument of any type in respect of such collateral, the Administrative Agent, in its sole discretion, shall select which provision or provisions shall control.
(e) The Administrative Agent may rely on advice of counsel as to whether any or all UCC financing statements of the Grantors need to be amended as a result of any of the changes described in Section 4.10 hereof. If any Grantor fails to provide information to the Administrative Agent about such changes on a timely basis, the Administrative Agent shall not be liable or responsible to any party for any failure to maintain a perfected security interest in such Grantors property constituting Collateral, for which the Administrative Agent needed to have information relating to such changes. The Administrative Agent shall have no duty to inquire about such changes if any Grantor does not inform the Administrative Agent of such changes, the parties acknowledging and agreeing that it would not be feasible or practical for the Administrative Agent to search for information on such changes if such information is not provided by any Grantor.
SECTION 11.2. Administrative Agent May Perform; Administrative Agent Appointed Attorney-in-Fact . If any Grantor shall fail to perform any covenants contained in this Agreement (including such Grantors covenants to (i) pay the premiums in respect of all required insurance policies under the Credit Agreement, (ii) pay and discharge any taxes, assessments and special assessments, levies, fees and governmental charges imposed upon or assessed against, and landlords, carriers, mechanics, workmens, repairmens, laborers, materialmens, suppliers and warehousemens Liens and other claims arising by operation of law against, all or any portion of the Collateral or the Mortgaged Property, (iii) make repairs, (iv) discharge Liens or (v) pay or perform any obligations of such Grantor under any Collateral or any Mortgaged Property) or if any representation or warranty on the part of any Grantor contained herein shall be breached, the Administrative Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend funds for such purpose; provided , however , that the Administrative Agent shall in no event be bound to inquire into the validity of any tax, Lien, imposition or other obligation which such Grantor fails to pay or perform as and when required hereby and which such Grantor does not contest in accordance with the provisions of the Credit Agreement. Any and all amounts so expended by the Administrative Agent shall be paid by the Grantors in accordance with the provisions of Section 10.04 of the Credit Agreement. Neither the provisions of this Section 11.2 nor any action taken by the Administrative Agent pursuant to the provisions of this Section 11.2 shall prevent any such failure to observe any covenant contained in this Agreement or any breach of any representation or warranty contained in this Agreement from constituting an Event of Default. Each Grantor hereby appoints the Administrative Agent its attorney-in-fact, with full power and authority in
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the place and stead of such Grantor and in the name of such Grantor, or otherwise, from time to time in the Administrative Agents discretion to take any action and to execute any instrument consistent with the terms of the Credit Agreement, this Agreement and the other Collateral Documents which the Administrative Agent may deem necessary or advisable to accomplish the purposes hereof (but the Administrative Agent shall not be obligated to and shall have no liability to such Grantor or any third party for failure to so do or take action). The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term hereof. Each Grantor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof.
SECTION 11.3. Continuing Security Interest; Assignment . This Agreement shall create a continuing security interest in the Collateral and shall (i) be binding upon the Grantors, their respective successors and assigns and (ii) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and the other Secured Parties and each of their respective successors, transferees and assigns. No other persons (including any other creditor of any Grantor) shall have any interest herein or any right or benefit with respect hereto. Without limiting the generality of the foregoing clause (ii), any Secured Party may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party, herein or otherwise, subject, however, to the provisions of the Credit Agreement and, in the case of a Secured Party that is a party to a Secured Hedge Agreement, a Secured Foreign Line of Credit Agreement, a Secured Franchisee Loan Facility Guaranty or a Secured Cash Management Agreement, such Secured Hedge Agreement, Secured Foreign Line of Credit Agreement, Secured Franchisee Loan Facility Guaranty or Secured Cash Management Agreement, as applicable. Each of the Grantors agrees that its obligations hereunder and the security interest created hereunder shall continue to be effective or be reinstated, as applicable, if at any time payment, or any part thereof, of all or any part of the Obligations is rescinded or must otherwise be restored by the Secured Party upon the bankruptcy or reorganization of any Grantor or otherwise.
SECTION 11.4. Termination; Release . When all the Credit Agreement Obligations (other than (A) contingent indemnification obligations not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) have been paid in full and the Commitments of the Lenders to make any Loan or to issue any Letter of Credit under the Credit Agreement shall have expired or been sooner terminated and all Letters of Credit have been terminated (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the applicable L/C Issuers shall have been made), this Agreement shall terminate. Upon termination of this Agreement, the Collateral and the Mortgaged Property shall be released from the Lien of this Agreement. Upon such release or any release of Collateral or the Mortgaged Property or any part thereof in accordance with the provisions of the Credit Agreement, the Administrative Agent shall, upon the request and at the sole cost and expense of the Grantors, assign, transfer and deliver to the Grantors, against receipt and without recourse to or warranty by the Administrative Agent except as to the fact that the Administrative Agent has not encumbered the released assets, such of the Collateral or the Mortgaged Property or any part thereof to be released (in the case of a release) as may be in possession of the Administrative Agent and as shall not have been sold or
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otherwise applied pursuant to the terms hereof, and, with respect to any other Collateral or Mortgaged Property, proper documents and instruments (including UCC-3 termination financing statements or releases) acknowledging the termination hereof or the release of such Collateral or Mortgaged Property, as the case may be. The Administrative Agent is hereby expressly authorized to, and agrees upon request of the Borrower that it will, release or, in the case of Section 9.10(e) of the Credit Agreement, subordinate any Collateral or Mortgaged Property and Collateral Documents in accordance with Sections 6.15 , 6.17(e) and 9.10 of the Credit Agreement.
SECTION 11.5. Modification in Writing . No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by any Grantor therefrom, shall be effective unless the same shall be made in accordance with the terms of the Credit Agreement and unless in writing and signed by the Grantors and the Administrative Agent. Any amendment, modification or supplement of or to any provision hereof, any waiver of any provision hereof and any consent to any departure by any Grantor from the terms of any provision hereof in each case shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement or any other document evidencing the Obligations, no notice to or demand on any Grantor in any case shall entitle any Grantor to any other or further notice or demand in similar or other circumstances.
SECTION 11.6. Notices . Unless otherwise provided herein or in the Credit Agreement, any notice or other communication herein required or permitted to be given shall be given in the manner and become effective as set forth in the Credit Agreement, as to any Grantor, addressed to it at the address of the Borrower set forth in the Credit Agreement and as to the Administrative Agent, addressed to it at the address set forth in the Credit Agreement, or in each case at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 11.6 .
SECTION 11.7. Governing Law, Consent to Jurisdiction and Service of Process; Waiver of Jury Trial . Sections 10.14 and 10.15 of the Credit Agreement are incorporated herein, mutatis mutandis, as if a part hereof.
SECTION 11.8. Severability of Provisions . Any provision hereof which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof or affecting the validity, legality or enforceability of such provision in any other jurisdiction.
SECTION 11.9. Execution in Counterparts . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement. Delivery by telecopier or by electronic pdf copy of an executed counterpart of a signature page to this Agreement and each other Collateral Document shall be effective as delivery of an original executed counterpart of this Agreement or Collateral Document.
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SECTION 11.10. Business Days . In the event any time period or any date provided in this Agreement ends or falls on a day other than a Business Day, then such time period shall be deemed to end and such date shall be deemed to fall on the next succeeding Business Day, and performance herein may be made on such Business Day, with the same force and effect as if made on such other day.
SECTION 11.11. No Credit for Payment of Taxes or Imposition . No Grantor shall be entitled to any credit against the principal, premium, if any, or interest payable under the Credit Agreement, and no Grantor shall be entitled to any credit against any other sums which may become payable under the terms thereof or hereof, by reason of the payment of any Tax on the Collateral or any part thereof.
SECTION 11.12. No Claims Against Administrative Agent . Nothing contained in this Agreement shall constitute any consent or request by the Administrative Agent, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Collateral or any part thereof, nor as giving any Grantor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Administrative Agent in respect thereof or any claim that any Lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the Lien hereof.
SECTION 11.13. No Release . Nothing set forth in this Agreement or any other Loan Document, nor the exercise by the Administrative Agent of any of the rights or remedies hereunder, shall relieve any Grantor from the performance of any term, covenant, condition or agreement on such Grantors part to be performed or observed under or in respect of any of the Collateral or from any liability to any person under or in respect of any of the Collateral or shall impose any obligation on the Administrative Agent or any other Secured Party to perform or observe any such term, covenant, condition or agreement on such Grantors part to be so performed or observed or shall impose any liability on the Administrative Agent or any other Secured Party for any act or omission on the part of such Grantor relating thereto or for any breach of any representation or warranty on the part of such Grantor contained in this Agreement, the Credit Agreement or the other Loan Documents, or under or in respect of the Collateral or made in connection herewith or therewith. Anything herein to the contrary notwithstanding, neither the Administrative Agent nor any other Secured Party shall have any obligation or liability under any contracts, agreements and other documents included in the Collateral by reason of this Agreement, nor shall the Administrative Agent or any other Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any such contract, agreement or other document included in the Collateral hereunder.
SECTION 11.14. [Reserved].
SECTION 11.15. Obligations Absolute . All obligations of each Grantor hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of any other Grantor;
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(ii) any lack of validity or enforceability of the Credit Agreement, any Secured Hedge Agreement, any Secured Foreign Line of Credit Agreement, any Secured Franchisee Loan Facility Guaranty, any Secured Cash Management Agreement or any other Loan Document, or any other agreement or instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any Secured Hedge Agreement, any Secured Foreign Line of Credit Agreement, any Secured Franchisee Loan Facility Guaranty, any Secured Cash Management Agreement or any other Loan Document or any other agreement or instrument relating thereto;
(iv) any pledge, exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Obligations;
(v) any exercise, non-exercise or waiver of any right, remedy, power or privilege under or in respect hereof, the Credit Agreement, any Secured Hedge Agreement, any Secured Foreign Line of Credit Agreement, any Secured Franchisee Loan Facility Guaranty, any Secured Cash Management Agreement or any other Loan Document except as specifically set forth in a waiver granted pursuant to the provisions of Section 11.5 hereof; or
(vi) any other circumstances which might otherwise constitute a defense available to, or a discharge of, any Grantor.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, each Grantor and the Administrative Agent have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first above written.
VALVOLINE FINCO ONE LLC,
as the Initial Borrower and Grantor |
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By: |
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Name: | ||||||
Title: | ||||||
VALVOLINE INC.
as the Borrower and Grantor |
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By: |
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Name: | ||||||
Title: | ||||||
[NAME OF GRANTOR],
as Grantor |
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By: |
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Name: | ||||||
Title: |
[ Valvoline - Signature Page to Security Agreement ]
THE BANK OF NOVA SCOTIA,
as Administrative Agent |
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By: |
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Name: | ||||||
Title: |
[ Valvoline - Signature Page to Security Agreement ]
EXHIBIT 1
[Form of]
ISSUERS ACKNOWLEDGMENT
The undersigned hereby (i) acknowledges receipt of the Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ; capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement), dated as of [●], made by VALVOLINE FINCO ONE LLC., a Delaware limited liability company (the Initial Borrower ), VALVOLINE INC., a Kentucky corporation, as after consummation of the Newco Merger (as defined in the Credit Agreement) and its assumption of the obligations of the Initial Borrower thereunder (the Borrower ), the Guarantors party thereto and THE BANK OF NOVA SCOTIA, as administrative agent (in such capacity and together with any successors in such capacity, the Administrative Agent ), (ii) agrees promptly to note on its books the security interests granted to the Administrative Agent and confirmed under the Security Agreement, (iii) agrees that it will comply with instructions of the Administrative Agent consistent with the Security Agreement with respect to the applicable Securities Collateral (including all Equity Interests of the undersigned) without further consent by the applicable Grantor, (iv) agrees to notify the Administrative Agent upon obtaining knowledge of any interest in favor of any person in the applicable Securities Collateral that is adverse to the interest of the Administrative Agent therein and (v) waives any right or requirement at any time hereafter to receive a copy of the Security Agreement in connection with the registration of any Securities Collateral thereunder in the name of the Administrative Agent or its nominee or the exercise of voting rights by the Administrative Agent or its nominee.
[ ] | ||||
By: |
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Name: | ||||
Title: |
Ex. 1-1
EXHIBIT 2
[Form of]
SECURITIES PLEDGE AMENDMENT
This Securities Pledge Amendment, dated as of [●], is delivered pursuant to Section 5.1 of the Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ; capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement), dated as of [●], made by VALVOLINE FINCO ONE LLC., a Delaware limited liability company (the Initial Borrower ), VALVOLINE INC., a Kentucky corporation, as after consummation of the Newco Merger (as defined in the Credit Agreement) and its assumption of the obligations of the Initial Borrower thereunder, the Borrower, the Guarantors party thereto and THE BANK OF NOVA SCOTIA, as administrative agent. The undersigned hereby agrees that this Securities Pledge Amendment may be attached to the Security Agreement and that the Pledged Securities and/or Intercompany Notes listed on this Securities Pledge Amendment shall be deemed to be and shall become part of the Collateral and shall secure all Obligations.
PLEDGED SECURITIES
ISSUER |
CLASS
OF STOCK OR INTERESTS |
PAR
VALUE |
CERTIFICATE
NO(S). |
NUMBER
OF SHARES OR INTERESTS |
PERCENTAGE OF
ALL ISSUED CAPITAL OR OTHER EQUITY INTERESTS OF ISSUER |
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Ex. 2-1
INTERCOMPANY NOTES
ISSUER |
PRINCIPAL
AMOUNT |
DATE OF
ISSUANCE |
INTEREST
RATE |
MATURITY
DATE |
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[ ], | ||||
as Grantor | ||||
By: |
|
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Name: | ||||
Title: |
AGREED TO AND ACCEPTED:
THE BANK OF NOVA SCOTIA, | ||||
as Administrative Agent | ||||
By: | ||||
Name: | ||||
Title: |
Ex. 2-2
EXHIBIT 3
[Form of]
JOINDER AGREEMENT
[Name of New Grantor]
[Address of New Grantor]
[Date] |
|
|
|
|
Ladies and Gentlemen:
Reference is made to the Security Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ; capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement), dated as of [●], made by VALVOLINE FINCO ONE LLC., a Delaware limited liability company (the Initial Borrower ), VALVOLINE INC., a Kentucky corporation, as after consummation of the Newco Merger (as defined in the Credit Agreement) and its assumption of the obligations of the Initial Borrower thereunder (the Borrower ), the Guarantors party thereto and THE BANK OF NOVA SCOTIA, as administrative agent (in such capacity and together with any successors in such capacity, the Administrative Agent ).
This Joinder Agreement supplements the Security Agreement and is delivered by the undersigned, [●] (the New Grantor ), pursuant to Section 3.5 of the Security Agreement. The New Grantor hereby agrees to be bound as a Guarantor and as a Grantor party to the Security Agreement by all of the terms, covenants and conditions set forth in the Security Agreement to the same extent that it would have been bound if it had been a signatory to the Security Agreement on the date of the Security Agreement. Without limiting the generality of the foregoing, the New Grantor hereby grants and pledges to the Administrative Agent, as collateral security for the full, prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, a Lien on and security interest in, all of its right, title and interest in, to and under the Collateral and expressly assumes all obligations and liabilities of a Guarantor and Grantor thereunder. The New Grantor hereby makes each of the representations and warranties contained in the Security Agreement as of the date hereof solely as to such New Grantor and its Collateral; provided that any such representation or warranty that (a) relates to an earlier date shall be deemed to be made as of the date hereof or (b) refers to a schedule to the Security Agreement shall be deemed to refer to such schedules as supplemented by the schedules attached hereto. The New Grantor hereby further agrees to each of the covenants applicable to the Grantors contained in the Security Agreement.
Ex. 3-1
Annexed hereto are supplements to each of the schedules to the Security Agreement with respect to the New Grantor. Such supplements shall be deemed to be part of the Security Agreement.
This Joinder Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.
THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the New Grantor has caused this Joinder Agreement to be executed and delivered by its duly authorized officer as of the date first above written.
Ex. 3-2
[NEW GRANTOR] | ||||
By: |
|
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Name: | ||||
Title: |
AGREED TO AND ACCEPTED:
THE BANK OF NOVA SCOTIA, as Administrative Agent |
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By: |
|
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Name: | ||||
Title: |
[Schedules to be attached]
Ex. 3-3
EXHIBIT 4
[Form of]
Copyright Security Agreement
Copyright Security Agreement , dated as of [ ], by [ ] and [ ] (individually, a Grantor , and, collectively, the Grantors ), in favor of THE BANK OF NOVA SCOTIA, in its capacity as Administrative Agent pursuant to the Credit Agreement (in such capacity, the Administrative Agent ).
W I T N E S S E T H :
WHEREAS, the Grantors are party to a Security Agreement of even date herewith (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Copyright Security Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows:
SECTION 1. Defined Terms . Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement.
SECTION 2. Grant of Security Interest in Copyright Collateral . Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral of such Grantor:
(a) Copyrights of such Grantor listed on Schedule I 1 attached hereto; and
(b) all Proceeds of any and all of the foregoing (other than Excluded Property).
SECTION 3. Security Agreement . The security interest granted pursuant to this Copyright Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Copyrights made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. In the event that any provision of this Copyright Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent and the Grantors shall otherwise agree.
1 | Should include same Copyrights listed on Schedule 11(b) of the Perfection Certificate. |
Ex. 4-1
SECTION 4. Termination . Without limiting Section 11.4 of the Security Agreement, upon the payment in full of the Obligations and termination of the Security Agreement, the Administrative Agent shall execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the collateral pledge, grant, assignment, lien and security interest in the Copyrights under this Copyright Security Agreement.
SECTION 5. Counterparts . This Copyright Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Copyright Security Agreement by signing and delivering one or more counterparts. Delivery by telecopier or by electronic pdf copy of an executed counterpart of a signature page to this Copyright Security Agreement shall be effective as delivery of an original executed counterpart of this Copyright Security Agreement.
SECTION 6. Governing Law . This Copyright Security Agreement and the transactions contemplated hereby, and all disputes between the parties under or relating to this Copyright Security Agreement or the facts or circumstances leading to its execution, whether in contract, tort or otherwise, shall be construed in accordance with and governed by the laws (including statutes of limitation) of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.
[signature page follows]
Ex. 4-2
IN WITNESS WHEREOF, each Grantor has caused this Copyright Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
Very truly yours, | ||||
[GRANTORS] | ||||
By: |
|
|||
Name: | ||||
Title: |
Accepted and Agreed:
THE BANK OF NOVA SCOTIA, | ||||
as Administrative Agent | ||||
By: |
|
|||
Name: | ||||
Title: |
Ex. 4-3
SCHEDULE I
to
COPYRIGHT SECURITY AGREEMENT
COPYRIGHT REGISTRATIONS AND COPYRIGHT APPLICATIONS
Copyright Registrations:
OWNER |
REGISTRATION NUMBER |
TITLE |
||
Copyright Applications:
OWNER |
TITLE |
|||
Ex. 4-4
EXHIBIT 5
[Form of]
Patent Security Agreement
Patent Security Agreement , dated as of [ ], by [ ] and [ ] (individually, a Grantor , and, collectively, the Grantors ), in favor of THE BANK OF NOVA SCOTIA, in its capacity as Administrative Agent pursuant to the Credit Agreement (in such capacity, the Administrative Agent ).
W I T N E S S E T H :
WHEREAS, the Grantors are party to a Security Agreement of even date herewith (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Patent Security Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows:
SECTION 1. Defined Terms . Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement.
SECTION 2. Grant of Security Interest in Patent Collateral . Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral of such Grantor:
(a) Patents of such Grantor listed on Schedule I 1 attached hereto; and
(b) all Proceeds of any and all of the foregoing (other than Excluded Property).
SECTION 3. Security Agreement . The security interest granted pursuant to this Patent Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Patents made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. In the event that any provision of this Patent Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent and the Grantors shall otherwise agree.
1 | Should include same Patents listed on Schedule 11(a) of the Perfection Certificate. |
Ex. 5-1
SECTION 4. Termination . Without limiting Section 11.4 of the Security Agreement, upon the payment in full of the Obligations and termination of the Security Agreement, the Administrative Agent shall execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the collateral pledge, grant, assignment, lien and security interest in the Patents under this Patent Security Agreement.
SECTION 5. Counterparts . This Patent Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Patent Security Agreement by signing and delivering one or more counterparts. Delivery by telecopier or by electronic pdf copy of an executed counterpart of a signature page to this Patent Security Agreement shall be effective as delivery of an original executed counterpart of this Patent Security Agreement.
SECTION 6. Governing Law . This Patent Security Agreement and the transactions contemplated hereby, and all disputes between the parties under or relating to this Patent Security Agreement or the facts or circumstances leading to its execution, whether in contract, tort or otherwise, shall be construed in accordance with and governed by the laws (including statutes of limitation) of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.
[signature page follows]
Ex. 5-2
IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
Very truly yours,
[GRANTORS] |
||||
By: |
|
|||
Name: | ||||
Title: |
Accepted and Agreed:
THE BANK OF NOVA SCOTIA, as Administrative Agent |
||||
By: |
|
|||
Name: | ||||
Title: |
Ex. 5-3
SCHEDULE I
to
PATENT SECURITY AGREEMENT
PATENT REGISTRATIONS AND PATENT APPLICATIONS
Patent Registrations:
OWNER |
REGISTRATION NUMBER |
NAME |
||
Patent Applications:
OWNER |
APPLICATION NUMBER |
NAME |
||
Ex. 5-4
EXHIBIT 6
[Form of]
Trademark Security Agreement
Trademark Security Agreement , dated as of [ ], by [ ] and [ ] (individually, a Grantor , and, collectively, the Grantors ), in favor of THE BANK OF NOVA SCOTIA, in its capacity as Administrative Agent pursuant to the Credit Agreement (in such capacity, the Administrative Agent ).
W I T N E S S E T H :
WHEREAS, the Grantors are party to a Security Agreement of even date herewith (as amended, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement ) in favor of the Administrative Agent pursuant to which the Grantors are required to execute and deliver this Trademark Security Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent, for the benefit of the Secured Parties, to enter into the Credit Agreement, the Grantors hereby agree with the Administrative Agent as follows:
SECTION 1. Defined Terms . Unless otherwise defined herein, terms defined in the Security Agreement and used herein have the meaning given to them in the Security Agreement.
SECTION 2. Grant of Security Interest in Trademark Collateral . Each Grantor hereby pledges and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in and to all of its right, title and interest in, to and under all the following Collateral of such Grantor:
(a) Trademarks of such Grantor listed on Schedule I 1 attached hereto;
(b) all Goodwill associated with such Trademarks; and
(c) all Proceeds of any and all of the foregoing (other than Excluded Property).
SECTION 3. Security Agreement . The security interest granted pursuant to this Trademark Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Security Agreement and Grantors hereby acknowledge and affirm that the rights and remedies of the Administrative Agent with respect to the security interest in the Trademarks made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set
1 |
Should include same Trademarks listed on Schedule 11(a) of the Perfection Certificate |
Ex. 6-1
forth herein. In the event that any provision of this Trademark Security Agreement is deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall control unless the Administrative Agent and the Grantors shall otherwise agree.
SECTION 4. Termination . Without limiting Section 11.4 of the Security Agreement, upon the payment in full of the Obligations and termination of the Security Agreement, the Administrative Agent shall execute, acknowledge, and deliver to the Grantors an instrument in writing in recordable form releasing the collateral pledge, grant, assignment, lien and security interest in the Trademarks under this Trademark Security Agreement.
SECTION 5. Counterparts . This Trademark Security Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Trademark Security Agreement by signing and delivering one or more counterparts. Delivery by telecopier or by electronic pdf copy of an executed counterpart of a signature page to this Trademark Security Agreement shall be effective as delivery of an original executed counterpart of this Trademark Security Agreement.
SECTION 6. Governing Law . This Trademark Security Agreement and the transactions contemplated hereby, and all disputes between the parties under or relating to this Trademark Security Agreement or the facts or circumstances leading to its execution, whether in contract, tort or otherwise, shall be construed in accordance with and governed by the laws (including statutes of limitation) of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.
[signature page follows]
Ex. 6-2
IN WITNESS WHEREOF, each Grantor has caused this Trademark Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
Very truly yours, | ||
[GRANTORS] | ||
By: |
|
|
Name: | ||
Title: |
Accepted and Agreed:
THE BANK OF NOVA SCOTIA, | ||
as Administrative Agent | ||
By: |
|
|
Name: | ||
Title: |
Ex. 6-3
SCHEDULE I
to
TRADEMARK SECURITY AGREEMENT
TRADEMARK REGISTRATIONS AND TRADEMARK APPLICATIONS
Trademark Registrations:
OWNER |
REGISTRATION NUMBER |
TRADEMARK |
||
Trademark Applications:
OWNER |
APPLICATION NUMBER |
TRADEMARK |
||
Ex. 6-4
EXHIBIT M
[The aggregate maximum principal amount of indebtedness that may be secured hereby is
$[ ].] 1
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
BY
[ NAME OF MORTGAGOR ] ,
as Mortgagor,
TO
THE BANK OF NOVA SCOTIA,
as Administrative Agent,
Mortgagee
Dated as of [ ], 20[ ]
Relating to Premises in:
[ ] County, [ ]
This instrument was prepared in consultation with
counsel in the state in which the Mortgaged Property is
located by the attorney named below and after
recording, please return to:
Malcolm K. Montgomery, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022
1 | TO BE INCLUDED ONLY IN CERTAIN MORTGAGE RECORDING TAX STATES. |
TABLE OF CONTENTS
Page | ||||||
PREAMBLE |
1 | |||||
RECITALS |
1 | |||||
AGREEMENT |
1 | |||||
ARTICLE I | ||||||
DEFINITIONS AND INTERPRETATION | ||||||
SECTION 1.1 | Definitions | 2 | ||||
SECTION 1.2 | Interpretation | 5 | ||||
ARTICLE II | ||||||
GRANTS AND SECURED OBLIGATIONS | ||||||
SECTION 2.1 | Grant of Mortgaged Property | 5 | ||||
SECTION 2.2 | Assignment of Leases and Rents | 6 | ||||
SECTION 2.3 | Secured Obligations | 7 | ||||
SECTION 2.4 | Future Advances | 7 | ||||
SECTION 2.5 | [Maximum Amount of Indebtedness | 7 | ||||
SECTION 2.6 | [Last Dollar Secured | 7 | ||||
SECTION 2.7 | No Release | 8 | ||||
ARTICLE III | ||||||
REPRESENTATIONS AND WARRANTIES OF MORTGAGOR | ||||||
SECTION 3.1 | Warranty of Title | 8 | ||||
SECTION 3.2 | Condition of Mortgaged Property | 8 | ||||
SECTION 3.3 | Charges | 9 | ||||
ARTICLE IV | ||||||
CERTAIN COVENANTS OF MORTGAGOR | ||||||
SECTION 4.1 | Payment and Performance | 9 | ||||
SECTION 4.2 | Title | 9 | ||||
SECTION 4.3 | Inspection | 10 | ||||
SECTION 4.4 | Limitation on Liens; Transfer Restrictions | 10 | ||||
SECTION 4.5 | Insurance | 11 |
-i-
ARTICLE V | ||||||
CONCERNING ASSIGNMENT OF LEASES AND RENTS | ||||||
SECTION 5.1 | Present Assignment; License to the Mortgagor | 11 | ||||
SECTION 5.2 | Collection of Rents by the Mortgagee | 12 | ||||
SECTION 5.3 | Irrevocable Interest | 12 | ||||
ARTICLE VI | ||||||
TAXES AND CERTAIN STATUTORY LIENS | ||||||
SECTION 6.1 | Payment of Charges | 12 | ||||
SECTION 6.2 | Stamp and Other Taxes | 12 | ||||
SECTION 6.3 | Certain Tax Law Changes | 12 | ||||
SECTION 6.4 | Proceeds of Tax Claim | 13 | ||||
ARTICLE VII | ||||||
CASUALTY EVENTS AND RESTORATION | ||||||
SECTION 7.1 | Casualty Event | 13 | ||||
ARTICLE VIII | ||||||
EVENTS OF DEFAULT AND REMEDIES | ||||||
SECTION 8.1 | Remedies in Case of an Event of Default | 13 | ||||
SECTION 8.2 | Sale of Mortgaged Property if Event of Default Occurs; Proceeds of Sale | 14 | ||||
SECTION 8.3 | Additional Remedies in Case of an Event of Default | 15 | ||||
SECTION 8.4 | Legal Proceedings After an Event of Default | 16 | ||||
SECTION 8.5 | Remedies Not Exclusive | 17 | ||||
ARTICLE IX | ||||||
SECURITY AGREEMENT AND FIXTURE FILING | ||||||
SECTION 9.1 | Security Agreement | 17 | ||||
SECTION 9.2 | Fixture Filing | 18 |
-ii-
ARTICLE X | ||||||
FURTHER ASSURANCES | ||||||
SECTION 10.1 | Recording Documentation To Assure Security | 18 | ||||
SECTION 10.2 | Further Acts | 19 | ||||
SECTION 10.3 | Additions to Mortgaged Property | 19 | ||||
SECTION 10.4 | Additional Security | 19 | ||||
ARTICLE XI | ||||||
MISCELLANEOUS | ||||||
SECTION 11.1 | Covenants To Run with the Land; Joint and Several | 19 | ||||
SECTION 11.2 | No Merger | 20 | ||||
SECTION 11.3 | Concerning Mortgagee | 20 | ||||
SECTION 11.4 | Mortgagee May Perform; Mortgagee Appointed Attorney-in-Fact | 21 | ||||
SECTION 11.5 | Continuing Security Interest; Assignment | 21 | ||||
SECTION 11.6 | Termination; Release | 22 | ||||
SECTION 11.7 | Modification in Writing | 22 | ||||
SECTION 11.8 | Notices | 22 | ||||
SECTION 11.9 | GOVERNING LAW; SERVICE OF PROCESS; WAIVER OF JURY TRIAL | 23 | ||||
SECTION 11.10 | Severability of Provisions | 23 | ||||
SECTION 11.11 | Relationship | 23 | ||||
SECTION 11.12 | No Credit for Payment of Taxes or Impositions | 23 | ||||
SECTION 11.13 | No Claims Against the Mortgagee | 24 | ||||
SECTION 11.14 | Mortgagees Right To Sever Indebtedness | 24 | ||||
SECTION 11.15 | Execution in Counterparts | 25 | ||||
SECTION 11.16 | Business Days | 25 | ||||
ARTICLE XII | ||||||
LEASES | ||||||
SECTION 12.1 | Mortgagors Affirmative Covenants with Respect to Leases | 25 | ||||
SECTION 12.2 | Mortgagors Negative Covenants with Respect to Leases | 26 | ||||
ARTICLE XIII | ||||||
LOCAL LAW PROVISIONS |
-iii-
SIGNATURE | ||
ACKNOWLEDGMENTS | ||
SCHEDULE A |
Legal Description |
|
SCHEDULE B |
Permitted Encumbrances |
-i-
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING (the Mortgage ), dated as of [ ] [ ], 20[ ], made by [ NAME OF MORTGAGOR ], a [S TATE TYPE AND JURISDICTION OF MORTGAGOR ] having an office at [ INSERT ADDRESS OF MORTGAGOR ], as mortgagor, assignor and debtor (in such capacities and together with any successors in such capacities, the Mortgagor ), in favor of THE BANK OF NOVA SCOTIA, a national banking association having an office at 720 King Street West, 4th Floor Mailroom, Toronto, ON, M5V 2T3, Canada, Attention: GWS - U.S. Agency Loan Operations, in its capacity as administrative agent for the Secured Parties (each as hereinafter defined), as mortgagee, assignee and secured party (in such capacities and together with any successors in such capacities, the Mortgagee ).
R E C I T A L S :
A. Pursuant to that certain Credit Agreement, dated as of July 11, 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement ) among Valvoline Finco One LLC, a Delaware limited liability company (the Borrower ), each lender from time to time party thereto (collectively, the Lenders and individually, a Lender ), The Bank of Nova Scotia, as administrative agent, and the other agents party thereto, the Lenders have agreed to make to or for the account of the Borrower certain Loans and issue certain Letters of Credit.
B. [The Mortgagor has, pursuant to the Guaranty, among other things, guaranteed the obligations of the Borrower under the Credit Agreement and the other Loan Documents.]
C. [The Mortgagor will receive substantial benefits from the execution, delivery and performance of the obligations under the Credit Agreement and the other Loan Documents and is, therefore, willing to enter into this Mortgage.]
D. This Mortgage is given by Mortgagor in favor of the Mortgagee for its benefit and the benefit of the Secured Parties to secure the payment and performance of all of the Obligations.
E. It is a condition to (i) the obligations of the Lenders to make the Loans under the Credit Agreement, (ii) the obligations of the L/C Issuers to issue Letters of Credit and (iii) the performance of the obligations of the Secured Parties under Secured Hedge Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Cash Management Agreements that constitute Obligations that Mortgagor execute and deliver the applicable Loan Documents, including this Mortgage.
A G R E E M E N T :
NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Mortgagor hereby covenants and agrees with the Mortgagee as follows:
- 1 -
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions . (a) Capitalized terms used but not otherwise defined herein that are defined in the Credit Agreement shall have the meanings given to them in the Credit Agreement, including the following:
Affiliate ; Business Day ; Collateral Documents ; Commitment ; Debtor Relief Laws ; Default Rate ; Event of Default ; Excluded Taxes ; Flood Insurance Laws ; Governmental Authority ; Guaranty ; Laws ; Lender ; Letter of Credit ; Lien ; Loan ; L/C Issuer ; Loan Documents ; Loan Parties ; Material Adverse Effect ; Net Cash Proceeds ; Obligations ; Person ; Responsible Officer ; Secured Cash Management Agreement ; Secured Franchisee Loan Facility Guaranty ; Secured Hedge Agreement ; and Security Agreement .
(b) The following terms in this Mortgage shall have the following meanings:
Allocated Indebtedness shall have the meaning assigned to such term in Section 11.14(i) hereof.
Allocation Notice shall have the meaning assigned to such term in Section 11.14(i) hereof.
Casualty Event shall mean any loss of or damage to or destruction of, or any condemnation or other taking of the Mortgaged Property (including but not limited to any taking of all or any part of the Mortgaged Property in or by condemnation or other eminent domain proceedings pursuant to any law, or by reason of the temporary requisition of the use or occupancy of all or any part of the Mortgaged Property by any Governmental Authority, civil or military, or any settlement in lieu thereof).
Charges shall mean any and all present and future real estate, property and other taxes, assessments and special assessments, levies, fees, all water and sewer rents and charges and all other governmental charges imposed upon or assessed against, and all claims (including, without limitation, claims for landlords, carriers, mechanics, workmens, repairmens, laborers, materialmens, suppliers and warehousemens Liens and other claims arising by operation of law) judgments or demands against, all or any portion of the Mortgaged Property or other amounts of any nature which, if unpaid, might result in or permit the creation of, a Lien on the Mortgaged Property or which might result in foreclosure of all or any portion of the Mortgaged Property.
Collateral shall have the meaning assigned to such term in Section 11.14(i) hereof.
Contracts shall mean, collectively, any and all right, title and interest of the Mortgagor in and to any and all contracts and other general intangibles relating to the Mortgaged Property and all reserves, deferred payments, deposits, refunds and claims of every kind, nature or character relating thereto.
- 2 -
Credit Agreement shall have the meaning assigned to such term in Recital A hereof.
Excluded Property shall have the meaning assigned to such term in the Security Agreement.
Fixtures shall mean all machinery, apparatus, equipment, fittings, fixtures, improvements and articles of personal property of every kind, description and nature whatsoever now or hereafter attached or affixed to the Land or any other Improvement used in connection with the use and enjoyment of the Land or any other Improvement or the maintenance or preservation thereof, which by the nature of their location thereon or attachment thereto are real property or fixtures under the UCC or any other applicable Laws including, without limitation, all HVAC equipment, boilers, electronic data processing, telecommunications or computer equipment, refrigeration, electronic monitoring, power, waste removal, elevators, maintenance or other systems or equipment, utility systems, fire sprinkler and security systems, drainage facilities, lighting facilities, all water, sanitary and storm sewer, drainage, electricity, steam, gas, telephone and other utility equipment and facilities, pipes, fittings and other items of every kind and description now or hereafter attached to and located on the Land.
Improvements shall mean all buildings, structures and other improvements of every kind or description and any and all alterations now or hereafter located, attached or erected on the Land, including, without limitation, (i) all Fixtures, (ii) all attachments, railroad tracks, foundations, sidewalks, drives, roads, curbs, streets, ways, alleys, passages, passageways, sewer rights, parking areas, driveways, fences and walls and (iii) all materials now or hereafter located on the Land intended for the construction, reconstruction, repair, replacement, alteration, addition or improvement of or to such buildings, Fixtures, structures and improvements, all of which materials shall be deemed to be part of the Improvements immediately upon delivery thereof on the Land and to be part of the Improvements immediately upon their incorporation therein.
Insurance Policies means the insurance policies and coverages required to be maintained by the Mortgagor with respect to the Mortgaged Property pursuant to the Credit Agreement.
Land shall mean the land described in Schedule A annexed to this Mortgage, together with all of the Mortgagors reversionary rights in and to any and all easements, rights-of-way, strips and gores of land, waters, water courses, water rights, mineral, gas and oil rights and all power, air, light and other rights, estates, titles, interests, privileges, liberties, servitudes, licenses, tenements, hereditaments and appurtenances whatsoever, in any way belonging, relating or appertaining thereto, or any part thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto and together with any greater or additional estate therein as may be acquired by Mortgagor.
Landlord shall mean any landlord, lessor, sublandlord, sublessor, franchisor, licensor or grantor, as applicable.
- 3 -
Landlords Interest shall have the meaning assigned to such term in Section 2.2 hereof.
Leases shall mean, collectively, any and all interests of the Mortgagor, as Landlord, in all leases and subleases of space, tenancies, franchise agreements, licenses, occupancy or concession agreements now existing or hereafter entered into, whether or not of record, relating in any manner to the Premises and any and all amendments, modifications, supplements, replacements, extensions and renewals of any thereof, whether now in effect or hereafter coming into effect.
Mortgage shall have the meaning assigned to such term in the Preamble hereof.
Mortgaged Property shall have the meaning assigned to such term in Section 2.1 hereof.
Mortgagee shall have the meaning assigned to such term in the Preamble hereof.
Mortgagor shall have the meaning assigned to such term in the Preamble hereof.
Permit shall mean any and all permits, certificates, approvals, authorizations, consents, licenses, variances, franchises or other instruments, however characterized, of any Governmental Authority (or any person acting on behalf of a Governmental Authority) now or hereafter acquired or held, together with all amendments, modifications, extensions, renewals and replacements of any thereof issued or in any way furnished in connection with the Mortgaged Property including, without limitation, building permits, certificates of occupancy, environmental certificates, industrial permits or licenses and certificates of operation.
Permitted Encumbrances shall mean, collectively, the Liens identified in Schedule B annexed to this Mortgage.
Premises shall mean, collectively, the Land and the Improvements.
Proceeds shall mean, collectively, any and all cash proceeds and noncash proceeds and shall include all (i) proceeds of the conversion, voluntary or involuntary, of any of the Mortgaged Property or any portion thereof into cash or liquidated claims, (ii) proceeds of any insurance, indemnity, warranty, guaranty or claim payable to the Mortgagee or to the Mortgagor from time to time with respect to any of the Mortgaged Property, (iii) payments (in any form whatsoever) made or due and payable to the Mortgagor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any portion of the Mortgaged Property by any Governmental Authority (or any person acting on behalf of a Governmental Authority), (iv) products of the Mortgaged Property and (v) other amounts from time to time paid or payable under or in connection with any of the Mortgaged Property including, without limitation, refunds of real estate taxes and assessments, including interest thereon.
- 4 -
Records shall mean, collectively, any and all right, title and interest of the Mortgagor in and to any and all drawings, plans, specifications, file materials, operating and maintenance records, catalogues, tenant lists, correspondence, advertising materials, operating manuals, warranties, guarantees, appraisals, studies and data relating to the Mortgaged Property or the construction of any alteration relating to the Premises or the maintenance of any Permit.
Rents shall mean, collectively, any and all rents, additional rents, royalties, cash, guaranties, letters of credit, bonds, sureties or securities deposited under any Lease to secure performance of the Tenants obligations thereunder, revenues, earnings, profits and income, advance rental payments, payments incident to assignment, sublease or surrender of a Lease, claims for forfeited deposits and claims for damages, now due or hereafter to become due, with respect to any Lease, any indemnification against, or reimbursement for, sums paid and costs and expenses incurred by the Mortgagor under any Lease or otherwise, and any award in the event of the bankruptcy of any Tenant under or guarantor of a Lease.
Secured Parties means, collectively, the Administrative Agent, the Lenders, the L/C Issuers, the Hedge Banks, the Franchisee Loan Facility Guaranty Beneficiaries, the Cash Management Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05 of the Credit Agreement.
Tenant shall mean any tenant, lessee, sublessee, franchisee, licensee, grantee or obligee, as applicable.
UCC shall mean the Uniform Commercial Code as in effect on the date hereof in the state in which the Premises are located; provided , however , that if the creation, perfection or enforcement of any security interest herein granted is governed by the laws of any other state as to the matter in question, UCC shall mean the Uniform Commercial Code in effect in such state.
UCC Collateral shall mean that portion of the Mortgaged Property that constitutes personal property or fixtures in which a security interest may be created under Article 9 of the UCC.
SECTION 1.2 Interpretation . The rules of construction set forth in Section 1.02 of the Credit Agreement shall be applicable to this Mortgage mutatis mutandis .
ARTICLE II
GRANTS AND SECURED OBLIGATIONS
SECTION 2.1 Grant of Mortgaged Property . In order to secure the payment and performance in full of all the Obligations, the Mortgagor hereby grants, mortgages, bargains, sells, assigns, transfers and conveys to the Mortgagee, and hereby grants to the Mortgagee for the benefit of the Secured Parties a security interest in and upon, all of the Mortgagors estate, right, title and interest in, to and under all the following described property, whether now owned or held or hereafter acquired from time to time (collectively, the Mortgaged Property ):
(i) Land;
- 5 -
(ii) Improvements;
(iii) Leases;
(iv) Rents;
(v) Permits;
(vi) Contracts;
(vii) Records; and
(viii) Proceeds;
Notwithstanding the foregoing provisions of this Section 2.1 , Mortgaged Property shall not include a grant of any of the Mortgagors right, title or interest in any Contract or Permit (x) that validly prohibits the creation by the Mortgagor of a security interest therein and (y) to the extent, but only to the extent that, any Laws applicable thereto or any terms of such Contract or Permit validly prohibit, the creation of a security interest therein; provided , however , that the right to receive any payment of money or any other right referred to in Sections 9-406(d), 9-407(a), 9-408(a) or 9-409 of the UCC (or any successor or equivalent provision or provisions or any other applicable Laws or principles of equity) to the extent that such Sections , Laws or principles are effective to limit the prohibitions described in clauses (x) and (y) of this Section 2.1 shall constitute Mortgaged Property hereunder; and provided , further , that at such time as any Contract or Permit described in clauses (x) and (y) of this Section 2.1 is no longer subject to such prohibition, such applicable Contract or Permit shall (without any act or delivery by any person) constitute Mortgaged Property hereunder;
TO HAVE AND TO HOLD the Mortgaged Property, together with all estate, right, title and interest of the Mortgagor and anyone claiming by, through or under the Mortgagor in and to the Mortgaged Property and all rights and appurtenances relating thereto, subject, in any such case, to Permitted Encumbrances and Liens permitted pursuant to Section 7.01 of the Credit Agreement, unto the Mortgagee, its successors and assigns, for the benefit of the Secured Parties for the purpose of securing the payment and performance in full of all the Obligations.
SECTION 2.2 Assignment of Leases and Rents . As additional security for the payment and performance in full of all the Obligations and subject to the provisions of Article V hereof, the Mortgagor absolutely, presently, unconditionally and irrevocably assigns, transfers and sets over to the Mortgagee, and grants to the Mortgagee for the benefit of the Secured Parties, all of the Mortgagors estate, right, title, interest, claim and demand, as Landlord, under any and all of the Leases including, without limitation, the following (such assigned rights, the Landlords Interest ):
(i) the immediate and continuing right to receive and collect Rents payable by the Tenants pursuant to the Leases;
(ii) all claims, rights, powers, privileges and remedies of the Mortgagor, whether provided for in the Leases or arising by statute or at law or in equity or otherwise, consequent on any failure on the part of the Tenants to perform or comply with any term of the Leases;
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(iii) all rights to take all actions upon the happening of a default under the Leases as shall be permitted by the Leases or by law including, without limitation, the commencement, conduct and consummation of proceedings at law or in equity; and
(iv) the full power and authority, in the name of the Mortgagor or otherwise, to enforce, collect, receive and receipt for any and all of the foregoing and to take all other actions whatsoever which the Mortgagor, as Landlord, is or may be entitled to take under the Leases.
SECTION 2.3 Secured Obligations . This Mortgage secures, and the Mortgaged Property is collateral security for, the payment and performance in full when due of the Obligations.
SECTION 2.4 Future Advances . This Mortgage shall secure all Obligations including, without limitation, future advances whenever hereafter made with respect to or under the Credit Agreement or the other Loan Documents and shall secure not only Obligations with respect to presently existing indebtedness under the Credit Agreement or the other Loan Documents, but also any and all other indebtedness which may hereafter be owing by the Mortgagor to the Secured Parties under the Credit Agreement or the other Loan Documents, however incurred, whether interest, discount or otherwise, and whether the same shall be deferred, accrued or capitalized, including future advances and re-advances, pursuant to the Credit Agreement or the other Loan Documents, whether such advances are obligatory or to be made at the option of the Secured Parties, or otherwise, and any extensions, refinancings, modifications or renewals of all such Obligations whether or not Mortgagor executes any extension agreement or renewal instrument and, in each case, to the same extent as if such future advances were made on the date of the execution of this Mortgage.
SECTION 2.5 [Maximum Amount of Indebtedness . The maximum aggregate amount of all indebtedness that is, or under any contingency may be secured at the date hereof or at any time hereafter by this Mortgage is $[ ] (the Secured Amount ), plus, to the extent permitted by applicable Laws, collection costs, sums advanced for the payment of taxes (other than Excluded Taxes), assessments, maintenance and repair charges, insurance premiums and any other costs incurred to protect the security encumbered hereby or the lien hereof, reasonable expenses incurred by the Mortgagee by reason of any default by the Mortgagor under the terms hereof, together with interest thereon, all of which amount shall be secured hereby.] 2
SECTION 2.6 [Last Dollar Secured . So long as the aggregate amount of the Obligations exceeds the Secured Amount, any payments and repayments of the Obligations shall not be deemed to be applied against or to reduce the Secured Amount.] 3
2 | TO BE INCLUDED ONLY IF REQUIRED BY STATE LAW. |
3 | TO BE INCLUDED ONLY IF REQUIRED BY STATE LAW. |
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SECTION 2.7 No Release . Nothing set forth in this Mortgage shall relieve the Mortgagor from the performance of any term, covenant, condition or agreement on the Mortgagors part to be performed or observed under or in respect of any of the Mortgaged Property or from any liability to any person under or in respect of any of the Mortgaged Property or shall impose any obligation on the Mortgagee or any other Secured Party to perform or observe any such term, covenant, condition or agreement on the Mortgagors part to be so performed or observed or shall impose any liability on the Mortgagee or any other Secured Party for any act or omission on the part of the Mortgagor relating thereto or for any breach of any representation or warranty on the part of the Mortgagor contained in this Mortgage or any other Loan Document, or under or in respect of the Mortgaged Property or made in connection herewith or therewith. The obligations of the Mortgagor contained in this Section 2.7 shall survive the termination hereof and the discharge of the Mortgagors other obligations under this Mortgage and the other Loan Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MORTGAGOR
SECTION 3.1 Warranty of Title . The Mortgagor represents and warrants that:
(i) it has good and marketable fee simple title to the Premises; good title or valid rights and interests in and to the balance of the Mortgaged Property and the Landlords Interest under or in respect of the Leases, in each case subject to no Liens, except for (x) as of the date hereof, Permitted Encumbrances and Liens in favor of the Mortgagee and (y) Liens permitted pursuant to Section 7.01 of the Credit Agreement; and
(ii) upon recordation in the official real estate records in the county (or other applicable jurisdiction) in which the Premises are located this Mortgage will create and constitute a valid and enforceable first priority mortgage Lien on the Mortgaged Property in favor of the Mortgagee for the benefit of the Secured Parties, and, to the extent any of the Mortgaged Property shall consist of Fixtures or other personal property, a first priority security interest therein to the extent that such security interest may be perfected in accordance with Article 9 of the UCC by the recordation of a mortgage, which first priority Lien and first priority security interest are subject only to (x) Permitted Encumbrances and Liens in favor of the Mortgagee, and (y) Liens permitted pursuant to Section 7.01 of the Credit Agreement.
SECTION 3.2 Condition of Mortgaged Property . The Mortgagor represents and warrants that:
(i) the Premises and the present and contemplated use and occupancy thereof comply with all applicable zoning ordinances, building codes, land use and subdivision laws, setback or other development and use requirements of Governmental Authorities and with all private restrictions and agreements affecting the Mortgaged Property whether or not recorded, except where the failure so to comply could not result in a Material Adverse Effect;
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(ii) as of the date hereof, Mortgagor has neither received any notice of nor has any knowledge of any pending disputes regarding boundary lines, location, encroachments or possession of any portions of the Mortgaged Property which if resolved adversely to Mortgagor would reasonably be expected to result in a Material Adverse Effect; and
(iii) the Premises are assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a portion of such lot or lots, and no other land or improvement is assessed and taxed together with the Premises or any portion thereof.
SECTION 3.3 Charges . The Mortgagor represents and warrants that all Charges imposed upon or assessed against the Mortgaged Property have been paid and discharged except to the extent such Charges constitute a Permitted Encumbrance or a Lien permitted pursuant to Section 7.01 of the Credit Agreement.
ARTICLE IV
CERTAIN COVENANTS OF MORTGAGOR
SECTION 4.1 Payment and Performance . The Mortgagor shall pay and perform the Obligations in full as and when the same shall become due under the Loan Documents and when they are required to be performed thereunder.
SECTION 4.2 Title . The Mortgagor shall:
(i) (A) keep in effect all rights and appurtenances to or that constitute a part of the Mortgaged Property except where the failure to keep in effect the same would not reasonably be expected to result in a Material Adverse Effect and (B) protect, preserve and defend all its right, title and interest in the Mortgaged Property and title thereto except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect;
(ii) (A) comply with each of the terms, conditions and provisions of any obligation of the Mortgagor which is secured by the Mortgaged Property (after any required notice, the expiration of any permitted grace period or both if any under the Loan Documents or other documents evidencing or securing such obligation) except where the failure to do so would not reasonably be expected to result in a Material Adverse Effect or the noncompliance with which may result in the imposition of a Lien on the Mortgaged Property subject to Permitted Encumbrances and Liens permitted pursuant to Section 7.01 of the Credit Agreement, (B) forever warrant and defend to the Mortgagee the Lien and security interests created and evidenced hereby and the validity and first priority position hereof, subject only to Permitted Encumbrances and Liens permitted pursuant to Section 7.01 of the Credit Agreement, in any action or proceeding
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against the claims of any and all persons whomsoever affecting or purporting to affect the Mortgaged Property or any of the rights of the Mortgagee hereunder and (C) maintain this Mortgage as a valid and enforceable first priority mortgage Lien on the Mortgaged Property subject only to Permitted Encumbrances and Liens permitted pursuant to Section 7.01 of the Credit Agreement, and, to the extent any of the Mortgaged Property shall consist of Fixtures, or other personal property, a first priority security in such fixtures and personal property which first priority Lien and security interest shall be subject only to Permitted Encumbrances and Liens permitted pursuant to Section 7.01 of the Credit Agreement ; and
(iii) promptly following a Responsible Officers obtaining knowledge of the pendency of any proceedings for the eviction of the Mortgagor from the Mortgaged Property or any part thereof by paramount title or otherwise questioning the Mortgagors right, title and interest in, to and under the Mortgaged Property as warranted in this Mortgage, or of any condition that would reasonably be expected to give rise to any such proceedings, notify the Mortgagee thereof. In any such proceedings, the Mortgagee may be represented by counsel satisfactory to the Mortgagee at the reasonable expense of the Mortgagor. If, upon the resolution of such proceedings, the Mortgagor shall suffer a loss of the Mortgaged Property or any part thereof or interest therein and title insurance proceeds shall be payable in connection therewith, such proceeds are hereby assigned to and shall be paid to the Mortgagee to be applied as Net Cash Proceeds to the payment of the Obligations or otherwise in accordance with the provisions of Section 2.05(b) of the Credit Agreement.
(iv) Zoning . The Mortgagor shall not initiate, join in or consent to any change in the zoning or any other permitted use classification of the Premises, except as would not violate the provisions of Section 7.07 of the Credit Agreement.
SECTION 4.3 Inspection . The Mortgagor shall permit the Mortgagee, and its agents, representative and employees, at such reasonable times during normal business hours and reasonable frequency, upon reasonable prior notice to the Mortgagor, to inspect the Mortgaged Property and all books and records located thereon provided , that such inspections shall not materially interfere with the use and operation of the Mortgaged Property.
SECTION 4.4 Limitation on Liens; Transfer Restrictions .
(i) Except for the Permitted Encumbrances, the Liens permitted pursuant to Section 7.01 of the Credit Agreement and the Lien of this Mortgage, the Mortgagor may not, without the prior written consent of the Mortgagee, permit to exist or grant any Lien on all or any part of the Mortgaged Property or suffer or allow any of the foregoing to occur by operation of law or otherwise, except hereafter, Liens permitted pursuant to Section 7.01 of the Credit Agreement.
(ii) Except to the extent permitted by the Credit Agreement, the Mortgagor may not, without the prior written consent of the Mortgagee, sell, convey, assign, lease or otherwise transfer all or any part of the Mortgaged Property.
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SECTION 4.5 Insurance . The Mortgagor shall obtain and keep in full force and effect the flood insurance required by Section 6.07(c) of the Credit Agreement, as applicable, pursuant to the terms thereof.
ARTICLE V
CONCERNING ASSIGNMENT OF LEASES AND RENTS
SECTION 5.1 Present Assignment; License to the Mortgagor .
(i) Section 2.2 of this Mortgage constitutes a present, absolute, effective, irrevocable and complete assignment by the Mortgagor to the Mortgagee of the Leases and Rents and the right, subject to applicable Laws, to collect all sums payable to the Mortgagor thereunder and apply the same as the Mortgagee may, in its sole discretion, determine to be appropriate to protect the security afforded by this Mortgage (including the payment of reasonable costs and expenses in connection with the maintenance, operation, improvement, insurance, taxes and upkeep of the Mortgaged Property), which is not conditioned upon the Mortgagee being in possession of the Premises. This assignment is an absolute assignment and not an assignment for additional security only. The Mortgagee hereby grants to the Mortgagor, however, a license to collect and apply the Rents and to enforce the obligations of Tenants under the Leases. Immediately upon the occurrence of and during the continuance of any Event of Default, whether or not legal proceedings have commenced and without regard to waste, adequacy of security for the Obligations or solvency of the Mortgagor, the license granted in the immediately preceding sentence shall automatically cease and terminate without any notice by the Mortgagee (such notice being hereby expressly waived by the Mortgagor to the extent permitted by applicable Laws), or any action or proceeding or the intervention of a receiver appointed by a court.
(ii) The Mortgagor acknowledges that the Mortgagee has taken all reasonable actions necessary to obtain, and that upon recordation of this Mortgage, the Mortgagee shall have, to the extent permitted under applicable Laws, a valid and fully perfected, first priority, present assignment of the Rents arising out of the Leases and all security for such Leases subject to the Liens permitted pursuant to Section 7.01 of the Credit Agreement and in the case of security deposits, rights of depositors and requirements of applicable Laws. The Mortgagor acknowledges and agrees that upon recordation of this Mortgage, the Mortgagees interest in the Rents shall be deemed to be fully perfected, choate and enforced as to the Mortgagor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title II of the United States Code (the Bankruptcy Code ), without the necessity of commencing a foreclosure action with respect to this Mortgage, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action.
(iii) Without limitation of the absolute nature of the assignment of the Rents hereunder, the Mortgagor and the Mortgagee agree that (a) this Mortgage shall constitute a security agreement for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of the Mortgagor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents, and (c) such security interest shall extend to all rents acquired by the estate after the commencement of any case in bankruptcy.
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SECTION 5.2 Collection of Rents by the Mortgagee .
(i) Any Rents receivable by the Mortgagee hereunder, after payment of all proper costs and expenses as Mortgagee may, reasonably determine to be appropriate (including the payment of reasonable costs and expenses in connection with the maintenance, operation, improvement, insurance, taxes and upkeep of the Mortgaged Property), shall be applied in accordance with the provisions of Section 8.2(ii) of this Mortgage. The Mortgagee shall be accountable to the Mortgagor only for Rents actually received by the Mortgagee. The collection of such Rents and the application thereof shall not cure or waive any Event of Default or waive, modify or affect notice of Event of Default or invalidate any act done pursuant to such notice.
(ii) The Mortgagor hereby irrevocably authorizes and directs Tenant under each Lease to rely upon and comply with any and all notices or demands from the Mortgagee for payment of Rents to the Mortgagee, and the Mortgagor shall have no claim against Tenant for Rents paid by Tenant to the Mortgagee pursuant to such notice or demand.
SECTION 5.3 Irrevocable Interest . All rights, powers and privileges of the Mortgagee herein set forth are coupled with an interest and are irrevocable, subject to the terms and conditions hereof, and the Mortgagor shall not take any action under the Leases or otherwise which is inconsistent with this Mortgage or any of the terms hereof and any such action inconsistent herewith or therewith shall be void.
ARTICLE VI
TAXES AND CERTAIN STATUTORY LIENS
SECTION 6.1 Payment of Charges . Unless and to the extent contested by the Mortgagor in accordance with the provisions of the Credit Agreement, the Mortgagor shall pay and discharge, or cause to be paid and discharged, from time to time prior to same becoming delinquent, all Charges.
SECTION 6.2 Stamp and Other Taxes . The Mortgagor shall pay any state, local or other documentary stamp taxes, with interest and fines and penalties, and any mortgage recording taxes, with interest and fines and penalties, that may hereafter be levied, imposed or assessed under or upon or by reason hereof or the Obligations or any instrument or transaction affecting or relating to either thereof and in default thereof the Mortgagee may advance the same and the amount so advanced shall be payable by the Mortgagor to the Mortgagee in accordance with the provisions of Section 10.04 of the Credit Agreement.
SECTION 6.3 Certain Tax Law Changes . In the event of the passage after the date hereof of any Laws deducting from the value of real property, for the purpose of taxation, amounts in respect of any Lien thereon or changing in any way the laws for the taxation of mortgages or debts secured by mortgages for state or local purposes or the manner of the collection of any taxes, and imposing any taxes, either directly or indirectly, on this Mortgage or
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any other Loan Document, the Mortgagor shall promptly pay to the Mortgagee such amount or amounts as may be necessary from time to time to pay any such taxes, assessments or other charges resulting therefrom; provided , that if any such payment or reimbursement shall be unlawful or taxable to the Mortgagee, or would constitute usury or render the indebtedness wholly or partially usurious under applicable Laws, the Mortgagor shall pay or reimburse the Mortgagee for payment of the lawful and non-usurious portion thereof. Notwithstanding the foregoing, nothing herein shall require the Mortgagor to pay Excluded Taxes.
SECTION 6.4 Proceeds of Tax Claim . In the event that the proceeds of any tax claim are paid after the Mortgagee has exercised its right to foreclose the Lien hereof, such proceeds shall, to the extent permitted in accordance with applicable Laws, be paid to the Mortgagee to satisfy any deficiency remaining after such foreclosure. The Mortgagee shall retain its interest in the proceeds of any tax claim during any redemption period. The amount of any such proceeds in excess of any deficiency claim of the Mortgagee shall in a reasonably prompt manner be released to the Mortgagor.
ARTICLE VII
CASUALTY EVENTS AND RESTORATION
SECTION 7.1 Casualty Event . If there shall occur any material Casualty Event (or, in the case of any material condemnation, taking or other proceeding in the nature thereof, upon the occurrence thereof or notice of the commencement of any proceedings therefor), the Mortgagor shall promptly send to the Mortgagee a written notice setting forth the nature and extent thereof. The proceeds payable in respect of any such Casualty Event are hereby assigned and shall be paid to the Mortgagee except as otherwise required or permitted under the Credit Agreement. The Net Cash Proceeds of each Casualty Event shall be applied, allocated and distributed in accordance with the provisions of Section 2.05(b) of the Credit Agreement and Section 10.1 of the Security Agreement. The Mortgagee may be represented by counsel satisfactory to it at the reasonable expense of the Mortgagor in connection with any such participation
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 Remedies in Case of an Event of Default . If any Event of Default shall have occurred and be continuing, the Mortgagee may at its option, in addition to any other action permitted under this Mortgage or otherwise available to it by law, statute, in equity or otherwise, take one or more of the following actions to the greatest extent permitted by applicable Laws:
(i) personally, or by its agents or attorneys, (A) enter into and upon and take possession of all or any part of the Premises together with the books, records and accounts of the Mortgagor relating thereto and, exclude the Mortgagor, its agents and servants wholly therefrom, (B) use, operate, manage and control the Premises and conduct the business thereof, (C) maintain and restore the Premises, (D) make all
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necessary or proper repairs, renewals and replacements and such useful alterations thereto and thereon as the Mortgagee may deem advisable, (E) manage, lease and operate the Premises and carry on the business thereof and exercise all rights and powers of the Mortgagor with respect thereto either in the name of the Mortgagor or otherwise or (F) collect and receive all Rents.
(ii) with or without entry, personally or by its agents or attorneys, (A) sell the Mortgaged Property and all estate, right, title and interest, claim and demand therein at one or more sales in one or more parcels, in accordance with the provisions of Section 8.2 or (B) institute and prosecute proceedings for the complete or partial foreclosure of the Lien and security interests created and evidenced hereby; or
(iii) take such steps to protect and enforce its rights whether by action, suit or proceeding at law or in equity for the specific performance of any covenant, condition or agreement in the Credit Agreement and the other Loan Documents, or in aid of the execution of any power granted in this Mortgage, or for any foreclosure hereunder, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as the Mortgagee shall elect.
SECTION 8.2 Sale of Mortgaged Property if Event of Default Occurs; Proceeds of Sale .
(i) If any Event of Default shall have occurred and be continuing, the Mortgagee may institute an action to foreclose this Mortgage or take such other action as may be permitted and available to the Mortgagee at law or in equity for the enforcement of the Credit Agreement and realization on the Mortgaged Property and proceeds thereon through power of sale (if then available under applicable Laws) or to final judgment and execution thereof for the Obligations, and in furtherance thereof the Mortgagee may sell the Mortgaged Property at one or more sales, as an entirety or any number of individual parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law or statute or in equity. In connection with any such sale under power of sale permitted under applicable Laws, the Mortgagee may execute and deliver to the purchaser at such sale a conveyance of the Mortgaged Property in fee simple or otherwise, as appropriate, and an assignment or conveyance of all the Landlords Interest in the Leases and the Mortgaged Property, each of which conveyances and assignments shall contain recitals as to the Event of Default upon which the execution of the power of sale herein granted depends, and the Mortgagor hereby constitutes and appoints the Mortgagee the true and lawful attorney in fact of the Mortgagor to make any such recitals, sale, assignment and conveyance under power of sale if and to the extent permitted under applicable Laws, and all of the lawful acts of the Mortgagee as such attorney in fact are hereby ratified and confirmed. The Mortgagor agrees that such recitals shall be binding and conclusive upon the Mortgagor, subject to applicable Laws, and that if permitted under applicable Law any assignment or conveyance to be made by the Mortgagee shall divest the Mortgagor of all right, title, interest, equity and right of redemption, including any statutory redemption, in and to the Mortgaged Property to the extent permitted under applicable Laws. The power and agency hereby granted are coupled with an interest and are irrevocable by death or dissolution, or otherwise, and are in addition to any and all other remedies which the Mortgagee may have hereunder, at law or in equity; subject, however, in all cases to applicable Laws. So long as the
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Obligations, or any part thereof, remain unpaid, the Mortgagor agrees that possession of the Mortgaged Property by the Mortgagor, or any person claiming under the Mortgagor, after and during the continuance of an Event of Default, shall be as tenant, and, in case of a sale under power of sale if permitted under applicable Laws or upon foreclosure in accordance with applicable Laws and as provided in this Mortgage, the Mortgagor and any person in possession under the Mortgagor, as to whose interest such sale was not made subject, shall, at the option of the purchaser at such sale, then become and be tenants holding over, and shall forthwith deliver possession to such purchaser, or be summarily dispossessed in accordance with the Laws applicable to tenants holding over. In case of any sale under this Mortgage by virtue of the exercise of the powers herein granted (to the extent permitted under applicable Laws), or pursuant to any order in any judicial proceeding or otherwise, the Mortgaged Property may be sold as an entirety or in separate parcels in such manner or order as the Mortgagee in its sole discretion may elect. One or more lawful exercises of powers herein granted shall not extinguish or exhaust such powers, until the entire Mortgaged Property is sold or all amounts secured hereby are paid in full.
(ii) The proceeds of any sale made under or by virtue of this Article VIII , together with any other sums which then may be held by the Mortgagee under this Mortgage, whether under the provisions of this Article VIII or otherwise, shall be applied in accordance with the provisions of Article X of the Security Agreement.
(iii) The Mortgagee (on behalf of any Secured Party or on its own behalf) or any Secured Party may bid for and acquire the Mortgaged Property or any part thereof at any sale made under or by virtue of this Article VIII and, in lieu of paying cash therefor, may make settlement for the purchase price by crediting against the purchase price the unpaid amounts owing to the Mortgagee, or such Secured Party in respect of the Obligations.
(iv) The Mortgagee may adjourn from time to time any sale by it to be made under or by virtue hereof by announcement at the time and place appointed for such sale or for such adjourned sale or sales, and, the Mortgagee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned.
SECTION 8.3 Additional Remedies in Case of an Event of Default .
(i) The Mortgagee shall, to the extent permitted under applicable Law, be entitled to recover judgment as aforesaid either before, after or during the pendency of any proceedings for the enforcement of the provisions hereof and, to the extent permitted by applicable Laws, the right of the Mortgagee to recover such judgment shall not be affected by any entry or sale hereunder, or by the exercise of any other right, power or remedy for the enforcement of the provisions hereof, or the foreclosure of, or absolute conveyance pursuant to, this Mortgage. In case of proceedings against the Mortgagor in insolvency or bankruptcy or any proceedings for its reorganization or involving the liquidation of its assets, the Mortgagee shall be entitled to prove the whole amount of principal and interest and other payments, charges and costs due in respect of the Obligations to the full amount thereof without deducting therefrom any proceeds obtained from the sale of the whole or any part of the Mortgaged Property; provided , however , that in no case shall the Mortgagee receive a greater amount than the aggregate of such principal, interest and such other payments, charges and costs (with interest at the Default Rate) from the proceeds of the sale of the Mortgaged Property and the distribution from the estate of the Mortgagor.
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(ii) Until such time as this Mortgage shall terminate in accordance with the provisions of the first sentence of Section 11.6 hereof, any recovery of any judgment by the Mortgagee with respect to the Obligations and any levy of any execution under any judgment in favor of the Mortgagee upon the Mortgaged Property shall not affect in any manner or to any extent the Lien and security interests created and evidenced hereby upon the Mortgaged Property or any part thereof, or any conveyances, powers, rights and remedies of the Mortgagee hereunder, but such conveyances, powers, rights and remedies shall continue unimpaired as before.
(iii) Any monies collected by the Mortgagee under this Section 8.3 shall be applied in accordance with the provisions of the Security Agreement.
SECTION 8.4 Legal Proceedings After an Event of Default .
(i) After the occurrence and during the continuance of any Event of Default and immediately upon the commencement of any action, suit or legal proceedings to obtain judgment for the Obligations or any part thereof, or of any proceedings to foreclose the Lien and security interest created and evidenced hereby or otherwise enforce the provisions hereof or of any other proceedings in aid of the enforcement hereof, the Mortgagor shall enter its voluntary appearance in such action, suit or proceeding.
(ii) Upon the occurrence and during the continuance of an Event of Default, the Mortgagee shall be entitled forthwith as a matter of right, concurrently or independently of any other right or remedy hereunder either before or after declaring the Obligations or any part thereof to be due and payable, subject to the requirements of applicable Law, to the appointment of a receiver without giving notice to any party and without regard to the adequacy or inadequacy of any security for the Obligations or the solvency or insolvency of any person or entity then legally or equitably liable for the Obligations or any portion thereof. The Mortgagor hereby consents to the appointment of such receiver. Notwithstanding the appointment of any receiver, the Mortgagee shall be entitled as pledgee to the possession and control of any cash, deposits or instruments at the time held by or payable or deliverable under the terms of the Credit Agreement to the Mortgagee.
(iii) The Mortgagor shall not (A) at any time insist upon, or plead, or in any manner whatsoever claim or take any benefit or advantage of any stay or extension or moratorium law, any exemption from execution or sale of the Mortgaged Property or any part thereof, wherever enacted, now or at any time hereafter in force, which may affect the covenants and terms of performance hereof, (B) claim, take or insist on any benefit or advantage of any applicable Laws now or hereafter in force providing for the valuation or appraisal of the Mortgaged Property, or any part thereof, prior to any sale or sales of the Mortgaged Property which may be made pursuant to this Mortgage, or pursuant to any decree, judgment or order of any court of competent jurisdiction or (C) after any such sale or sales, claim or exercise any right under any statute heretofore or hereafter enacted to redeem the property so sold or any part thereof. To the extent permitted by applicable Law, the Mortgagor hereby expressly (A) waives
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all benefit or advantage of any such Laws, (B) waives any and all rights to trial by jury in any action or proceeding related to the enforcement hereof, (C) waives any objection which it may now or hereafter have to the laying of venue of any action, suit or proceeding brought in connection with this Mortgage and further waives and agrees not to plead that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum and (D) covenants not to hinder, delay or impede the execution of any power granted or delegated to the Mortgagee by this Mortgage but to suffer and permit the execution of every such power as though no such Laws had been made or enacted. The Mortgagee shall not be liable for any incorrect or improper payment made pursuant to this Article VIII in the absence of gross negligence or willful misconduct.
SECTION 8.5 Remedies Not Exclusive . No remedy conferred upon or reserved to the Mortgagee by this Mortgage is intended to be exclusive of any other remedy or remedies, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Mortgage or now or hereafter existing at law or in equity. Any delay or omission of the Mortgagee to exercise any right or power accruing on any Event of Default shall not impair any such right or power and shall not be construed to be a waiver of or acquiescence in any such Event of Default. Every power and remedy given by this Mortgage may be exercised from time to time concurrently or independently, when and as often as may be deemed expedient by the Mortgagee in such order and manner as the Mortgagee, in its sole discretion, may elect. If the Mortgagee accepts any monies required to be paid by the Mortgagor under this Mortgage after the same become due, such acceptance shall not constitute a waiver of the right either to require prompt payment, when due, of all other sums secured by this Mortgage or to declare an Event of Default with regard to subsequent defaults. If the Mortgagee accepts any monies required to be paid by the Mortgagor under this Mortgage in an amount less than the sum then due, such acceptance shall be deemed an acceptance on account only and on the condition that it shall not constitute a waiver of the obligation of the Mortgagor to pay the entire sum then due, and the Mortgagors failure to pay the entire sum then due shall be and continue to be a default hereunder notwithstanding acceptance of such amount on account.
ARTICLE IX
SECURITY AGREEMENT AND FIXTURE FILING
SECTION 9.1 Security Agreement . To the extent the Mortgaged Property consists of UCC Collateral or items of personal property which are Fixtures under applicable Laws, this Mortgage shall also be construed as a security agreement under the UCC. The Mortgagor, in order to secure the due and punctual payment and performance of the Obligations, hereby grants to Mortgagee for its benefit and for the benefit of the Secured Parties, a security interest in and to such UCC Collateral and Fixtures (excluding therefrom Excluded Property). Upon and during the continuance of an Event of Default, the Mortgagee shall be entitled with respect to the UCC Collateral and Fixtures, to exercise all remedies hereunder or any other Loan Document or available under the UCC with respect thereto and all other remedies available under applicable law. Without limiting the foregoing, the UCC Collateral and Fixtures, may, at the Mortgagees option, (i) be sold hereunder together with any sale of any portion of the Mortgaged Property or otherwise, (ii) be sold separately pursuant to the UCC, or (iii) be dealt with by the Mortgagee in any other manner permitted under applicable Laws. The Mortgagee
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may require the Mortgagor to assemble the UCC Collateral and Fixtures, and make it available to the Mortgagee at a place to be designated by the Mortgagee. The Mortgagor acknowledges and agrees that a disposition of such collateral in accordance with the Mortgagees rights and remedies in respect to the Mortgaged Property as heretofore provided is a commercially reasonable disposition thereof; provided , however , that the Mortgagee shall give the Mortgagor prior notice of the time and place of any intended disposition not less than the greater of (x) such notice as may be required by any other Loan Document, (y) applicable Laws or (z) ten (10) days.
SECTION 9.2 Fixture Filing . To the extent that the Mortgaged Property includes items of personal property which are or are to become fixtures under applicable Laws, and to the extent permitted under applicable Laws, the filing hereof in the real estate records of the county in which such Mortgaged Property is located shall also operate from the date of such recording as a fixture filing with respect to such Mortgaged Property, and the following information is applicable for the purpose of such fixture filing, to wit:
Name and Address of the debtor :
The Mortgagor having the address described in the Preamble hereof.
The Mortgagor is a [ ] organized under the laws of the State of [ ] whose Organization Number is [ ] [, and whose Taxpayer Identification Number is [ ]] 4 .
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Name and Address of the secured party :
The Mortgagee having the address described in the Preamble hereof, from which address information concerning the security interest may be obtained. |
|
This Financing Statement covers the following types or items of property :
The Mortgaged Property. This instrument covers goods which are or are to become fixtures upon or related to the Land. The Mortgagor is the record owner of the Land.
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In addition, the Mortgagor hereby authorizes the Mortgagee to file appropriate financing and continuation statements under the UCC in effect in the jurisdiction in which the Mortgaged Property is located or where the Mortgagor is located/organized or any other applicable jurisdiction as may be required by applicable Laws in order to create, establish, preserve and protect the liens and security interests intended to be granted to the Mortgagee pursuant to this Mortgage in the Mortgaged Property.
ARTICLE X
FURTHER ASSURANCES
SECTION 10.1 Recording Documentation To Assure Security . The Mortgagor shall, forthwith after the execution and delivery hereof and thereafter, from time to time, cause this Mortgage and any financing statement, continuation statement or similar instrument relating
4 | To be included to the extent required by local law. |
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to any of the Mortgaged Property or to any property intended to be subject to the Lien hereof or the security interests created hereby to be filed, registered and recorded in such manner and in such places as may be required by any present or future Laws and shall take such actions as Mortgagee shall reasonably deem necessary in order to publish notice of and fully to protect the validity and priority of the Liens, assignment, and security interests purported to be created upon the Mortgaged Property and the interest and rights of the Mortgagee therein. The Mortgagor shall pay or cause to be paid all taxes and fees incident to such filing, registration and recording, and all reasonable expenses incident to the preparation, execution and acknowledgment thereof, and of any instrument of further assurance, and all Federal or state stamp taxes or other taxes, duties and charges arising out of or in connection with the execution and delivery of such instruments.
SECTION 10.2 Further Acts . The Mortgagor shall take such further actions, and execute and/or deliver to the Mortgagee such instruments or documents as required pursuant to Sections 6.17 and 6.18 of the Credit Agreement. All of the foregoing shall be at the sole cost and expense of the Mortgagor.
SECTION 10.3 Additions to Mortgaged Property . To the extent and as provided in the Credit Agreement, all right, title and interest of the Mortgagor in and to all extensions, amendments, relocations, restakings, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Mortgaged Property hereafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor upon the Premises, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by the Mortgagor, shall become subject to the Lien and security interest of this Mortgage as fully and completely and with the same effect as though now owned by the Mortgagor and specifically described in the grant of the Mortgaged Property above, but at any and all times the Mortgagor will execute and deliver to the Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as the Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the Lien and security interest of this Mortgage.
SECTION 10.4 Additional Security . Without notice to or consent of the Mortgagor and without impairment of the Lien and rights created by this Mortgage, the Mortgagee may accept (but the Mortgagor shall not be obligated to furnish) from the Mortgagor or from any other person, additional security for the Obligations. Neither the giving hereof nor the acceptance of any such additional security shall prevent the Mortgagee from resorting, first, to such additional security, and, second, to the security created by this Mortgage without affecting the Mortgagees Lien and rights under this Mortgage.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Covenants To Run with the Land; Joint and Several . All of the grants, covenants, terms, provisions and conditions in this Mortgage shall run with the Land and
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the Mortgagors interest therein and shall apply to, and bind the successors and assigns of, the Mortgagor. If there shall be more than one mortgagor with respect to the Mortgaged Property, all such Mortgagors covenants, warranties and undertakings hereunder shall be joint and several.
SECTION 11.2 No Merger . The rights and estate created by this Mortgage shall not, under any circumstances, be held to have merged into any other estate or interest now owned or hereafter acquired by the Mortgagee unless the Mortgagee shall have consented to such merger in writing.
SECTION 11.3 Concerning Mortgagee .
(i) (a) The Mortgagee has been appointed as Administrative Agent pursuant to the Credit Agreement. The actions of the Mortgagee hereunder are subject to the provisions of the Credit Agreement. The Mortgagee shall have the right hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including, without limitation, the release or substitution of the Mortgaged Property), in accordance with this Mortgage and the Credit Agreement. The Mortgagee may employ agents and attorneys-in-fact in connection herewith and shall not be liable for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Mortgagee may resign and a successor Mortgagee may be appointed in the manner provided in the Credit Agreement. Upon the acceptance of any appointment as the Mortgagee by a successor Mortgagee, that successor Mortgagee shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Mortgagee under this Mortgage, and the retiring Mortgagee shall thereupon be discharged from its duties and obligations under this Mortgage. After any retiring Mortgagees resignation, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it under this Mortgage while it was the Mortgagee.
(ii) The Mortgagee shall be deemed to have exercised reasonable care in the custody and preservation of the Mortgaged Property in its possession if such Mortgaged Property is accorded treatment substantially equivalent to that which the Mortgagee, in its individual capacity, accords its own property consisting of similar property, instruments or interests, it being understood that neither the Mortgagee nor any of the Secured Parties shall have responsibility for taking any necessary steps to preserve rights against any person with respect to any Mortgaged Property.
(iii) The Mortgagee shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper person, and, with respect to all matters pertaining to this Mortgage and its duties hereunder, upon advice of counsel selected by it.
(iv) With respect to any of its rights and obligations as a Lender, the Mortgagee shall have and may exercise the same rights and powers hereunder. The term Lenders, Lender or any similar terms shall, unless the context clearly otherwise indicates, include the Mortgagee in its individual capacity as a Lender. The Mortgagee may accept
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deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Mortgagor or any Affiliate of the Mortgagor to the same extent as if the Mortgagee were not acting as Collateral Agent.
(v) To the extent that any portion of the Mortgaged Property also constitutes personal property collateral granted by the Mortgagor to the Mortgagee under the Security Agreement to secure the Obligations, the provisions of the Security Agreement shall control in the event of a conflict between any provision of this Mortgage applicable to such portion of the Mortgaged Property and the Security Agreement.
SECTION 11.4 Mortgagee May Perform; Mortgagee Appointed Attorney-in-Fact . If the Mortgagor shall fail to perform any covenants contained in this Mortgage (including, without limitation, the Mortgagors covenants to (i) pay the premiums in respect of all required insurance policies hereunder or under the Credit Agreement, (ii) pay Charges, (iii) make repairs, (iv) discharge Liens or (v) pay or perform any obligations of the Mortgagor under any Mortgaged Property) or if any representation or warranty on the part of the Mortgagor contained herein shall be breached, the Mortgagee may (but shall not be obligated to), do the same or cause it to be done or remedy any such breach, and may expend funds for such purpose; provided , however , that the Mortgagee shall in no event be bound to inquire into the validity of any tax, Lien, imposition or other obligation which the Mortgagor fails to pay or perform as and when required hereby and which the Mortgagor does not contest in accordance with the provisions of the Credit Agreement. Any and all amounts so expended by the Mortgagee shall be paid by the Mortgagor in accordance with the provisions of Section 10.04 of the Credit Agreement and repayment shall be secured by this Mortgage. Neither the provisions of this Section 11.4 nor any action taken by the Mortgagee pursuant to the provisions of this Section 11.4 shall prevent any such failure to observe any covenant contained in this Mortgage nor any breach of any representation or warranty contained in this Mortgage from constituting an Event of Default. The Mortgagor hereby appoints the Mortgagee its attorney-in-fact, with full power and authority in the place and stead of the Mortgagor and in the name of the Mortgagor, or otherwise, from time to time in the Mortgagees discretion to take any action and to execute any instrument consistent with the terms hereof and the other Loan Documents which the Mortgagee may deem necessary or advisable to accomplish the purposes hereof (but the Mortgagee shall not be obligated to and shall have no liability to the Mortgagor or any third party for failure to so do or take action). The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term of this Mortgage. The Mortgagor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof.
SECTION 11.5 Continuing Security Interest; Assignment . This Mortgage shall create a continuing Lien on and security interest in the Mortgaged Property and shall (i) be binding upon the Mortgagor, its successors and assigns and (ii) inure, together with the rights and remedies of the Mortgagee hereunder, to the benefit of the Mortgagee for the benefit of the Secured Parties and each of their respective successors, transferees and assigns. No other persons (including, without limitation, any other creditor of any Loan Party) shall have any interest herein or any right or benefit with respect hereto. Without limiting the generality of the foregoing clause (ii), any Secured Party may assign or otherwise transfer any indebtedness held by it secured by this Mortgage to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Lender, herein or
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otherwise, subject, however, to the provisions of the Credit Agreement. The Mortgagor agrees that its obligations hereunder and the security interest created hereunder shall continue to be effective or be reinstated, as applicable, if at any time payment, or any part thereof, of all or any part of the Obligations is rescinded or must otherwise be restored by the Secured Party upon the bankruptcy or reorganization of the Mortgagor or otherwise.
SECTION 11.6 Termination; Release . When all the Obligations have been paid in full (other than (A) contingent indemnification obligations that are not yet due and payable and (B) obligations and liabilities under Secured Cash Management Agreements, Secured Foreign Line of Credit Agreements, Secured Franchisee Loan Facility Guaranties and Secured Hedge Agreements) and the Commitments of the Lenders to make any Loan or to issue any Letter of Credit under the Credit Agreement shall have expired or been sooner terminated and all Letters of Credit have been terminated or cash collateralized in accordance with the provisions of the Credit Agreement, this Mortgage shall terminate. Upon termination of this Mortgage the Mortgaged Property shall be released from the Lien and security interest of this Mortgage. Upon such release or any release of the Mortgaged Property or any portion thereof in accordance with the provisions of the Credit Agreement, the Mortgagee shall, upon the request and at the sole cost and expense of the Mortgagor, assign, transfer and deliver to the Mortgagor, against receipt and without recourse to or warranty by the Mortgagee, such of the Mortgaged Property to be released (in the case of a release) as may be in possession of the Mortgagee and as shall not have been sold or otherwise applied pursuant to the terms hereof, and, with respect to any other Mortgaged Property, proper documents and instruments (including UCC-3 termination statements or releases) acknowledging the termination hereof or the release of such Mortgaged Property, as the case may be. The Mortgagee is hereby expressly authorized to, and agrees upon request of the Borrower it will, release or, in the case of Section 9.10 of the Credit Agreement, subordinate any Mortgaged Property in accordance with the terms of the Loan Documents and Section 9.10 of the Credit Agreement.
SECTION 11.7 Modification in Writing . No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by the Mortgagor therefrom, shall be effective unless the same shall be done in accordance with the terms of the Credit Agreement and unless in writing and signed by the Mortgagee. Any amendment, modification or supplement of or to any provision hereof, any waiver of any provision hereof and any consent to any departure by the Mortgagor from the terms of any provision hereof shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Mortgage or any other Loan Document, no notice to or demand on the Mortgagor in any case shall entitle the Mortgagor to any other or further notice or demand in similar or other circumstances.
SECTION 11.8 Notices . Unless otherwise provided herein or in the Credit Agreement, any notice or other communication herein required or permitted to be given shall be given in the manner and become effective as set forth in the Credit Agreement, if to the Mortgagor, addressed to it at the address of the Borrower set forth in the Credit Agreement and if to the Mortgagee, addressed to it at the address set forth in the Credit Agreement, or in each case at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 11.8 .
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SECTION 11.9 GOVERNING LAW; SERVICE OF PROCESS; WAIVER OF JURY TRIAL . THIS MORTGAGE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR ITEM OR TYPE OF MORTGAGED PROPERTY ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. MORTGAGOR AGREES THAT SERVICE OF PROCESS IN ANY PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH IN THE CREDIT AGREEMENT OR AT SUCH OTHER ADDRESS OF WHICH THE MORTGAGEE SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. IF ANY AGENT APPOINTED BY MORTGAGOR REFUSES TO ACCEPT SERVICE, MORTGAGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF MORTGAGEE TO BRING PROCEEDINGS AGAINST MORTGAGOR IN THE COURTS OF ANY OTHER JURISDICTION. THE MORTGAGOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS MORTGAGE OR ANY OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
SECTION 11.10 Severability of Provisions . Any provision hereof which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof or affecting the validity, legality or enforceability of such provision in any other jurisdiction.
SECTION 11.11 Relationship . The relationship of the Mortgagee to the Mortgagor hereunder is strictly and solely that of lender and borrower and mortgagor and mortgagee and nothing contained in the Credit Agreement, this Mortgage or any other document or instrument now existing and delivered in connection therewith or otherwise in connection with the Obligations is intended to create, or shall in any event or under any circumstance be construed as creating a partnership, joint venture, tenancy-in-common, joint tenancy or other relationship of any nature whatsoever between the Mortgagee and the Mortgagor other than as lender and borrower and mortgagor and mortgagee.
SECTION 11.12 No Credit for Payment of Taxes or Impositions . The Mortgagor shall not be entitled to any credit against the principal, premium, if any, or interest payable under the Credit Agreement, and the Mortgagor shall not be entitled to any credit against any other sums which may become payable under the terms thereof or hereof, by reason of the payment of any Charge on the Mortgaged Property or any part thereof.
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SECTION 11.13 No Claims Against the Mortgagee . Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or any part thereof, nor as giving the Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Mortgagee in respect thereof or any claim that any Lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the Lien hereof.
SECTION 11.14 Mortgagee s Right To Sever Indebtedness .
(i) The Mortgagor acknowledges that (A) the Mortgaged Property does not constitute the sole source of security for the payment and performance of the Obligations and that the Obligations are also secured by property of the Mortgagor and its Affiliates in other jurisdictions (all such property, collectively, the Collateral ), (B) the number of such jurisdictions and the nature of the transaction of which this instrument is a part are such that it would have been impracticable for the parties to allocate to each item of Collateral a specific loan amount and to execute in respect of such item a separate credit agreement and (C) the Mortgagor intends that the Mortgagee have the same rights with respect to the Mortgaged Property, in foreclosure or otherwise, that the Mortgagee would have had if each item of Collateral had been secured, mortgaged or pledged pursuant to a separate credit agreement, mortgage or security instrument. In furtherance of such intent, the Mortgagor agrees that the Mortgagee may at any time by notice (an Allocation Notice ) to the Mortgagor allocate a portion (the Allocated Indebtedness ) of the Obligations to the Mortgaged Property and sever from the remaining Obligations the Allocated Indebtedness. From and after the giving of an Allocation Notice with respect to the Mortgaged Property, the Obligations hereunder shall be limited to the extent set forth in the Allocation Notice and (as so limited) shall, for all purposes, be construed as a separate loan obligation of the Mortgagor unrelated to the other transactions contemplated by the Credit Agreement, any other Loan Document or any document related to any thereof. To the extent that the proceeds on any foreclosure of the Mortgaged Property shall exceed the Allocated Indebtedness, such proceeds shall belong to the Mortgagor and shall not be available hereunder to satisfy any Obligations of the Mortgagor other than the Allocated Indebtedness. In any action or proceeding to foreclose the Lien hereof or in connection with any power of sale, foreclosure or other remedy exercised under this Mortgage commenced after the giving by the Mortgagee of an Allocation Notice, the Allocation Notice shall be conclusive proof of the limits of the Obligations hereby secured, and the Mortgagor may introduce, by way of defense or counterclaim, evidence thereof in any such action or proceeding. Notwithstanding any provision of this Section 11.14 , the proceeds received by the Mortgagee pursuant to this Mortgage shall be applied by the Mortgagee in accordance with the provisions of Section 8.2(ii) hereof.
(ii) The Mortgagor hereby waives to the greatest extent permitted under applicable Law the right to a discharge of any of the Obligations under any Laws now or hereafter in effect which provides that foreclosure of the Lien hereof or other remedy exercised under this Mortgage constitutes the exclusive means for satisfaction of the Obligations or which makes unavailable a deficiency judgment or any subsequent remedy because the Mortgagee
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elected to proceed with a power of sale foreclosure or such other remedy or because of any failure by the Mortgagee to comply with laws that prescribe conditions to the entitlement to a deficiency judgment. In the event that, notwithstanding the foregoing waiver, any court shall for any reason hold that the Mortgagee is not entitled to a deficiency judgment, the Mortgagor shall not (A) introduce in any other jurisdiction such judgment as a defense to enforcement against the Mortgagor of any remedy in the Credit Agreement or any other Loan Document or (B) seek to have such judgment recognized or entered in any other jurisdiction, and any such judgment shall in all events be limited in application only to the state or jurisdiction where rendered.
(iii) In the event any instrument in addition to the Allocation Notice is necessary to effectuate the provisions of this Section 11.14 , including, without limitation, any amendment to this Mortgage, any substitute promissory note or affidavit or certificate of any kind, Mortgagor agrees to execute all such amendments, notes, affidavits or certificates reasonably requested by Mortgagee and Mortgagor hereby appoints Mortgagee as its true and lawful attorneys-in-fact to, following and during the continuance of an Event of Default, execute, deliver or record such amendments, notes, affidavits or certificates in the name and on behalf of Mortgagor. Such power of attorney is coupled with an interest and is irrevocable.
(iv) Notwithstanding anything set forth herein to the contrary, the provisions of this Section 11.14 shall be effective only to the maximum extent permitted by applicable Laws.
SECTION 11.15 Execution in Counterparts . Any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.
SECTION 11.16 Business Days . In the event any time period or any date provided in this Mortgage ends or falls on a day other than a Business Day, then such time period shall be deemed to end and such date shall be deemed to fall on the next succeeding Business Day, and performance herein may be made on such Business Day, with the same force and effect as if made on such other day.
ARTICLE XII
LEASES
SECTION 12.1 Mortgagor s Affirmative Covenants with Respect to Leases . With respect to each Lease, the Mortgagor shall:
(i) observe and perform in all material respects (after any required notice, and prior to the expiration of any permitted grace period or both)all the obligations imposed upon the Landlord under such Lease except where failure to do so would reasonably be expected to result in a Material Adverse Effect;
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(ii) promptly send copies to the Mortgagee of all material notices of default which the Mortgagor shall send or receive thereunder; and
(iii) use commercially reasonable efforts to enforce all of the material terms, covenants and conditions contained in such Lease upon the part of the Tenant thereunder to be observed or performed except where failure to do so would reasonably be expected to result in a Material Adverse Effect.
SECTION 12.2 Mortgagor s Negative Covenants with Respect to Leases . With respect to each Lease, the Mortgagor shall not, without the prior written consent of the Mortgagee:
(i) receive or collect, or permit the receipt or collection of, any Rent under such Lease more than three (3) months in advance of the respective period in respect of which such Rent is to accrue, except:
(A) in connection with the execution and delivery of such Lease (or of any amendment to such Lease), Rent thereunder may be collected and received in advance in an amount not in excess of the greater of Forty Thousand Dollars ($40,000.00) or three (3) months Rent unless otherwise permitted under any Lease in existence on the date of this Mortgage;
(B) the amount held by Landlord as a security deposit thereunder; and
(C) any amount received and collected for escalation and other charges in accordance with the terms of such Lease;
(ii) assign, transfer or hypothecate (other than to the Mortgagee hereunder) any Rent under such Lease whether then due or to accrue in the future or the interest of the Mortgagor as Landlord under such Lease;
(iii) enter into any amendment or modification of any Lease if the same would not be permitted pursuant to the Credit Agreement or would reasonably be expected to result in a Material Adverse Effect;
(iv) terminate (whether by exercising any contractual right of the Mortgagor to recapture leased space or otherwise) or permit the termination of such Lease or accept surrender of all or any portion of the space demised under such Lease prior to the end of the term thereof or accept assignment of such Lease to the Mortgagor unless the same would not reasonably be expected to result in a Material Adverse Effect or;
(v) waive, excuse, condone or in any manner discharge or release any Tenants of or from the obligations of such Tenants under their respective Leases or guarantors of Tenants from obligations under any guarantees of the Leases unless the same would not reasonably be expected to result in a Material Adverse Effect.
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ARTICLE XIII
LOCAL LAW PROVISIONS
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[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly executed and delivered under seal the day and year first above written.
[ ] |
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By: |
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Name: | ||
Title: |
[local counsel to confirm signature requirements]
ACKNOWLEDGMENT
State of | ) | |||
) | ss.: | |||
County of | ) |
[Local counsel to provide appropriate acknowledgment]
[Property, State]
S-1
Schedule A Legal Description
Legal Description of premises commonly known as [COMMON NAME, IF ANY] and located at [INSERT ADDRESS]:
[to come from title policy]
Schedule B
Each of the liens and other encumbrances excepted as being prior to the Lien hereof as set forth in Schedule B to the marked [Pro Forma Policy} issued by [Title Insurance Company], dated as of the date hereof and delivered to Mortgagee on the date hereof, bearing [Title Insurance Company] reference number [Title Number] relating to the real property described in Schedule A attached hereto and all Liens, encumbrances and other matters affecting the Mortgaged Property permitted by Section 7.01 of the Credit Agreement.
Exhibit 10.10
INDENTURE
Dated as of July 20, 2016
VALVOLINE FINCO TWO LLC,
ASHLAND INC.,
as a Guarantor,
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
Table of Contents
Page | ||||||
ARTICLE I | ||||||
DEFINITIONS | ||||||
Section 1.01 |
Definitions | 1 | ||||
Section 1.02 |
Other Definitions | 36 | ||||
Section 1.03 |
Incorporation by Reference of Trust Indenture Act | 37 | ||||
Section 1.04 |
Rules of Construction | 38 | ||||
ARTICLE II | ||||||
THE NOTES | ||||||
Section 2.01 |
Form and Dating; Terms | 38 | ||||
Section 2.02 |
Execution and Authentication | 40 | ||||
Section 2.03 |
Registrar and Paying Agent | 41 | ||||
Section 2.04 |
Paying Agent to Hold Money in Trust | 41 | ||||
Section 2.05 |
Holder Lists | 42 | ||||
Section 2.06 |
Transfer and Exchange | 42 | ||||
Section 2.07 |
Replacement Notes | 55 | ||||
Section 2.08 |
Outstanding Notes | 56 | ||||
Section 2.09 |
Treasury Notes | 56 | ||||
Section 2.10 |
Temporary Notes | 56 | ||||
Section 2.11 |
Cancellation | 57 | ||||
Section 2.12 |
Defaulted Interest | 57 | ||||
Section 2.13 |
CUSIP or ISIN Numbers | 57 | ||||
Section 2.14 |
Additional Interest | 58 | ||||
Section 2.15 |
Benefits of Indenture | 58 | ||||
ARTICLE III | ||||||
REDEMPTION AND PREPAYMENT | ||||||
Section 3.01 |
Notices to Trustee | 58 | ||||
Section 3.02 |
Selection of Notes To Be Redeemed | 58 | ||||
Section 3.03 |
Notice of Redemption | 59 | ||||
Section 3.04 |
Effect of Notice of Redemption | 60 | ||||
Section 3.05 |
Deposit of Redemption Price | 60 | ||||
Section 3.06 |
Notes Redeemed in Part | 60 | ||||
Section 3.07 |
Special Mandatory Redemption | 61 | ||||
Section 3.08 |
Optional Redemption | 61 | ||||
Section 3.09 |
Offers to Purchase; Acquisition of Notes | 62 |
i
ARTICLE IV | ||||||
COVENANTS | ||||||
Section 4.01 | Payment of Notes | 62 | ||||
Section 4.02 | Reports and Other Information | 62 | ||||
Section 4.03 | Compliance Certificate | 64 | ||||
Section 4.04 | Further Instruments and Acts | 65 | ||||
Section 4.05 | [Intentionally Omitted] | 65 | ||||
Section 4.06 | [Intentionally Omitted] | 65 | ||||
Section 4.07 | Restricted Payments | 65 | ||||
Section 4.08 | Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries | 71 | ||||
Section 4.09 | Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock | 74 | ||||
Section 4.10 | Asset Sales | 81 | ||||
Section 4.11 | Transactions with Affiliates | 84 | ||||
Section 4.12 | Liens | 86 | ||||
Section 4.13 | Offer to Repurchase Upon Change of Control | 86 | ||||
Section 4.14 | Covenant Suspension | 88 | ||||
Section 4.15 | Compliance with Ashland Indenture | 90 | ||||
ARTICLE V | ||||||
SUCCESSORS | ||||||
Section 5.01 | Merger, Consolidation or Sale of All or Substantially All Assets | 90 | ||||
Section 5.02 | Successor Corporation Substituted | 92 | ||||
ARTICLE VI | ||||||
DEFAULTS AND REMEDIES | ||||||
Section 6.01 | Events of Default | 93 | ||||
Section 6.02 | Acceleration | 94 | ||||
Section 6.03 | Other Remedies | 95 | ||||
Section 6.04 | Waiver of Past Defaults | 96 | ||||
Section 6.05 | Control by Majority | 96 | ||||
Section 6.06 | Limitation on Suits | 96 | ||||
Section 6.07 | Rights of Holders to Receive Payment | 97 | ||||
Section 6.08 | Collection Suit by Trustee | 97 | ||||
Section 6.09 | Trustee May File Proofs of Claim | 97 | ||||
Section 6.10 | Priorities | 97 | ||||
Section 6.11 | Undertaking for Costs | 97 | ||||
Section 6.12 | Waiver of Stay or Extension Laws | 97 |
ii
ARTICLE VII | ||||
TRUSTEE | ||||
Section 7.01 | Duties of Trustee | 98 | ||
Section 7.02 | Rights of Trustee | 99 | ||
Section 7.03 | Individual Rights of Trustee | 101 | ||
Section 7.04 | Trustees Disclaimer | 101 | ||
Section 7.05 | Notice of Defaults | 101 | ||
Section 7.06 | Reports by Trustee to Holders | 101 | ||
Section 7.07 | Compensation and Indemnity | 101 | ||
Section 7.08 | Replacement of Trustee | 102 | ||
Section 7.09 | Successor Trustee by Merger | 103 | ||
Section 7.10 | Eligibility; Disqualification | 104 | ||
Section 7.11 | Preferential Collection of Claims Against the Company and Guarantors | 104 | ||
ARTICLE VIII | ||||
LEGAL DEFEASANCE, COVENANT DEFEASANCE AND SATISFACTION AND DISCHARGE |
||||
Section 8.01 | Option To Effect Legal Defeasance or Covenant Defeasance | 104 | ||
Section 8.02 | Legal Defeasance and Discharge | 104 | ||
Section 8.03 | Covenant Defeasance | 105 | ||
Section 8.04 | Conditions to Legal or Covenant Defeasance | 105 | ||
Section 8.05 | Deposited Money and Government Obligations to be Held in Trust; Other Miscellaneous Provisions | 106 | ||
Section 8.06 | Repayment to the Company | 107 | ||
Section 8.07 | Satisfaction and Discharge of Indenture | 107 | ||
Section 8.08 | Reinstatement | 108 | ||
ARTICLE IX | ||||
AMENDMENTS | ||||
Section 9.01 | Without Consent of Holders | 108 | ||
Section 9.02 | With Consent of Holders | 109 | ||
Section 9.03 | Revocation and Effect of Consents and Waivers | 110 | ||
Section 9.04 | Notation on or Exchange of Notes | 111 | ||
Section 9.05 | Trustee to Sign Amendments | 111 | ||
Section 9.06 | Payment for Consent | 111 |
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ARTICLE X | ||||||
GUARANTEES | ||||||
Section 10.01 | Guarantees | 111 | ||||
Section 10.02 | Limitation on Liability | 113 | ||||
Section 10.03 | Releases | 113 | ||||
Section 10.04 | Successors and Assigns | 114 | ||||
Section 10.05 | No Waiver | 114 | ||||
Section 10.06 | Additional Guarantees | 115 | ||||
Section 10.07 | Execution of Supplemental Indenture for Future Guarantors | 115 | ||||
Section 10.08 | Non-Impairment | 115 | ||||
Section 10.09 | Benefits Acknowledged | 115 | ||||
ARTICLE XI | ||||||
MISCELLANEOUS | ||||||
Section 11.01 | Trust Indenture Act Controls | 115 | ||||
Section 11.02 | Notices | 115 | ||||
Section 11.03 | Communication by Holders with Other Holders | 116 | ||||
Section 11.04 | Certificate and Opinion as to Conditions Precedent | 116 | ||||
Section 11.05 | Statements Required in Certificate or Opinion | 116 | ||||
Section 11.06 | Rules by Trustee, Paying Agent and Registrar | 117 | ||||
Section 11.07 | Legal Holidays | 117 | ||||
Section 11.08 | Governing Law | 117 | ||||
Section 11.09 | No Personal Liability of Directors, Officers, Employees and Stockholders | 117 | ||||
Section 11.10 | Successors | 117 | ||||
Section 11.11 | Multiple Originals; Electronic Signatures | 117 | ||||
Section 11.12 | Waiver of Jury Trial | 117 | ||||
Section 11.13 | Table of Contents; Headings | 118 | ||||
Section 11.14 | Severability | 118 | ||||
Section 11.15 | Submission to Jurisdiction and Venue | 118 | ||||
ARTICLE XII | ||||||
THE TRANSACTIONS | ||||||
Section 12.01 |
The Assumption | 118 |
EXHIBIT A | Form of Note | |
EXHIBIT B | Form of Certificate of Transfer | |
EXHIBIT C | Form of Certificate of Exchange | |
EXHIBIT D | Form of Supplemental Indenture for Additional Subsidiary Guarantors |
iv
EXHIBIT E | Form of Supplemental Indenture for Valvoline Inc. and Certain Subsidiary Guarantors |
v
CROSS-REFERENCE TABLE *
Trust Indenture Act Section |
Indenture Section |
|
310(a)(1) | 7.10 | |
(a)(2) | 7.10 | |
(a)(3) | N.A. | |
(a)(4) | N.A. | |
(a)(5) | 7.10 | |
(b) | 7.10 | |
310(b)(1) | 7.10 | |
(c) | N.A. | |
311(a) | 7.11 | |
(b) | 7.11 | |
312(a) | 2.04 | |
(b) | 11.03 | |
(c) | 11.03 | |
313(a) | 7.06 | |
(b)(1) | N.A. | |
(b)(2) | 7.06 | |
(c) | 7.06, 11.02 | |
(d) | 7.06 | |
314(a) | 4.02, 4.03, 11.02 | |
(b) | N.A. | |
(c)(1) | 7.02, 11.04, 11.05 | |
(c)(2) | 7.02, 11.04, 11.05 | |
(c)(3) | N.A. | |
(d) | N.A. | |
(e) | 11.05 | |
(f) | N.A. | |
315(a) | 7.01(b), 7.02(a) | |
(b) | 7.05, 11.02 | |
(c) | 7.01 | |
(d) | 6.05, 7.01(c) | |
(e) | 6.11 | |
316(a) (last sentence) | 2.11 | |
(a)(1)(A) | 6.05 | |
(a)(1)(B) | 6.04 | |
(a)(2) | N.A. | |
(b) | 6.07 | |
(c) | 9.03 | |
317(a)(1) | 6.08 | |
(a)(2) | 6.09 | |
(b) | 2.05 |
* | N.A. means not applicable. |
* | This Cross-Reference Table is not part of this Indenture. |
vi
Trust Indenture Act Section |
Indenture Section |
|
318(a) | 11.01 | |
(b) | N.A. | |
(c) | 11.01 |
vii
INDENTURE dated as of July 20, 2016, among VALVOLINE FINCO TWO LLC, a Delaware limited liability company ( Finco Two ), a wholly owned subsidiary of ASHLAND INC., a Kentucky corporation ( Ashland ), Ashland, each of the Companys (as defined below) subsidiaries that becomes a Guarantor pursuant to the terms of this Indenture (the Subsidiary Guarantors ), U.S. BANK NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, as trustee (the Trustee ).
W I T N E S S E T H
WHEREAS, the term the Company refers only to Finco Two prior to the Contribution (as defined herein) and Assumption (as defined herein), and to Valvoline Inc., a Kentucky corporation ( Valvoline ), after consummation of the Contribution and Assumption, and not to any of their respective Subsidiaries (as defined herein) or Affiliates (as defined herein).
WHEREAS, the Company has duly authorized the creation of an issue of (a) $375,000,000 aggregate principal amount of 5.500% Senior Notes due 2024 (the Initial Notes ) and (b) if and when issued as provided in the Registration Rights Agreement (as defined herein) in a Registered Exchange Offer (as defined herein) in exchange for any Initial Notes or otherwise registered under the Securities Act (as defined herein) and issued in the form of Exhibit A hereto, the Companys 5.500% Senior Notes due 2024 (the Exchange Notes and, together with the Initial Notes and any Additional Notes, the Notes ). The Initial Notes, the Exchange Notes and any Additional Notes shall be treated as a single class for all purposes under this Indenture, including waivers, amendments, redemptions and offers to purchase.
WHEREAS, the Company has duly authorized the execution and delivery of this Indenture.
NOW, THEREFORE, the Company, Ashland and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined herein).
ARTICLE I
DEFINITIONS
Section 1.01 Definitions . The following terms shall have the following meanings:
100% Spin-off Transaction means the distribution by Ashland Global of all shares of common stock of Valvoline held by Ashland Global to holders of Ashland Globals common stock.
144A Global Note means a Global Note in the form of Exhibit A hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the Outstanding principal amount of Notes initially sold in reliance on Rule 144A.
Acquired Indebtedness means, with respect to any specified Person,
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(1) Indebtedness of any other Person existing at the time such other Person is merged 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.
Additional Notes means any additional notes issued by the Company having the same terms as the Notes, except for the public offering price and the issue date and, if applicable, the initial interest accrual date and the initial Interest Payment Date.
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 Indenture, 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.
Agent means any Registrar, Paying Agent and Custodian.
Applicable Premium means, with respect to any Note on any date of redemption, the greater of:
(1) 1.0% of the then Outstanding principal amount (1) of such Note; and
(2) the excess, if any, of (a) the present value at such date of redemption of (i) the redemption price of such Note at July 15, 2019 (such redemption price being set forth in Section 3.08(b) plus (ii) all required interest payments due on such Note through July 15, 2019 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate as of such date of redemption plus 50 basis points; over (b) the then Outstanding principal amount of such Note.
Applicable Procedures means, with respect to any transfer, redemption, tender or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Clearstream that apply to such transfer or exchange.
Ashland Chemco means Ashland Chemco Inc., a Delaware corporation.
Ashland Chemco Internal Spin-Off means the distribution by Valvoline of the shares of Ashland Chemco, a newly formed entity that will ultimately be the direct parent of Ashland, to Ashland Global, such that Ashland Global holds the Valvoline Business exclusively through Valvoline and Ashland Global holds Ashland and the Chemicals Business exclusively through Ashland Chemco.
Ashland Global means Ashland Global Holdings Inc., a Delaware corporation.
2
Ashland Guarantee means the Guarantee of the Notes by Ashland pursuant to Article X.
Ashland Reorganization means the reorganization of Ashland, Valvoline and their respective subsidiaries under a new public holding company, Ashland Global.
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 Lease-Back Transaction) of the Company or any of its Restricted Subsidiaries (each referred to in this definition as a disposition); or
(2) the issuance or sale of Equity Interests of any Restricted Subsidiary (other than Preferred Stock of Restricted Subsidiaries issued in compliance with Section 4.09), whether in a single transaction or a series of related transactions;
in each case, other than:
(a) any disposition of Cash Equivalents or Investment Grade Securities, obsolete or worn-out property or equipment in the ordinary course of business or any disposition of inventory or goods (or other assets) held for sale or no longer used in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to Section 5.01 or any disposition that constitutes a Change of Control pursuant to this Indenture;
(c) the making of any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under Section 4.07;
(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 of less than $25.0 million;
(e) any disposition of property or assets or issuance of securities by a Restricted Subsidiary of the Company to the Company or by the Company or a Restricted Subsidiary of the Company to another Restricted Subsidiary of the Company;
(f) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, as amended, or comparable law or regulation, 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 or to the extent required by, or made pursuant to, customary buy/sell arrangements between joint venture parties set forth in any joint venture or similar binding agreement;
3
(h) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(i) foreclosures, condemnations or any similar action with respect to assets or the granting of Liens not prohibited by this Indenture;
(j) any financing transaction with respect to the acquisition or construction of property by the Company or any Restricted Subsidiary after the Issue Date, including Sale and Lease-Back Transactions, and asset securitizations permitted by this Indenture;
(k) (i) the licensing and sub-licensing of intellectual property or other general intangibles in the ordinary course of business or consistent with past practice and (ii) a grant of a license to use the Companys or any Restricted Subsidiarys patents, trade secrets, know-how or other intellectual property to the extent that such license does not limit in any material respect the licensors use of the patent, trade secret, know-how or other intellectual property in the Companys business;
(l) the sale, discount or other disposition of inventory, accounts receivable or notes receivable in the ordinary course of business or the conversion of accounts receivable to notes receivable;
(m) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(n) any contribution, sale, conveyance, transfer or other disposition of Securitization Assets to a Securitization Special Purpose Entity as part of, pursuant to or in connection with a Qualified Securitization Transaction; and
(o) any disposition of assets effected pursuant to the Transactions.
Assumption means, subject to satisfaction of the conditions described in Section 12.01, the merger of Finco Two with and into Valvoline, with Valvoline as the surviving corporation, and whereby Valvoline will assume the obligations of Finco Two under this Indenture and the Notes;
Assumption Date means the date of the consummation of the Assumption.
Attributable Indebtedness means, on any date, but without duplication, (a) in respect of any Capitalized Lease Obligation of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease Obligation and (c) all Synthetic Debt of such Person.
Bankruptcy Law means Title 11, U.S. Code or any similar federal or state law for the relief of debtors or other relevant law in any jurisdiction of competent authority for the
4
relief of debtors relating to moratorium, bankruptcy, insolvency, receivership, winding up, liquidation, examinership or reorganization or any amendment to, succession to or change in any such law.
Board of Directors means, with respect to a corporation, the board of directors of the corporation, and, with respect to any other Person, the board or committee of such Person, or board of directors of the general partner or general manager of such Person, serving a similar function.
Board Resolution means a copy of a resolution certified by the secretary or an assistant secretary of the Company to have been adopted by the Board of Directors of the Company or pursuant to authorization by the Board of Directors of the Company, including by an authorized officer, and to be in full force and effect on the date of the certificate, and delivered to the Trustee.
Business Day means each day that is not a Legal Holiday.
Calculation Date means the date on which the event for which the calculation of the Consolidated Net Leverage Ratio, Consolidated First Lien Net Leverage Ratio or the Fixed Charge Coverage Ratio, as applicable, shall occur.
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 (including, without limitation, quotas) 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 Equivalents means:
(1) readily marketable obligations issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States is pledged in support thereof;
5
(2) time deposits with, or insured certificates of deposit or bankers acceptances of, any commercial bank that (i) (A) is a lender under the Senior Secured Credit Facilities or (B) is organized under the laws of the United States, any State thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (3) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(3) commercial paper issued by any Person organized under the laws of any State of the United States and rated at least Prime-2 (or the then equivalent grade) by Moodys or at least A-2 (or the then equivalent grade) by S&P, in each case with maturities of not more than 360 days from the date of acquisition thereof;
(4) Investments, classified in accordance with GAAP as current assets of the Company or any of its Restricted Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moodys or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (1), (2) and (3) of this definition;
(5) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (1) above and entered into with a financial institution satisfying the criteria described in clause (2) above; and
(6) in the case of any Foreign Subsidiary, investments which are similar to the items specified in subsections (1) through (5) of this definition made in the ordinary course of business.
Change of Control means the occurrence of any one of the following:
(1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the property and assets of the Company and its Subsidiaries, taken as a whole, to any Person other than the Company or any of its Subsidiaries; or
(2) the Company 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 14(d)(2) of the Exchange Act, or any successor provision), 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), in a single transaction or in a related series of transactions, by way of acquisition, merger, amalgamation, consolidation, transfer, conveyance or other business combination or purchase of ultimate beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company, other than by virtue of (a) the imposition of one or more holding
6
companies (including in connection with a business combination and regardless of whether any such holding company has other assets) or (b) the reincorporation of the Company in another jurisdiction, if in the case of either (a) or (b) the beneficial owners of the Voting Stock of the Company immediately prior to such transaction directly or indirectly hold a majority of the voting power of the Voting Stock of such holding company or reincorporation entity immediately thereafter.
For the purposes of this definition, the term Person shall be defined as that term is used in Section 13(d)(3) of the Exchange Act and the term beneficial owner shall be defined as that term is used in Rules 13d-3 and 13d-5 under the Exchange Act.
For the avoidance of doubt, the consummation of the Transactions shall not constitute a Change of Control.
Chemicals Business means Ashlands specialty ingredients and performance materials businesses.
Clearstream means Clearstream Banking, SA, and any successor thereto.
Company has the meaning assigned to it in the preamble to this Indenture.
Company Order means a written order signed in the name of the Company by an Officer.
Consolidated Depreciation and Amortization Expense means, with respect to any Person for any period, the total amount of depreciation and amortization expense and capitalized fees related to any Qualified Securitization Transaction or a Receivables Facility and amortization of intangible assets, debt issuance costs, commissions, fees and expenses, 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 (excluding, in each case, amortization expense attributable to a prepaid cash item that was paid in a prior period).
Consolidated First Lien Net Leverage Ratio means, as of the Calculation Date, the ratio of (a) the Consolidated Indebtedness of the Company and its Restricted Subsidiaries that is secured on a first priority basis as of such date of determination less Unrestricted Cash of the Company and its Restricted Subsidiaries as of such date of determination (in each case, determined after giving pro forma effect to such incurrence of Indebtedness, and each other incurrence, assumption, guarantee, redemption, retirement and extinguishment of Indebtedness as of such Calculation Date) to (b) EBITDA of the Company and its Restricted Subsidiaries for the most recent four fiscal quarter period ending immediately prior to such determination date for which internal financial statements are available. For purposes of determining the Consolidated First Lien Net Leverage Ratio, EBITDA shall be subject to the adjustments applicable to EBITDA as provided for in the definition of Fixed Charge Coverage Ratio.
Consolidated Indebtedness means, as of any date of determination, for the Company and its Restricted Subsidiaries on a consolidated basis, the sum of, without duplication (a) the outstanding principal amount of all obligations (as calculated under GAAP), whether
7
current or long-term, for borrowed money (including Obligations in respect of the Indebtedness hereunder), reimbursement obligations for amounts drawn under letters of credit and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments, (b) all direct (but, for the avoidance of doubt, not contingent) obligations arising under bankers acceptances and bank guaranties, (c) all Attributable Indebtedness, and (d) without duplication, all guarantees with respect to outstanding Indebtedness of the types specified in clauses (a) through (c) above of Persons other than the Company or any Restricted Subsidiary. For purposes hereof, the Consolidated Indebtedness of the Company and the Restricted Subsidiaries shall include any of the items in clauses (a) through (d) above of any other entity (including any partnership in which the Company or any consolidated Subsidiary is a general partner) to the extent the Company or such consolidated Subsidiary is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of that item expressly provide that such Person is not liable therefor. For all purposes hereunder, Consolidated Indebtedness shall (i) be calculated on a pro forma basis unless otherwise specified and (ii) include all outstandings of the Company and its Restricted Subsidiaries under any Receivables Facility. Notwithstanding the foregoing, the principal amount outstanding at any time of any Indebtedness included in Consolidated Indebtedness issued with original issue discount shall be the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, but such Indebtedness shall be deemed incurred only as of the date of original issuance thereof.
Consolidated Interest Expense means, as of any date of determination for any period, the excess of (a) the sum, without duplication, of
(i) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP,
(ii) cash payments made in respect of obligations referred to in clause (b)(ii) below,
(iii) the portion of rent expense under Capitalized Lease Obligations that is treated as interest in accordance with GAAP, in each case, of or by the Company and its Restricted Subsidiaries on a consolidated basis at such determination date,
(iv) all interest, premium payments, debt discount, fees, charges and related expenses in connection with a Receivables Facility,
(v) solely for the purpose of determining the ability to incur Indebtedness under Section 4.09(a), 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 (as reasonably determined by such Person or one or more of its Restricted Subsidiaries, as applicable (which determination shall be conclusive)) and
8
(vi) 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 Company) on any series of Disqualified Stock or any series of Preferred Stock during such period,
minus
(b) to the extent included in such consolidated interest expense at such determination date, the sum, without duplication, of
(i) extinguishment charges relating to the early extinguishment of Indebtedness or obligations under Swap Contracts,
(ii) noncash amounts attributable to the amortization of debt discounts or accrued interest payable in kind,
(iii) noncash amounts attributable to amortization or write-off of capitalized interest or other financing costs paid in a previous period,
(iv) interest income treated as such in accordance with GAAP and
(v) fees and expenses, original issue discount and upfront fees, in each case of or by the Company and its Restricted Subsidiaries on a consolidated basis at such determination data.
Consolidated Net Income means, as of any date of determination, the net income (or loss) of the Company and its Restricted Subsidiaries on a consolidated basis for any period (determined on a pro forma basis for any period of time prior to the Assumption Date as if the Company and its Restricted Subsidiaries owned the Valvoline Business during such period of time); provided that Consolidated Net Income shall exclude:
(1) solely for the purpose of determining the amount available for Restricted Payments under clause (3)(a) of Section 4.07(a) the net income of any Subsidiary during such period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its organizational documents or any agreement, instrument or law applicable to such Subsidiary during such period (unless such restrictions on dividends or similar distributions have been legally and effectively waived), except that the Companys equity in any net loss of any such Subsidiary for such period shall be included in determining Consolidated Net Income;
(2) any after-tax income (or after-tax loss) for such period of any Person if such Person is not a Restricted Subsidiary, except that the Companys equity in such income of any such Person for such period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Restricted Subsidiary, such Restricted
9
Subsidiary is not precluded from further distributing such amount to the Company as described in clause (a) of this proviso);
(3) any after-tax gain or after-tax loss realized as a result of the cumulative effect of a change in accounting principles or the implementation of new accounting standards related to revenue and lease accounting;
(4) any after-tax gain or after-tax loss attributable to any foreign currency hedging arrangements or currency fluctuations;
(5) after-tax extinguishment charges relating to the early extinguishment of Indebtedness and obligations under Swap Contracts and after-tax extinguishment charges relating to upfront fees and original issue discount on Indebtedness;
(6) any pension or other post-retirement after-tax gain or after-tax expense for such determination date; provided that Consolidated Net Income shall be reduced by the amount of any cash payments at such determination date relating to pension and other post-retirement costs (except for any payments made in respect of the pension funding in excess of the amount of required regulatory contributions at such determination date (as reasonably determined by the Company, which determination shall be conclusive)); and
(7) any gains or losses or other financial impact from any restructuring related to, connected with, or in any way arising from the Transactions.
Consolidated Net Leverage Ratio means, as of the date of determination, the ratio of (a) the Consolidated Indebtedness of the Company and its Restricted Subsidiaries as of such date of determination less Unrestricted Cash of the Company and its Restricted Subsidiaries as of such date of determination (in each case, determined after giving pro forma effect to such incurrence of Indebtedness, and each other incurrence, assumption, guarantee, redemption, retirement and extinguishment of Indebtedness as of such date of determination) to (b) EBITDA of the Company and its Restricted Subsidiaries for the most recent four fiscal quarter period ending immediately prior to such determination date for which internal financial statements are available. For purposes of determining the Consolidated Net Leverage Ratio, EBITDA shall be subject to the adjustments applicable to EBITDA as provided for in the definition of 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
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(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
(3) 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.
Contribution means the transfer by Ashland to Valvoline of substantially all of the historical assets and liabilities related to the Valvoline Business, as well as other assets and liabilities, as part of the previously announced reorganization of Ashland, and as described in the Offering Memorandum.
Credit Facilities means, with respect to the Company or any of its Restricted Subsidiaries, one or more debt facilities, including the Senior Secured Credit Facilities, or other financing arrangements (including, without limitation, commercial paper facilities or indentures), providing for revolving credit loans, term loans or letters of credit or other long-term 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 Section 4.09) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, lender, investor or group of lenders.
Custodian means (other than as used and defined in Article VI) the Trustee, as custodian with respect to any Notes in global form.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
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.
Definitive Note means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06(c) hereof, substantially in the form of Exhibit A hereto, except that such Note shall not bear the Global Note Legend and shall not have the Schedule of Exchanges of Interests in the Global Note attached thereto.
Depositary means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provisions of this Indenture.
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Designated Non-cash Consideration means the fair market value of non-cash consideration received by the Company or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers Certificate, setting forth the basis of such valuation, executed by the principal financial officer of the Company, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of or collection on such Designated Non-cash Consideration.
Designated Preferred Stock means Preferred Stock of the Company or any parent corporation thereof (in each case other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary or an employee stock ownership plan or trust established by the Company or any of its Subsidiaries) and is so designated as Designated Preferred Stock pursuant to an Officers Certificate executed by the principal financial officer of the Company on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (3) of Section 4.07(a).
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person that, 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 and other than redeemable for Capital Stock of such Person that is not itself Disqualified Stock) 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 and other than redeemable for Capital Stock of such Person that is not itself Disqualified Stock), in whole or in part, in each case prior to the date that is 91 days after the Maturity Date of the Notes; provided , however , that if such Capital Stock is issued to any plan for the benefit of employees of the Company 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 Company or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations.
Domestic Restricted Subsidiary means any Restricted Subsidiary that is organized or existing under the laws of the United States, any state thereof, or the District of Columbia other than any such Restricted Subsidiary that is a (a) direct or indirect Subsidiary of a Foreign Subsidiary or a Foreign Subsidiary Holding Company or (b) Foreign Subsidiary Holding Company.
DTC means The Depository Trust Company or its successors.
EBITDA means, as of any date of determination for any period, an amount equal to Consolidated Net Income for such period plus
(1) proceeds of business interruption insurance received during such period, but only to the extent not included in Consolidated Net Income plus
(2) the following to the extent deducted in calculating such Consolidated Net Income, but without duplication and in each case at such determination date:
(i) Consolidated Interest Expense;
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(ii) the provision for federal, State, local and foreign income taxes payable;
(iii) Consolidated Depreciation and Amortization Expense;
(iv) asset impairment charges;
(v) expenses reimbursed by third parties (including through insurance and indemnity payments);
(vi) fees and expenses incurred in connection with the Transactions, any Receivables Facility, any proposed or actual issuance of any Indebtedness or Equity Interests (including upfront fees and original issue discount), or any proposed or actual acquisitions, investments, asset sales or divestitures permitted hereunder, in each case that are expensed;
(vii) non-cash restructuring and integration charges and cash restructuring and integration charges; provided that the aggregate amount of all cash restructuring and integration charges shall not exceed 15% of EBITDA for any twelve-month period, calculated immediately before giving effect to the addback in this clause (vii);
(viii) non-cash stock expense and non-cash equity compensation expense;
(ix) other expenses or losses, including purchase accounting entries such as the inventory adjustment to fair value, reducing such Consolidated Net Income which do not represent a cash item in such period or any future period;
(x) expenses or losses in respect of discontinued operations of the Company or any of its Restricted Subsidiaries;
(xi) any unrealized losses attributable to the application of mark to market accounting in respect of Swap Contracts; and
(xii) with respect to any Asset Sale for which pro forma effect is required to be given, any loss thereon;
and minus
(3) the following to the extent included in calculating such Consolidated Net Income, but without duplication and in each case at such determination date:
(i) federal, State, local and foreign income tax credits;
(ii) all non-cash gains or other items increasing Consolidated Net Income;
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(iii) gains in respect of discontinued operations of the Company or any of its Restricted Subsidiaries;
(iv) any unrealized gains for such period attributable to the application of mark-to-market accounting in respect of Swap Contracts; and
(v) with respect to any Asset Sale for which pro forma effect is required to be given, any gain thereon.
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.
Equity Offering means any public or private sale of common stock or Preferred Stock of the Company (excluding Disqualified Stock), other than:
(1) the Proposed IPO;
(2) public offerings with respect to the Companys common stock registered on Form S-8; and
(3) issuances to any Subsidiary of the Company or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Company.
Euroclear means Euroclear S.A./N.V., as operator of the Euroclear system, and any successor thereto.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
fair market value means, with respect to any asset or liability, the fair market value of such asset or liability as determined by the Company in good faith (which determination shall be conclusive).
Fixed Charge Coverage Ratio means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Consolidated Interest Expense of such Person for such period. In the event that the Company or any Restricted Subsidiary incurs, assumes, guarantees, redeems, retires or extinguishes any Indebtedness (other than Indebtedness incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) or issues or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to or simultaneously with the event for which the calculation of the Fixed Charge Coverage Ratio is made, then the 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 at the beginning of the applicable four-quarter period.
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For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (as determined in accordance with GAAP) that have been made by the Company or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Fixed Charge Coverage Ratio Calculation Date shall be calculated on a pro forma basis, assuming that all such Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (and the change in any associated fixed charge obligations and the change in EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into the Company or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, consolidation or disposed operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, consolidation or disposed operation 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 an Investment, acquisition, disposition, merger, consolidation, disposed operation or any other transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company (and may include, for the avoidance of doubt and without duplication, cost savings and operating expense reduction resulting from such Investment, acquisition, disposition, merger, consolidation, disposed operation or other transaction, in each case calculated in the manner described in the definition of EBITDA herein). 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 Fixed Charge Coverage Ratio Calculation Date had been the applicable rate for the entire period (taking into account any Swap Contracts 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 Company 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 period except as set forth in the first paragraph of this definition. 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 Company may designate.
Foreign Subsidiary means, with respect to any Person, any Subsidiary of such Person that is not organized or existing under the laws of the United States, any state thereof, or the District of Columbia and any direct or indirect Subsidiary of such Foreign Subsidiary.
Foreign Subsidiary Holding Company means, with respect to any Person, any Subsidiary of such Person substantially all of whose assets consist of Equity Interests and/or Indebtedness of one or more (a) Foreign Subsidiaries and/or (b) Subsidiaries described in this definition.
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GAAP means generally accepted accounting principles in the United States of America which are in effect from time to time that are applicable as of the date of determination; provided that no effect shall be given to any change in GAAP arising out of a change described in the Accounting Standard Update Exposure Drafts related to leases (including capital leases) or any other substantially similar pronouncement.
Global Note has the meaning set forth in Section 2.01 hereof.
Global Note Legend means the legend initially set forth on the Notes in the form set forth in Section 2.06(f)(2) hereof.
Government Securities means securities that are:
(1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged;
(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 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; or
(3) AAA rated money market mutual funds, where 100% of the holdings are in securities described in clauses (1) or (2) of this definition of Government Securities or repurchase agreements that are fully collateralized by securities described in clauses (1) or (2) of this definition of Government Securities.
guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business and Standard Securitization Undertakings), 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 Companys Obligations under this Indenture and the Notes.
Guarantor means each Subsidiary Guarantor, Ashland and any other Person that becomes a Guarantor in accordance with the terms of this Indenture.
Holder means the Person in whose name a Note is registered on the applicable Registrars books.
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Indebtedness means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(1) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(2) the maximum amount of all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar instruments, except to the extent that such instruments support Indebtedness of the type referred to in subclause (i) of the parenthetical in clause (4) of this defined term;
(3) net obligations of such Person under any Swap Contract, other than any Swap Contract that pursuant to its terms may be satisfied by delivery of Equity Interests of the Company;
(4) all obligations of such Person to pay the deferred purchase price of property or services (other than (i) trade accounts payable in the ordinary course of business, (ii) any earn-out or similar obligation that is a contingent obligation or that is not reasonably determinable as of the applicable date of determination and (iii) any earn-out or similar obligation that is not a contingent obligation and that is reasonably determinable as of the applicable date of determination to the extent that (A) such Person is indemnified for the payment thereof by a third party reasonably believed by such Person to be solvent or (B) amounts to be applied to the payment therefor are in escrow);
(5) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(6) (i) all Attributable Indebtedness of such Person and (ii) all obligations of such Person under any Receivables Facility; and
(7) all guarantees of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the swap termination value thereof as of such date. Notwithstanding the foregoing, the principal amount outstanding at any time of any Indebtedness issued with original issue discount shall be the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, but such Indebtedness shall be deemed incurred only as of the date of original issuance thereof.
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Indenture means this Indenture, as amended or supplemented from time to time.
Independent Financial Advisor means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the good faith judgment of the Company, qualified to perform the task for which it has been engaged.
Interest Payment Date means the date specified in the Notes for the payment of any installment of interest on the Notes.
Internal Revenue Code means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
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.
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 Company 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 thereof); 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, advances to customers, commission, travel and similar advances to directors, officers, employees and consultants 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 the Company 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 Section 4.07:
(1) Investments shall include the portion (proportionate to the Companys equity interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided , however , that upon a redesignation of such Subsidiary as a
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Restricted Subsidiary, the Company shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary in an amount (if positive) equal to:
(a) the Companys Investment in such Subsidiary at the time of such redesignation; less
(b) the portion (proportionate to the Companys 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.
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 or Cash Equivalents by the Company or a Restricted Subsidiary in respect of such Investment.
Issue Date means July 20, 2016. For purposes of determining items outstanding, in existence or in effect on the Issue Date, the Assumption shall be deemed to have occurred on the Issue Date.
Lien means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest 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 other 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.
Maturity Date , when used with respect to any Note or installment of principal thereof, means the date on which the principal of such Note or such installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity Date or by declaration of acceleration, call for redemption, notice of option to elect repayment or otherwise.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Net Proceeds means the aggregate cash proceeds and Cash Equivalents received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, including any cash and Cash Equivalents 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, 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), amounts
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required to be applied to the repayment of Indebtedness secured by a Lien on such assets (other than required by clause (1) of Section 4.10(b)) and any deduction of appropriate amounts to be provided by the Company 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 Company 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.
Notes has the meaning assigned to it in the preamble to this Indenture.
Obligations means any principal, 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), premium, 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, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Indebtedness.
Offering Memorandum means the offering memorandum of the Company with respect to the Notes issued on the Issue Date, dated July 13, 2016.
Officer means the Chairman of the Board of Directors, the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of the Company or a Guarantor.
Officers Certificate means a certificate signed on behalf of the Company by an Officer of the Company or on behalf of a Guarantor by an Officer of such Guarantor (or if such Guarantor is a general partnership, one of the partners of the Guarantor).
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 Company or a Subsidiary of the Company.
Outstanding means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except:
(1) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
(2) Notes for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent); provided that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture;
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(3) Notes that have been defeased pursuant to the procedures specified in Article VIII; and
(4) Notes that have been paid in lieu of reissuance relating to lost, stolen, destroyed or mutilated certificates, or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture;
provided , however , that in determining whether the Holders of the requisite principal amount of the Outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver under this Indenture, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes that a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgees right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor.
Participant means a Person who has an account with the Depositary and shall include other indirect participants in The Depositary Trust Company serving a similar function.
Permitted Investment means:
(1) any Investment in the Company or any of its Restricted Subsidiaries or any Person that will become a Restricted Subsidiary as a result of such Investment;
(2) any Investment in cash or Cash Equivalents or Investment Grade Securities;
(3) any Investment acquired after the Issue Date as a result of the acquisition by the Company or any Restricted Subsidiary of the Company of another Person, including by way of a merger, amalgamation or consolidation with or into the Company or any of its Restricted Subsidiaries in a transaction that is not prohibited by Section 5.01, to the extent that such Investments were not made in anticipation or contemplation of such acquisition, merger, amalgamation or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation;
(4) any Investment in securities or other assets, including earn-outs, not constituting Cash Equivalents or Investment Grade Securities and received in connection with an Asset Sale made pursuant to Section 4.10(a) or any other disposition of assets not constituting an Asset Sale;
(5) any Investment existing on the Issue Date or an Investment consisting of any extension, modification or renewal of any such Investment or made pursuant to binding commitments in effect on the Issue Date; provided that the amount of any such Investment may be increased pursuant to such extension, modification or renewal only (a) as required by the terms of such Investment or binding commitment as in existence on the Issue Date (including as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities) or (b) as otherwise permitted under this Indenture;
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(6) any Investment acquired by the Company or any of its Restricted Subsidiaries:
(A) consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business;
(B) in exchange for any other Investment or accounts receivable, endorsements for collection or deposit held by the Company 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 (including any trade counterparty or customer);
(C) in satisfaction of judgments against other Persons; or
(D) as a result of a foreclosure by the Company 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;
(7) Swap Contracts permitted under Section 4.09(b)(10);
(8) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of the Company; provided , however , that such Equity Interests will not increase the amount available for Restricted Payments under clause (3) of Section 4.07(a);
(9) guarantees of Indebtedness permitted under Section 4.09;
(10) any transaction to the extent it constitutes an Investment that is permitted and made in accordance with the provisions of Section 4.11(b) (except transactions described in clause (2), (4), (6), (8) or (12) of such Section);
(11) Investments consisting of purchases and acquisitions of inventory, supplies, material or equipment;
(12) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (12) that are at that time outstanding, not to exceed $200.0 million (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 (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or upon the foreclosure with respect to any secured Investment or other transfer of title with respect to any secured Investment;
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(14) Investments in joint ventures of the Company or any of its Restricted Subsidiaries in any calendar year in an aggregate amount invested, taken together with all other amounts invested pursuant to this clause (14) in such calendar year that are at that time outstanding not to exceed $200.0 million; provided that in the event the Company or any of its Restricted Subsidiaries receives any dividend, distribution, interest payment, return of capital, repayment or other amount received in cash or Cash Equivalents in respect of any Investment made pursuant to this clause (14), an amount equal to such dividend, distribution, interest payment, return of capital, repayment or other amount received in cash or Cash Equivalents, not to exceed the original amount invested, shall be available for Investments under this clause (14) in the calendar year in which such return is received and thereafter
(15) [Reserved];
(16) loans and 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;
(17) advances, loans or extensions of trade credit in the ordinary course of business by the Company or any of its Restricted Subsidiaries;
(18) any Investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business;
(19) Investments consisting of purchases and acquisitions of assets or services in the ordinary course of business;
(20) Investments made in the ordinary course of business in connection with obtaining, maintaining or renewing client contacts;
(21) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business;
(22) repurchases of Notes;
(23) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection of deposit and Article 4 customary trade arrangements with customers;
(24) Investments by the Company or any Restricted Subsidiary in a Securitization Special Purpose Entity or any Investment by a Securitization Special Purpose Entity in any other Person, in each case, as part of, pursuant to or in connection with a Qualified Securitization Transaction, including contributions of Securitization Assets to a Securitization Special Purpose Entity, the retention of interests in Securitization Assets contributed, sold, conveyed, transferred or otherwise disposed of to
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a Securitization Special Purpose Entity and Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Securitization Transaction or any related Indebtedness;
(25) Investments in the ordinary course of business in connection with joint marketing arrangements with another Person (including the licensing or contribution of intellectual property in connection therewith);
(26) any Investment in a Similar Business having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (26) that are at that time outstanding, not to exceed $125.0 million (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); and
(27) Investments made as part of the Transactions in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum.
Permitted Liens means, with respect to any Person:
(1) pledges or deposits by such Person under workmens compensation laws, unemployment insurance laws or similar legislation, 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 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, in each case incurred in the ordinary course of business;
(2) Liens imposed by law, 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;
(3) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than 30 days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person to the extent required by GAAP;
(4) Liens to secure the performance of statutory obligations or in favor of issuers of performance, surety, bid or appeal 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, title defects, encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of
24
real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties that, in all cases, were not incurred in connection with Indebtedness and that 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), (10) or (27) of Section 4.09(b); provided that (a) Liens securing Indebtedness permitted to be incurred pursuant to clause (4) of Section 4.09(b) extend only to the assets 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 (b) Liens securing Indebtedness permitted to be incurred pursuant to clause (27) of Section 4.09(b) extend only to the assets of such Foreign Subsidiaries;
(7) Liens existing on the Issue Date;
(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 anticipation or 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 Company or any of its Restricted Subsidiaries (other than after-acquired property of the acquired Person of the same nature as the property that is the subject of such Lien at the time such Person becomes a Subsidiary);
(9) Liens on property at the time the Company or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Company or any of its Restricted Subsidiaries; provided , however , that such Liens are not created or incurred in connection with, or in anticipation or contemplation of, such acquisition; provided further , however , that the Liens may not extend to any other property owned by the Company or any of its Restricted Subsidiaries (other than after-acquired property of the acquired Person of the same nature as the property that is the subject of such Lien at the time such Person becomes a Subsidiary);
(10) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or another Restricted Subsidiary permitted to be incurred in accordance with Section 4.09;
(11) Liens on specific items of inventory of other goods and proceeds of any Person securing such Persons obligations in respect of bankers acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(12) leases, subleases, licenses or sublicenses granted to others in the ordinary course of business that do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries and that do not secure any Indebtedness;
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(13) Liens arising from Uniform Commercial Code financing statement filings (or similar filings under applicable law) regarding operating leases, consignment of goods or similar arrangements entered into by the Company and its Restricted Subsidiaries in the ordinary course of business and Liens of a collecting bank arising in the ordinary course of business under Section 4-208 (or the applicable corresponding section) of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon;
(14) Liens in favor of the Company or any Subsidiary Guarantor;
(15) Liens on equipment of the Company or any of its Restricted Subsidiaries granted in the ordinary course of business to the Companys clients;
(16) Liens to secure any refinancing, refunding, extension, renewal or replacement (or successive refinancing, refunding, extension, renewal or replacement) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clause (6), (7), (8) or (9) of this definition to the extent that the Indebtedness secured by such new Lien is an amount equal to the sum of (i) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clause (6), (7), (8) or (9) of this definition at the time the original Lien became a Permitted Lien under this Indenture, and (ii) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement; provided , however , that in each case such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property);
(17) deposits made in the ordinary course of business to secure liability to insurance carriers;
(18) other Liens securing obligations not to exceed $300.0 million in aggregate principal amount at any one time outstanding;
(19) Liens securing Indebtedness of any non-Guarantor Restricted Subsidiary permitted to be incurred under this Indenture, to the extent such Liens relate only to the assets and properties of a non-Guarantor Restricted Subsidiary (and for the avoidance of doubt, any Liens permitted by this clause (19) at the time of incurrence thereof shall continue to be permitted by this clause (19) if such non-Guarantor Restricted Subsidiary later provides a Guarantee of the Notes);
(20) Liens securing judgments for the payment of money not constituting an Event of Default under Section 6.01(e) 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;
(21) 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 in the ordinary course of business;
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(22) 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 institutions arising as a matter of law encumbering deposits (including the right of setoff) and which are within the general parameters customary in the banking industry;
(23) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 4.09; provided that such Liens do not extend to any assets other than those that are the subject of such repurchase agreement;
(24) [Reserved]
(25) Liens that are contractual rights of setoff (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 or other cash management arrangements of the Company or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Company and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Company or any of its Restricted Subsidiaries in the ordinary course of business;
(26) Liens securing Indebtedness and other obligations to the extent permitted to be incurred under Credit Facilities, including any letter of credit facility relating thereto, incurred pursuant to Section 4.09(b)(1);
(27) 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;
(28) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale or purchase of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business;
(29) Liens solely on any cash earnest money deposits made by the Company or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;
(30) Liens securing the Notes (other than any Additional Note) or the Guarantees thereof;
(31) ground leases in respect of real property on which facilities owned or leased by the Company or any of its Subsidiaries are located;
(32) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
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(33) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(34) Liens on cash advances in favor of the seller of any property to be acquired in an Investment permitted under this Indenture to be applied against the purchase price for such Investment;
(35) any interest or title of a lessor, sub-lessor, licensor or sub-licensor or secured by a lessors, sub-lessors, licensors or sub-licensors interest under leases or licenses entered into by the Company or any of the Restricted Subsidiaries in the ordinary course of business;
(36) deposits of cash with the owner or lessor of premises leased and operated by the Company or any of its Subsidiaries in the ordinary course of business of the Company and such Subsidiary to secure the performance of the Companys or such Subsidiarys obligations under the terms of the lease for such premises;
(37) prior to the date on which a Permitted Investment is consummated, Liens arising from any escrow arrangement pursuant to which the proceeds of any equity issuance or other funds used to finance all or a portion of such Permitted Investment are required to be held in escrow pending release to consummate such Permitted Investment;
(38) Liens in connection with contracts for the sale of assets, including customary provisions with respect to a Restricted Subsidiary of the Company pursuant to an agreement that has been entered into for the sale or disposition of any Capital Stock or assets of such Subsidiary;
(39) Liens on trusts, cash or Cash Equivalents or other funds in connection with the defeasance (whether by covenant or legal defeasance), discharge or redemption of Indebtedness pending consummation of a strategic transaction, or similar obligations; provided that such defeasance, discharge or redemption is otherwise permitted by this Indenture;
(40) Standard Securitization Undertakings and Liens on Securitization Assets or on assets of a Securitization Special Purpose Entity, in either case incurred in connection with a Qualified Securitization Transaction or a Receivables Facility, in each case, incurred in compliance with Section 4.09(b)(24) (for the avoidance of doubt, Liens permitted under this clause (40) shall include Liens in connection with the trade receivables securitization facility to be entered into in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum); and
(41) any Liens arising from the Transactions in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum.
In the event that a Permitted Lien meets the criteria of more than one of the types of Permitted Liens (at the time of incurrence or at a later date), the Company in its sole discretion may divide, classify or from time to time reclassify all or any portion of such Permitted Lien in any manner that complies with this definition and such Permitted Lien shall be treated as having
28
been made pursuant only to the clause or clauses of the definition of Permitted Lien to which such Permitted Lien has been classified or reclassified.
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.
Private Placement Legend means the legend set forth in Section 2.06(f)(i) hereof to be placed on all Notes issued under this Indenture, except where otherwise permitted by the provisions of this Indenture.
Proposed IPO means the initial public offering by Valvoline of shares of its common stock.
QIB means a qualified institutional buyer as defined in Rule 144A.
Qualified Securitization Transaction means any transaction or series of transactions entered into by the Company or any Restricted Subsidiary pursuant to which the Company or such Restricted Subsidiary contributes, sells, conveys, grants a security interest in or otherwise transfers to a Securitization Special Purpose Entity, and such Securitization Special Purpose Entity contributes, sells, conveys, grants a security interest in or otherwise transfers to one or more other Persons, any Securitization Assets (whether now existing or arising in the future) or any beneficial or participation interests therein.
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 Company which shall be substituted for Moodys or S&P or both, as the case may be.
Receivables Facility means any receivables financing facilities or factoring (or reverse factoring) agreements or facilities, as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the obligations in respect of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to the Company or any of its Restricted Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries sells its accounts receivable to a Person that is not a Restricted Subsidiary. The term Receivables Facility does not include a Qualified Securitization Transaction.
Registered Exchange Offer means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Notes, to issue and deliver to such Holders, in exchange for their Initial Notes, a like aggregate principal amount of Exchange Notes registered under the Securities Act, or any other registration rights agreement entered into in connection with the issuance of Additional Notes.
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Registration Rights Agreement means the Registration Rights Agreement to be dated the Assumption Date, among the Company, the Subsidiary Guarantors and Citigroup Global Markets Inc., as representative of the initial purchasers, or any other registration rights agreement entered into in connection with the issuance of Additional Notes.
Regular Record Date means the Record Dates specified in the Notes; provided that if any such date is not a Business Day, the Record Date shall be the first day immediately preceding such specified day that is a Business Day.
Regulation S means Regulation S promulgated under the Securities Act.
Regulation S Global Note means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as applicable.
Regulation S Permanent Global Note means a permanent Global Note in the form of Exhibit A hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the Outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the applicable Restricted Period.
Regulation S Temporary Global Note means a temporary Global Note in the form of Exhibit A hereto, bearing the Global Note Legend, the Private Placement Legend and the Regulation S Temporary Global Note Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the Outstanding principal amount of the Notes initially sold in reliance on Rule 903.
Regulation S Temporary Global Note Legend means the legend set forth in Section 2.06(f)(3) hereof.
Responsible Officer with respect to the Trustee, means any vice president, assistant vice president, trust officer, assistant trust officer or any other officer of the Trustee within the corporate trust department of the Trustee who customarily performs functions similar to those performed by the above designated officers or to whom any corporate trust matter is referred because of such Persons knowledge of and familiarity with the particular subject, and who shall have direct responsibility for the administration of this Indenture.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Definitive Note means a Definite Note bearing the Private Placement Legend.
Restricted Global Note means a Global Note bearing the Private Placement Legend.
Restricted Period means the 40-day distribution compliance period as defined in Regulation S.
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Restricted Subsidiary means, at any time, any direct or indirect Subsidiary of the Company (including any Foreign Subsidiary and Foreign Subsidiary Holding Company) that is not then an Unrestricted Subsidiary. Upon an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be a Restricted Subsidiary.
S&P means Standard & Poors, a division of McGraw-Hill Financial, Inc., and any successor to its rating agency business.
Sale and Lease-Back Transaction means any arrangement providing for the leasing by the Company or any of its Restricted Subsidiaries of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to a third Person in contemplation of such leasing.
SEC means the U.S. Securities and Exchange Commission.
Second Step Spin-Off means the distribution by Ashland Global of all shares of common stock of Valvoline held by Ashland Global to the holders of Ashland Globals common stock following the completion of the Proposed IPO.
Secured Indebtedness means any Indebtedness of the Company or any of its Restricted Subsidiaries secured by a Lien.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Securitization Assets means (i) all receivables, inventory or royalty or other revenue streams contributed, sold, conveyed, granted or otherwise transferred as part of, pursuant to or in connection with asset securitization transactions by the Company or any Restricted Subsidiary pursuant to agreements, instruments and other documents relating to any Qualified Securitization Transaction, (ii) all assets related to such receivables, inventory or royalty or other revenue streams, including rights arising under the contracts governing or related to such receivables, inventory or royalty or other revenue streams, rights in respect of collateral and Liens securing such receivables, inventory or royalty or other revenue streams and all contracts and contractual and other rights, guarantees and other credit support in respect of such receivables, inventory or royalty or other revenue streams, any proceeds of such receivables, inventory or royalty or other revenue streams and any lockboxes or accounts in which such proceeds are deposited, spread accounts and other similar accounts (and any amounts on deposit therein) established as part of, pursuant to or in connection with a Qualified Securitization Transaction, any warranty, indemnity, repurchase, dilution and other claim, arising out of the agreements, instruments and other documents relating to such Qualified Securitization Transaction and other assets that are transferred or in respect of which security interests are granted in connection with asset securitizations involving similar assets, and (iii) all collections (including recoveries) and other proceeds of the assets described in the foregoing clauses (i) and (ii).
Securitization Fees means distributions or payments made directly or indirectly by means of discounts with respect to any Securitization Assets or beneficial or participation interests therein contributed, sold, conveyed, granted or otherwise transferred to, and other fees
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paid to a Person that is not a Restricted Subsidiary as part of, pursuant to or in connection with, any Qualified Securitization Transaction.
Securitization Special Purpose Entity means a Person (including, without limitation, a Restricted Subsidiary) created in connection with the transactions contemplated by a Qualified Securitization Transaction, which Person engages in no business or activities other than in connection with the acquisition, disposition and financing of Securitization Assets and any business or activities incidental or related thereto and holds no assets other than Securitization Assets and other assets incidental or related to such Qualified Securitization Transaction.
Senior Indebtedness means any Indebtedness of the Company or any Subsidiary Guarantor that ranks equal in right of payment with the Notes or the Guarantee of such Subsidiary Guarantor, as the case may be. For the avoidance of doubt, any Indebtedness of the Company or any Subsidiary Guarantor that is permitted to be incurred under the terms of this Indenture shall constitute Senior Indebtedness for the purposes of this Indenture unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinate in right of payment to the Notes or any related Guarantee.
Senior Secured Credit Facilities means the Credit Agreement dated as of July 11, 2016, by and among the Company, The Bank Of Nova Scotia, as administrative agent, and the other agents and lenders party thereto, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof.
Separation means collectively, the Ashland Chemco Internal Spin-Off, the Valvoline Reorganization, the Ashland Reorganization and the Transfer.
Separation Documents means each of the following agreements among Ashland, Ashland Global, the Company or their respective Subsidiaries, as the case may be, in connection with the separation and distribution to be dated as of or prior to the date of the Proposed IPO, the Separation Agreement, the Transition Services Agreement, the Reverse Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Shared Environmental Liabilities Agreement and the Registration Rights Agreement (each as referred to in the Valvoline Inc. Registration Statement on Form S-1 (#333-211720), as filed on May 31, 2016) and any other instruments, assignments, documents and agreements executed in connection with the implementation of the Transactions.
Shelf Registration Statement means a registration statement filed by the Company in connection with the offer and sale of Initial Notes pursuant to the Registration Rights Agreement.
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 Company and its Subsidiaries on the Assumption Date or any business that is similar,
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reasonably related, incidental or ancillary thereto or a reasonable extension, development or expansion of such business.
Standard Securitization Undertakings means all representations, warranties, covenants, indemnities, performance guarantees and servicing obligations entered into by the Company or any Subsidiary (other than a Securitization Special Purpose Entity) that, taken as a whole, are customary in connection with a Qualified Securitization Transaction.
Stated Maturity Date , when used with respect to any Note, means the date specified in such Note as the fixed date on which an amount equal to the principal amount of such Note is due and payable.
Subordinated Indebtedness means, with respect to the Notes,
(1) any Indebtedness of the Company that is by its terms subordinated in right of payment to the Notes, and
(2) any Indebtedness of any Subsidiary Guarantor that is by its terms subordinated in right of payment to the Guarantee of such entity of the Notes.
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 otherwise, and
(b) such Person or any Restricted Subsidiary of such Person is a general partner or otherwise controls such entity.
Notwithstanding the foregoing, the term Subsidiary when related to the Company shall not include Ashland and its Subsidiaries (other than, for the avoidance of doubt, any Subsidiaries that will be Restricted Subsidiaries at the time of completion of the Contribution and Assumption).
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Subsidiary Guarantor has the meaning assigned to it in the preamble to this Indenture.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement), including any such obligations or liabilities under any Master Agreement.
Synthetic Debt means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds (including any minority interest transactions that function primarily as a borrowing) but are not otherwise included in the definition of Indebtedness or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.
Synthetic Lease Obligation means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including Sale and Lease-Back Transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
Total Assets means the total assets of the Company and the Restricted Subsidiaries on a consolidated basis, as shown on the most recent consolidated balance sheet of the Company or such other Person as may be expressly stated, as the case may be (giving pro forma effect to any acquisitions or dispositions of assets or properties that have been made by the Company or any of its Restricted Subsidiaries subsequent to the date of such balance sheet, including through mergers or consolidations).
Transactions means collectively, the Separation, the Contribution, the Assumption and, as the case may be, either the Proposed IPO and the Second Step Spin-Off or the 100% Spin-Off Transaction.
Transfer means the transfer of certain assets and liabilities among Ashland, Ashland Global, Valvoline and their respective subsidiaries.
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Treasury Rate means, as of any date of redemption, the yield to maturity as of such date of redemption 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 date of redemption (or in connection with a discharge, two Business Days prior to the date of deposit with the Trustee or paying agent, as applicable) (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the date of redemption to July 15, 2019; provided however that if the period from the date of redemption to the Stated Maturity Date of the Notes to be redeemed is less than one year, the weekly average yield on actually 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.
Trustee means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
Unrestricted Cash means, at any time, all cash and Cash Equivalents held by the Company and its Restricted Subsidiaries at such time; provided that such cash and Cash Equivalents (a) do not appear (and would not be required to appear) as restricted on a consolidated balance sheet of the Company prepared in conformity with GAAP (unless such classification results solely from any Lien referred to in clause (b) below) and (b) are not controlled by or subject to any Lien or other preferential arrangement in favor of any creditor, other than Liens created under a Credit Facility.
Unrestricted Definitive Note means a Definitive Note without the Private Placement Legend.
Unrestricted Global Note means a Global Note without the Private Placement Legend.
Unrestricted Subsidiary means:
(1) any Subsidiary of the Company that at the time of determination is an Unrestricted Subsidiary (as designated by the Company, as provided below); and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Company may designate any Subsidiary of the Company (including any existing Subsidiary and any newly acquired or newly formed Subsidiary) 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 Company or any Subsidiary of the Company (other than solely any Subsidiary of the Subsidiary to be so designated); provided that
(a) such designation complies with Section 4.07; and
35
(b) each of the Subsidiary to be so designated and 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 Company or any Restricted Subsidiary.
The Company 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:
(i) the Company could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); or
(ii) the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries would be greater than such ratio of the Company and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation.
Any such designation by the Company shall be notified by the Company to the Trustee by promptly filing with the Trustee a copy of the Board Resolution of the Company or any committee thereof giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing provisions.
Actions taken by an Unrestricted Subsidiary will not be deemed to have been taken, directly or indirectly, by the Company or any Restricted Subsidiary.
Valvoline Business means Ashlands automotive, commercial and industrial lubricant and automotive chemical business substantially as described in the Valvoline Inc. Registration Statement on Form S-1 (#333-211720), as filed on May 31, 2016.
Valvoline Reorganization means the reorganization of the Valvoline Business such that Valvoline is the owner, directly or indirectly, of substantially all of the Valvoline Business.
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 of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the number of years 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 redemption or similar payment with respect to such Disqualified Stock multiplied by the amount of such payment; by
(2) the sum of all such payments.
Section 1.02 Other Definitions .
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Term | Defined in Section | |
Acceptable Commitment |
4.10(b) | |
Affiliate Transaction |
4.11(a) | |
Asset Sale Offer |
4.10(c) | |
Change of Control Offer |
4.13(a) | |
Change of Control Payment |
4.13(a) | |
Change of Control Payment Date |
4.13(a)(2) | |
Covenant Defeasance |
8.03 | |
Covenant Suspension Event |
4.14(a) | |
Event of Default |
6.01 | |
Excess Proceeds Threshold |
4.10(c) | |
Guaranteed Obligations |
10.01(a) | |
incur |
9.09(a) | |
Legal Defeasance |
8.02 | |
Legal Holiday |
11.07 | |
OID |
4.06 | |
Paying Agent |
2.03 | |
Refinancing Indebtedness |
4.09(b)(13) | |
Refunding Capital Stock |
4.07(b)(2) | |
Registrar |
2.03 | |
Reversion Date |
4.14(c) | |
Special Mandatory Redemption |
3.07 | |
Special Mandatory Redemption Date |
3.07 | |
Special Mandatory Redemption Event |
3.07 | |
Special Mandatory Redemption Price |
3.07 | |
Successor Company |
5.01(a)(1) | |
Successor Person |
5.01(b)(1)(a) | |
Suspended Covenants |
4.14(a) | |
Suspension Period |
4.14(a) | |
Treasury Capital Stock |
4.07(b)(2) |
Section 1.03 Incorporation by Reference of Trust Indenture Act . When qualified under the Trust Indenture Act, this Indenture shall be subject to the mandatory provisions of the Trust Indenture Act, which are incorporated by reference in and made a part of this Indenture. Whether or not this Indenture is so qualified, the following Trust Indenture Act terms used in this Indenture have the following meanings:
indenture securities means the Notes;
indenture security Holder means a Holder of a Note;
indenture to be qualified means this Indenture;
indenture trustee or institutional trustee means the Trustee; and
obligor on the Notes means the Company and each Guarantor, until a successor replaces the Company or a Guarantor and thereafter means, as to such replaced Company or Guarantor, its successor.
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When qualified under the Trust Indenture Act, all other terms used in this Indenture that are defined by the Trust Indenture Act, defined by the Trust Indenture Acts reference to another statute or defined by SEC rule under the Trust Indenture Act shall have the meanings so assigned to them.
Section 1.04 Rules of Construction . Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) or is not exclusive;
(d) words in the singular include the plural, and in the plural include the singular;
(e) provisions apply to successive events and transactions;
(f) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time;
(g) the term consolidated with respect to any Person refers to such Person consolidated with its Restricted Subsidiaries, and excludes from such consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such Person; and
(h) all covenant basket sizes set forth herein, including any definitions relating thereto, are as specified in U.S. dollars.
ARTICLE II
THE NOTES
Section 2.01 Form and Dating; Terms .
(a) General . The Notes and the Trustees certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage in addition to those provided for in Exhibit A hereto. Each Note shall be dated the date of its authentication. The Notes shall be in minimum amounts of $2,000 and integral multiples of $1,000 in excess of $2,000.
(b) Global Notes .
(1) Notes issued in global form shall be substantially in the form of Exhibit A hereto (including the Global Note Legend thereon and the Schedule of Exchanges of Interests in the Global Note attached thereto). Notes issued in definitive
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form shall be substantially in the form of Exhibit A hereto (but without the Global Note Legend thereon and without the Schedule of Exchanges of Interests in the Global Note attached thereto). Each Global Note shall represent such aggregate principal amount of the Outstanding Notes as shall be specified in the Schedule of Exchanges of Interests in the Global Note attached thereto and each shall provide that it shall represent up to the aggregate principal amount of Notes from time to time endorsed thereon and that the aggregate principal amount of Outstanding Notes represented thereby may from time to time be reduced or increased, as applicable, to reflect exchanges and redemptions and transfers of interests therein. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of Outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.
(2) Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Company and authenticated by the Trustee as provided in this Indenture. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in the Regulation S Permanent Global Note pursuant to Section 2.06 hereof and the Applicable Procedures. Simultaneously with the authentication of the Regulation S Permanent Global Note, the Trustee shall cancel such Regulation S Temporary Global Note. The aggregate principal amount of a Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as provided in this Indenture.
(c) Participants shall have no rights under this Indenture or any Global Note with respect to any Global Note held on their behalf by the Depositary or by the Trustee as custodian for the Depositary, and the Depositary shall be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the Applicable Procedures or the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Note.
(d) Terms . The aggregate principal amount of Initial Notes that may be authenticated and delivered under this Indenture on the Issue Date is $375,000,000, and the aggregate amount of Additional Notes that may be authenticated and delivered under this Indenture is unlimited (so long as not otherwise prohibited by the terms of this Indenture, including Section 4.09 hereof). With respect to any Additional Notes, the Company shall set
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forth in (1) a Board Resolution and (2) (i) an Officers Certificate or (ii) one or more indentures supplemental hereto, the following information:
(A) the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture;
(B) the issue price and the issue date of such Additional Notes, including the date from which interest shall accrue; and
(C) whether such Additional Notes shall be either Restricted Definitive Notes or Restricted Global Notes.
In authenticating and delivering Additional Notes, the Trustee shall be entitled to receive and shall be fully protected in relying upon, in addition to the Opinion of Counsel and Officers Certificate required by Section 11.04 hereof, an Opinion of Counsel as to the due authorization, execution, delivery, validity and enforceability of such Additional Notes.
In addition, Exchange Notes may be authenticated and delivered under this Indenture for issue in a Registered Exchange Offer pursuant to the Registration Rights Agreement in a like principal amount of the Initial Notes or Additional Notes exchanged pursuant thereto or otherwise pursuant to an effective registration statement under the Securities Act.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
(e) Euroclear and Clearstream Procedures Applicable . The provisions of the Operating Procedures of the Euroclear System and Terms and Conditions Governing Use of Euroclear and the General Terms and Conditions of Clearstream Banking and Customer Handbook of Clearstream shall be applicable to transfers of beneficial interests in a Regulation S Global Note that are held by Participants through Euroclear or Clearstream.
Section 2.02 Execution and Authentication .
One Officer shall execute the Notes on behalf of the Company by manual or facsimile signature.
If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated substantially in the form of Exhibit A hereto, as the case may be, by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been duly authenticated and delivered under this Indenture.
On the Issue Date, the Trustee shall, upon receipt of a written order of the Company directing authentication (an Authentication Order ), authenticate and deliver the Initial Notes
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specified in such Authentication Order. In addition, at any time, from time to time, the Trustee shall, upon receipt of an Authentication Order, authenticate and deliver (i) any Additional Notes for an aggregate principal amount specified in such Authentication Order for such Additional Notes issued hereunder and (ii) the Exchange Notes for issue in a Registered Exchange Offer pursuant to the Registration Rights Agreement for a like principal amount of Initial Notes exchanged pursuant thereto or otherwise pursuant to an effective registration statement under the Securities Act.
The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. Unless otherwise provided in such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as the Trustee to deal with Holders, the Company or an Affiliate of the Company.
Section 2.03 Registrar and Paying Agent .
The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange (the Registrar ) and an office or agency where Notes may be presented for payment (the Paying Agent ). The Registrar shall keep a register of the Notes (the Note Register ) and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term Registrar includes any co-registrar and the term Paying Agent includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder but upon written notice to such Registrar or Paying Agent and to the Trustee; provided , however , that no such removal shall become effective until (i) acceptance of any appointment by a successor as evidenced by an appropriate agreement entered into by the Company and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee and the passage of any waiting or notice periods required by DTC procedures or (ii) written notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) of this Section 2.03 above. The Registrar or Paying Agent may resign at any time upon written notice to the Company and the Trustee. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints DTC to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Paying Agent and Registrar for the Notes. The Trustee will also act as Custodian for the Depositary with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust .
The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held
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by the Paying Agent for the payment of principal, premium, if any, or interest on the Notes, and shall notify the Trustee in writing of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it relating to the Notes to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or one of its Subsidiaries) shall have no further liability for the money. If the Company or one of its Subsidiaries acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any Event of Default under Sections 6.01(f) or (g) hereof, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05 Holder Lists .
The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with Section 312(a) of the Trust Indenture Act. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least two Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with Section 312(a) of the Trust Indenture Act.
Section 2.06 Transfer and Exchange .
(a) Transfer and Exchange of Global Notes . Except as otherwise set forth in this Section 2.06, a Global Note may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor Depositary or a nominee of such successor Depositary. A beneficial interest in a Global Note may not be exchanged for a Definitive Note unless (i) the Depositary (x) notifies the Company that it is unwilling or unable to continue as Depositary for such Global Note or (y) has ceased to be a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days; (ii) there shall have occurred and be continuing an Event of Default with respect to the Notes; or (iii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes ( provided , however , that the Regulation S Temporary Global Note may not be exchanged for Definitive Notes prior to (1) the expiration of the Restricted Period and (2) the receipt by the Registrar of any certificates required by Rule 903(b)(3)(ii)(B)). Upon the occurrence of any of the preceding events in subclauses (i), (ii) or (iii) of this Section 2.06(a) above, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note, except for Definitive Notes issued subsequent to any of the preceding events in subclauses (i), (ii) or (iii) of this Section 2.06(a) above and pursuant to Section 2.06(c) hereof. A Global Note may not be exchanged for another Note other than as provided in this
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Section 2.06(a); provided , however , that beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b) or (c) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes . The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (1) or (2) of this Section 2.06(b) below, as applicable, as well as one or more of the other following subparagraphs of this Section 2.06(b), as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note . Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend and any Applicable Procedures; provided , however , that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person, as defined in Regulation S under the Securities Act, or for the account or benefit of a U.S. Person (other than an initial purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. Except as may be required by any Applicable Procedures, no written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).
(2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes . In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) hereof, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) if permitted under Section 2.06(a) hereof, a written order from a Participant or an indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B). Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee
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shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(g) hereof.
(3) Transfer of Beneficial Interests to Another Restricted Global Note . A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) hereof and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; or
(B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof.
(4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note . A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) hereof and:
(A) such exchange or transfer is effected pursuant to a Registered Exchange Offer and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, makes any and all certifications required in the applicable letter of transmittal (or is deemed to have made such certifications if delivery is made through the Applicable Procedures) as may be required by the applicable Registration Rights Agreement;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;
(C) such transfer is effected by a broker-dealer pursuant to an Exchange Offer Registration Statement in accordance with the applicable Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or
44
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) of this Section 2.06(b)(4) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) of this Section 2.06(b)(4) above.
Beneficial interests in an Unrestricted Global Note may not be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes .
(1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes . If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon the occurrence of any of the events in paragraph (i), (ii) or (iii) of Section 2.06(a) hereof and receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance
45
with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to the Company or any of its Restricted Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(g) hereof, and the Company shall execute and the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes . Notwithstanding Sections 2.06 (c)(1)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) of the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes . A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only upon the occurrence of any of the events in subclause (i), (ii) or (iii) of Section 2.06(a) hereof and if:
(A) such exchange or transfer is effected pursuant to a Registered Exchange Offer and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, makes any and all certifications required in the applicable letter of transmittal (or is deemed to have made such certifications if delivery is made through the Applicable Procedures) as may be required by such Registration Rights Agreement;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;
46
(C) such transfer is effected by a broker-dealer pursuant to an Exchange Offer Registration Statement in accordance with the applicable Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D) an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes . If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon the occurrence of any of the events in subclause (i), (ii) or (iii) of Section 2.06(a) hereof and satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(g) hereof, and the Company shall execute and the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from or through the Depositary and the Participant or indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests .
(1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes . If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest
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in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to the Company or any of its Restricted Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased in a corresponding amount pursuant to Section 2.06(g) hereof the aggregate principal amount of, in the case of clause (A) of this Section 2.06(d)(1) above, the applicable Restricted Global Note, in the case of clause (B) of this Section 2.06(d)(1) above, the applicable 144A Global Note, and in the case of clause (C) of this Section 2.06(d)(1) above, the applicable Regulation S Global Note.
(2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to a Registered Exchange Offer and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, makes any and all certifications required in the applicable letter of transmittal (or is deemed to have made such certifications if delivery is made through the
48
Applicable Procedures) as may be required by the applicable Registration Rights Agreement;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;
(C) such transfer is effected by a broker-dealer pursuant to an Exchange Offer Registration Statement in accordance with the applicable Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee shall cancel the Definitive Notes and increase or cause to be increased in a corresponding amount pursuant to Section 2.06(g) hereof the aggregate principal amount of the Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a written request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased in a corresponding amount pursuant to Section 2.06(g) hereof the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraph (2)(B),
(2)(D) or (3) of this Section 2.06(d) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an
Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes . Upon written request by a Holder of Definitive Notes and such Holders compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e):
(1) Restricted Definitive Notes to Restricted Definitive Notes . Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made to a QIB in accordance with Rule 144A, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; or
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications required by item (3) thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes . Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to a Registered Exchange Offer and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, makes any and all certifications required in the applicable letter of transmittal (or is deemed to have made such certifications if delivery is made through the Applicable Procedures) as may be required by such Registration Rights Agreement;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the applicable Registration Rights Agreement;
(C) such transfer is effected by a broker-dealer pursuant to an Exchange Offer Registration Statement in accordance with the applicable Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes . A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a written request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Legends . The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture:
(1) Private Placement Legend.
(A) Except as permitted by subparagraphs (B), (C) and (D) of this Section 2.06(f)(1) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (I) IN THE CASE OF RULE 144A NOTES, THE DATE WHICH IS ONE YEAR (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE THEREOF, THE DATE OF ORIGINAL ISSUANCE OF ANY ADDITIONAL
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NOTES OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE AND (II) IN THE CASE OF REGULATION S NOTES, 40 DAYS AFTER THE ORIGINAL ISSUE DATE THEREOF, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903 OR RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS OFFSHORE TRANSACTION, UNITED STATES AND U.S. PERSON HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraph (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2) or (e)(3) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend.
(C) After a transfer of any Initial Notes during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Notes, all requirements pertaining to the Private Placement Legend on such Initial Notes shall cease to apply and the requirements that any such Initial Notes be issued in global form shall continue to apply.
(D) Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which Holders of such Initial Notes are offered Exchange Notes in exchange for their Initial Notes, all requirements pertaining to Initial Notes that Initial Notes be issued in global form shall continue to apply, and Exchange Notes in global form without the Private Placement Legend shall be available to Holders that exchange such Initial Notes in such Registered Exchange Offer.
(2) Global Note Legend . Each Global Note shall bear a legend in substantially the following form:
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT
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THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06(g) OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ( DTC ) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(3) Regulation S Temporary Global Note Legend . The Regulation S Temporary Global Note shall bear a legend in substantially the following form:
THIS GLOBAL NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION ORIGINALLY EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT. BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.
(g) Cancellation and/or Adjustment of Global Notes . At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance
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with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and, if the Registrar and the Trustee are not the same entity, notice to the Trustee of such exchange or transfer an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, the aggregate principal amount of such other Global Note shall be increased in a corresponding amount pursuant to this Section 2.06(g) and if the Registrar and the Trustee are not the same entity, notice to the Trustee of such exchange or transfer an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
(h) General Provisions Relating to Transfers and Exchanges .
(1) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 hereof or at the Registrars written request.
(2) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company or the Trustee may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.11, 3.06, 4.13 or 9.04 hereof).
(3) Neither the Registrar nor the Company shall be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of the sending of a notice of redemption of Notes for redemption under Section 3.03 hereof and ending at the close of business on the day such notice was sent, (B) to register the transfer of or to exchange any Note so selected for redemption or tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a Regular Record Date and the next succeeding Interest Payment Date.
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(6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary.
(7) Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 2.03 hereof, the Company shall execute, and the Trustee shall authenticate and mail, in the name of the designated transferee or transferees, one or more replacement Notes of any authorized denomination or denominations of a like aggregate principal amount.
(8) At the option of the Holder, subject to Section 2.06(a) hereof, Notes may be exchanged for other Notes of any authorized denomination or denominations of a like aggregate principal amount upon surrender of the Notes to be exchanged at such office or agency. Whenever any Global Notes or Definitive Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and mail, the replacement Global Notes and Definitive Notes to which the Holder making the exchange is entitled in accordance with the provisions of Section 2.02 hereof.
(9) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile or electronically (in PDF format).
(10) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
Neither the Trustee nor any Trustee agent shall have any responsibility or liability for any actions taken or not taken by the Depositary.
Section 2.07 Replacement Notes .
If any mutilated Note is surrendered to the Trustee, the Registrar or the Company and the Trustee receives evidence to their satisfaction of the ownership and destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustees requirements are met. An indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, the Registrar and the Paying Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. At the Companys request, such Holder shall reimburse the Company for its expenses in replacing a Note.
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Every replacement Note issued in accordance with this Section 2.07 is a contractual obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08 Outstanding Notes .
The Notes Outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not Outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be Outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be Outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be Outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or Maturity Date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer Outstanding and shall cease to accrue interest.
Section 2.09 Treasury 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 Company, or by any Affiliate of the Company, shall be considered as though not Outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Notes so owned that have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgees right to deliver any such direction, waiver or consent with respect to the pledged Notes and that the pledgee is not the Company or any obligor upon the Notes or any Affiliate of the Company or of such other obligor.
Section 2.10 Temporary Notes .
Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes.
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Holders and beneficial holders, as the case may be, of temporary Notes shall be entitled to all of the benefits accorded to Holders, or beneficial holders, respectively, of Notes under this Indenture.
Section 2.11 Cancellation .
The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of cancelled Notes in accordance with its customary procedures (subject to the record retention requirement of the Exchange Act). The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest .
If the Company defaults in a payment of interest on the Notes, the Company shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest to the Persons who are Holders on a special record date, which may be after the existing record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Trustee shall fix or cause to be fixed each such special record date and payment date; provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. The Trustee shall promptly notify the Company of such special record date and in any event at least 20 days before such special record date. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall send or cause to be sent, via electronic transmission or by first-class postage prepaid, to each Holder a notice at his or her address as it appears in the Note Register that states the special record date, the related payment date and the amount of such interest to be paid.
Subject to the foregoing provisions of this Section 2.12 and for greater certainty, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note.
Section 2.13 CUSIP or ISIN Numbers .
The Company in issuing the Notes may use CUSIP or ISIN numbers (if then generally in use) and, if so, the Trustee shall use CUSIP or ISIN numbers in notices, including notices of redemption, exchange or offers to purchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice and that reliance may be placed only on the other identification numbers printed on the Notes, and any related redemption, exchange or offers to purchase shall not be affected by any defect in or omission of such numbers. The Company will as promptly as practicable notify the Trustee in writing of any change in the
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CUSIP or ISIN numbers. Additional Notes issued under this Indenture may have the same or differing CUSIP or ISIN numbers as those given to the Initial Notes or the Exchange Notes.
Section 2.14 Additional Interest .
In the event that the Company is required to pay Additional Interest to holders of Notes pursuant to the Registration Rights Agreement, the Company will provide written notice ( Additional Interest Notice ) to the Trustee of its obligation to pay Additional Interest 15 or more days prior to the proposed payment date for the Additional Interest to the extent reasonably practicable, but in no event later than five Business Days prior to such proposed payment date, and the Additional Interest Notice shall set forth the amount of Additional Interest to be paid by the Company on such payment date. The Trustee shall not at any time be under any duty or responsibility to any holder of Notes to determine the Additional Interest, or with respect to the nature, extent or calculation of the amount of Additional Interest owed, or with respect to the method employed in such calculation of the Additional Interest.
Section 2.15 Benefits of Indenture .
Nothing in this Indenture or in the Notes, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the Holders of the Notes, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the Holders of the Notes.
ARTICLE III
REDEMPTION AND PREPAYMENT
Section 3.01 Notices to Trustee . The Company may redeem and pay the Notes or may covenant to redeem and pay the Notes or any part thereof prior to the Stated Maturity Date thereof at such time and on such terms as provided for in this Indenture. If a Note is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity Date thereof all or part of the Notes pursuant to the terms of this Indenture, the Company shall notify the Trustee in writing of the redemption date and the principal amount of the Notes to be redeemed and the redemption price. Except as otherwise provided in Section 3.03, the Company shall give such written notice to the Trustee in the form of an Officers Certificate at least 10 days before notice of redemption is required to be mailed or caused to be mailed to Holders pursuant to Section 3.03 hereof unless the Trustee consents to a shorter period.
Section 3.02 Selection of Notes To Be Redeemed . If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased as follows:
(a) if the Company notifies the Trustee in writing that the Notes are listed on an exchange, in compliance with the requirements of such exchange; or
(b) on a pro rata basis to the extent practicable, or, if a pro rata basis is not practicable or permitted for any reason, by lot or by such other method as may be prescribed by DTCs applicable procedures.
No Notes of $2,000 of principal amount or less will be redeemed in part. Except as provided in the two preceding sentences, provisions of this Indenture that apply to Notes
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called for redemption also apply to portions of Notes called for redemption. The Trustee shall make the selection from Outstanding Notes not previously called for redemption.
If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount of that Note to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note presented for redemption will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue or accrete on Notes or portions of them called for redemption.
Section 3.03 Notice of Redemption . At least 30 days but not more than 60 days before a redemption date (other than in connection with a Special Mandatory Redemption pursuant to Section 3.07), the Company shall deliver electronically or mail or cause to be mailed, by first-class mail, postage prepaid (or otherwise delivered in accordance with the procedures of DTC), a notice of redemption to each Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price, which will include interest accrued and unpaid to the date fixed for redemption;
(c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Notes (or portion thereof) called for redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Notes or provision of this Indenture or any supplemental indenture pursuant to which the Notes called for redemption are being redeemed;
(h) the CUSIP number, or ISIN, if any, printed on the Notes being redeemed;
(i) any applicable conditions precedent and the procedures for notice to the Trustee and Holders of any failure or delay to satisfy such conditions;
(j) whether payment of the redemption price and the performance of the Companys obligations with respect to such redemption will be performed by another Person; and
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(k) that no representation is made as to the correctness or accuracy of the CUSIP number, or ISIN, if any, listed in such notice or printed on the Notes.
At the Companys request, the Trustee shall give the notice of redemption in the Companys name and at its expense; provided , however , that the Company shall deliver to the Trustee, at least 10 days prior to the intended delivery or mailing of any such notice (or such shorter period as may be acceptable to the Trustee), an Officers Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as required by this Section.
Section 3.04 Effect of Notice of Redemption . Once notice of redemption is delivered or mailed in accordance with Section 3.03 hereof and any conditions set forth therein have been satisfied, Notes called for redemption become due and payable on the redemption date at the redemption price, subject to the following paragraph. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder.
Notice of any redemption may be given prior to the completion of any offering or other corporate transaction, and any redemption or notice may, at the Companys discretion, be subject to one or more conditions precedent, including, but not limited to, the completion of the related offering or corporate transaction.
Section 3.05 Deposit of Redemption Price . No later than 10:00 a.m. local time on the redemption date in the place of payment of such redemption, the Company shall deposit with the Trustee or with the applicable Paying Agent money in U.S. dollars sufficient to pay the redemption price of and accrued interest on all Notes (or portions of Notes) to be redeemed on that date. Neither the Trustee nor the applicable Paying Agent shall be obligated to make payments to Holders or the Depositary without receipt of such sufficient funds. The Trustee or the Paying Agent shall as promptly as practicable return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust.
If the Company complies with the provisions of the immediately preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after a Regular Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid on the redemption date to the Person in whose name such Note was registered at the close of business on such Regular Record Date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent permitted by law and the terms the Notes, on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes.
Section 3.06 Notes Redeemed in Part . Upon surrender of a Note that is redeemed in part, the Company shall execute and the Trustee, upon a Company Order and receipt of the deliverables required hereunder, shall authenticate for the Holder (at the Companys expense) a new Note equal in principal amount to the unredeemed portion of the Note surrendered.
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Section 3.07 Special Mandatory Redemption Other than pursuant to the Special Mandatory Redemption provisions described below, the Company is not required to make any mandatory redemption or sinking fund payments with respect to the Notes.
If either (1) the Contribution, Assumption and either the Proposed IPO or the 100% Spin-off Transaction have not all occurred on or before June 30, 2017, or (2) Ashland delivers an Officers Certificate to the Trustee stating that the either the Contribution or the Assumption or both will not occur or, if the Contribution and Assumption have both occurred, that neither the Proposed IPO nor the 100% Spin-off Transaction will occur (the earlier to occur of (1) or (2), the Special Mandatory Redemption Event ), then the Company will, on the Special Mandatory Redemption Date (as defined below), redeem the Notes (the Special Mandatory Redemption ) at a redemption price (the Special Mandatory Redemption Price ) equal to (a) 100% of the principal amount of the Notes if the Special Mandatory Redemption Event occurs on or before December 31, 2016, or (b) 101% of the principal amount of the Notes otherwise, in each case, plus accrued and unpaid interest to, but excluding, the Special Mandatory Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date).
Special Mandatory Redemption Date means the date that is 10 days after the Special Mandatory Redemption Notice Date (as defined below).
Notice of the Special Mandatory Redemption will be delivered in accordance with Section 3.03 no later than three Business Days following a Special Mandatory Redemption Event (such date of mailing, the Special Mandatory Redemption Notice Date ). On or prior to the Special Mandatory Redemption Date, the Company shall pay to the Paying Agent for payment to each Holder of Notes the Special Mandatory Redemption Price for such Holders Notes.
Section 3.08 Optional Redemption . Except as set forth below and as set forth under Section 3.07 above, the Company will not be entitled to redeem the Notes at its option prior to July 15, 2019.
(a) At any time prior to July 15, 2019, the Company may redeem all or a part of the Notes upon notice pursuant to Section 3.03, at a redemption price equal to 100% of the principal amount of Notes to be redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to the rights of Holders on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date.
(b) On and after July 15, 2019, the Company may redeem the Notes, in whole or in part, upon notice pursuant to Section 3.03 above, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date, if redeemed beginning on July 15 of the years indicated below:
Date |
Percentage | |||
2019 |
104.125 | % | ||
2020 |
102.750 | % | ||
2021 |
101.375 | % |
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Date |
Percentage | |||
2022 and thereafter |
100.000 | % |
(c) In addition, until July 15, 2019, the Company may, at its option, on one or more occasions, redeem up to 40% of the aggregate principal amount of Notes issued by it at a redemption price equal to 105.500% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on the relevant Interest Payment Date, with the net cash proceeds of one or more Equity Offerings; provided that at least 60% of the aggregate principal amount of the Notes originally issued under this Indenture (calculated after giving effect to any issuance of Additional Notes) remains Outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of the applicable Equity Offering.
(d) Notwithstanding the foregoing, in connection with any tender offer for all of the Outstanding Notes at a price of at least 100% of the principal amount of the Notes tendered, plus accrued and unpaid interest thereon to, but excluding, the applicable tender settlement date (including any Change of Control Offer), if Holders of not less than 90% in aggregate principal amount of the Notes validly tender and do not withdraw such Notes in such tender offer and the Company, or any third party making such a tender offer in lieu of the Company, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Company or such third party will have the right, upon not less than 30 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain Outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the date of redemption.
Section 3.09 Offers to Purchase; Acquisition of Notes . The Company and its Affiliates may, at any time and from time to time, acquire Notes by means other than a redemption, including by tender offer, open market purchases, negotiated transactions or otherwise (including in connection with a consent solicitation).
ARTICLE IV
COVENANTS
Section 4.01 Payment of Notes . The Company covenants and agrees, for the benefit of the Holders of the Notes, that it will duly and punctually make all payments in respect of the Notes on the dates and in the manner provided in the Notes and this Indenture. Principal, premium, if any, and interest will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. local time in the place of payment on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest, if any, then due. Such payments shall be considered made on the date due if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to make all payments with respect to such Notes then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture. Neither the Trustee nor the applicable Paying Agent shall be obligated to make payments to Holders or the Depositary without receipt of such sufficient funds.
Section 4.02 Reports and Other Information .
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(a) For so long as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC and make available (without exhibits), without cost, to Holders or to the Trustee for provision to Holders, within the time periods specified in such Sections, to the extent not publicly available on the SECs EDGAR system or the Companys 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):
(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.
(b) If, at any time, the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for any reason, the Company will nevertheless post the information required to be set forth in the reports specified above (other than (a) separate financial statements or condensed consolidating financial information required by Rule 3-10 or 3-16 of Regulation S-X, (b) information required by Item 10(e) of Regulation S-K or Regulation G under the Securities Act (in each case with respect to any non-GAAP financial measures contained therein) and (c) information required by Item 402 or 601 of Regulation S-K) on the Companys public website and will provide such information to Holders and the Trustee (but will not be required to file such information with the SEC), in each case within the time periods that would apply if the Company were required to file such information with the SEC; provided that for any such time prior to the Assumption Date, the foregoing obligations of the Company will be satisfied if Valvoline has filed with the SEC a Registration Statement on Form S-1 containing such required information.
(c) For purposes of this Section 4.02, the Company will be deemed to have provided a required report to Holders and the Trustee if it has timely filed such report with the SEC via the EDGAR filing system (or any successor system).
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(d) Following the Assumption, notwithstanding the foregoing, if any parent of the Company becomes a Guarantor (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 Company, be filed by and be those of the parent, rather than those of the Company; provided that such reports include a reasonable explanation of the material differences (if any) between the assets, liabilities and results of operations of such parent and its consolidated Subsidiaries, on the one hand, and the Company and its Restricted Subsidiaries, on the other hand.
(e) At any time when the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and to the extent not satisfied by this section 4.02, for so long as any Notes are Outstanding, the Company 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 Section 4.02 will not require the Company 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.
(f) To the extent that any reports or other information is not furnished within the time periods specified in this Section 4.02 and such reports or other information is subsequently furnished prior to the time such failure results in an Event of Default, the Company will be deemed to have satisfied its obligations with respect thereto and any Default with respect thereto shall be deemed to have been cured.
(g) At any time that any of the Companys Subsidiaries are Unrestricted Subsidiaries, if any such Unrestricted Subsidiary or group of Unrestricted Subsidiaries, taken together as one Subsidiary, would constitute a Significant Subsidiary of the Company, then the quarterly and annual financial information required pursuant to this Section 4.02 will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, or in the Managements Discussion and Analysis of Financial Condition and Results of Operations or other comparable section, of the financial condition and results of operations of the Company and Restricted Subsidiaries separate from the financial condition and results of operations of such Unrestricted Subsidiaries.
(h) For the avoidance of doubt, prior to the 100% Spin-off Transaction or the Proposed IPO, any report delivered pursuant to the requirements of this Section 4.02 shall include only the financial results of the Valvoline Business.
Section 4.03 Compliance Certificate . The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers Certificate stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Company and each of its Restricted Subsidiaries has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to such Officer signing such certificate, that, to such Officers knowledge, the Company and each of its Restricted Subsidiaries has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred and is continuing, describing all such Defaults or Events of Default of which such Officer has knowledge and what action the Company and its Restricted Subsidiaries are taking or propose to take, if any, with respect thereto).
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Section 4.04 Further Instruments and Acts . The Company and the Guarantors shall execute and deliver to the Trustee such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
Section 4.05 [Intentionally Omitted] .
Section 4.06 [Intentionally Omitted] .
Section 4.07 Restricted Payments .
(a) The Company 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 Companys, or any of its Restricted Subsidiaries Equity Interests, including any dividend or distribution payable in connection with any merger or consolidation involving the Company or any Restricted Subsidiary, other than:
(A) dividends or distributions by the Company payable solely in Equity Interests (other than Disqualified Stock) of the Company; or
(B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary that is not a wholly owned Subsidiary, the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities;
(II) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Company, or any direct or indirect parent of the Company, including any such purchase, redemption, defeasance, acquisition or retirement 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 (a) Indebtedness permitted under Section 4.09(b)(7) or (8) or (b) the payment, redemption, repurchase, defeasance or other acquisition of Subordinated Indebtedness in anticipation of satisfying a rescheduled payment, sinking fund obligation, principal installment or maturity, in each case due within one year of the date of payment, redemption, repurchase, defeasance or acquisition; or
(IV) make any Restricted Investment (all such payments and other actions set forth in clauses (I) through (IV) above (other than any exceptions thereto) being collectively referred to as Restricted Payments ), unless, at the time of such Restricted Payment:
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(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 Company could incur $1.00 of additional Indebtedness under Section 4.09(a); and
(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Issue Date (including Restricted Payments permitted by Section 4.07(b)(1), but excluding all other Restricted Payments permitted by Section 4.07(b)), is less than the sum of (without duplication).
(A) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) beginning on the first day of the fiscal quarter of the Company in which the Issue Date occurs to the end of the Companys most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit; plus
(B) 100% of the aggregate net cash proceeds and the fair market value of marketable securities or other property received by the Company since immediately after the Issue Date from the issue or sale of:
(i) Equity Interests of the Company, including Treasury Capital Stock, but excluding cash proceeds and the fair market value of marketable securities or other property received from the sale of:
(I) Equity Interests to any present, former or future employees, directors, officers, managers or consultants of the Company or any of the Companys Subsidiaries after the Issue Date to the extent such amounts have been applied to the amount of available Restricted Payments in accordance with Section 4.07(b)(5); and
(II) Designated Preferred Stock; and
(ii) debt securities of the Company or any Restricted Subsidiary that have been converted into or exchanged for such Equity Interests of the Company;
provided , however , that this clause (B) shall not include the proceeds from (W) Refunding Capital Stock (as defined below), (X) Equity Interests or convertible debt securities of the Company sold to a Restricted Subsidiary, (Y) Disqualified Stock or debt securities that have been converted into Disqualified Stock or (Z) the issuance or sale of Equity Interests or the fair market value of any assets received by the Company or any Restricted Subsidiary, in each case made as part
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of the Transactions (including, for the avoidance of doubt, such proceeds of the Proposed IPO); plus
(C) 100% of the aggregate net cash proceeds and the fair market value of marketable securities or other property received by the Company or any Restricted Subsidiary by means of:
(i) the sale or other disposition (other than to the Company or a Restricted Subsidiary) of Restricted Investments made by the Company or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from the Company or its Restricted Subsidiaries and repayments of loans or advances that constitute Restricted Investments by the Company or its Restricted Subsidiaries, in each case after the Issue Date; or
(ii) the sale (other than to the Company or a Restricted Subsidiary) of the stock of an Unrestricted Subsidiary (other than to the extent the Investment in such Unrestricted Subsidiary was made by the Company or a Restricted Subsidiary pursuant to Section 4.07(b)(10) or (15) or to the extent such Investment constituted a Permitted Investment) or a distribution or dividend from an Unrestricted Subsidiary, in each case, after the Issue Date; plus
(D) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value (as determined in good faith by the Company; provided that if such fair market value may exceed $50.0 million, such determination shall be made by the Board of Directors of the Company and evidenced by a board resolution (which determination in either case shall be conclusive)) of the Investment in such Unrestricted Subsidiary at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary other than to the extent the Investment in such Unrestricted Subsidiary was made by the Company or a Restricted Subsidiary pursuant to Section 4.07(b)(10) or (15) or to the extent such Investment constituted a Permitted Investment.
(b) The provisions of Section 4.07(a) 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 the irrevocable redemption notice, as applicable, if at the date of declaration or notice such payment would have complied with the provisions of this Indenture;
(2) (a) the redemption, repurchase, defeasance, retirement or other acquisition of any Equity Interests ( Treasury Capital Stock ) or Subordinated Indebtedness of the Company in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity Interests of the Company (in each case, other than any Disqualified Stock or Designated Preferred Stock) ( Refunding Capital Stock ) and (b) if immediately prior to the retirement of Treasury
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Capital Stock, the declaration and payment of dividends thereon was permitted under Section 4.07(b)(7), the declaration and payment of dividends on the Refunding Capital Stock in an aggregate per annum amount no greater than the aggregate amount of dividends per annum that were declarable and payable on such Treasury Capital Stock immediately prior to such retirement;
(3) any other Restricted Payment made in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity Interests of the Company (other than any Disqualified Stock or Designated Preferred Stock);
(4) the redemption, repurchase, defeasance or other acquisition or retirement of Subordinated Indebtedness or Disqualified Stock of the Company or a Subsidiary Guarantor made in exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness or Disqualified Stock of the Company or a Subsidiary Guarantor, as the case may be, that in each case is incurred in compliance with Section 4.09 but only:
(A) if 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, 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 and any fees and expenses incurred in connection with the issuance of such new Indebtedness or Disqualified Stock;
(B) if such new Indebtedness is subordinated to the Notes or the applicable Guarantee at least to the same extent, if at all, as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, defeased, acquired or retired for value;
(C) if such new Indebtedness or Disqualified Stock has a final scheduled maturity date equal to or later than the final scheduled maturity date of the Subordinated Indebtedness or Disqualified Stock being so redeemed, repurchased, defeased, acquired or retired; and
(D) if 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 redeemed, repurchased, defeased, acquired or retired;
(5) a Restricted Payment to pay for the repurchase, redemption or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Company held by any future, present or former employee, director, officer, manager or consultant of the Company or any of its Subsidiaries pursuant to any
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management equity plan or stock option plan or any other management, director or employee benefit plan or agreement (x) upon the death or disability of such employee, director, officer, manager or consultant or (y) upon the resignation or other termination of employment of such employee, director, officer, manager or consultant; provided , however , that the aggregate Restricted Payments made under this clause (5) do not exceed in any calendar year $20.0 million (with unused amounts in any calendar year being carried over to succeeding calendar years); 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 Company to employees, directors, officers, managers or consultants of the Company or any of its Restricted 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 Section 4.07(a)(3); plus
(B) the cash proceeds of key man life insurance policies received by the Company or its Restricted Subsidiaries after the Issue Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clause (a) or (b) of this clause (5);
and; provided further that cancellation of Indebtedness owing to the Company or any of its Restricted Subsidiaries from any future, present or former employees, directors, officers, managers or consultants of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Company will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of this Indenture;
(6) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Company or any of its Restricted Subsidiaries, or of Preferred Stock of any Restricted Subsidiary, in each case issued in accordance with Section 4.09;
(7) (A) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by the Company after the Issue Date; and
(B) the declaration and payment of dividends on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to Section 4.07(b)(2);
provided , however , in the case of each of subclauses (A) and (B) of this clause (7), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or Refunding Capital Stock that is Preferred Stock, after giving effect to such issuance or declaration on a pro forma basis, the Company and its Restricted Subsidiaries on a consolidated basis would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
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(8) repurchases of Equity Interests deemed to occur (i) upon the exercise of stock options, warrants or other equity-based awards if such Equity Interests represent all or a portion of the exercise price of such options, warrants or awards or payments, in lieu of the issuance of fractional Equity Interests (ii) for the purposes of satisfying any required tax withholding obligation upon the exercise or vesting of a grant or award of any stock options, warrants or other equity-based awards;
(9) the declaration and payment of dividends or distributions in respect of, or repurchases of, the Companys common stock in an aggregate amount not to exceed $100.0 million in any calendar year;
(10) other Restricted Payments in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (10) not to exceed the greater of $150.0 million and 10.00% of Total Assets;
(11) Restricted Payments comprising (a) the payment, redemption, repurchase, defeasance or other acquisition of Indebtedness incurred by a Securitization Special Purpose Entity in accordance with Section 4.09(b)(24) and (b) the payment or distribution of any Securitization Fees;
(12) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness in accordance with the provisions similar to those set forth in Sections 4.10 and 4.13; provided that all Notes tendered in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have first been repurchased, redeemed or acquired for value;
(13) the distribution, by dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Company or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than Unrestricted Subsidiaries the primary assets of which are cash or Cash Equivalents);
(14) any Restricted Payment made as part of the Transactions in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum;
(15) the making of other Restricted Payments if, at the time of the making of such Restricted Payment, and after giving pro forma effect thereto (including, without limitation, the incurrence of any Indebtedness to finance such Restricted Payment and the application of the net proceeds thereof), the Consolidated Net Leverage Ratio of the Company would not exceed 3.50 to 1.00;
(16) the making of cash payments in satisfaction of the conversion obligation upon conversion of convertible Indebtedness permitted to be incurred pursuant to Section 4.09 in an aggregate amount since the Issue Date not to exceed the sum of (a) the principal amount of such convertible Indebtedness plus (b) any payment received by the Company or a Restricted Subsidiaries pursuant to the exercise, settlement or termination of any related hedge or warrant option transactions; and
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(17) the purchase of any call option, purchase option or other similar contract in respect of Equity Interests of the Company in connection with the issuance of convertible Indebtedness permitted to be incurred pursuant to Section 4.09 to mitigate dilution attributable to such convertible Indebtedness;
provided , however , that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (3), (9), (10), (13) and (15) of this Section 4.07(b), no Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) For purposes of determining compliance with this Section 4.07, in the event that a proposed Restricted Payment (or a portion thereof) meets the criteria of clauses (1) through (17) of Section 4.07(b) or is entitled to be made pursuant to Section 4.07(a), the Company will be entitled to classify or later reclassify (based on circumstances existing on the date of such reclassification) such Restricted Payment (or a portion thereof) between such clauses (1) through (17) and Section 4.07(a) in any manner that otherwise complies with this Section 4.07.
(d) The Company will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the provisions of the definition of Unrestricted Subsidiary. For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of Investments. Such designation will be permitted only if a Restricted Payment or Permitted Investment in such amount would be permitted at such time, and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants set forth in this Indenture.
Section 4.08 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries .
(a) The Company will not, and will not permit any of its Restricted Subsidiaries that are not Guarantors 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 Restricted Subsidiary that is not a Guarantor to:
(1) (A) pay dividends or make any other distributions to the Company or any Subsidiary Guarantor on its Capital Stock, or (B) pay any Indebtedness owed to the Company or any Subsidiary Guarantor;
(2) make loans or advances to the Company or any Subsidiary Guarantor; or
(3) sell, lease or transfer any of its properties or assets to the Company or any Subsidiary Guarantor.
(b) The restrictions in Section 4.08(a) shall not apply to encumbrances or restrictions existing under or by reason of:
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(1) contractual encumbrances or restrictions in effect on the Issue Date, including pursuant to the Senior Secured Credit Facilities and the related documentation and Swap Contracts in effect on the Issue Date and any related documentation;
(2) this Indenture, the Notes and the Guarantees thereof;
(3) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature discussed in Section 4.08(a)(3) above on the property so acquired;
(4) applicable law or any applicable rule, regulation, order, approval, license, permit or other similar restriction, including under contracts with domestic or foreign governments or agencies thereof entered into in the ordinary course of business;
(5) any agreement or other instrument (including an instrument governing Capital Stock or Indebtedness) of a Person acquired by the Company or any Restricted Subsidiaries in existence at the time of such acquisition or at the time it merges with or into the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person (but, in any such case, not created in anticipation or 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 or the property or assets so assumed;
(6) contracts for the sale of assets, including customary restrictions with respect to a Subsidiary of the Company pursuant to an agreement that has been entered into for the sale or disposition of any Capital Stock or assets of such Subsidiary;
(7) Secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 to the extent limiting the right of the Company or any of its Restricted Subsidiaries to dispose of assets subject to such Lien;
(8) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;
(9) other Indebtedness, Disqualified Stock or Preferred Stock of Foreign Subsidiaries permitted to be incurred subsequent to the Issue Date pursuant to Section 4.09; provided that such encumbrances and restrictions apply only to such Restricted Subsidiary and its assets and Subsidiaries; and provided further that the Company has determined in good faith (which determination shall be conclusive), at the time of creation of each such encumbrance or restriction, that such encumbrances and restrictions would not individually or in the aggregate have a material adverse effect on the Companys ability to make required payments in respect of the Notes;
(10) customary provisions in joint venture agreements and other similar agreements or arrangements relating solely to such joint venture;
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(11) customary provisions contained in leases, licenses or similar agreements, including with respect to intellectual property and other agreements, in each case, entered into in the ordinary course of business;
(12) non-assignment provisions of any contract or any lease of any Restricted Subsidiary entered into in the ordinary course of business;
(13) restrictions on the transfer of assets subject to any Lien permitted under this Indenture imposed by the holder of such Lien;
(14) any agreement or instrument governing Capital Stock of any Person that is acquired;
(15) restrictions or conditions contained in any trading, netting, operating, construction, service, supply, purchase, sale or other agreement to which the Company or any of its Restricted Subsidiaries is a party entered into in the ordinary course of business; provided that such agreement prohibits the encumbrance solely of the property or assets of the Company or such Restricted Subsidiary that are subject to such agreement, the payment rights arising thereunder or the proceeds thereof and does not extend to any other asset or property of the Company or such Restricted Subsidiary or the assets or property of another Restricted Subsidiary;
(16) restrictions (contractual or otherwise) applicable to a Securitization Special Purpose Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Special Purpose Entity;
(17) Indebtedness of Foreign Subsidiaries permitted to be incurred pursuant to Section 4.09(b)(27)
(18) any encumbrances, restrictions, contractual requirements or other provisions of the Separation Documents or in connection with any of the Transactions in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum; or
(19) any encumbrances or restrictions of the type referred to in Sections 4.08(a)(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 (1) through (18) of this Section 4.08(b); provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company, either (i) not materially more restrictive 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, (ii) ordinary and customary with respect to such instruments and obligations at the time of such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing, or (iii) for purposes of determining compliance with this Section 4.08, (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on
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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 Company or a Restricted Subsidiary to other Indebtedness incurred by the Company or any such Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances.
Section 4.09 Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock .
(a) The Company 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 each instance thereof, an incurrence ), with respect to any Indebtedness (including Acquired Indebtedness), and the Company 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 Company may incur indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any of its Restricted Subsidiaries may incur Indebtedness (including Acquired Indebtedness), issue shares of Disqualified Stock and issue shares of Preferred Stock, if the Fixed Charge Coverage Ratio on a consolidated basis for the Company and its Restricted Subsidiaries most recently ended four fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00, 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 such four-quarter period.
(b) The provisions of Section 4.09(a) shall not prohibit the incurrence of any of the following items of Indebtedness:
(1) the incurrence of Indebtedness under Credit Facilities by the Company 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 principal amount of all Indebtedness under this clause (1) does not exceed the sum of (x) $1,625.0 million plus (y) the maximum principal amount of additional Indebtedness that could be incurred such that after giving effect to such incurrence, the Consolidated First Lien Net Leverage Ratio of the Company would be no greater than 2.00 to 1.00 (calculated assuming that all Indebtedness incurred under this clause (1) is secured on a first priority basis and without netting the cash proceeds of any such Indebtedness);
(2) the incurrence by the Company and any Subsidiary Guarantor of Indebtedness under the Notes issued on the Issue Date (including Guarantees thereof) and any Notes (including Guarantees thereof) issued in exchange for such Notes pursuant to a registration rights agreement;
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(3) Indebtedness and Disqualified Stock of the Company and its Restricted Subsidiaries in existence on the Issue Date;
(4) Indebtedness in respect of Capitalized Lease Obligations, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets; provided that such Indebtedness does not at any time encumber any property other than the property financed by such Indebtedness, other than proceeds and products thereof and either (a) the Indebtedness related thereto does not exceed the cost or fair market value, whichever is lower, of the property being financed and such Indebtedness exists at the date of such purchase or transaction or is created within 365 days thereafter (for the avoidance of doubt, the purchase date for any asset shall be the later of the date of completion of installation and the beginning of the full productive use of such asset) or (b) the Indebtedness related thereto does not exceed the fair market value of the property being financed and after giving effect to the incurrence of any such Indebtedness and, after giving effect thereto (and the use of the proceeds therefrom), the Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a);
(5) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including letters of credit in respect of workers compensation claims, death, disability or other employee benefits or property, casualty or liability insurance, or other Indebtedness with respect to reimbursement-type obligations regarding workers compensation claims; provided , however , that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations (a) are reimbursed within 30 days following such drawing or incurrence or (b) are permitted to be incurred (and thereupon shall deemed to be incurred) pursuant to clause (4) above following the expiry of such 30 day period;
(6) Indebtedness arising from agreements of the Company or its Restricted Subsidiaries providing for indemnification, adjustment of purchase price or similar obligations, including earnouts, in each case, incurred or assumed in connection with the 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; provided , however , that such Indebtedness is not reflected on the balance sheet of the Company or any of its Restricted Subsidiaries (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (6));
(7) Indebtedness of the Company to a Restricted Subsidiary; provided that any such Indebtedness owing to a Restricted Subsidiary that is not a Subsidiary Guarantor shall be subordinated in right of payment to the Notes; provided further that any subsequent issuance or transfer of any Capital Stock or any other event which results in the Restricted Subsidiary holding such Indebtedness ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the
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Company or another Restricted Subsidiary) shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause (7);
(8) Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary; provided that if a Subsidiary Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not a Subsidiary Guarantor, such Indebtedness shall be subordinated in right of payment to the Guarantee of the Notes of such Subsidiary Guarantor; provided further that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Indebtedness being held by a person other than the Company or a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or another Restricted Subsidiary) shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause (8);
(9) shares of Preferred Stock of a Restricted Subsidiary issued to the Company or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Company or another Restricted Subsidiary) shall be deemed in each case to be an issuance of such shares of Preferred Stock not permitted by this clause (9);
(10) Swap Contracts (excluding Swap Contracts entered into for speculative purposes) for the purpose of limiting interest rate risk with respect to any Indebtedness of the Company or any Restricted Subsidiary permitted to be incurred pursuant to Section 4.09, exchange rate risk or commodity pricing risk;
(11) obligations in respect of self-insurance and obligations in respect of performance, bid, appeal, stay, surety, customs and replevin bonds and performance and completion guarantees provided by the Company or any of its Restricted Subsidiaries in the ordinary course of business;
(12) Indebtedness or Disqualified Stock of the Company and Indebtedness, Disqualified Stock or Preferred Stock of any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference that, when aggregated with the principal amount and liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding and incurred pursuant to this clause (12), does not exceed $300.00 million;
(13) the incurrence or issuance by the Company or any Restricted Subsidiary of Indebtedness or Disqualified Stock, and the issuance by any Restricted Subsidiary of Preferred Stock, in each case that serves to refund, refinance, replace, renew, extend or defease any Indebtedness or Disqualified Stock of the Company or any Restricted Subsidiary or Preferred Stock of any Restricted Subsidiary incurred or issued as permitted under Section 4.09(a) or clause (2), (3) or (4) of this Section 4.09(b), this clause (13) or clause (14) of this Section 4.09(b) or any Indebtedness, Disqualified Stock or Preferred Stock previously incurred or issued to so refund, refinance, replace, renew, extend or defease such Indebtedness or Disqualified Stock or Preferred Stock, including
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additional Indebtedness, Disqualified Stock or Preferred Stock incurred or issued to pay premiums (including tender premiums), defeasance costs, accrued interest, fees and expenses in connection therewith (the Refinancing Indebtedness ) prior to its respective maturity; provided , however , that such Refinancing Indebtedness:
(A) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is not less than the remaining Weighted Average Life to Maturity of the Indebtedness or Disqualified Stock or Preferred Stock being refunded, refinanced, replaced, renewed, extended or defeased (or requires no or nominal payments in cash prior to the date that is 91 days after the Maturity Date of the Notes);
(B) to the extent such Refinancing Indebtedness refunds, refinances, replaces, renews, extends or defeases (i) Subordinated Indebtedness, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Guarantee thereof at least to the same extent as the Indebtedness being refunded, refinanced, replaced, renewed, extended or defeased 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 Subsidiary of the Company that is not a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Company;
(ii) Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the Company that is not a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary Guarantor; or
(iii) Indebtedness or Disqualified Stock of the Company or Indebtedness, Disqualified Stock or Preferred Stock of a Restricted Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of an Unrestricted Subsidiary;
and provided further that subclause (a) of this clause (13) will not apply to any refunding, refinancing, replacement, renewal, extension or defeasance of any Secured Indebtedness;
(14) (x) Indebtedness or Disqualified Stock of the Company and Indebtedness, Disqualified Stock or Preferred Stock of a Restricted Subsidiary incurred or issued to finance an acquisition (or other purchase of assets) or (y) existing Indebtedness, Disqualified Stock or Preferred Stock of Persons that are acquired by the Company or any Restricted Subsidiary or merged into or consolidated with the Company or a Restricted Subsidiary in accordance with the terms of this Indenture that is not incurred or issued in contemplation of such acquisition, merger or consolidation provided that in the case of (x) and (y) after giving effect to such acquisition, merger or consolidation, either (a) the Company would be permitted to incur at least $1.00 of
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additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of this covenant or (b) the Fixed Charge Coverage Ratio of the Company and the Restricted Subsidiaries is greater than immediately prior to such acquisition, merger or consolidation;
(15) 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;
(16) Indebtedness of the Company or any of its Restricted Subsidiaries supported by a letter of credit issued pursuant to Credit Facilities, in a principal amount not in excess of the stated amount of such letter of credit;
(17) (A) any guarantee by the Company 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 this Indenture, and
(B) any guarantee by a Restricted Subsidiary of Indebtedness of the Company;
(18) Indebtedness of the Company 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 consisting of Indebtedness issued by the Company or any of its Restricted Subsidiaries to current or former officers, directors and employees thereof, their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of the Company or any direct or indirect parent company of the Company to the extent described in Section 4.07(b)(5);
(20) Indebtedness consisting of cash management services incurred in the ordinary course of business, including in respect of credit card obligations, overdrafts and related liabilities arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfers of funds;
(21) customer deposits and advance payments received in the ordinary course of business from customers for goods purchased in the ordinary course of business;
(22) Indebtedness owed on a short-term basis of no longer than 30 days to banks and other financial institutions incurred in the ordinary course of business of the Company and its Restricted Subsidiaries with such banks or financial institutions and arising in connection with ordinary banking arrangements to manage cash balances of the Company and its Restricted Subsidiaries;
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(23) Indebtedness incurred by the Company or a Restricted Subsidiary in connection with bankers acceptances or discounted bills of exchange, in each case incurred or undertaken consistent with past practice or in the ordinary course of business;
(24) Indebtedness (i) incurred by a Securitization Special Purpose Entity as part of, pursuant to or in connection with a Qualified Securitization Transaction (including Indebtedness to the Company, any Restricted Subsidiary or other Person) that is without recourse to the Company or to any Restricted Subsidiary (other than Standard Securitization Undertakings) and (ii) in connection with any Receivables Facility, so long as the aggregate principal amount of Indebtedness under clauses (i) and (ii) in the aggregate does not exceed $250.0 million; and to the extent that any purported contribution, sale, conveyance, grant or transfer of Securitization Assets or accounts receivables from the Company or any Restricted Subsidiary to a Securitization Special Purpose Entity or to any Person that is not a Restricted Subsidiary, as applicable, shall ever be deemed not to constitute a true sale, any Indebtedness of the applicable Securitization Special Purpose Entity or Person to the Company and such Restricted Subsidiaries arising therefrom (for the avoidance of doubt, Indebtedness permitted to be incurred under this clause (24) shall include Indebtedness in connection with the trade receivables securitization facility to be entered into in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum);
(25) to the extent constituting Indebtedness, any obligations incurred as part of the Transactions in a manner consistent in all material respects with the disclosures set forth in the Offering Memorandum;
(26) Guarantees of Indebtedness of joint ventures of the Company or any Restricted Subsidiary not to exceed, at any one time outstanding, $150.0 million;
(27) Indebtedness of Foreign Subsidiaries of the Company in an amount not to exceed, at any one time outstanding and together with any other Indebtedness incurred under this clause (27), $ 150.0 million; and
(28) Indebtedness of the Company or any of its Restricted Subsidiaries owed to any direct or indirect parent company of the Company incurred prior to the Assumption Date, which shall provide by its terms that it shall be repaid in full and terminated on the Assumption Date.
(c) For purposes of determining compliance with this Section 4.09, (1) 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 (28) of Section 4.09(b) or is entitled to be incurred pursuant to Section 4.09(a), the Company, in its sole discretion, will classify 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 clauses or under the first paragraph of this covenant; and (2) at the time of incurrence, the Company will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in
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Sections 4.09(a) and (b) above; provided that, in the case of each of the foregoing clauses (1) or (2) all Indebtedness outstanding under the Senior Secured Credit Facilities on or prior to the Assumption Date will be treated as incurred under clause (1)(x) of Section 4.09(b).
(d) Notwithstanding anything else in this Section 4.09, Restricted Subsidiaries that are not Subsidiary Guarantors may not incur Indebtedness or issue Disqualified Stock or Preferred Stock pursuant to Section 4.09(a) or clause (12), (13) (solely in respect of Indebtedness, Disqualified Stock or Preferred Stock incurred or issued under Section 4.09(a) or clause (12), (14)(x) or (27) of this Section 4.09 and any refinancing thereof) (14)(x) or (27) of Section 4.09, if, after giving pro forma effect to such incurrence or issuance (including a pro forma application of the net proceeds therefrom), the aggregate amount of Indebtedness, Disqualified Stock and Preferred Stock of Restricted Subsidiaries that are not Subsidiary Guarantors incurred or issued pursuant to Section 4.09 and at any one time outstanding would exceed $250.0 million.
(e) Accrual of interest or dividends, the accretion of accreted value, the accretion or amortization of original issue discount, the payment of interest in the form of additional Indebtedness and the payment of dividends in the form of additional Disqualified Stock or Preferred Stock, as applicable, will in each case not be deemed to be an incurrence of Indebtedness or Disqualified Stock or Preferred Stock for purposes of this Section 4.09.
(f) 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, 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 (a) the principal amount of such Indebtedness being refinanced, plus (b) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums) and other costs and expenses (including original issue discount, upfront fees or similar fees) incurred in connection with such refinancing.
(g) 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.
(h) The Company shall not, and shall not permit any Subsidiary Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is expressly subordinated or junior in right of payment to any Indebtedness of the Company or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is expressly subordinated in right of payment to the Notes or such Subsidiary Guarantors Guarantee to the extent and on
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substantially identical terms as such Indebtedness is subordinated to other Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
(i) For purposes of this Section 4.09, (1) unsecured Indebtedness shall not be deemed to be subordinated or junior to Secured Indebtedness merely because it is unsecured and (2) Senior Indebtedness shall not be deemed to be subordinated or junior to any other Senior Indebtedness merely because it has a junior priority with respect to the same collateral or because such other Senior Indebtedness is guaranteed by other obligors.
Section 4.10 Asset Sales .
(a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale, unless:
(1) the Company or 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 Company at the time of contractually agreeing to such Asset Sale (which determination shall be conclusive)) of the assets sold or otherwise disposed of or the Equity Interests issued; and
(2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents; provided that the following shall be deemed to be cash for purposes of this provision and for no other purpose:
(A) any liabilities (as reflected in the Companys or such Restricted Subsidiarys most recent balance sheet or in the footnotes thereto or, if incurred, increased or accrued subsequent to the date of such balance sheet, such liabilities that would have been shown on the Companys or such Restricted Subsidiarys balance sheet or in the footnotes thereto if such incurrence, increase or accrual had taken place on or prior to the date of such balance sheet, as determined in good faith by the Company (which determination shall be conclusive)) of the Company or such Restricted Subsidiary (other than Contingent Obligations and liabilities that are by their terms subordinated to the Notes or the applicable Guarantee) that are assumed by the transferee of any such assets pursuant to a written agreement that releases or indemnifies the Company or such Restricted Subsidiary from such liabilities or that are otherwise extinguished by the transferee in connection with such transaction;
(B) any securities, notes or other similar obligations received by the Company or such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) within 180 days of the receipt thereof;
(C) any Designated Non-cash Consideration received by the Company or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Non-cash
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Consideration received pursuant to this clause (C) that is at that time outstanding, not to exceed the greater of $50.0 million and 3.50% of Total Assets at the time of the receipt of such Designated Non-cash Consideration, with the fair market value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value; and
(D) Capital Stock of a Person that is a Restricted Subsidiary or of a Person engaged in a Similar Business that shall become a Restricted Subsidiary immediately upon the acquisition thereof by the Company or any Restricted Subsidiary.
(b) Within 365 days after the receipt of any Net Proceeds of any Asset Sale, the Company or a Restricted Subsidiary, at its option, may apply an amount equal to the Net Proceeds from such Asset Sale,
(1) to permanently reduce Indebtedness as follows:
(A) to permanently reduce Secured Indebtedness, including Indebtedness under the Senior Secured Credit Facilities, in each case, that is secured by a Lien that is permitted by this Indenture and (if applicable) to permanently reduce commitments with respect thereto;
(B) to permanently reduce Obligations under other Senior Indebtedness of the Company or a Subsidiary Guarantor (and (if applicable) to permanently reduce commitments with respect thereto); provided that the Company shall equally and ratably reduce (or offer to reduce, as applicable) Obligations under the Notes; provided further that all reductions of Obligations under the Notes shall be made as provided under Section 3.08 or through open-market purchases (to the extent such purchases are at or above 100% of the principal amount thereof plus accrued and unpaid interest) or by making 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 amount of Notes that would otherwise be prepaid; or
(C) to permanently reduce Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor, other than Indebtedness owed to the Company or any Restricted Subsidiary;
(2) to make (A) 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 Company or any 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) capital expenditures or (C) acquisitions of other businesses, properties, noncurrent assets or intellectual property rights that, in the case of each of (A), (B) and (C), are used or useful in a Similar Business; or
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(3) to make an Investment in (A) 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 Company or any 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) properties or (C) acquisitions of other businesses, properties, noncurrent assets or intellectual property rights that, in the case of each of (A), (B) and (C), replace the businesses, properties, assets or intellectual property rights that are the subject of such Asset Sale;
provided that, in the case of clauses (2) and (3) of this Section 4.10(b), a binding commitment entered into not later than the end of such 365-day period shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Company or such Restricted Subsidiary enters into such commitment with the good faith expectation that an amount equal to the Net Proceeds will be applied to satisfy such commitment within 180 days of the end of such 365-day period (an Acceptable Commitment ) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before an amount equal to the Net Proceeds is so applied, then the Company or such Restricted Subsidiary shall be permitted to apply an amount equal to the Net Proceeds in any manner set forth above before the expiration of such 180-day period and, in the event the Company or such Restricted Subsidiary fails to do so, then such Net Proceeds shall constitute Excess Proceeds.
(c) Any Net Proceeds from the Asset Sale that are not invested or applied as provided and within the time period set forth in Section 4.10(b) will be deemed to constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $50.0 million (the Excess Proceeds Threshold ), the Company shall make an offer to all Holders of the Notes and, if required by the terms of any Senior Indebtedness, to the holders of such Senior Indebtedness (an Asset Sale Offer ), to purchase the maximum aggregate principal amount of the Notes and such Senior Indebtedness that, in the case of Notes, is an integral multiple of $1,000 (but in minimum denominations of $2,000) that may be purchased with such Excess Proceeds at an offer price, in the case of the Notes, in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date fixed for the closing of such offer, and in the case of any Senior Indebtedness at the offer price required by the terms thereof but not to exceed 100% of the principal amount thereof, plus accrued and unpaid interest, if any, in each case in accordance with the procedures set forth in this Indenture. The Company will commence an Asset Sale Offer with respect to Excess Proceeds within 10 Business Days after the date that Excess Proceeds exceed the Excess Proceeds Threshold by delivering the notice required pursuant to the terms of this Indenture, with a copy to the Trustee for delivery to Holders. The Company may satisfy the foregoing obligations with respect to any Net Proceeds from an Asset Sale by making an Asset Sale Offer with respect to such Net Proceeds prior to the expiration of the relevant 365-day period. Upon the completion of each Asset Sale Offer (including a voluntary Asset Sale Offer with respect to all Excess Proceeds even though less than the Excess Proceeds Threshold), the amount of Excess Proceeds shall be reset to zero.
(d) To the extent that the aggregate principal amount of Notes and such Senior Indebtedness, as the case may be, tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for any purposes not otherwise prohibited under this Indenture. If the aggregate principal amount of Notes or Senior Indebtedness, as the case may be, surrendered by such holders thereof exceeds the amount of Excess Proceeds, such Notes or Senior Indebtedness, as the case may be, will be purchased on a pro rata basis based on the accreted value or principal amount of such Notes or Senior
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Indebtedness, as the case may be, tendered (and the Trustee or Registrar will select the tendered Notes of tendering holders on a pro rata basis, or such other basis in accordance with DTC procedures based on the amount of Notes tendered.
(e) Pending the final application of any Net Proceeds, 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 this Indenture.
(f) The Company shall 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 this Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations set forth in this Indenture by virtue thereof.
(g) The provisions under this Indenture relating to the Companys obligation to make an offer to repurchase the Notes as a result of an Asset Sale may be waived or modified, with respect to the Notes, with the written consent of the Holders of a majority in principal amount of the Notes then Outstanding.
Section 4.11 Transactions with Affiliates .
(a) The Company shall not, and shall 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 Company (each of the foregoing, an Affiliate Transaction ) involving aggregate payments or consideration in excess of $25.0 million, unless:
(1) such Affiliate Transaction is on terms that are not materially less favorable, taken as a whole, as determined in good faith by the Company (which determination shall be conclusive), to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person on an arms-length basis; and
(2) the Company delivers to the Trustee, with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate payments or consideration in excess of $50.0 million, a resolution adopted by the majority of the disinterested members of the Board of Directors of the Company approving such Affiliate Transaction and set forth in an Officers Certificate certifying that such Affiliate Transaction complies with clause (1) above.
(b) Section 4.11(a) shall not apply to the following:
(1) transactions between or among the Company or any of its Restricted Subsidiaries;
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(2) Restricted Payments permitted by Section 4.07 or the definition of Permitted Investment;
(3) the payment of reasonable and customary compensation and fees paid to, and indemnities provided for the benefit of, or employment, service or benefit plan agreements with or for the benefit of, former, current or future officers, directors, employees or consultants of the Company or any of its Restricted Subsidiaries;
(4) transactions in which the Company or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor either stating that such transaction is fair to the Company or such Restricted Subsidiary from a financial point of view or stating that such terms are not materially less favorable to the Company or its relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person on an arms-length basis;
(5) (a) any of the Separation Documents and (b) any agreement as in effect as of the Issue Date, or any amendment, supplement, modification, extension or renewal thereto or thereof or any transaction contemplated thereby (including pursuant to any amendment, supplement, modification, extension or renewal thereto or thereof) or by any replacement agreement thereto (so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect when taken as a whole as compared to the applicable agreement as in effect on the Issue Date as determined in good faith by the Company (which determination shall be conclusive));
(6) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this Indenture that are fair to the Company and its Restricted Subsidiaries, as determined in good faith by the Company (which determination shall be conclusive), or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
(7) the sale or issuance of Equity Interests of the Company to any director, officer, employee or consultant of the Company or its Restricted Subsidiaries;
(8) any issuances of securities or other payments, awards, grants in cash, securities or otherwise or loans (or cancellation of loans) to employees or consultants of the Company or any of its Restricted Subsidiaries pursuant to, or for the funding of, employment arrangements or agreements, stock option plans, stock ownership plans and other similar arrangements with such employees or consultants which, in each case, are approved by the Company in good faith;
(9) any transaction with any Person that is an Affiliate of the Company or any Restricted Subsidiary that would constitute an Affiliate Transaction solely because the Company or any Restricted Subsidiary owns (directly or indirectly) an equity interest in, or controls (including pursuant to any management agreement or otherwise), such Person;
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(10) transactions with joint ventures on terms that are not materially less favorable, taken as a whole, to the Company or any Restricted Subsidiary (as applicable), as determined in good faith by the Company (which determination shall be conclusive), than the other joint venture partner(s);
(11) the Transactions and the payment of all fees and expenses related to the Transactions;
(12) any contribution, sale, conveyance, transfer or other disposition of, or grant of a security interest in, Securitization Assets to a Securitization Special Purpose Entity and other transactions effected as part of, pursuant to or in connection with a Qualified Securitization Transaction; and
(13) transactions with Affiliates solely in their capacity as holders of Indebtedness or Capital Stock of the Company or any Restricted Subsidiary where such Affiliate receives the same consideration or is treated in the same manner as non-Affiliates that are party to (or have the benefit of) such transaction.
Section 4.12 Liens .
(a) The Company shall not, and shall not permit any Subsidiary Guarantor to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist any Lien (except Permitted Liens) that secures obligations under any Indebtedness or any related Guarantee of the Company or any Subsidiary Guarantor, on any asset or property of the Company or any Subsidiary Guarantor, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless:
(1) in the case of any 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; and
(2) in all other cases, the Notes or the Guarantees are equally and ratably secured, except that the foregoing shall not apply to or restrict Liens securing obligations in respect of the Notes and the related Guarantees.
(b) Any Lien created for the benefit of the Holders of the Notes pursuant to this Section 4.12 shall be deemed automatically and unconditionally released and discharged upon the release and discharge of each Lien (other than a release as a result of the enforcement of remedies in respect of such Lien or the Obligations secured by such Lien) that gave rise to the obligation to secure the Notes or such Guarantee pursuant to Section 4.12(a).
Section 4.13 Offer to Repurchase Upon Change of Control .
(a) If a Change of Control occurs after the Issue Date, unless the Company has previously or concurrently mailed a redemption notice with respect to all the Outstanding Notes under Section 3.07 or Section 3.08, the Company 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
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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 Regular Record Date to receive interest due on the relevant Interest Payment Date. For the avoidance of doubt, the Transactions will not be deemed to be a Change of Control. Within 30 days following any Change of Control, the Company will deliver notice of such Change of Control Offer 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 DTC with the following information:
(1) that a Change of Control Offer is being made pursuant to this Section 4.13 and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted for payment by the Company;
(2) the purchase price and the purchase date, which will be no earlier than 30 days nor later than 60 days from the date such notice is sent (the Change of Control Payment Date ), except in the case of a conditional Change of Control Offer made in advance of a Change of Control as described below;
(3) that any Note not properly tendered will remain Outstanding and continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of Control Payment required to be made, 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 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 Company to purchase such Notes; provided that the paying agent receives, not later than the close of business on the expiration date of the Change of Control Offer, a telegram, telex, 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) the other instructions, as determined by the Company (which determination shall be conclusive), consistent with the covenant described hereunder, that a Holder must follow; and
(8) if such notice is sent prior to the occurrence of a Change of Control, stating that the Change of Control Offer is conditional upon the occurrence of such Change of Control.
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(b) The Company shall 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 this Section 4.13, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations set forth in this Section 4.13 by virtue of such conflict.
(c) On the Change of Control Payment Date, the Company 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 applicable paying agent an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions thereof properly 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 Company.
(d) Notwithstanding anything to the contrary herein, the Company shall not be required to make a Change of Control Offer following a Change of Control 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 this Section 4.13 applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under such Change of Control Offer.
(e) 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 the Change of Control Offer.
(f) The provisions under this Section 4.13 relating to the Companys obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified, with respect to the Notes, with the written consent of the Holders of a majority in principal amount of the Notes then Outstanding, including after the entry into an agreement that would result in the need to make a Change of Control Offer.
Section 4.14 Covenant Suspension .
(a) If on any date following the Assumption Date (i) the Notes have Investment Grade Ratings from both Rating Agencies, and (ii) no Default or Event of Default has occurred and is continuing under this Indenture, then, beginning on that day (the Suspension Date and, the occurrence of the events described in the foregoing clauses (i) and (ii) being collectively referred to as a Covenant Suspension Event ) and continuing until the occurrence of the Reversion Date, (i) the Company shall promptly provide notice of such Covenant
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Suspension Event to the Trustee and (ii) the covenants specifically listed under the following sections of this Indenture will not be applicable to the Notes (collectively, the Suspended Covenants ):
(1) Section 4.10;
(2) Section 4.07;
(3) Section 4.09;
(4) Section 5.01(a)(4);
(5) Section 4.11; and
(6) Section 4.08.
(b) During any period that the foregoing Sections have been suspended, the Company may not designate any of its Subsidiaries as Unrestricted Subsidiaries, unless such designation would have complied with Section 4.07 as if such Section were in effect during such period.
(c) In the event that and while the Company and its Restricted Subsidiaries are not subject to the Suspended Covenants under this Indenture for any period of time as a result of a Covenant Suspension Event, and on any subsequent date (the Reversion Date ) one or both of the Rating Agencies withdraw their Investment Grade Rating or downgrade the rating assigned to the Notes below an Investment Grade Rating, then (i) the Company shall promptly provide notice of such Reversion Date to the Trustee and (ii) the Company and its Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants under this Indenture with respect to future events. The period of time between the Suspension Date and the Reversion Date is referred to in this Indenture as the Suspension Period . Upon the occurrence of a Covenant Suspension Event, the amount of Excess Proceeds from Asset Sales shall be reset to zero.
(d) During any Suspension Period, the Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction; provided , however , that the Company or any Restricted Subsidiary may enter into a Sale and Lease-Back Transaction if (i) the Company or such Restricted Subsidiary could have incurred a Lien to secure the Indebtedness attributable to such Sale and Lease-Back Transaction pursuant to Section 4.12 without equally and ratably securing the Notes pursuant to the covenant described therein; and (ii) the consideration received by the Company or such Restricted Subsidiary in that Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold and otherwise complies with Section 4.10; provided , further , that this Section 4.14(d) shall cease to apply on and subsequent to any Reversion Date.
(e) During the Suspension Period, the Company and its Restricted Subsidiaries will be entitled to incur Liens to the extent provided for under Section 4.12 (including Permitted Liens) and any Permitted Liens that refer to one or more Suspended Covenants shall be interpreted as though such applicable Suspended Covenant(s) continued to be
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applicable during the Suspension Period (but solely for purposes of Section 4.12 and for no other covenant).
(f) Notwithstanding the foregoing, in the event of any such reinstatement, no action taken or omitted to be taken by the Company or any of its Restricted Subsidiaries during the Suspension Period shall give rise to a Default or Event of Default under any of the Suspended Covenants; provided that (1) after such reinstatement, the amount of Restricted Payments since the Issue Date will be calculated as though Section 4.07 had been in effect prior to, but not during, the Suspension Period; (2) all Indebtedness incurred, or Disqualified Stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to Section 4.09(b)(3); (3) any Affiliate Transaction entered into after such reinstatement pursuant to an agreement entered into during any Suspension Period shall be deemed to be permitted pursuant to Section 4.11(b)(5)(b); and (4) any encumbrance or restriction on the ability of any Restricted Subsidiary that is not a Guarantor to take any action described in clauses (1) through (3) of Section 4.08(a) that becomes effective during any Suspension Period shall be deemed to be permitted pursuant to Section 4.08(b)(1).
Section 4.15 Compliance with Ashland Indenture . For so long as the Ashland Guarantee is outstanding, Ashland will comply with the terms of the indentures governing Ashlands 4.750% notes due 2022, 3.875% notes due 2018 and 6.875% notes due 2043 (subject, for the avoidance of doubt, to all grace periods, notice and cure periods and amendment and waiver provisions set forth therein).
ARTICLE V
SUCCESSORS
Section 5.01 Merger, Consolidation or Sale of All or Substantially All Assets.
(a) The Company . The Company may not, directly or indirectly, consolidate or merge with or into or wind up into (whether or not the Company is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Companys properties or assets, in one or more related transactions, to any Person unless :
(1) the Company is the surviving entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which 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 jurisdiction of organization of the Company or the laws of the United States, any state thereof, the District of Columbia or any territory thereof (such Person, as the case may be, being herein called the Successor Company );
(2) the Successor Company, if other than the Company, expressly assumes all the obligations of the Company under the Notes, pursuant to a supplemental indenture or other documents or instruments;
(3) immediately after such transaction, no Default or Event of Default exists;
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(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 Company or the Successor Company, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) or
(B) the Fixed Charge Coverage Ratio of the Company (or, if applicable, the Successor Company) and its Restricted Subsidiaries would be equal to or greater than such ratio of the Company and its Restricted Subsidiaries immediately prior to such transaction;
(5) each Subsidiary Guarantor, unless (i) it is the other party to the transactions described above, in which case Section 5.01(b)(1)(b) shall apply or (ii) the Company is the surviving entity, shall have by supplemental indenture confirmed that its Guarantee shall apply to such Persons obligations under this Indenture and the Notes; and
(6) the Company (or, if applicable, the Successor Company) 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 indenture, if any, complies with this Indenture.
The Successor Company will succeed to, and be substituted for, the Company under this Indenture, the Guarantees and the Notes, as applicable.
Notwithstanding the foregoing clauses (3) and (4),
(1) any Restricted Subsidiary may consolidate with or merge into or transfer all or part of its properties and assets to the Company or a Subsidiary Guarantor, and
(2) the Company may merge with an Affiliate of the Company, as the case may be, solely for the purpose of reincorporating the Company in the United States, any state thereof, the District of Columbia or any territory thereof or for the sole purpose of forming or collapsing a holding company structure.
(b) Subsidiary Guarantors . Subject to Section 10.03, no Subsidiary Guarantor shall, and the Company shall not permit any Subsidiary Guarantor to, consolidate or merge with or into or wind up into (whether or not such Subsidiary Guarantor 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:
(1) (A) such Guarantor is the surviving entity or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership, trust or limited liability company organized or
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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 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 a Guarantor, expressly assumes all the obligations of such Guarantor under this Indenture and such Guarantors related Guarantee pursuant to a supplemental indenture or other documents or instruments;
(C) immediately after such transaction, no Default or Event of Default exists; and
(D) the Company 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 indenture, if any, complies with this Indenture;
(2) the transaction is made in compliance with Section 4.10, if applicable; or
(3) in the case of assets comprised of Equity Interests of Subsidiaries that are not Guarantors, such Equity Interests are sold, assigned, transferred, leased, conveyed or otherwise disposed of to one or more Restricted Subsidiaries.
Subject to Section 5.02, the Successor Person will succeed to, and be substituted for, such Guarantor under this Indenture and such Guarantors Guarantee.
Notwithstanding the foregoing, any Subsidiary Guarantor may (1) merge or consolidate with or into, wind up into or transfer all or part of its properties and assets to another Subsidiary Guarantor or the Company, (2) merge with an Affiliate of the Company solely for the purpose of reincorporating the Subsidiary Guarantor in the United States, any state thereof, the District of Columbia or any territory thereof, (3) convert into a corporation, partnership, limited partnership, limited liability company or trust organized or existing under the laws of the jurisdiction of organization of such Subsidiary Guarantor or (4) liquidate or dissolve or change its legal form if the Company determines in good faith that such action is in the best interests of the Company, in each case, without regard to the requirements set forth in the preceding paragraph.
Notwithstanding the foregoing, the Transactions will be permitted under this Article V.
Section 5.02 Successor Corporation Substituted . Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties or assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this
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Indenture referring to the Company shall refer instead to the successor Person and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided , however , that the predecessor Company shall not be relieved from the obligation to pay the principal of, premium on, if any, and interest, if any, on, the Notes except in the case of a consolidation, merger or sale of all of the Companys assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01 Events of Default . Each of the following constitutes an Event of Default with respect to the Notes:
(a) default in payment when due and payable (whether at maturity, upon redemption, acceleration or otherwise) of principal of, or premium, if any, on the Notes;
(b) default for 30 days or more in the payment when due of interest on or with respect to the Notes;
(c) failure by the Company or any Subsidiary Guarantor for 60 days after receipt of written notice given by the Trustee or the Holders of not less than 25% of the aggregate principal amount of the then Outstanding Notes (with a copy to the Trustee) to comply with any of its other obligations, covenants or agreements (other than a default referred to in clauses (a) and (b) above) contained in this Indenture or the Notes;
(d) 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 Company or any of its Restricted Subsidiaries or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries, other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee exists on the Issue Date or is created after the issuance of the Notes, if both:
(1) 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
(2) 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, aggregates $100.0 million or more;
(e) failure by the Company or any Significant Subsidiary to pay final judgments for the payment of money aggregating in excess of $100.0 million, which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 days after such judgment becomes final and non-appealable, and in the event such judgment is covered by
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insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(f) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(1) commences a voluntary case, files for suspension of payments or any similar relief;
(2) consents to the entry of an order for relief against it in an involuntary case, files for bankruptcy or commences a similar insolvency proceeding;
(3) consents to the appointment of a Custodian of it or for all or substantially all of its property; or
(4) makes a general assignment for the benefit of its creditors;
(g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(1) is for relief against the Company or any Significant Subsidiary in an involuntary case;
(2) appoints a Custodian of the Company or any Significant Subsidiary for all or substantially all of its property; or
(3) orders the winding up or liquidation of the Company or any Significant Subsidiary;
or any similar relief is granted under any foreign law or laws, and the order or decree remains unstayed and in effect for 60 days; and
(h) (i) the Guarantee of any Significant Subsidiary or the Ashland Guarantee shall for any reason cease to be in full force and effect or be declared null and void, or (ii) any responsible officer of any Subsidiary Guarantor that is a Significant Subsidiary or Ashland, as applicable denies in writing that it has any further liability under its Guarantee or gives notice to such effect, other than by reason of the termination of the Indenture or the release of any such Guarantee in accordance with this Indenture.
The term Custodian means, for the purposes of this Article VI only, any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.
The Company shall, within 30 days of any Officer becoming aware of any continuing Default, deliver to the Trustee a statement specifying such Default and steps to be taken to cure such Default.
Section 6.02 Acceleration
.
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(a) If an Event of Default with respect to the Notes at the time Outstanding (other than an Event of Default specified in Section 6.01(f) or (g)) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Outstanding Notes by notice to the Company (and to the Trustee, if notice is given by the Holders), may declare the principal amount of, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable. Upon the effectiveness of such a declaration, such amounts shall be due and payable immediately. Notwithstanding the foregoing portion of Section 6.02, if an Event of Default specified in Section 6.01(f) or (g) occurs, the principal amount of, premium, if any, and accrued and unpaid interest on all the Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
(b) At any time after the principal of the Notes shall have been so declared due and payable (or have become immediately due and payable), and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Holders of a majority in principal amount of the Notes then Outstanding hereunder, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all the Notes and the principal of (and premium, if any, on) any and all Notes that shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Notes to the date of such payment or deposit and all reasonable expenses, disbursements and advances of the Trustee (including reasonable compensation, disbursements and expenses of the Trustees counsel) and compensation for the Trustees services) and (ii) any and all Events of Default under this Indenture with respect to the Notes, other than the nonpayment of principal and interest, if any, on Notes that have become due solely by such declaration of acceleration, shall have been remedied or waived as provided in Section 6.04. No such rescission shall affect any subsequent Default or impair any right consequent thereto.
(c) In the event of any Event of Default specified in Section 6.01(d), 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 30 days after such Event of Default arose:
(1) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged;
(2) 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.
Section 6.03 Other Remedies . If an Event of Default with respect to the Notes occurs and is continuing, the Trustee may proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as shall be most effectual to protect and enforce such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
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The Trustee may institute and maintain a suit or legal proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default with respect to the Notes shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults . The Holders of a majority in principal amount of the Outstanding Notes may, on behalf of the Holders of all the Notes by written notice to the Trustee, waive an existing Default except (i) a Default in the payment of the principal amount of, premium, if any, and accrued and unpaid interest on the Notes, (ii) a Default arising from the failure to redeem or purchase any Note when required pursuant to the terms of this Indenture or (iii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Holder affected; provided , however , that the Holders of a majority in principal amount of the Outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration in accordance with Section 6.02. When a Default is waived, it shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.
Section 6.05 Control by Majority . The Holders of a majority in principal amount of the Outstanding Notes may direct 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; provided that (i) such direction shall not conflict with law or this Indenture or expose the Trustee to personal liability, or be unduly prejudicial to Holders not joining therein, and (ii) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to security or indemnity reasonably satisfactory to the Trustee against all fees, losses and expenses related to taking or not taking such action. The Trustee shall be under no obligation to execute any of the rights or powers under this Indenture at the request or direction of any Holders unless such Holders have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee.
Section 6.06 Limitation on Suits . Except to enforce the right to receive payment of the principal amount of, premium, if any, and accrued and unpaid interest on the Notes held by such Holder when due, no Holder of a Note may pursue any remedy with respect to this Indenture or the Notes unless:
(a) such Holder has previously given the Trustee written notice that an Event of Default with respect to the Notes is continuing;
(b) Holders of at least 25% in the aggregate principal amount of all Outstanding Notes have requested in writing that the Trustee pursue the remedy;
(c) Holders of the Notes have offered the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense in connection therewith;
(d) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(e) Holders of a majority in principal amount of all Outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.
A Holder of Notes may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.
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Section 6.07 Rights of Holders to Receive Payment . Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of the principal amount of, premium, if any, and accrued and unpaid interest on the Notes held by such Holder, on or after their Maturity Dates, or to bring suit for the enforcement of any such payment on or after their Maturity Dates, is absolute and unconditional and shall not be impaired or affected without the consent of such Holder.
Section 6.08 Collection Suit by Trustee . If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and any amounts provided for hereunder.
Section 6.09 Trustee May File Proofs of Claim . The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company and the Guarantors, their creditors or their property and shall be entitled and empowered to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee or liquidator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due to the Trustee hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 Priorities . Any money or property collected by the Trustee pursuant to this Article VI with respect to the Notes shall be applied in the following order, at the date or dates fixed by the Trustee, and, in case of the distribution of such money on account of principal or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: to the Trustee acting in any capacity hereunder and any Agent, for all amounts due hereunder;
SECOND: to Holders, for amounts due and unpaid on the Notes for the principal amount of, premium, if any, and accrued and unpaid interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for the principal amount of, premium, if any, and accrued and unpaid interest, respectively; and
THIRD: to the Company.
Section 6.11 Undertaking for Costs . In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing, by any party litigant in the suit, of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the then Outstanding Notes.
Section 6.12 Waiver of Stay or Extension Laws . The Company (to the extent it may lawfully do so) agrees that it shall not at any time insist upon, plead or in any manner whatsoever claim to take the benefit or advantage of any stay or extension law, wherever enacted, now or at any time hereafter in force, which
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may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VII
TRUSTEE
Section 7.01 Duties of Trustee . (a) If an Event of Default has occurred and is continuing with respect to the Notes, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in the exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default with respect to the Notes:
(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Notes, as modified or supplemented by a supplemental indenture hereto, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of willful misconduct on its part, the Trustee may, with respect to Notes, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein nor shall the Trustee have any responsibility or liability for any information set forth therein).
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in good faith unless it is proved that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05; and
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(4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02 Rights of Trustee .
(a) The Trustee may conclusively rely on, and shall be protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, notice, report, bond, request, direction, consent, order or other document believed by it to be genuine and to have been signed or presented by the proper Person or Persons. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it shall receive an Officers Certificate and an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers Certificate or Opinion of Counsel.
(c) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed by it with due care. No Depositary shall be deemed an agent of the Trustee, and the Trustee shall not be responsible for or have any liability for any act or omission by any Depositary.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided , however , that the Trustees conduct does not constitute negligence or willful misconduct.
(e) The Trustee may consult with counsel of its choice, and the advice or opinion of counsel shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in reliance thereon.
(f) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company, and the Trustee may rely thereon.
(g) The Trustee shall not be deemed to have notice of any Default or Event of Default with respect to the Notes unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of such a Default is received by a Responsible Officer of the Trustee at the office of the Trustee, and such notice references such Notes and this Indenture and states that it is a notice of Default.
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(h) The rights, privileges, protections, immunities and benefits given to the Trustee hereunder, including, without limitation, its right to be indemnified, are extended to and shall be enforceable by the Trustee in each of its capacities and any Agent.
(i) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the fees, costs, expenses and liabilities which might be incurred by the Trustee in compliance with such request or direction.
(j) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee may make such further inquiry or investigation into such facts or matters as it may see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney.
(k) The Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
(l) The Trustee shall not be required to give any bond or surety in respect of the performance of its duties or powers hereunder.
(m) The Trustee may request that the Company deliver a certificate of incumbency setting forth the names of individuals or titles of officers authorized at such time to take specified actions pursuant to this Indenture.
(n) In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or other force majeure events, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use commercially reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
(o) The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, as amended, the Trustee, in accordance with requirements applicable to financial institutions, may be required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. Each party to this Indenture agrees that it will provide the Trustee with such information as the Trustee may request in order for the Trustee to comply with the requirements of the U.S.A. Patriot Act applicable to the Trustee.
(p) The Trustee shall not be responsible or liable for special, indirect, punitive or consequential losses or damages (including, but not limited to, loss of profit) irrespective of
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whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(q) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of willful misconduct on its part, rely upon an Officers Certificate.
Section 7.03 Individual Rights of Trustee . The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
Section 7.04 Trustees Disclaimer . The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Companys uses of the proceeds from the Notes, and it shall not be responsible for any statement of the Company or the Guarantors in this Indenture, in the Notes or in any document executed in connection with the sale of the Notes, other than those set forth in the Trustees certificate of authentication. The recitals contained herein and in the Notes shall be taken as the statements of the Company and the Guarantors, and the Trustee assumes no responsibility or liability for their correctness.
Section 7.05 Notice of Defaults . If a Default with respect to Notes occurs and is continuing and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall mail (or electronically deliver in accordance with the procedures of DTC) to each Holder notice of the Default within 60 days after it occurs, unless such Default shall have been cured or waived. The Trustee may withhold the notice (except in the case of a Default in payment of principal, premium or interest) if and so long as the Trustee determines that withholding the notice is in the interests of the Holders of the Notes.
Section 7.06 Reports by Trustee to Holders . If this Indenture is qualified under the Trust Indenture Act, unless otherwise specified in the applicable Board Resolution, supplemental indenture hereto or Officers Certificate, within 60 days after each July 15 beginning with July 15, 2017 for so long as Notes remain Outstanding, the Trustee shall mail or otherwise deliver to each Holder a brief report dated as of such reporting date in accordance with and to the extent required under § 313(a) of the Trust Indenture Act. The Trustee shall also comply with § 313(b)(2) of the Trust Indenture Act.
A copy of each report at the time of its mailing to Holders shall be filed with each stock exchange (if any) on which the Notes are listed, if required by the rules of such stock exchange. The Company agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof.
Section 7.07 Compensation and Indemnity . The Company and the Guarantors shall pay to the Trustee (acting in any capacity hereunder) and any Agent from time to time compensation for all services rendered by the Trustee as the Company and the Trustee shall agree in writing. The Trustees compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee (acting in any capacity hereunder) and any Agent upon request for all reasonable and duly documented out-of-pocket expenses, disbursements and advances incurred or made by it in accordance with any provision of this Indenture, including costs of collection and the fees, expenses and disbursements of their respective agents and counsel, in addition to the reasonable compensation for their respective services. The Company and Guarantors shall indemnify and hold harmless the Trustee (acting in any capacity hereunder) or any Agent and their respective officers, directors, employees and agents against any and all loss, liability or expense incurred on its part, arising out of or in connection with the acceptance or administration of this Indenture or the transactions contemplated hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The
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Trustee or any Agent shall notify the Company of any claim for which it may seek indemnity promptly upon obtaining actual knowledge thereof; provided , however , that any failure to so notify the Company shall not relieve the Company and Guarantors of their indemnity obligations hereunder, except to the extent that the rights of the Company or the Guarantors are actually prejudiced by such failure. Neither the Company nor any Guarantor will need to reimburse any expense or indemnify against any loss, liability or expense incurred by an indemnified party attributable to such partys own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final non-appealable order. The Company and the Guarantors shall not be obligated to pay any settlement effected without their prior written consent (which shall not be unreasonably withheld).
To secure the Companys and the Guarantors payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee, other than money or property held in trust to pay the principal of or interest on particular Notes.
The Companys and the Guarantors payment obligations pursuant to this Section 7.07 and the rights, protections and indemnities afforded to the Trustee and any Agent under this Article VII shall survive the satisfaction or discharge of this Indenture or the resignation or removal of the Trustee or any Agent, as the case may be. When the Trustee or any Agent incurs expenses after the occurrence of a Default specified in Section 6.01(f) or (g) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.
Any right, protection and indemnity provided to the Trustee hereunder shall also be afforded to any Agent hereunder or under any supplemental indenture.
Section 7.08 Replacement of Trustee . The Trustee may resign by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the Notes may remove the Trustee and may appoint a successor Trustee by so notifying the Trustee and the Company in writing not less than 30 days prior to the effective date of such removal. The Company shall remove the Trustee:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Notes and such Holders do not reasonably promptly appoint a successor Trustee or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee with respect to the Notes for which it is acting as Trustee under this
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Indenture. The successor Trustee shall mail or otherwise deliver a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of at least a majority in principal amount of the Notes may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section 7.08, the Companys obligations under Section 7.07 shall continue for the benefit of the retiring Trustee with respect to fees, expenses and liabilities incurred by it prior to such replacement. The retiring or removed Trustee shall have no responsibility or liability for the action or inaction of any successor Trustee.
Section 7.09 Successor Trustee by Merger . If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another Person, the resulting, surviving or transferee Person without any further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and if at that time any of the Notes shall not have been authenticated, any such successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have.
Any corporation into which the Trustee or any Paying Agent may be merged or converted, or any corporation with which the Trustee or Paying Agent may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee or Paying Agent shall be a party, or any corporation, including affiliated corporations, to which the Trustee or Paying Agent shall sell or otherwise transfer: (a) all or substantially all of its assets or (b) all or substantially all of its corporate trust business shall, on the date when the merger, conversion, consolidation or transfer becomes effective and to the extent permitted by any applicable laws and subject to any credit rating requirements set out in this Indenture become the successor Trustee or Paying Agent under this Indenture or any supplemental indenture without the execution or filing of any paper or any further act on the part of the parties to this Indenture, unless otherwise required by the Company, and after the said effective date all references in this Indenture or supplemental indenture to the Trustee or any Paying Agent shall be deemed to be references to such successor corporation. Written notice of any such merger, conversion, consolidation or transfer shall immediately be given to the Company by the Trustee or Paying Agent, as applicable.
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Section 7.10 Eligibility; Disqualification . The Trustee shall at all times satisfy the requirements of Trust Indenture Act § 310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b); provided , however , that there shall be excluded from the operation of Trust Indenture Act § 310(b)(1) the following: (i) the Notes issued under this Indenture and (ii) any other indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in Trust Indenture Act § 310(b)(1) are met.
Section 7.11 Preferential Collection of Claims Against the Company and Guarantors . The Trustee shall comply with Trust Indenture Act § 311(a), excluding any creditor relationship listed in Trust Indenture Act § 311(b). A Trustee who has resigned or has been removed shall be subject to Trust Indenture Act § 311(a) to the extent indicated.
ARTICLE VIII
LEGAL DEFEASANCE, COVENANT DEFEASANCE
AND SATISFACTION AND DISCHARGE
Section 8.01 Option To Effect Legal Defeasance or Covenant Defeasance . The Company may, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all Outstanding Notes upon compliance with the conditions set forth below in this Article VIII.
Section 8.02 Legal Defeasance and Discharge . Upon the Companys exercise under Section 8.01 hereof of the option applicable to this Section 8.02 with respect to the Notes, the Company and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all Outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, Legal Defeasance ). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be Outstanding only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (a) and (b) below, and to have satisfied all its other obligations under the Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(a) the Companys obligations with respect to the Notes under Article II hereof;
(b) the rights, indemnities and immunities of the Trustee (and any Agent) hereunder and the Companys and Guarantors obligations in connection therewith (including, but not limited to, the rights of the Trustee (and any Agent) and the duties of the Company and Guarantors under Section 7.07, which shall survive despite the satisfaction in full of all obligations hereunder); and
(c) Sections 8.02, 8.04, 8.05, 8.06, 8.07 and 8.08 hereof.
Subject to compliance with this Article VIII, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. In the event that the Company terminates all of its obligations under the Notes and this Indenture by exercising the Legal Defeasance option or the Covenant Defeasance option, the obligations of each Guarantor under its Guarantee of the Notes shall be terminated simultaneously with the termination of such obligations.
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Section 8.03 Covenant Defeasance . Upon the Companys exercise under Section 8.01 hereof of the option applicable to this Section 8.03 with respect Notes, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.02 (other than Section 4.02(e)), 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 5.01(a)(4) of this Indenture on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, Covenant Defeasance ), and the Notes shall thereafter be deemed not Outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed Outstanding for all other purposes hereunder (it being understood that the Notes shall not be deemed Outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the Outstanding Notes, the Company and its Restricted Subsidiaries may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and the Notes shall be unaffected thereby. In addition, upon the Companys exercise under Section 8.01 hereof of the option applicable to this Section 8.03 with respect to the Notes, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) (only with respect to defeased covenants hereunder), 6.01(d) and 6.01(e) hereof shall not constitute Events of Default with respect to such Notes. In the event that the Company terminates all of its obligations under the Notes and this Indenture by exercising the Legal Defeasance option or the Covenant Defeasance option, the obligations of each Guarantor under its Guarantee of such Notes shall be terminated simultaneously with the termination of such obligations.
Section 8.04 Conditions to Legal or Covenant Defeasance . The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the Outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:
(a) the Company must irrevocably deposit or cause to be irrevocably deposited with the Trustee, in trust, for the benefit of the Holders of the Notes, 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 firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, the Company shall have delivered, or cause to be delivered, to the Trustee an Opinion of Counsel confirming that (1) the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling, or (2) since the date of this Indenture, 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, the Holders of the Outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes 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;
(c) in the case of an election under Section 8.03 hereof, the Company shall have delivered, or cause to be delivered, to the Trustee an Opinion of Counsel confirming that the Holders of the Outstanding Notes 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
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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 Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing on the date the Company makes such deposits (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit or the granting of Liens in connection therewith);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Secured Credit Facilities or any other material agreement or instrument (other than this Indenture) to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound (other than that resulting with respect to any Indebtedness being defeased from any borrowing of funds to be applied to make the deposit required to effect such Legal Defeasance or Covenant Defeasance and any similar and simultaneous deposit relating to such Indebtedness, and the granting of Liens in connection therewith);
(f) the Company shall have delivered, or shall have caused to be delivered, to the Trustee an Officers Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or any Guarantor or others; and
(g) the Company shall have delivered, or shall have caused to be 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.
Section 8.05 Deposited Money and Government Obligations to be Held in Trust; Other Miscellaneous Provisions . Subject to Section 8.06 hereof, all money, Government Securities (including any proceeds thereof) deposited with the Trustee pursuant to Section 8.04 hereof in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of the Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.
The Company and Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash, Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money, Government Securities Obligations held by it as provided in Section 8.04 hereof that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section
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8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06 Repayment to the Company . Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or, if then held by the Company, shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Company for payment thereof as general creditors, unless an applicable abandoned property law designates another person, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided , however , that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times or The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.07 Satisfaction and Discharge of Indenture . If at any time:
(a) either:
(1) all Notes theretofore authenticated and delivered, except lost, stolen or destroyed Notes that 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) all 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 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 Company, and the Company 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 of any Notes, cash in U.S. dollars, Government Securities, or a combination thereof, in such amounts as will be sufficient 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 Company has paid or caused to be paid all sums payable by it under this Indenture; and
(c) the Company 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; and
(d) the Company shall have delivered to the Trustee an Opinion of Counsel and an Officers Certificate, each stating that all conditions precedent relating to the satisfaction and discharge of this Indenture with respect to have been complied with,
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then this Indenture shall thereupon cease to be of further effect with respect to the Notes except for the rights, indemnities and immunities of the Trustee hereunder and the Companys and the Guarantors obligations in connection therewith (including, but not limited to, the rights of the Trustee and the duties of the Company and the Guarantors under Section 7.07, which shall survive despite the satisfaction in full of all obligations hereunder) and, if money shall have been deposited with the Trustee pursuant to this Section 8.07:
(1) the Companys obligations with respect to the Notes under Article II;
(2) the agreements of the Company and the Subsidiary Guarantors set forth in Article V; and
(3) Sections 8.02, 8.04, 8.05, 8.06, 8.07, 8.08 and 11.11 hereof, shall each survive until the Notes have been paid in full.
Upon the Companys exercise of this Section 8.07, the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture with respect to the Notes.
Section 8.08 Reinstatement . If the Trustee or any Paying Agent is unable to apply any U.S. dollars or Government Securities Obligations in accordance with this Article VIII, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Companys and the Guarantors obligations under this Indenture, the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance this Article VIII; provided , however , that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of their obligations, the Company shall be subrogated to the rights of the Holders of the Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS
Section 9.01 Without Consent of Holders . The Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Guarantees or the Notes without the consent of any Holder:
(a) to cure any ambiguity, omission, mistake, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of this Indenture relating to the form of the Notes (including the related definitions) in a manner that does not materially adversely affect any Holder (as determined in good faith by the Company (which determination shall be conclusive));
(c) to comply with Section 5.01;
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(d) to provide for the assumption of the Companys or any Guarantors obligations to the Holders;
(e) to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the legal rights under this Indenture of any such Holder (as determined in good faith by the Company (which determination shall be conclusive));
(f) to add covenants for the benefit of the Holders or to surrender any right or power conferred upon the Company or any Guarantor;
(g) to evidence and provide for the acceptance and appointment under this Indenture of a successor Trustee hereunder pursuant to the requirements hereof;
(h) to provide for the issuance of exchange Notes or private exchange Notes that are identical to exchange Notes except that they are not freely transferable;
(i) to provide for the issuance of Additional Notes in accordance with this Indenture;
(j) to add a Guarantor under this Indenture and to allow a Guarantor to execute a supplemental indenture or guarantee the Notes or to release a Guarantor in accordance with the terms of this Indenture;
(k) to conform the text of this Indenture, the Guarantees or the Notes to any provisions of the Description of Notes in the Offering Memorandum to the extent that such provision in such Description of Notes was intended to be a verbatim recitation of a provision of this Indenture, Guarantee or Notes (as determined in good faith by the Company (which determination shall be conclusive));
(l) to make any amendment to the provisions of this Indenture relating to the transfer and legending of Notes as permitted by this Indenture, including to facilitate the issuance and administration of the Notes; provided , however , that (i) compliance with this 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 (in each case, as determined in good faith by the Company (which determination shall be conclusive));
(m) to provide for the issuance of the Notes in a manner consistent with the terms of this Indenture; or
(n) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.02 With Consent of Holders . Except as provided below, this Indenture, any Guarantee and the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then Outstanding, including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes and any existing Default or compliance with any provision of this Indenture or the Notes issued hereunder may be waived with the consent of the Holders of a
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majority in aggregate principal amount of the Notes then Outstanding (including consents obtained in connection with a purchase of or tender offer or exchange offer for the Notes). However, without the consent of each Holder affected, an amendment or supplement may not, with respect to any Notes held by a non-consenting Holder:
(a) make any change in the percentage of the principal amount of the Notes required for amendments or waivers;
(b) reduce the principal of or change the fixed final maturity of any Note or change the date on which any Notes may be subject to redemption or reduce the redemption price therefor;
(c) reduce the rate of or change the time for payment of interest on any Note;
(d) (A) waive a Default in the payment of principal of or premium, if any, or interest on the Notes, except a rescission of acceleration of the Notes by the Holders of a majority in aggregate principal amount of all then Outstanding Notes, and a waiver of the Event of Default under Section 6.01(a) or 6.01(b) that resulted from such acceleration, or (B) waive a Default in respect of a covenant or provision contained in this Indenture or any Guarantee which cannot be amended or modified without the consent of all Holders;
(e) make any Note payable in money other than U.S. dollars;
(f) make any change in Section 9.01 or this Section 9.02;
(g) impair the right of any Holder to receive payment of principal of, premium, if any, 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 or the Guarantees; or
(h) make any change to or modify the ranking of the Notes that would adversely affect the Holders thereof.
It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof.
For purposes of determining whether the Holders of the requisite principal amount of Notes have taken any action under this Indenture, the principal amount of Notes shall be deemed to be the principal amount of Notes as of (i) if a record date has been set with respect to the taking of such action, such date or (ii) if no such record date has been set, the date the taking of such action by the Holders of such requisite principal amount is certified to the Trustee by the Company.
Section 9.03 Revocation and Effect of Consents and Waivers . A consent to an amendment, supplement or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holders Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holders Note or portion of the Note if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or
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waiver becomes effective, it shall bind every Holder of such Note affected by such amendment, supplement or waiver.
Section 9.04 Notation on or Exchange of Notes . If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note regarding the changed terms and return it to the Holder. Alternatively, if the Trustee or the Company so determine, the Company in exchange for the Note shall issue and the Trustee, upon a Company Order, shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment.
Section 9.05 Trustee to Sign Amendments . Upon the request of the Company, the Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article IX if the amendment, supplement or waiver does not affect the rights, duties or immunities of the Trustee under this Indenture or otherwise. If it does, the Trustee may, but need not, sign it. In signing any amendment, supplement or waiver the Trustee shall be provided with and shall be fully protected in relying upon an Officers Certificate and an Opinion of Counsel, each stating that the execution of such amendment, supplement or waiver is authorized or permitted by this Indenture and that such amendment, supplement or waiver is enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors rights and to general equity principles. The Trustee shall also be entitled to request indemnity satisfactory to it in connection with signing an amendment, supplement or waiver or taking any action (or refraining from taking any action) thereunder or in connection therewith.
Section 9.06 Payment for Consent . Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid to all Holders, ratably, that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. The Trustee shall have no duty or obligation with respect to the Companys obligations under this Section 9.06.
ARTICLE X
GUARANTEES
Section 10.01 Guarantees .
(a) Ashland and each other Guarantor that guarantees the Notes pursuant to this Indenture, jointly and severally, irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, to each Holder and the Trustee and their successors and assigns (i) the full and punctual payment when due, whether at maturity, by acceleration or otherwise, of all obligations of the Company under this Indenture (including obligations to the Trustee) and the Notes, whether for payment of principal of, premium, if any, or interest on the Notes and all other monetary obligations of the Company under this Indenture and the Notes and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company whether for fees, expenses, indemnification or otherwise under this Indenture and the Notes, on the terms set forth in this Indenture by executing this Indenture (all the foregoing being hereinafter collectively called the Guaranteed Obligations ). Each Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from each such Guarantor, and that such Guarantor shall remain bound under this Article X notwithstanding any extension or renewal of any Guaranteed Obligation.
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(b) Each Guarantor waives presentation to, demand of payment from and protest to the Company of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Guarantor waives notice of any Default under the Notes or the Guaranteed Obligations.
(c) Each Guarantor further agrees that its Guarantee herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations.
(d) Except as expressly set forth in Section 10.02, the obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise.
(e) Subject to Section 10.02 and 10.03 hereof, each Guarantor agrees that its Guarantee shall remain in full force and effect until payment in full of all the Guaranteed Obligations. Each Guarantor further agrees that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment of, or any part thereof, principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or any of its Subsidiaries or otherwise.
(f) In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Guaranteed Obligation, each Guarantor hereby promises to and shall, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Guaranteed Obligations, (ii) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent not prohibited by applicable law) and (iii) all other monetary obligations of the Company to the Trustee.
(g) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Trustee in respect of any Guaranteed Obligations guaranteed hereby until payment in full of all Guaranteed Obligations. Each Guarantor further agrees that, as between it, on the one hand, and the Trustee, on the other hand, (i) the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of any Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Article VI, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section 10.01.
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(h) Each Guarantor also agrees to pay any and all fees, costs and expenses (including reasonable attorneys fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.01.
(i) Each Guarantor shall promptly execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.
Section 10.02 Limitation on Liability . Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that, any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed hereunder by any Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Each Guarantor that makes a payment under its Guarantee shall be entitled upon payment in full of all Guaranteed Obligations under this 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.
Section 10.03 Releases . A Guarantee as to any Subsidiary Guarantor shall be automatically and unconditionally released and discharged, without further action required on the part of the Subsidiary Guarantor, the Trustee or any Holder of Notes, upon:
(a) any direct or indirect sale, exchange, transfer or other disposition (by merger, consolidation or otherwise) of the Capital Stock of such Subsidiary Guarantor, after which the applicable Subsidiary Guarantor is no longer a Restricted Subsidiary, if such sale, exchange, transfer or other disposition is not in violation of the applicable terms of this Indenture;
(b) the release or discharge of the Indebtedness or guarantee of Indebtedness by such Subsidiary Guarantor that resulted in the creation of such Guarantee except a release or discharge by or as a result of payment under such guarantee (it being understood that a release subject to a contingent reinstatement will constitute a release for the purposes of this provision); provided that at the time of such release or discharge, such Subsidiary Guarantor is not then a guarantor or an obligor in respect of any other Indebtedness that would require it to provide a Guarantee of the Notes under the Indenture;
(c) the sale, exchange, transfer or other disposition of all or substantially all of the assets of such Subsidiary Guarantor, in a transaction that is not in violation of the applicable terms of this Indenture, to any Person who is not (either before or after giving effect to such transaction) the Company or a Domestic Restricted Subsidiary;
(d) the release or discharge of such Subsidiary Guarantor from its guarantee, and of all pledges and security, if any, granted by such Subsidiary Guarantor in connection with the Senior Secured Credit Facilities, except a release or discharge by or as a result of payment under such guarantee (it being understood that a release subject to
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a contingent reinstatement will constitute a release for the purposes of this provision); provided that at the time of such release or discharge, such Subsidiary Guarantor is not then a guarantor or an obligor in respect of any other Indebtedness that would require it to provide a Guarantee of the Notes under this Indenture;
(e) the designation of any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with Section 4.07 and the definition of Unrestricted Subsidiary;
(f) the merger or consolidation of any Subsidiary Guarantor with and into the Company or another Subsidiary Guarantor or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Company or another Subsidiary Guarantor; or
(g) the Company exercising its Legal Defeasance option or Covenant Defeasance option with respect to the Notes pursuant to Article VIII or the Companys obligations under this Indenture being discharged with respect to the Notes in accordance with Article VIII;
and, in the case of this clauses (a) through (g) above, such Subsidiary Guarantor delivering to the Trustee an Officers Certificate and Opinion of Counsel stating that all conditions precedent provided for in this Indenture relating to the release of such Guarantee shall have been complied with.
Upon request of the Company or the Applicable Subsidiary Guarantor, 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 of Notes.
Ashland shall be automatically and unconditionally released and discharged from the Ashland Guarantee and from all of its obligations under this Indenture (including such obligations under Section 7.07, 10.01 and 10.02, and the Trustee and the Holders of the Notes shall have deemed to have consented to such release without any action on the part of Ashland, the Trustee or any Holder of the Notes, upon satisfaction of the conditions set forth in Article XII.
Section 10.04 Successors and Assigns . This Article X shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.
Section 10.05 No Waiver . Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article X shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article X at law, in equity, by statute or otherwise.
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Section 10.06 Additional Guarantees . Following the Assumption Date, the Company shall cause each Restricted Subsidiary that (a) incurs or guarantees any Indebtedness under the Senior Secured Credit Facilities, or (b) other than a Foreign Subsidiary or Foreign Subsidiary Holding Company of the Company, guarantees other Indebtedness of the Company or any Guarantor in an aggregate principal amount in excess of $25.0 million, to guarantee the Notes.
Section 10.07 Execution of Supplemental Indenture for Future Guarantors . Other than the Subsidiaries becoming a Guarantor on the Assumption Date in accordance with Section 12.01, each Subsidiary that is required to become a Guarantor pursuant to Section 10.06 shall promptly execute and deliver to the Trustee a supplemental indenture substantially in the form of Exhibit D hereto pursuant to which such Subsidiary shall become a Subsidiary Guarantor under this Article X and shall guarantee the Guaranteed Obligations. Concurrently with the execution and delivery of such supplemental indenture, the Company shall deliver to the Trustee an Opinion of Counsel and an Officers Certificate each stating that such supplemental indenture has been duly authorized, executed and delivered by such Subsidiary and that, subject to the application of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and other similar laws relating to creditors rights generally and to the principles of equity, whether considered in a proceeding at law or in equity, the Guarantee of such Subsidiary Guarantor is a valid and binding obligation of such Subsidiary Guarantor, enforceable against such Guarantor in accordance with its terms.
Section 10.08 Non-Impairment . The failure to endorse a Guarantee on any Notes shall not affect or impair the validity thereof.
Section 10.09 Benefits Acknowledged . Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the Guarantee and waivers made by it pursuant to its Guarantee are knowingly made in contemplation of such benefits.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls . If this Indenture is qualified under the Trust Indenture Act and any provision of this Indenture limits, qualifies or conflicts with another provision which is required or deemed to be included in this Indenture by the Trust Indenture Act, the required or deemed provision shall control.
Section 11.02 Notices . Any notice or communication shall be in writing and delivered in person or mailed by first-class mail, postage prepaid, electronic mail, facsimile transmission or overnight air courier guaranteeing next day delivery addressed as follows:
If to the Company or any Guarantor:
Valvoline Inc.
3499 Blazer Parkway
Lexington, KY 40509-1850
Attention: Julie M. ODaniel, Esq.
with copies for information purposes only to:
Cravath, Swaine & Moore LLP
825 Eighth Ave
New York, NY 10019
Facsimile: (212) 474-3700
Attention: Andrew J. Pitts, Esq.
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If to the Trustee:
U.S. Bank National Association
Global Corporate Trust Services
425 Walnut Street, 6th Floor
Cincinnati, OH 45202
Attention: William Sicking
Facsimile: 513.632.5511
Email: william.sicking@usbank.com
The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed by first-class mail (registered or certified, return receipt requested) to the Holder at the Holders address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed (or otherwise in accordance with the procedures of DTC).
Notices given by publication or electronic delivery will be deemed given on the first date on which publication or electronic delivery is made and notices given by first-class mail, postage prepaid, will be deemed given five calendar days after mailing or transmitting.
Notwithstanding any other provisions of this Indenture or any Notes, where this Indenture or any Note provides for notice of any event (including any notice of redemption) to a Holder of a Global Note (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary for such Note (or its designee) pursuant to the customary procedures of such Depositary.
Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.
Section 11.03 Communication by Holders with Other Holders . Holders may communicate pursuant to Trust Indenture Act § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act § 312(c).
Section 11.04 Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that all such conditions precedent have been complied with.
Section 11.05 Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include:
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(a) a statement that the individual making such certificate or opinion has read such covenant or condition (and the related definitions);
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with.
Section 11.06 Rules by Trustee, Paying Agent and Registrar . The Trustee may make reasonable rules for action by or a meeting of Holders. The Registrar and the Paying Agent may make reasonable rules for their functions.
Section 11.07 Legal Holidays . Legal Holiday means a Saturday, a Sunday or a day on which commercial banking institutions are required to be closed in the State of New York or a place of payment with respect to the Notes. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a Regular Record Date is a Legal Holiday, the record date shall not be affected.
Section 11.08 Governing Law . THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Section 11.09 No Personal Liability of Directors, Officers, Employees and Stockholders . No present, past or future director, officer, employee, member, partner, incorporator or equity holder of the Company, any Guarantor or any Subsidiary of the Company or any of their respective direct or indirect parent companies (except for the Company or any Subsidiary in its capacity as obligor or guarantor in respect of the Notes and not in its capacity as equity holder of any Subsidiary Guarantor) shall have any liability for any obligations of the Company or the Guarantors under the Notes, the Guarantees, this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting the Notes waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes.
Section 11.10 Successors . All agreements of the Company and the Guarantors in this Indenture and the Notes shall bind its successors (other than as contemplated by Sections 5.02(b) or 10.03). All agreements of the Trustee in this Indenture shall bind its successors.
Section 11.11 Multiple Originals; Electronic Signatures . The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
Section 11.12 Waiver of Jury Trial . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
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THIS INDENTURE, THE NOTES, THE GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 11.13 Table of Contents; Headings . The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.
Section 11.14 Severability . If any provision in this Indenture is deemed unenforceable, it shall not affect the validity or enforceability of any other provision set forth herein, or of this Indenture as a whole.
Section 11.15 Submission to Jurisdiction and Venue . ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY ARISING OUT OF OR RELATING HERETO, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS INDENTURE, EACH PARTY HERETO, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY SUBMITS TO AND ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE PARTY; AGREES THAT SERVICE AS PROVIDED ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND AGREES EACH OTHER PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY PARTY IN THE COURTS OF ANY OTHER JURISDICTION HAVING JURISDICTION OVER SUCH PARTY.
ARTICLE XII
THE TRANSACTIONS
Section 12.01 The Assumption . Prior to the date of the Assumption Date, only Finco Two and Ashland, but none of Ashlands other Subsidiaries, will have any Obligations under this Indenture and the Notes, and such other Subsidiaries will not be subject to the covenants set forth in this Indenture and the Notes.
Subject to satisfaction of the following conditions, upon consummation of the Assumption (a) Finco Two will merge with and into Valvoline, with Valvoline as the surviving corporation, and Valvoline shall assume the obligations of Finco Two under this Indenture and the Notes by executing a supplemental indenture in the form of Exhibit E hereto and (b) the Ashland Guarantee shall be automatically and unconditionally released:
(a) Valvoline and each of Valvolines direct and indirect Domestic Restricted Subsidiaries that guarantees the Senior Secured Credit Facilities shall have executed a supplemental indenture in the form of Exhibit E hereto evidencing their guarantee of the Companys obligations under the Notes in accordance with Article X; and the Company shall have delivered to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by Valvoline and each Subsidiary Guarantor and, subject to customary exceptions, is a valid and binding obligation of the Company and each such Subsidiary Guarantor, enforceable against the Company and each such Subsidiary Guarantor in accordance with its terms;
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(b) the Company shall have provided an Officers Certificate to the Trustee certifying that none of Valvoline or any of the Subsidiaries of Ashland that will become a Restricted Subsidiary at the time of the Assumption have taken any action (or omitted to take any action) that would constitute a Default or Event of Default under this Indenture or the Notes assuming that (i) Valvoline was the initial issuer of the Notes and all entities constituting the Valvoline Business that will become Restricted Subsidiaries were Restricted Subsidiaries during the period of time from the Issue Date through the Assumption Date and (ii) Valvoline and such Restricted Subsidiaries had been subject to the provisions of Indenture and the Notes on and from the Issue Date to the Assumption Date; provided that compliance with Section 4.09 shall be determined as if the Company did not have the ability to incur Indebtedness under Section 4.09(a) between the Issue Date and the Assumption Date; and
(c) as of the Assumption Date, (i) all of the assets that constitute the Valvoline Business as of such date shall have been transferred to and be held by the Company and its Subsidiaries or shall be available for use pursuant to the transition services and other intercompany agreements described in the Offering Memorandum (it being understood that failure to transfer immaterial assets of the Valvoline Business to the Company or its Subsidiaries shall not cause this condition not to be satisfied so long as the financial statements included in the Offering Memorandum fairly presented, in all material respects, the financial position of the Valvoline Business as if it were owned, directly or indirectly, by Valvoline, on the basis stated in the Offering Memorandum in accordance with GAAP), (ii) all Indebtedness incurred pursuant to Section 4.09(b)(28) shall have been extinguished and repaid in full (iii) Valvoline and the Subsidiary Guarantors shall have entered into the Registration Rights Agreement and a joinder agreement to the purchase agreement for the Notes and (iv) the Company shall have delivered an Officers Certificate stating that all conditions set forth in this Section 12.01 have been satisfied.
[ Signatures on following page ]
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above.
VALVOLINE FINCO TWO LLC, | ||
By: |
/s/ Jason Thompson |
|
Name: Jason Thompson | ||
Title: Treasurer | ||
ASHLAND INC. , as Initial Guarantor | ||
By: |
/s/ Peter J. Ganz |
|
Name: Peter J. Ganz | ||
Title: Senior Vice President, General Counsel and Secretary |
[ Signature page Indenture ]
U.S. BANK NATIONAL ASSOCIATION, | ||
as Trustee | ||
By: |
/s/ William E. Sicking |
|
Name: William E. Sicking | ||
Title: Vice President & Trust Officer |
[ Signature page Indenture ]
Exhibit 10.11
2016 VALVOLINE INCENTIVE PLAN
(Effective as of [DATE], 2016)
SECTION 1. PURPOSE
The purpose of the 2016 Valvoline Incentive Plan is to promote the interests of the Company and its shareholders by providing incentives to its directors, officers and employees (including prospective directors, officers and employees). Accordingly, the Company may grant to selected officers and employees Option Awards, Stock Appreciation Rights Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Incentive Awards, Performance Unit Awards and Recognition Awards in an effort to attract and retain in its employ qualified individuals and to provide such individuals with incentives to continue service with the Company, devote their best efforts to the Company and improve the Companys economic performance, thus enhancing the value of the Company for the benefit of shareholders. This Plan also provides an incentive for qualified persons, who are not officers or employees of the Company, to serve on the Board of Directors of the Company and to continue to work for the best interests of the Company by rewarding such persons with Option Awards, Stock Appreciation Rights Awards, Restricted Stock Awards or Restricted Stock Unit Awards.
SECTION 2. DEFINITIONS
Agreement shall mean either: (i) an agreement, either in written or electronic format, entered into by the Company and a Recipient setting forth the terms and provisions applicable to an Award granted under the Plan; or (ii) a statement, either in written or electronic format, issued by the Company to a Recipient describing the terms and provisions of such Award, which need not be signed by the Recipient.
Assumed Valvoline Award shall mean a stock option, stock appreciation right, restricted stock, restricted stock unit, performance unit, merit or other incentive compensation award granted pursuant to the Amended and Restated 2015 Ashland Inc. Incentive Plan, the Amended and Restated 2011 Ashland Inc. Incentive Plan or any other long-term incentive compensation plan sponsored or maintained by Ashland Inc. (or its successor) and assumed under this Plan in connection with the Valvoline Spin-Off.
Award shall mean an Option Award, a Stock Appreciation Right Award, a Restricted Stock Award, a Restricted Stock Unit Award, an Incentive Award, a Performance Unit Award or a Recognition Award, in each case granted under this Plan.
Beneficial Owner shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
Beneficiary shall mean the person or persons designated by a Recipient or, if no designation has been made, the person or persons entitled by will or the laws of descent and distribution to receive the benefits specified under this Plan in the event of a Recipients death.
Board shall mean the Board of Directors of the Company.
Cause shall have the meaning assigned thereto in the applicable Agreement or, in the event the applicable Agreement does not assign a meaning to such term, Cause shall mean (i) the willful and continued failure of the Participant to substantially perform his or her duties with the Company or its Subsidiaries (other than any such failure resulting from the Participants incapacity due to physical or mental illness), (ii) willful engaging by the Participant in gross misconduct materially injurious to the Company or its Subsidiaries or (iii) the Participants conviction of or the entering of a plea of nolo contendere (or similar plea under the law of a jurisdiction outside the United States) to the commission of a felony (or a similar crime or offense under the law of a jurisdiction outside the United States).
Change in Control shall be deemed to have occurred if:
(i) there shall be consummated (A) any consolidation or merger of the Company (a Business Combination), other than a consolidation or merger of the Company into or with a direct or indirect wholly-owned subsidiary, as a result of which the shareholders of the Company own (directly or indirectly), immediately after the Business Combination, less than 50% of the then outstanding shares of common stock that are entitled to vote generally for the election of directors of the corporation resulting from such Business Combination, or pursuant to which shares of the Companys Common Stock would be converted into cash, securities or other property, other than a Business Combination in which the holders of the Companys Common Stock immediately prior to the Business Combination have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the Business Combination, or (B) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, provided, however, that no sale, lease, exchange or other transfer of all or substantially all the assets of the Company shall be deemed to occur unless assets constituting at least 80% of the total assets of the Company are transferred pursuant to such sale, lease, exchange or other transfer;
(ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company;
(iii) any Person shall become the Beneficial Owner of securities of the Company representing 20% or more of the combined voting power of the Companys then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately-negotiated purchases or otherwise, without the approval of the Board; or
(iv) at any time during a period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Companys shareholders of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such two-year period.
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Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by virtue of (1) the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions, (2) the repurchase by the Company of outstanding shares of Common Stock or other securities pursuant to a tender or exchange offer or (3) the Valvoline Spin-Off.
Code shall mean the United States Internal Revenue Code of 1986, as amended.
Common Stock shall mean the Common Stock of the Company ($0.01 par value), subject to adjustment pursuant to Section 14 hereof.
Company shall mean Valvoline Inc. or any successor thereto.
Compensation Committee shall mean the Compensation Committee of the Board, as from time to time constituted, or any successor committee of the Board with similar functions, which shall, unless otherwise determined by the board, consist of three or more members, each of whom shall be a non-employee director within the meaning of Rule 16b-3 issued under the Exchange Act, an outside director within the meaning of the regulations issued under Section 162(m) of the Code and an independent director within the meaning of the applicable rules of the New York Stock Exchange or any other securities exchange upon which the Companys Common Stock is listed, or such committees delegate.
Credited Service shall mean periods of employment with the Company and its Subsidiaries for which credit is given , as determined by the Compensation Committee in its sole discretion.
Disability shall have the meaning assigned thereto in the applicable Agreement or, in the event the applicable Agreement does not assign a meaning to such term, Disability shall mean, (i) in the case of a Participant, when he or she becomes unable to perform the functions required by his or her regular job due to physical or mental illness and, in connection with the grant of an Incentive Stock Option, he or she falls within the meaning of that term as provided in Section 22(e)(3) of the Code; and (ii) in the case of an Outside Director, when he or she is unable to attend to his or her duties and responsibilities as a member of the Board because of incapacity due to physical or mental illness.
Dividend Equivalents shall mean the equivalent value (in cash, shares of Common Stock, shares of Restricted Stock or RSUs) of dividends that would otherwise be paid on the shares subject to an Award but that have not been issued or delivered, as described in Section 16(N).
Effective Date shall mean [DATE], 2016.
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Employee shall mean a regular, full-time or part-time employee of the Company or any of its Subsidiaries, provided, however, that for purposes of determining whether any individual may be a Participant for purposes of any grant of an Incentive Stock Option, the term Employee shall have the meaning given to such term in Section 3401(c) of the Code.
Exercise Price shall mean, with respect to each share of Common Stock subject to an Option or Stock Appreciation Right, the price fixed by the Compensation Committee at which such share may be purchased from the Company pursuant to the exercise of such Option or Stock Appreciation Right.
Exchange Act shall mean the United States Securities Exchange Act of 1934, as amended.
Fair Market Value shall mean, as of any date, (i) the closing sale price per share of Common Stock as reported on the Composite Tape of the New York Stock Exchange, or if there are no sales on such day, on the next preceding trading day during which a sale occurred and (ii) in the absence of such markets for the shares of Common Stock, the Fair Market Value shall be determined by the Compensation Committee, in its discretion, (which determination shall be made in a manner that complies with Section 409A of the Code to the extent required to avoid the imposition of taxes or penalties under Section 409A of the Code, as determined by the Committee), and such determination shall be conclusive and binding for all purposes.
Incentive Award shall mean an Award made pursuant to Section 7 hereof, the payment of which is contingent upon the achievement of performance goals (including Performance Goals) for the particular Performance Period.
Incentive Stock Option or ISO shall mean an Option that is intended by the Compensation Committee to meet the requirements of Section 422 of the Code or any successor provision.
ISO Award shall mean an Award of an Incentive Stock Option pursuant to Section 10 hereof.
Nonqualified Stock Option or NQSO shall mean an Option granted pursuant to this Plan which does not qualify as an Incentive Stock Option.
NQSO Award shall mean an Award of a Nonqualified Stock Option pursuant to Section 10 hereof.
Option shall mean the right to purchase Common Stock at a price to be specified and upon terms to be designated by the Compensation Committee, in its discretion, or otherwise determined pursuant to this Plan. The Compensation Committee, in its discretion, shall designate an Option as a Nonqualified Stock Option or an Incentive Stock Option.
Option Award shall mean an Award of an Option pursuant to Section 10 hereof.
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Outside Director shall mean a director of the Company, who is not also an Employee, who is selected by the Compensation Committee to receive an Award under this Plan.
Participant shall mean an Employee who is designated (whether individually or as a member of a specified group of Employees) by the Compensation Committee to receive an Award under this Plan.
Performance-Based Exception shall mean the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code.
Performance Goals shall mean performance goals as may be established in writing by the Compensation Committee. Such goals may be absolute in their terms or measured against or in relation to other companies comparably or otherwise situated, and/or may be relative to stock market indices or such other published or special indices as the Compensation Committee deems appropriate. Performance Goals may relate to the performance of the Company or one or more of its Subsidiaries, divisions, departments, units, functions, partnerships, joint ventures or minority investments, product lines or products, and/or the performance of the individual Participant. The Performance Goals applicable to any Award that is intended to qualify for the Performance-Based Exception shall be based on one or more of the following criteria (which may be measured either in the aggregate or on per share basis, and which may include or exclude items to measure specific objectives, such as losses from discontinued operations, extraordinary gains or losses, the cumulative effect of accounting changes, acquisitions or divestitures, foreign exchange impacts and any unusual, nonrecurring gain or loss):
(i) Earnings measures, including net earnings on either a LIFO, FIFO or other basis and including earnings, earnings before interest, earnings before interest and taxes, earnings before interest, taxes and depreciation or earnings before interest, taxes, depreciation and amortization;
(ii) Operating measures, including operating income, operating earnings, or operating margin;
(iii) Income or loss measures, including net income or net loss, and economic profit;
(iv) Cash flow measures, including cash flow or free cash flow;
(v) Revenue measures;
(vi) Reductions in expense measures;
(vii) Operating and maintenance, cost management, and employee productivity measures;
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(viii) Company return measures, including return on assets, investments, equity, or sales;
(ix) Share price (including attainment of a specified per-share price during the performance period, growth measures, total return to shareholders or attainment of a specified price per share for a specified period of time);
(x) Strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, business expansion targets, project milestones, production volume levels, or cost targets;
(xi) Accomplishment of, or goals related to, mergers, acquisitions, dispositions, public offerings, or similar extraordinary business transactions;
(xii) Achievement of business or operational goals such as market share, business development and/or customer objectives, and debt ratings; or
(xiii) Growth or rate of growth of any of the performance criteria set forth herein.
Performance Period shall mean the period designated by the Compensation Committee during which performance goals (including Performance Goals) shall be measured.
Performance Unit Award shall mean an Award made pursuant to Section 8 hereof, the payment of which is contingent upon the achievement of performance goals (including Performance Goals) for the particular Performance Period.
Person shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (iii) an underwriter temporarily holding securities pursuant to an offering on behalf of the Company.
Personal Representative shall mean the person or persons who, upon the Disability or incompetence of a Recipient, shall have acquired on behalf of the Recipient by legal proceeding or otherwise the right to receive the benefits specified in this Plan.
Plan shall mean this 2016 Valvoline Incentive Plan.
Plan Share Limit shall have the meaning given in Section 3(A) hereof.
Qualifying Termination shall mean:
(i) in the case of a Participant, termination of the Participants employment with the Company and its Subsidiaries at any time such that (A) the Participant is age fifty-five (55) or older and has at least ten (10) years of continuous service; and
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(ii) in the case of an Outside Director, termination of the Outside Directors service on the Board as a result of a mandatory retirement date established by the Compensation Committee.
Recipient shall mean a Participant or an Outside Director, as appropriate.
Recognition Award shall mean an Award of Common Stock issued pursuant to Section 9 hereof.
Restricted Period shall mean the period during which Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals (including Performance Goals), or upon the occurrence of other events as determined by the Compensation Committee, in its discretion).
Restricted Stock shall mean those shares of Common Stock issued pursuant to a Restricted Stock Award which are subject to the restrictions, terms, and conditions set forth in the related Agreement or designated by the Compensation Committee, in its discretion, in accordance with the Plan.
Restricted Stock Award shall mean an Award of Restricted Stock pursuant to Section 6 hereof.
Restricted Stock Units or RSUs shall mean units (or other Common Stock equivalents) issued pursuant to a Restricted Stock Unit Award which are valued in terms of shares of Common Stock and are subject to the restrictions, terms, and conditions set forth in the related Agreement or designated by the Compensation Committee, in its discretion, in accordance with the Plan.
Restricted Stock Unit Award or RSU Award shall mean an Award of Restricted Stock Units pursuant to Section 6 hereof.
Stock Appreciation Right or SAR shall mean a right pursuant to a Stock Appreciation Right Award to be paid an amount measured by the appreciation in the Fair Market Value of shares of Common Stock from the date of grant to the date of exercise of the SAR, with payment to be made wholly in cash, wholly in shares of Common Stock or a combination thereof as specified in the Agreement or determined by the Compensation Committee, in its discretion. A SAR may be granted only singly and may not be granted in tandem with an Option.
Stock Appreciation Right Award or SAR Award shall mean an Award of a Stock Appreciation Right pursuant to Section 10 hereof.
Subsidiary shall mean a corporation, company or other entity, whether U.S. or foreign, (i) more than fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are now or hereafter, owned or controlled, directly or indirectly, by the Company, or (ii) which does not have outstanding shares or securities (as may be the case, for example, in
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a partnership, limited liability company, joint venture or unincorporated association), but more than fifty percent (50%) of whose ownership interests representing the right generally to make decisions for such other entity is now or hereafter, owned or controlled, directly or indirectly, by the Company; provided, however, that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, the term Subsidiary shall have the meaning given to such term in Section 424(f) of the Code, as interpreted by the regulations thereunder and applicable law.
Substitute Awards shall have the meaning given in Section 14 hereof.
Tax Date shall mean the date the withholding tax obligation arises with respect to an Award.
Valvoline Spin-Off shall mean the transaction or series of transactions initially approved by the Board of Directors of Ashland, Inc. on September 16, 2015 intended to separate the Valvoline business from Ashland Inc.s specialty chemical business and create two independent, publicly traded companies.
SECTION 3. STOCK SUBJECT TO THIS PLAN
(A) Subject to adjustment as provided under Section 14 hereof, there will be reserved for issuance under this Plan an aggregate of 7,000,000 shares of Common Stock (the Plan Share Limit), any or all of which may be delivered with respect to ISO Awards. Subject to adjustment as provided under Section 14 hereof, the following limits shall apply with respect to Awards that are intended to qualify for the Performance-Based Exception: (i) the maximum aggregate number of shares of Common Stock that may be subject to Options or SARs granted in any calendar year to any one Participant shall be 1,000,000 shares; (ii) the maximum aggregate number of Restricted Stock Awards and shares of Common Stock issuable or deliverable under Restricted Stock Unit Awards granted in any calendar year to any one Participant shall be 500,000 shares; and (iii) the maximum aggregate number of shares of Common Stock issuable or deliverable under Performance Unit Awards granted in any calendar year to any one Participant shall be 500,000 shares of Common Stock or, in the case of Performance Unit Awards established in cash, an amount of cash equal to the Fair Market Value (as of the date of grant) of 500,000 shares of Common Stock. Subject to adjustment as provided under Section 14 hereof, the maximum aggregate number of shares of Common Stock that may be issuable or deliverable under Awards granted in any calendar year to any one Outside Director shall be 25,000 shares or, in the case of Awards established in cash, an amount of cash equal to the Fair Market Value (as of the date of grant) of 25,000 shares of Common Stock.
(B) In the event that any Award is paid solely in cash, no shares shall be deducted from the Plan Share Limit by reason of such Award. Shares of Common Stock subject to Awards that are forfeited, terminated, canceled or settled without the delivery of Common Stock under the Plan (including cash settlement) will again be available for Awards under the Plan and credited toward the Plan Share Limit. Notwithstanding any
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other provision herein, the Plan Share Limit shall not be increased by: (i) shares of Common Stock tendered in full or partial payment of the Exercise Price of an Option, (ii) shares of Common Stock withheld by the Company or any Subsidiary to satisfy a tax withholding obligation in connection with the vesting or exercise of an Award, and (iii) shares of Common Stock that are repurchased by the Company with Option proceeds. Moreover, all shares of Common Stock covered by a SAR, to the extent that it is exercised and settled in shares, and whether or not shares are actually issued or delivered to the Recipient upon exercise of the right, shall be considered issued or delivered pursuant to the Plan for purposes of the Plan Share Limit.
(C) Any shares of Common Stock underlying Restricted Stock Awards, Restricted Stock Unit Awards, Recognition Awards, Incentive Awards, Performance Unit Awards and Dividend Equivalents (collectively, Full-Value Awards) that are issued or delivered under the Plan shall reduce the Plan Share Limit by 4.5 shares for every one share of Common Stock issued or delivered in connection with such Full-Value Award, and any shares covered by an Award other than a Full-Value Award shall reduce the Plan Share Limit by one share for every one share of Common Stock issued or delivered under such Award. Any shares of Common Stock that again become available for issuance or delivery pursuant to Section 3(B) of the Plan shall be credited toward the Plan Share Limit in the same manner as such shares were originally deducted from the Plan Share Limit pursuant to this Section 3(C).
SECTION 4. ADMINISTRATION
The Compensation Committee shall have the exclusive authority to administer this Plan.
In addition to any implied powers and duties that may be needed to carry out the provisions hereof the Compensation Committee shall have all the powers vested in it by the terms hereof, including exclusive authority to select the Recipients, to determine the type, size and terms of the Awards to be made to each Recipient, to determine the time when Awards will be granted, and to prescribe the form of the Agreement embodying Awards made under this Plan. The Compensation Committee shall be authorized to interpret this Plan and the Awards (including Substitute Awards) granted under this Plan, to establish, amend and rescind any rules and regulations relating to this Plan, to provide for accelerated vesting of any outstanding Awards, to make any other determinations which it believes necessary or advisable for the administration hereof, and to correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Compensation Committee, in its discretion, deems desirable to carry it into effect. To the extent permitted by applicable laws, the Compensation Committee may, in its discretion, delegate to one or more directors or Employees any of the Compensation Committees authority under this Plan. The acts of any such delegates shall be treated hereunder as acts of the Compensation Committee with respect to any matters so delegated.
The Compensation Committee shall have no obligation to treat Recipients or eligible Employees or non-employee directors uniformly, and the Compensation
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Committee may, in its discretion, make determinations under this Plan selectively among Recipients who receive, or Employees or directors who are eligible to receive, Awards (whether or not such Recipients or eligible Employees or directors are similarly situated). All determinations and decisions made by the Compensation Committee, in its discretion, pursuant to the provisions of this Plan and all related orders and resolutions of the Compensation Committee shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries, shareholders, Participants, Outside Directors, Employees, directors and their estates, Beneficiaries and Personal Representatives.
Notwithstanding any other provision of this Plan, the Board may reserve to itself any or all of the authority or responsibility of the Compensation Committee under this Plan or may act as the administrator of the Plan for any and all purposes. To the extent that the Board has reserved any such authority or responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Compensation Committee hereunder, and any reference herein to the Compensation Committee (other than in this paragraph) shall include the Board. To the extent that any action of the Board under the Plan conflicts with any action of the Compensation Committee, the action of the Board shall control.
SECTION 5. ELIGIBILITY
Awards may only be granted to Participants and Outside Directors, provided that Outside Directors may not be granted ISOs, Incentive Awards, Performance Unit Awards or Recognition Awards.
SECTION 6. RESTRICTED STOCK AND RESTRICTED STOCK UNIT (RSU) AWARDS
(A) Grant . Any Recipient may receive one or more Restricted Stock Awards or RSU Awards, as the Compensation Committee, in its discretion, shall from time to time determine.
(B) Restricted Periods .
(1) Participants . The Restricted Period for each Restricted Stock Award or RSU Award to a Participant shall be set forth in the applicable Agreement. Except as otherwise provided in an Agreement upon a termination of employment or pursuant to Section 12 in the event of a Change in Control, a Restricted Stock Award or RSU Award granted to a Participant shall have a minimum Restricted Period of (i) one (1) year in the case of restrictions that lapse based on the achievement of performance goals (including Performance Goals); and (ii) three (3) years in the case of restrictions that lapse based solely on the passage of time, which period may, at the discretion of the Compensation Committee, lapse on a pro-rated, graded, or cliff basis (as specified in the Agreement); provided that in the Compensation Committees sole discretion, no more than five percent (5%) of the shares of Common Stock available for issuance as Restricted Stock Awards or pursuant to RSU Awards under the Plan may be granted with a Restricted Period of less than three (3) years.
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(2) Termination of Employment or Service . Except as otherwise provided in the Agreement or as determined by the Compensation Committee, in its discretion, in the event that a Restricted Stock Award or RSU Award has been made to a Recipient whose employment or service as a director is subsequently terminated for any reason prior to the lapse of all restrictions thereon, such Restricted Stock or RSU shall be forfeited in its entirety by such Recipient.
(C) Certain Restricted Stock Award Provisions .
(1) Shareholder Rights; Restrictions on Transferability . Upon the granting of a Restricted Stock Award, a Recipient shall be entitled to all rights incident to ownership of Common Stock of the Company with respect to his or her Restricted Stock, including, but not limited to, the right to vote such shares of Restricted Stock and to receive dividends thereon when, as and if paid in cash, shares of Restricted Stock or Dividend Equivalents, as set forth in the applicable Agreement or as determined by the Compensation Committee, in its discretion. Each such grant of Restricted Stock may be made without additional consideration or in consideration of a payment by such Recipient that may be less than the Fair Market Value per share of Common Stock at the date of grant. Subject to Section 16(B) hereof, Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered during a Restricted Period.
(2) Restrictions; Dividends on Restricted Stock . During the Restricted Period, (a) any certificates representing the Restricted Stock shall be registered in the Recipients name and bear a restrictive legend to the effect that ownership of such Restricted Stock, and the enjoyment of all rights appurtenant thereto are subject to the restrictions, terms, and conditions provided in this Plan and the applicable Agreement, and (b) all uncertificated shares of Restricted Stock shall be held by the Company (or its transfer agent) in book entry form with appropriate restrictions relating to the transfer of such shares of Restricted Stock and the other terms and conditions provided in the Plan. Any such certificates shall be deposited by the Recipient with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock which shall be forfeited in accordance with this Plan and the applicable Agreement. Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Notwithstanding the foregoing: (i) the Recipient will not be entitled to delivery of any stock certificates representing such Restricted Stock until the restrictions applicable thereto shall have expired; (ii) the Company will retain custody of all shares of Restricted Stock issued as a dividend or otherwise with respect to an Award of Restricted Stock (and such issued shares of Restricted Stock shall be subject to the same restrictions, terms and conditions as are applicable to the awarded Restricted Stock) until such time, if ever, as such shares of Restricted Stock shall have become vested, and Restricted Stock shall not bear interest or be segregated in separate accounts; (iii) subject to Section 16(B) hereof, the Recipient may not sell, assign, transfer, pledge, exchange, encumber, or dispose of any Restricted Stock during the Restricted Period; and (iv) unless otherwise determined and directed by the Compensation Committee, in its discretion, a breach of any restrictions, terms, or conditions provided in this Plan, the applicable Agreement or established by the Compensation Committee with respect to any Restricted Stock will
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cause a forfeiture of such awarded Restricted Stock (including any Restricted Stock issued as a dividend or otherwise) with respect thereto. Notwithstanding anything contained in this Section 6(C)(2) to the contrary, cash dividends or other distributions with respect to Restricted Stock Awards that vest based on the achievement of performance goals (including Performance Goals) shall be accumulated until such Award is earned, and the cash dividends or other distributions shall not be paid if the performance goals (including Performance Goals) are not satisfied.
(D) Certain Restricted Stock Unit (RSU) Award Provisions .
(1) General . Each RSU Award shall constitute an agreement by the Company to issue or deliver shares of Common Stock or cash to the Recipient following the end of the applicable Restricted Period in consideration of the performance of services. Each such grant of Restricted Stock Units may be made without additional consideration or in consideration of a payment by such Recipient that may be less than the Fair Market Value per share of Common Stock at the date of grant.
(2) No Shareholder Rights; Dividend Equivalents . A Recipient who receives an RSU Award shall not have any rights as a shareholder with respect to the shares of Common Stock subject to such RSUs until such time, if any, that shares of Common Stock are delivered to the Recipient pursuant to the terms of the applicable Agreement. A Recipient who receives an RSU Award shall have such rights, if any, to Dividend Equivalents as shall be set forth in the applicable Agreement or as determined by the Compensation Committee, in its discretion.
(3) Payment . Unless otherwise determined by the Compensation Committee, in its discretion, each Agreement shall set forth the payment date for the RSU Award, which date shall not be earlier than the end of the applicable Restricted Period. Payment of earned Restricted Stock Units (and Dividend Equivalents, if applicable) may be made in one or more installments and may be made wholly in cash, wholly in shares of Common Stock or a combination thereof, as determined by the Compensation Committee, in its discretion.
SECTION 7. INCENTIVE AWARDS
(A) Grant . Any Participant may receive one or more Incentive Awards, as the Compensation Committee shall from time to time determine.
(B) Terms and Conditions .
(1) Performance Goals . No later than one hundred and twenty (120) days (or, in the case of Awards that are intended to qualify for the Performance-Based Exception, ninety (90) days or such shorter period as is required under the Performance-Based Exception) after the commencement of each Performance Period, the Compensation Committee shall establish in writing one or more performance goals (including Performance Goals) that must be reached by a Participant in order to receive an Incentive Award for such Performance Period. Except with respect to Awards that are intended to qualify for the Performance-Based Exception, the Compensation Committee
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shall have the discretion to later revise the performance goals (including Performance Goals) and the amount to be paid out upon the attainment of such goals for any reason, including the reflection of promotions, transfers or other changes in a Participants employment so long as such changes are consistent with the performance goals (including Performance Goals) established for other Participants in the same or similar positions. Performance goals (including Performance Goals) established for Awards that are intended to qualify for the Performance-Based Exception may only be adjusted to reduce or eliminate the amount of compensation otherwise payable upon attainment of the performance goals (including Performance Goals).
(2) Award Limits . The target Incentive Award shall be a fixed percentage of the Participants base salary paid during the year. The maximum aggregate compensation that can be paid pursuant to an Incentive Award granted in any calendar year to any one Participant shall be ten million dollars ($10,000,000) or a number of shares of Common Stock having an aggregate Fair Market Value (as of the date of grant) not in excess of such amount.
(C) Payment . Payment of Incentive Awards may be made in one or more installments and may be made wholly in cash, wholly in shares of Common Stock or a combination thereof as determined by the Compensation Committee. Except as otherwise provided in the applicable Agreement, payments shall be made no later than the fifteenth day of the third month following the later of (i) the end of the tax year of the Participant in which the Performance Period ends and (ii) the end of the tax year of the Company in which the Performance Period ends.
If payment of an Incentive Award shall be made all or partially in shares of Common Stock, the number of shares of Common Stock to be delivered to a Participant on any payment date shall be determined by dividing (x) the dollar amount of such Incentive Award to be paid (or the part thereof determined by the Compensation Committee to be delivered in shares) by (y) the Fair Market Value on the date the Compensation Committee approves payment of the Incentive Award or as of such other date or dates as the Compensation Committee shall determine.
(D) Termination . Unless otherwise provided in an Agreement or determined and directed by the Compensation Committee, an Incentive Award shall terminate if the Participant does not remain continuously employed and in good standing with the Company or any of its Subsidiaries until the last business day of the month immediately preceding the month in which such Incentive Award is otherwise payable. Unless otherwise provided in an Agreement or determined and directed by the Compensation Committee, in the event a Participants employment is terminated because of death, Disability, Qualifying Termination or other employment termination event determined in the discretion of the Compensation Committee, the Participant (or his or her Beneficiaries or estate) shall receive the prorated portion of the payment of an Incentive Award for which the Participant would have otherwise been eligible, based upon the portion of the Performance Period during which he or she was so employed, at such time such Incentive Award is otherwise payable, so long as the performance goals (including Performance Goals) are subsequently achieved.
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SECTION 8. PERFORMANCE UNIT AWARDS
(A) Grant . Any Participant may receive one or more Performance Unit Awards, as the Compensation Committee shall from time to time determine. Each Performance Unit Award shall be established in dollars or shares of Common Stock, or a combination of both, as determined by the Compensation Committee.
(B) Performance Goals . The performance goals (including Performance Goals) and Performance Period applicable to a Performance Unit Award shall be set forth in writing by the Compensation Committee no later than one hundred and twenty (120) days (or, in the case of Awards that are intended to qualify for the Performance-Based Exception, ninety (90) days or such shorter period as is required under the Performance-Based Exception) after the commencement of the Performance Period. Except with respect to Awards that are intended to qualify for the Performance-Based Exception, the Compensation Committee shall have the discretion to later revise the performance goals (including any Performance Goals) and the amount to be paid out upon the attainment of such goals for any reason including the reflection of promotions, transfers or other changes in a Participants employment so long as such changes are consistent with the Performance Goals established for other Participants in the same or similar positions. Goals established for Awards that are intended to qualify for the Performance-Based Exception may only be adjusted to reduce or eliminate the amount of compensation otherwise payable upon attainment of the Performance Goals.
(C) Payment .
(1) General . The amount of payment with respect to Performance Unit Awards shall be determined by the Compensation Committee and shall be based on the original amount of such Performance Unit Award (including any Dividend Equivalents with respect thereto) adjusted to reflect the attainment of the Performance Goals during the Performance Period. Payment may be made in one or more installments and may be made wholly in cash, wholly in shares of Common Stock or a combination thereof as determined by the Compensation Committee. Except as otherwise provided in the applicable Agreement, payments shall be made no later than the fifteenth day of the third month following the later of (i) the end of the tax year of the Participant in which the Performance Period ends and (ii) the end of the tax year of the Company in which the Performance Period ends. Any payment may be subject to such restrictions and conditions as the Compensation Committee may determine.
(2) Payment in Common Stock . If payment of a Performance Unit Award established in dollars is to be made in shares of Common Stock or partly in such shares, the number of shares of Common Stock to be delivered to a Participant on any payment date shall be determined by dividing (i) the amount payable with respect to such Performance Unit Award by (ii) the Fair Market Value of the Common Stock on the date the Compensation Committee approves payment of the Performance Unit Award or as of such other date or dates as the Compensation Committee shall determine.
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(3) Payment in Cash . If payment of a Performance Unit Award established in shares of Common Stock is to be made in cash or partly in cash, the amount of cash to be paid to a Participant on any payment date shall be determined by multiplying (i) the number of shares of Common Stock to be paid in cash with respect to such Performance Unit Award, by (ii) the Fair Market Value of the Common Stock on the date the Compensation Committee approves payment of the Performance Unit Award or as of such other date or dates as the Compensation Committee shall determine.
(D) Termination . Unless otherwise provided in an Agreement or determined and directed by the Compensation Committee, a Performance Unit Award (including any Dividend Equivalents with respect thereto) shall terminate for all purposes if the Participant does not remain continuously employed and in good standing with the Company or any of its Subsidiaries until the last business day of the month immediately preceding the month in which such Performance Unit Award is otherwise payable. Unless otherwise provided in an Agreement or determined and directed by the Compensation Committee, a Participant (or his or her Beneficiaries or estate) whose employment was terminated because of death, Disability, Qualifying Termination or other employment termination event determined in the discretion of the Compensation Committee will receive a prorated portion of the payment of his or her Performance Unit Award (including any Dividend Equivalents with respect thereto), based upon the portion of the Performance Period during which he or she was so employed, at such time as such Performance Unit Award is otherwise payable, so long as the Performance Goals are subsequently achieved.
SECTION 9. RECOGNITION AWARDS
Any Participant may receive a Recognition Award under this Plan for such reasons and in such amounts as the Compensation Committee may from time to time determine.
SECTION 10. OPTIONS AND SAR AWARDS
(A) Grant . Any Recipient may receive one or more Option or SAR Awards, as the Compensation Committee, in its discretion, shall from time to time determine.
(B) Designation and Price .
(1) Any Option granted under this Plan may be granted as an Incentive Stock Option or as a Nonqualified Stock Option as shall be designated by the Compensation Committee, in its discretion, at the time of the grant of such Option. Only Participants may be granted ISOs. Each Option and SAR shall, at the discretion of the Compensation Committee, be evidenced by an Agreement, which Agreement shall specify the designation of the Option as an ISO or a NQSO, as the case may be, and shall contain such terms and conditions as the Compensation Committee, in its sole discretion, may determine in accordance with this Plan.
(2) Every ISO shall provide for a fixed expiration date of not later than ten (10) years from the date such ISO is granted. Every NQSO and SAR shall provide for a fixed expiration date of not later than ten (10) years and one month from the date such NQSO or SAR is granted.
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(3) The Exercise Price of Common Stock issued pursuant to each Option or SAR shall be fixed by the Compensation Committee at the time of the granting of the Option or SAR; provided, however, that such Exercise Price shall in no event ever be less than 100% of the Fair Market Value of the Common Stock on the date such Option or SAR is granted, subject to adjustment as provided in Section 14.
(C) Exercise . The Compensation Committee may, in its discretion, provide for Options or SARs granted under this Plan to be exercisable in whole or in part. The specified number of shares of Common Stock will be issued after receipt by the Company of (i) notice from the holder thereof of the exercise of an Option or SAR, and (ii) with respect to Options, payment to the Company (as provided in subsection (D) of this Section) of the Exercise Price for the number of shares with respect to which the Option is exercised. Each such notice and payment shall be delivered or mailed to the Company at such place and in such manner as the Company may designate from time to time.
(D) Payment .
(1) Options . Except as otherwise provided in this Section 10, the Exercise Price for the Common Stock issuable pursuant to an Option shall be paid in full when the Option is exercised. Subject to such rules as the Compensation Committee in its discretion may impose, the Exercise Price may be paid in whole or in part: (i) in cash; (ii) by tendering (either by actual delivery or attestation) unencumbered shares of Common Stock previously acquired by the Recipient exercising such Option having an aggregate Fair Market Value at the time of exercise equal to the total Exercise Price; (iii) by a combination of such methods of payment; or (iv) by such other consideration as shall constitute lawful consideration for the issuance of Common Stock and approved by the Compensation Committee in its discretion (including, without limitation, effecting a cashless exercise of the Option with a broker or by having the Company withhold shares of Common Stock from the shares of Common Stock otherwise issuable pursuant to the exercise of the Option (for the avoidance of doubt, the shares of Common Stock so withheld shall be counted against the Plan Share Limit)).
(2) Stock Appreciation Rights . A SAR shall entitle the holder thereof, upon exercise, to surrender the SAR and receive in exchange therefore an amount equal to (i) the excess, if any, of (x) the Fair Market Value of a share of Common Stock at the time the SAR is exercised over (y) the Exercise Price specified in such SAR, (ii) multiplied by the number of shares of Common Stock covered by such SAR, or portion thereof, which is so surrendered. Such amount shall be paid to the holder in shares of Common Stock the number of which shall be determined by dividing such amount by the Fair Market Value of the Common Stock at the time the holder makes an effective exercise of the right to receive such amount; provided that, subject to Section 15 hereof, the exercise of any SAR may be settled wholly in cash or a combination of cash and shares of Common Stock as set forth in the Agreement or as determined by the Compensation Committee in its discretion.
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(E) Expiration or Termination of Awards .
(1) Participants .
(a) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, and subject to the provisions of Section 12(A) hereof, every Option and SAR granted to a Participant shall provide that it may not be exercised in whole or in part prior to the first anniversary of the date of its grant of granting such Option or SAR (unless otherwise determined by the Compensation Committee) and if the employment of the Participant shall terminate prior to the end of such first anniversary (or such other period determined by the Compensation Committee), the Option or SAR granted to such Participant shall immediately terminate.
(b) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, in the event the Participant dies (i) while employed, (ii) during the periods in which Options or SARs may be exercised by a Participant determined to be Disabled, or (iii) after Qualifying Termination, such Option or SAR shall be exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, by the Beneficiaries of the decedent for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to the Participants death.
(c) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, in the event the employment of any Participant shall cease by reason of Disability, as determined by the Compensation Committee at any time during the term of the Option or SAR, such Option or SAR shall be exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, by such Participant or his or her Personal Representative for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to the Participants Disability. The determination by the Compensation Committee of any question involving Disability of a Participant shall be conclusive and binding.
(d) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, in the event the employment of any Participant shall cease by reason of Qualifying Termination, such Option or SAR shall be exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, for the number of shares which the Participant could have acquired under the Option or SAR immediately prior to such Qualifying Termination.
(e) Notwithstanding any provision of this Plan to the contrary, any Option or SAR may, in the discretion of the Compensation Committee or as provided in the relevant Agreement, become exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, for the full number of awarded shares or any part thereof, less such number as may have been theretofore acquired under the Option or SAR from and after the time the Participant ceases to be an Employee as a result of the sale or other disposition by the Company or any of its Subsidiaries of assets
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or property (including shares of any Subsidiary) in respect of which such Participant had theretofore been employed or as a result of which such Participants continued employment is no longer required.
(f) Except as provided in subsections (b), (c), (d) and (e) of this Section 10(E)(1) and Sections 12(A) and 16(H) hereof, every Option and SAR shall terminate on the earlier to occur of the fixed termination date set forth in the Option or SAR or ninety (90) days after cessation of the Participants employment for any reason in respect of the number of shares of Common Stock which the Participant could have acquired under the Option or SAR immediately prior to such cessation of employment; provided, however, that no Option or SAR may be exercised after the fixed termination date set forth in the Option or SAR, which shall be no more than ten (10) years from the date of grant.
(2) Outside Directors .
(a) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, and subject to the provisions of Section 12(A) hereof, every Option and SAR granted to an Outside Director shall provide that, unless otherwise determined by the Compensation Committee, (i) it may not be exercised in whole or in part until the earlier to occur of (1) the one-year anniversary of the date of granting such Option or SAR and (2) the next annual meeting of shareholders immediately following the date of granting such Option or SAR and (ii) if the service of the Outside Director shall terminate prior to the end of such one year period (or such other period determined by the Compensation Committee), the Option or SAR granted to such Outside Director shall immediately terminate.
(b) Except as otherwise provided in the Agreement or as determined by the Compensation Committee, in the event the service of any Outside Director as a director of the Company ceases by reason of Qualifying Termination, death, Disability or other event as determined in the discretion of the Compensation Committee, then any unexercised Options or SARs granted to such Outside Director shall be exercisable, at any time or from time to time, prior to the fixed termination date set forth in the Option or SAR, by such Outside Director, his or her Personal Representative or his or her Beneficiaries for the number of shares which the Outside Director could have acquired under the Option or SAR immediately prior to the Outside Directors Qualifying Termination, death or Disability, as applicable. The determination by the Compensation Committee of any question involving Disability of an Outside Director shall be conclusive and binding.
SECTION 11. CONTINUED EMPLOYMENT
Nothing in this Plan, or in any Award granted pursuant to this Plan, shall confer on any individual any right to continue in the employment of, or service (as an Outside Director or otherwise) to, the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any of its Subsidiaries to terminate the Participants employment with or service to the Company at any time.
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SECTION 12. CHANGE IN CONTROL
(A) Treatment of Awards . The following provisions of this Section 12(A) shall govern the treatment of Awards in the event of a Change in Control, except to the extent otherwise provided in an applicable Agreement:
(1) Outstanding Awards may be assumed, continued, converted or replaced by the surviving or resulting entity in connection with a Change in Control, as determined by the Compensation Committee in its sole discretion prior to such Change in Control in accordance with Section 12(A)(3), without the consent of the affected Recipient. Any outstanding Award that is assumed, continued, converted or replaced by the surviving or resulting entity in connection with a Change in Control shall continue to vest (and become exercisable, as applicable) subject to the Recipients continued employment or service with such surviving or resulting entity or its Subsidiaries in accordance with the vesting schedule and other terms set forth in the applicable Agreement; provided that, in the event of the termination of a Participants employment with such surviving or resulting entity or its Subsidiaries without Cause during the one-year period immediately following the date of the Change in Control, any such Award (or portion thereof) that is then unvested shall immediately vest (and become exercisable, as applicable) and become free of all other restrictions.
(2) Any outstanding Award that is not assumed, continued, converted or replaced by the surviving or resulting entity in connection with a Change in Control shall immediately vest and become free of all other restrictions upon the date of the Change in Control.
(3) An Award will not be considered to be assumed, continued, converted or replaced by the surviving or resulting entity in connection with a Change in Control unless, in each case as determined by the Compensation Committee in its sole discretion prior to such Change in Control, the number and kind of shares or other securities underlying the Award, and the exercise prices and performance goals (including Performance Goals) applicable thereto, if any, are adjusted (or, in the case of performance goals (including Performance Goals), measured or deemed achieved in full or in part as of immediately prior to such Change in Control) to prevent dilution of the Recipients rights hereunder and to preserve the intrinsic value and material terms and conditions of the Award as in effect as of immediately prior to the Change in Control.
(B) Cash-out of Awards . In connection with a Change in Control, the Compensation Committee may, in its sole discretion, and without the consent of the affected Recipient, either by the terms of the Agreement applicable to any Award or by resolution adopted prior to the occurrence of the Change in Control, provide that any outstanding Award (or a portion thereof) shall, upon the occurrence of such Change in Control, be cancelled in exchange for a payment in cash in an amount based on the Fair Market Value of the shares of Common Stock subject to the Award (less any Exercise Price), which amount may be zero (0), if applicable.
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SECTION 13. WITHHOLDING TAXES
Federal, state, local, non-United States or other law may require the withholding of taxes applicable to gains resulting from the payment or vesting of an Award. Unless otherwise prohibited by the Compensation Committee, the Company may permit or require (subject to such conditions or procedures as may be established by the Compensation Committee in its discretion) any such tax withholding obligation of a Recipient to be satisfied by any of the following means, or by a combination of such means: (i) a cash payment from Recipient; (ii) withholding from the shares of Common Stock otherwise issuable to the Recipient pursuant to the vesting or exercise of an Award a number of shares of Common Stock having a Fair Market Value, as of the Tax Date, equal to the maximum amount that may be withheld under Financial Accounting Standards Board Accounting Standards Codification Topic 718 without creating an additional accounting charge; or (iii) having the Recipient deliver to the Company a number of shares of Common Stock having a Fair Market Value as of the Tax Date which will satisfy the withholding tax obligation (in whole or in part) arising from the vesting or exercise of an Award. If the payment specified in clauses (i) or (iii) of the preceding sentence is not paid by a Recipient, the Compensation Committee may refuse to issue Common Stock under this Plan.
SECTION 14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding Common Stock of the Company by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination, or exchange of shares, split-up, split-off, spin-off, liquidation or other similar change in capitalization, or any distribution to common shareholders other than normal cash dividends, the number or kind of shares (or other property) that may be issued under this Plan pursuant to Section 3 hereof, the number or kind of shares (or other property) subject to any outstanding Award and the price per share and performance goals applicable to any outstanding Award shall be automatically adjusted, as determined by the Compensation Committee in its sole discretion, so that the proportionate interest of the Recipient shall be maintained as before the occurrence of such event. Such adjustment shall be conclusive and binding for all purposes hereof.
Awards may, in the discretion of the Compensation Committee, be granted under this Plan in assumption of, or in substitution for, the Assumed Valvoline Awards and outstanding awards previously granted by a company acquired by the Company or any of its affiliates or with which the Company or any of its affiliates combines (Substitute Awards). The number of Shares underlying any Substitute Awards (including the Assumed Valvoline Awards) shall not be counted against the Plan Share Limit; provided , however , that, Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding stock options intended to qualify for special tax treatment under Sections 421 and 422 of the Code that were previously granted by a company that is acquired by the Company or any of its affiliates or with which the Company or any of its affiliates combines shall be counted against number of shares of Common Stock which may be delivered with respect to ISO Awards. Except as otherwise determined by the Compensation Committee, any Substitute Awards granted under this Plan in
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assumption of, or in substitution of, the Assumed Valvoline Awards shall be subject to the same terms and conditions as were in effect with respect to the Assumed Valvoline Awards as of immediately prior to such assumption or substitution.
SECTION 15. AMENDMENT AND TERMINATION
The Board may amend, alter, suspend or terminate this Plan in whole or in part and at any time; provided, however, that no alteration or amendment that requires shareholder approval in order for the Plan to continue to comply with the New York Stock Exchange rules or any rule promulgated by the Securities and Exchange Commission or any other securities exchange on which shares of Common Stock are listed or any other applicable laws shall be effective unless such amendment shall be approved by the requisite vote of shareholders of the Company entitled to vote thereon within the time period required under such applicable listing standard or rule.
Except for adjustments made pursuant to Section 14 hereof, the Board or the Compensation Committee will not, without the further approval of the shareholders of the Company, authorize the amendment of any outstanding Option or SAR to reduce the Exercise Price. No Option or SAR will be cancelled and replaced with Awards having a lower Exercise Price or for another Award or for cash without further approval of the shareholders of the Company, except as provided in Section 12 or 14 hereof. Furthermore, no Option or SAR will provide for the payment, at the time of exercise, of a cash bonus or grant or sale of another Award without further approval of the shareholders of the Company. This Section 15 is intended to prohibit the cash-out or repricing of underwater Options or SARs without shareholder approval and will not be construed to prohibit the adjustments provided for in Section 12 or 14 hereof.
Termination of this Plan shall not affect any Awards made hereunder which are outstanding on the date of termination and such Awards shall continue to be subject to the terms of this Plan notwithstanding its termination. Except as otherwise provided pursuant to this Plan, no amendment, suspension, or modification of this Plan or an Agreement shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Recipient holding such Award; provided that the Compensation Committee in its discretion may modify an ISO held by a Participant to disqualify such Option from treatment as an incentive stock option under Section 422 of the Code without the Participants consent.
SECTION 16. MISCELLANEOUS PROVISIONS
(A) Rights to Awards . No Recipient or other person shall have any claim or right to be granted an Award under this Plan.
(B) Assignment and Transfer . A Recipients rights and interests under this Plan (including any Awards granted hereunder) may not be assigned or transferred in whole or in part, either directly or by operation of law or otherwise (except in the event of a Recipients death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any
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other manner, and no such rights or interests of any Recipient in this Plan shall be subject to any obligation or liability of such individual; provided, however, that a Recipients rights and interests under this Plan (including any Awards granted hereunder) may, subject to the discretion and direction of the Compensation Committee, be made transferable by such Recipient during his or her lifetime. Except as specified in Section 6 hereof, the holder of an Award shall have none of the rights of a shareholder until the shares subject thereto shall have been registered in the name of the person receiving or person or persons exercising the Award on the transfer books of the Company.
(C) Compliance with Legal and Exchange Requirements . The Plan, the granting and exercising of Awards hereunder, the issuance of Common Stock and other interests hereunder, and the other obligations of the Company under the Plan and any Agreement pursuant to the Plan, shall be subject to all applicable United States federal and state laws, rules and regulations, the applicable laws, rules and regulations of any other country or jurisdiction, and to such approvals by any regulatory or governmental agency as may be required. The Company or the Compensation Committee, in their respective discretion, may postpone the granting, vesting and exercising of Awards, the issuance or delivery of Common Stock under any Award or any other action permitted under the Plan to permit the Company, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Common Stock or other required action under any federal or state law, rule, or regulation and may require any Recipient to make such representations and furnish such information as the Compensation Committee may consider appropriate in connection with the issuance or delivery of Common Stock in compliance with applicable laws, rules, and regulations. The Company shall not be obligated by virtue of any provision of the Plan to recognize the vesting or exercise of any Award or to otherwise sell or issue Common Stock in violation of any such laws, rules, or regulations; and any postponement of the vesting, exercise or settlement of any Award under this provision shall not extend the term of such Awards, and neither the Company nor any of its Subsidiaries, directors or officers shall have any obligations or liability to any Recipient with respect to any Award (or Common Stock issuable thereunder) that shall lapse because of such postponement.
(D) Ratification and Consent . By accepting any Award under this Plan, each Recipient and each Personal Representative or Beneficiary claiming under or through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under this Plan by the Company or any of its Subsidiaries, the Board, or the Compensation Committee in its discretion.
(E) Additional Compensation . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required.
(F) Grant Date . Each Recipient shall be deemed to have been granted any Award on the date the Compensation Committee took action to grant such Award under this Plan or such date as the Compensation Committee in its discretion shall determine at the time such Award is authorized. The grant date shall not be earlier than the date of the resolution and action therein by the Compensation Committee.
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(G) Fractional Shares . No fractional shares shall be issued or delivered pursuant to this Plan or any Award. The Compensation Committee in its discretion shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(H) Forfeiture Provision . Unless the Agreement specifies otherwise, the Compensation Committee in its discretion may require a Recipient to forfeit all unexercised, unearned, unvested or unpaid Awards if:
(1) the Recipient, without written consent of the Company, engages directly or indirectly in any manner or capacity as principal, agent, partner, officer, director, employee or otherwise in any business or activity competitive with the business conducted by the Company or any of its Subsidiaries, as determined by the Compensation Committee in its discretion;
(2) the Recipient performs any act or engages in any activity that is detrimental to the best interests of the Company or any of its Subsidiaries, as determined by the Compensation Committee in its discretion; or
(3) the Recipient breaches any agreement or covenant with, or obligation or duty to, the Company or any Subsidiary, including without limitation, any non-competition agreement, non-solicitation agreement, confidentiality or non-disclosure agreement, or assignment of inventions or ownership of works agreement, as determined by the Compensation Committee in its discretion.
(I) Compensation Recovery Policy . Each Award granted to a Participant under the Plan shall be subject to forfeiture or repayment pursuant to the terms of any applicable compensation recovery policy adopted by the Company as in effect from time to time, including any such policy that may be adopted or amended to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or any rules or regulations issued by the Securities and Exchange Commission or applicable securities exchange.
(J) Severability . The validity, legality, or enforceability of the Plan will not be affected even if one or more of the provisions of this Plan shall be held to be invalid, illegal, or unenforceable in any respect.
(K) Section 409A . The Company intends that Awards granted under the Plan will be designed and administered in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A of the Code. To the extent that the Compensation Committee in its discretion determines that any award granted under the Plan is subject to Section 409A of the Code, the Agreement shall incorporate the terms and conditions necessary to avoid the imposition of an additional tax under Section 409A of the Code upon a Recipient. The Compensation Committee reserves the right to make amendments to any Award as it deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. Notwithstanding any other provision of the Plan or any Agreement (unless the Agreement
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provides otherwise with specific reference to this Section): (i) an Award shall not be granted, deferred, accelerated, extended, paid out, settled, substituted or modified under the Plan in a manner that would result in the imposition of an additional tax under Section 409A of the Code upon a Recipient; and (ii) if an Award is subject to Section 409A of the Code, and if the Recipient holding the Award is a specified employee (as defined in Section 409A of the Code, with such classification to be determined in accordance with the methodology established by the Company), no distribution or payment of any amount under the Award as a result of such Recipients separation from service (as defined in Section 409A of the Code) shall be made before a date that is six (6) months following the date of such separation from service or, if earlier, the date of the Recipients death. Although the Company intends to administer the Plan so that Awards will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local, non-United States or other law. The Company shall not be liable to any Recipient for any tax, interest, or penalties a Recipient might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
(L) Awards to Participants Outside the United States . Notwithstanding any provision of this Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have Employees or otherwise to foster and promote achievement of the purposes of this Plan, the Compensation Committee, in its sole discretion, shall have the power and authority, without any amendment to the Plan, to: (i) determine which non-United States Subsidiaries shall be covered by this Plan; (ii) determine which foreign nationals and Employees outside the United States are eligible to participate in this Plan; (iii) modify the terms and conditions of any Award granted to Participants who are foreign nationals, who are employed outside the United States or who are otherwise subject to the laws of one or more non-United States jurisdictions; (iv) grant Awards to Participants who are foreign nationals, who are employed outside the United States or who are otherwise subject to the laws of one or more non-United States jurisdictions, on such terms and conditions different from those specified in the Plan; (v) modify exercise procedures and other terms and procedures with respect to such Participants, to the extent such actions may be necessary or advisable; and (vi) take any action, before or after an Award is made, that it deems necessary or advisable to obtain approval or comply with any local government regulatory exemptions, approvals or requirements.
Notwithstanding the above, the Compensation Committee may not take any actions hereunder, and no Awards shall be granted that would violate any applicable law.
(M) Headings . The headings in this Plan are inserted for convenience only and shall not affect the interpretation hereof.
(N) Dividend Equivalents . At the discretion of the Compensation Committee, Awards granted pursuant to the Plan may provide Recipients with the right to receive Dividend Equivalents, which may be paid currently or credited to an account for the Recipients, and may be settled in cash and/or shares of Common Stock, as determined by
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the Compensation Committee in its sole discretion, subject in each case to such terms and conditions as the Compensation Committee shall establish. No Dividend Equivalents shall relate to shares underlying an Option or SAR unless such Dividend Equivalent rights are explicitly set forth as a separate arrangement and do not cause any such Option or SAR to be subject to Section 409A of the Code. Notwithstanding anything contained in this Plan to the contrary, Dividend Equivalents with respect to Restricted Stock Unit Awards, Incentive Awards, Performance Unit Awards and Recognition Awards that vest based on the achievement of Performance Goals shall be accumulated until such Award is earned, and the Dividend Equivalents shall not be paid if the Performance Goals are not satisfied.
(O) Deferrals . Except with respect to Options and SARs, the Compensation Committee in its discretion may permit Recipients to elect to defer the issuance or delivery of shares of Common Stock or the settlement of Awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of the Plan. The Compensation Committee in its discretion also may provide that deferred issuances and settlements include the payment or crediting of Dividend Equivalents or interest on the deferral amounts. All elections and deferrals permitted under this provision shall comply with Section 409A of the Code, including setting forth the time and manner of the election (including a compliant time and form of payment), the date on which the election is irrevocable, and whether the election can be changed until the date it is irrevocable.
(P) Successors . All obligations of the Company under the Plan and with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or other event, or a sale or disposition of all or substantially all of the business and/or assets of the Company and references to the Company herein and in any Agreements shall be deemed to refer to such successors.
SECTION 17. EFFECTIVENESS OF THIS PLAN
This Plan shall be effective as of the Effective Date. No Award may be granted under the Plan after the tenth anniversary of the Effective Date, or such earlier date as the Board shall determine. The Plan will remain in effect with respect to outstanding Awards until no Awards remain outstanding.
SECTION 18. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in accordance with the laws of the Commonwealth of Kentucky.
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Exhibit 10.12
AMENDMENT TO THE ASHLAND INC.
NONQUALIFIED EXCESS BENEFIT PENSION PLAN
WHEREAS , Ashland Inc. (Ashland), maintains the Ashland Inc. Nonqualified Excess Benefit Pension Plan (the Plan) for the benefit of employees eligible to participate therein; and
WHEREAS , Ashland is the sponsor of the Plan; and
WHEREAS , pursuant to Article IV, Section 5, of the Charter of the Personnel and Compensation Committee of the Board of Directors of Ashland Inc., said Personnel and Compensation Committee (the Committee) has retained authority to amend or transfer any of the benefit plans of Ashland and its subsidiaries and affiliates that are more than 50% owned by Ashland; and
WHEREAS , the Committee has approved the transfer of the sponsorship of the Plan from Ashland to Valvoline LLC; and
WHEREAS , the Chief Financial Officer of Ashland Inc. has been delegated the authority by the Committee to prepare and execute any and all amendments necessary to give effect to this decision of the Committee.
NOW, THEREFORE, BE IT RESOLVED , the Plan is amended, effective September 1, 2016, as follows:
I. | The following sentence is added after the first sentence of Section 1: |
In accordance with a corporate reorganization, effective as of September 1, 2016, sponsorship of the Plan was transferred from Ashland Inc. to Valvoline LLC.
II. | All references to Ashland and Ashland Inc. in the Plan after the recitals are hereinafter changed to Valvoline and Valvoline LLC respectively. |
III. | In all other respects the Plan shall remain unchanged. |
IN WITNESS WHEREOF , the Chief Financial Officer has caused this amendment to the Plan to be executed this day of , 2016.
By: | ||
Chief Financial Officer, Ashland Inc. |
Exhibit 10.13
AMENDMENT TO THE AMENDED AND RESTATED
ASHLAND INC. SUPPLEMENTAL EARLY
RETIREMENT PLAN FOR CERTAIN EMPLOYEES
WHEREAS , Ashland Inc. (Ashland), maintains the Amended and Restated Ashland Inc. Supplemental Early Retirement Plan for Certain Employees (the Plan) for the benefit of employees eligible to participate therein; and
WHEREAS , Ashland is the sponsor of the Plan; and
WHEREAS , pursuant to Article IV, Section 5, of the Charter of the Personnel and Compensation Committee of the Board of Directors of Ashland Inc., said Personnel and Compensation Committee (the Committee) has retained authority to amend or transfer any of the benefit plans of Ashland and its subsidiaries and affiliates that are more than 50% owned by Ashland; and
WHEREAS , the Committee has approved the transfer of the sponsorship of the Plan from Ashland to Valvoline LLC; and
WHEREAS , the Chief Financial Officer of Ashland Inc. has been delegated the authority by the Committee to prepare and execute any and all amendments necessary to give effect to this decision of the Committee.
NOW, THEREFORE, BE IT RESOLVED , the Plan is amended, effective September 1, 2016, as follows:
I. | The following sentence is added to Section 1.01 of the Plan: |
In accordance with a corporate reorganization, effective as of September 1, 2016, sponsorship of the Plan was transferred from Ashland Inc. to Valvoline LLC (Valvoline).
II. | All references in the Plan to Ashland and Ashland Inc. after Section 1.01 are hereinafter changed to Valvoline and Valvoline LLC respectively. |
III. | In all other respects the Plan shall remain unchanged. |
IN WITNESS WHEREOF , the Chief Financial Officer has caused this amendment to the Plan to be executed this day of , 2016.
By: | ||
Chief Financial Officer, Ashland Inc. |
Exhibit 21.1
List of Subsidiaries of the Registrant
(as of following the completion of this offering)
Name of Subsidiary |
Jurisdiction of Incorporation |
|
ACM Eurasia LLC |
Russian Federation |
|
Delta Technologies LLC |
Delaware |
|
Ellis Enterprises B.V. |
Netherlands |
|
Funding Corp. I |
Delaware |
|
Lubricantes Andinos Lubrian S. A. |
Ecuador |
|
Lubricantes del Peru S.A. |
Peru |
|
Lubrival S. A. |
Ecuador |
|
OCH International, Inc. |
Oregon |
|
OCHI Advertising Fund LLC |
Oregon |
|
OCHI Holdings II LLC |
Oregon |
|
OCHI Holdings LLC |
Oregon |
|
V C Lubricating Oil Co. Ltd. |
Hong Kong |
|
Valvoline (Australia) Pty. Limited |
Australia |
|
Valvoline (Deutschland) GmbH |
Germany |
|
Valvoline (Shanghai) Chemical Co., Ltd |
China |
|
Valvoline (Thailand) Ltd. |
Thailand |
|
Valvoline Branded Finance, Inc. |
Delaware |
|
Valvoline Canada Corp. |
Nova Scotia |
|
Valvoline Canada Holdings B.V. |
Netherlands |
|
Valvoline Cummins Argentina S.A. |
Argentina |
|
Valvoline Cummins Private Limited |
India |
|
Valvoline de Colombia S.A.S. |
Colombia |
|
Valvoline Distribution C.V. |
Netherlands |
|
Valvoline Do Brasil Lubrificantes Ltda. |
Brazil |
|
Valvoline Europe Holdings LLC |
Delaware |
|
Valvoline Holdings B.V. |
Netherlands |
|
Valvoline Holdings Pte. Ltd. |
Singapore |
|
Valvoline Inc. |
Kentucky |
|
Valvoline Indonesia Holdings LLC |
Delaware |
|
Valvoline Instant Oil Change Franchising, Inc. |
Delaware |
|
Valvoline International de Mexico, S. de R.L. de C.V. |
Mexico |
|
Valvoline International Holdings Inc. |
Delaware |
|
Valvoline International Servicios de Mexico, S. de R.L. de C.V. |
Mexico |
|
Valvoline International, Inc. |
Delaware |
Valvoline Investments B.V. |
Netherlands |
|
Valvoline Italy S.r.l. |
Italy |
|
Valvoline Junior Holdings LLC |
Delaware |
|
Valvoline Licensing and Intellectual Property LLC |
Delaware |
|
Valvoline LLC |
Delaware |
|
Valvoline Lubricants & Solutions India Private Limited |
India |
|
Valvoline New Zealand Limited |
New Zealand |
|
Valvoline Poland Sp. z o.o. |
Poland |
|
Valvoline Pte. Ltd. |
Singapore |
|
Valvoline South Africa Proprietary Limited |
South Africa |
|
Valvoline Spain, S.L. |
Spain |
|
Valvoline UK Limited |
United Kingdom |
|
Valvoline US LLC |
Delaware |
|
VIOC Funding, Inc. |
Delaware |
|
PT. Valvoline Lubricants and Chemicals Indonesia |
Indonesia |
|
Relocation Properties Management LLC |
Delaware |
|
Shanghai VC Lubricating Oil Co., Ltd. |
China |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 31, 2016, with respect to the balance sheet of Valvoline Inc. at May 13, 2016 (date of formation) included in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-211720) and related Prospectus of Valvoline Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP |
Cincinnati, Ohio
September 12, 2016
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption Experts and to the use of our report dated May 31, 2016, with respect to the combined financial statements of Valvoline, an unincorporated commercial unit of Ashland Inc., included in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-211720) and related Prospectus of Valvoline Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP |
Cincinnati, Ohio
September 12, 2016
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in Amendment No. 4 to the Registration Statement on Form S-1 (No. 333-211720) of Valvoline Inc. of our report dated May 31, 2016 relating to the combined financial statements of Valvoline, an unincorporated commercial unit of Ashland Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Cincinnati, OH
September 12, 2016
Exhibit 99.1
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Richard J. Freeland |
Exhibit 99.2
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Stephen F. Kirk |
Exhibit 99.3
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Stephen E. Macadam |
Exhibit 99.4
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Vada O. Manager |
Exhibit 99.5
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Charles M. Sonsteby |
Exhibit 99.6
CONSENT TO BE NAMED DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended, I hereby consent to being named in the Registration Statement on Form S-1 (No. 333-211720), together with any and all amendments or supplements thereto, of Valvoline Inc., a Kentucky corporation (the Company ), as a person who has agreed to serve as a director of the Company upon closing of the offering and the inclusion of my biographical information in the Registration Statement. I also consent to the filing of this consent as an exhibit to the Registration Statement.
/s/ Mary J. Twinem |