As filed with the Securities and Exchange Commission on September 29, 2016

File No. 001-37816

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 4

To

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of

the Securities Exchange Act of 1934

 

 

Alcoa Upstream Corporation*

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   81-1789115

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification number)

 

390 Park Avenue

New York, New York

  10022-4608
(Address of principal executive offices)   (Zip code)

(212) 836-2600

(Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

to be so Registered

 

Name of Each Exchange on which

Each Class is to be Registered

Common Stock   New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act: None

 

 

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    Smaller reporting company   ¨

 

* The registrant is currently named Alcoa Upstream Corporation. The registrant plans to change its name to “Alcoa Corporation” at or prior to the effective date of the distribution described in this registration statement.

 

 

 


ALCOA UPSTREAM CORPORATION

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS

OF FORM 10

Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.

 

Item 1. Business .

The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” “The Separation and Distribution,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Certain Relationships and Related Party Transactions” and “Where You Can Find More Information.” Those sections are incorporated herein by reference.

 

Item 1A. Risk Factors .

The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.

 

Item 2. Financial Information .

The information required by this item is contained under the sections of the information statement entitled “Capitalization,” “Unaudited Pro Forma Combined Condensed Financial Statements,” “Selected Historical Combined Financial Data of Alcoa Corporation,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Index to Financial Statements” and the financial statements referenced therein. Those sections are incorporated herein by reference.

 

Item 3. Properties .

The information required by this item is contained under the section of the information statement entitled “Business.” That section is incorporated herein by reference.

 

Item 4. Security Ownership of Certain Beneficial Owners and Management .

The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.

 

Item 5. Directors and Executive Officers .

The information required by this item is contained under the sections of the information statement entitled “Management” and “Directors.” Those sections are incorporated herein by reference.

 

Item 6. Executive Compensation .

The information required by this item is contained under the sections of the information statement entitled “Compensation Discussion and Analysis”, “Executive Compensation”, and “Director Compensation.” Those sections are incorporated herein by reference.


Item 7. Certain Relationships and Related Transactions .

The information required by this item is contained under the sections of the information statement entitled “Management,” “Directors” and “Certain Relationships and Related Party Transactions.” Those sections are incorporated herein by reference.

 

Item 8. Legal Proceedings .

The information required by this item is contained under the section of the information statement entitled “Business—Legal Proceedings.” That section is incorporated herein by reference.

 

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters .

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “Capitalization,” “The Separation and Distribution,” and “Description of Alcoa Corporation Capital Stock.” Those sections are incorporated herein by reference.

 

Item 10. Recent Sales of Unregistered Securities .

The information required by this item is contained under the sections of the information statement entitled “Description of Alcoa Corporation Capital Stock—Sale of Unregistered Securities.” Those sections are incorporated herein by reference.

 

Item 11. Description of Registrant’s Securities to be Registered .

The information required by this item is contained under the sections of the information statement entitled “Dividend Policy,” “The Separation and Distribution” and “Description of Alcoa Corporation Capital Stock.” Those sections are incorporated herein by reference.

 

Item 12. Indemnification of Directors and Officers .

The information required by this item is contained under the section of the information statement entitled “Description of Alcoa Corporation Capital Stock—Limitation on Liability of Directors; Indemnification; Insurance.” That section is incorporated herein by reference.

 

Item 13. Financial Statements and Supplementary Data .

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .

None.

 

Item 15. Financial Statements and Exhibits .

 

(a) Financial Statements and Schedule

The information required by this item is contained under the sections of the information statement entitled “Unaudited Pro Forma Combined Condensed Financial Statements” and “Index to Financial Statements” and the financial statements referenced therein. Those sections are incorporated herein by reference.

 

3


(b) Exhibits

The following documents are filed as exhibits hereto:

 

Exhibit
Number

  

Exhibit Description

   2.1    Form of Separation and Distribution Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation**
   2.2    Form of Transition Services Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation**
   2.3    Form of Tax Matters Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation
   2.4    Form of Employee Matters Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation**
   2.5    Form of Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement by and between Alcoa USA Corp. and Alcoa Inc.**
   2.6    Form of Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement by and between Alcoa Inc. and Alcoa USA Corp.**
   2.7    Form of Alcoa Corporation to Arconic Inc. Trademark License Agreement by and between Alcoa USA Corp. and Alcoa Inc.**
   2.8    Form of Toll Processing and Services Agreement by and between Alcoa Inc. and Alcoa Warrick LLC**
   2.9    Form of Master Agreement for the Supply of Primary Aluminum by and between Alcoa Inc. and Alcoa USA Corp.**
   2.10    Form of Massena Lease and Operations Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation**
   2.11    English Translation of Fusina Lease and Operations Agreement by and between Alcoa Servizi S.r.l. and Fusina Rolling S.r.l., dated as of August 4, 2016**
   3.1    Form of Amended and Restated Certificate of Incorporation of Alcoa Corporation**
   3.2    Form of Amended and Restated Bylaws of Alcoa Corporation**
   4.1    Form of Stockholder and Registration Rights Agreement by and between Alcoa Inc. and Alcoa Upstream Corporation**
 10.1    Form of Alcoa Corporation 2016 Stock Incentive Plan
 10.2    Alcoa USA Corp. Deferred Compensation Plan**
 10.3    Alcoa USA Corp. Nonqualified Supplemental Retirement Plan C**
 10.4    Form of Indemnification Agreement by and between Alcoa Corporation and individual directors or officers**
 10.5    Aluminum Project Framework Shareholders’ Agreement, dated December 20, 2009, between Alcoa Inc. and Saudi Arabian Mining Company (Ma’aden) (incorporated by reference to Exhibit 10(i) to Alcoa Inc.’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2009, filed on February 18, 2010)
 10.6    First Supplemental Agreement, dated March 30, 2010, to the Aluminium Project Framework Shareholders Agreement, dated December 20, 2009, between Saudi Arabian Mining Company (Ma’aden) and Alcoa Inc. (incorporated by reference to Exhibit 10(c) to Alcoa Inc.’s Quarterly Report on Form 10-Q (Commission file number 1-3610) for the quarter ended March 31, 2010, filed on April 22, 2010)

 

4


Exhibit
Number

  

Exhibit Description

 10.7    Kwinana State Agreement of 1961**
 10.8    Pinjarra State Agreement of 1969**
 10.9    Wagerup State Agreement of 1978**
 10.10    Alumina Refinery Agreement of 1987**
 10.11    Form of Amended and Restated Charter of the Strategic Council for the AWAC Joint Venture**
 10.12    Amended and Restated Limited Liability Company Agreement of Alcoa Alumina & Chemicals, L.L.C. dated as of December 31, 1994 (incorporated by reference to Exhibit 99.4 to Alcoa Inc.’s Current Report on Form 8-K (Commission file number 1-3610), filed on November 28, 2001)
 10.13    Shareholders’ Agreement between Alcoa of Australia Limited, Alcoa Australian Pty Ltd and Alumina Limited, originally dated as of May 10, 1996**
 10.14    Side Letter of May 16, 1995 clarifying transfer restrictions (incorporated by reference to Exhibit 99.6 to Alcoa Inc.’s Current Report on Form 8-K (Commission file number 1-3610), filed on November 28, 2001)
 10.15    Enterprise Funding Agreement, dated September 18, 2006, between Alcoa Inc., certain of its affiliates and Alumina Limited (incorporated by reference to Exhibit 10(f) to Alcoa Inc.’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2006, filed on February 15, 2007)
 10.16    Amendments to Enterprise Funding Agreement, effective January 25, 2008, between Alcoa Inc., certain of its affiliates and Alumina Limited (incorporated by reference to Exhibit 10(f)(1) to Alcoa Inc.’s Annual Report on Form 10-K (Commission file number 1-3610) for the year ended December 31, 2007, filed on February 15, 2008)
 10.17    Plea Agreement dated January 8, 2014, between the United States of America and Alcoa World Alumina LLC (incorporated by reference to Exhibit 10(l) to Alcoa Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 13, 2014)
 10.18    Revolving Credit Agreement dated as of September 16, 2016, among Alcoa Upstream Corporation, as Holdings, Alcoa Nederland Holding B.V., as the Borrower, a syndicate of lenders and letter of credit issuers named therein and JPMorgan Chase Bank, N.A., as administrative agent
 10.19    Indenture, dated September 27, 2016, among Alcoa Nederland Holding B.V., Alcoa Upstream Corporation and The Bank of New York Mellon Trust Company, N.A.
 10.20    Form of Alcoa Corporation Change in Control Severance Plan
 10.21    Form of Incentive Compensation Plan of Alcoa Corporation
 10.22    Form of Alcoa Corporation Non-Employee Director Compensation Policy
 10.23    Form of Alcoa Corporation Internal Revenue Code 162(m) Compliant Annual Cash Incentive Compensation Plan
 10.24    Form of Alcoa Corporation 2016 Deferred Fee Plan for Directors
 21.1    List of Subsidiaries*
 99.1    Information Statement of Alcoa Upstream Corporation, preliminary and subject to completion, dated September 29, 2016

 

* To be filed by amendment.
** Previously filed.

 

5


SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Alcoa Upstream Corporation
By:     /s/   Roy Harvey
  Name:     Roy Harvey
  Title:   President

Date: September 29, 2016

Exhibit 2.3

FORM OF

TAX MATTERS AGREEMENT

DATED AS OF [•], 2016

BY AND BETWEEN

ALCOA INC.

AND

ALCOA UPSTREAM CORPORATION


TABLE OF CONTENTS

 

          Page  

Article 1. Definition of Terms

     2   

Article 2. Allocation of Tax Liabilities

     14   

Section 2.01

   General Rule      14   

Section 2.02

   Allocation of United States Federal Taxes      14   

Section 2.03

   Allocation of State Taxes      15   

Section 2.04

   Allocation of Foreign Taxes      16   

Section 2.05

   Certain Transaction Transfer and Other Taxes      17   

Article 3. Proration of Taxes for Straddle Periods

     18   

Section 3.01

   General Method of Proration      18   

Section 3.02

   Transaction Treated as Extraordinary Item      18   

Article 4. Preparation and Filing of Tax Returns

     18   

Section 4.01

   Parent Returns      18   

Section 4.02

   UpstreamCo Returns      18   

Section 4.03

   Tax Reporting Practices      19   

Section 4.04

   Consolidated or Combined Tax Returns      19   

Section 4.05

   Right to Review Tax Returns      20   

Section 4.06

   Adjustment Requests and UpstreamCo Carryback Items      21   

Section 4.07

   Apportionment of Earnings and Profits and Tax Attributes      21   

Article 5. Payments

     22   

Section 5.01

   Payment of Taxes      22   

Section 5.02

   Adjustments Resulting in Underpayments      22   

Section 5.03

   Indemnification Payments      22   

Section 5.04

   Payors; Payees; Treatment      23   

 

i


Article 6. Tax Benefits

     23   

Section 6.01

   Tax Benefits      23   

Section 6.02

   Parent and UpstreamCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation      25   

Article 7. Tax-Free Status

     26   

Section 7.01

   Representations of and Restrictions on UpstreamCo      26   

Section 7.02

   Restrictions on UpstreamCo.      26   

Section 7.03

   Certain Issuances of UpstreamCo Capital Stock      28   

Section 7.04

   Restrictions on Parent      28   

Section 7.05

   Procedures Regarding Post-Distribution Rulings and Unqualified Tax Opinions      28   

Section 7.06

   Liability for Separation Tax Losses      30   

Section 7.07

   Payment of Separation Taxes      31   

Section 7.08

   Section 336(e) Election      31   

Article 8. Assistance and Cooperation

     31   

Section 8.01

   Assistance and Cooperation      31   

Section 8.02

   Tax Return Information      32   

Section 8.03

   Reliance by Parent      32   

Section 8.04

   Reliance by UpstreamCo      33   

Article 9. Tax Records

     33   

Section 9.01

   Retention of Tax Records      33   

Section 9.02

   Access to Tax Records      33   

Section 9.03

   Preservation of Privilege      34   

Article 10. Tax Contests

     34   

Section 10.01

   Notice      34   

Section 10.02

   Control of Tax Contests      34   

 

ii


Article 11. Effective Date; Termination of Prior Intercompany Tax Allocation Agreements

     38   

Article 12. Survival of Obligations

     38   

Article 13. Treatment of Payments; Tax Gross-Up

     38   

Section 13.01

   Treatment of Tax Indemnity and Tax Benefit Payments      38   

Section 13.02

   Tax Gross-Up      38   

Section 13.03

   Interest      39   

Article 14. Disagreements

     39   

Section 14.01

   Dispute Resolution      39   

Section 14.02

   Injunctive Relief      39   

Article 15. Late Payments

     40   

Article 16. Expenses

     40   

Article 17. General Provisions

     40   

Section 17.01

   Addresses and Notices      40   

Section 17.02

   Assignability      41   

Section 17.03

   Waiver      41   

Section 17.04

   Severability      42   

Section 17.05

   Authority      42   

Section 17.06

   Further Action      42   

Section 17.07

   Entire Agreement      42   

Section 17.08

   Mutual Drafting      42   

Section 17.09

   No Double Recovery      42   

Section 17.10

   Currency      42   

Section 17.11

   Counterparts      43   

Section 17.12

   Governing Law      43   

Section 17.13

   Jurisdiction      43   

 

iii


Section 17.14

   Amendment      43   

Section 17.15

   Performance      43   

Section 17.16

   Injunctions      44   

 

iv


TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT (this “ Agreement ”) is entered into as of [•], 2016, by and between Alcoa Inc., a Pennsylvania corporation (“ Parent ”), and Alcoa Upstream Corporation, a Delaware corporation (“ UpstreamCo ”) (collectively, the “ Companies ” and each, a “ Company ”).

RECITALS

WHEREAS, Parent and UpstreamCo have entered into a Separation and Distribution Agreement, dated as of [•], 2016 (the “ Separation and Distribution Agreement ”), providing for the separation of the Parent Business from the UpstreamCo Business (the “ Separation ”);

WHEREAS, Parent and its Subsidiaries have engaged in certain restructuring transactions to facilitate the Separation as set forth in the Separation Step Plan;

WHEREAS, pursuant to the Separation Step Plan and the terms of the Separation and Distribution Agreement, Parent will, among other things, (i) contribute, convey, sell and otherwise transfer (and cause its Subsidiaries to contribute, convey, sell and otherwise transfer) the Upstream Assets to UpstreamCo and the other members of the UpstreamCo Group and (ii) cause UpstreamCo and the other members of the UpstreamCo Group to assume the UpstreamCo Liabilities;

WHEREAS, pursuant to the terms of the Separation and Distribution Agreement, among other things, (i) Parent will contribute the UpstreamCo Assets to UpstreamCo in exchange for (i) the assumption by UpstreamCo of the UpstreamCo Liabilities, (ii) the actual or deemed issuance by UpstreamCo to Parent of UpstreamCo Shares, and (iii) the distribution by UpstreamCo to Parent of the Cash Distribution (the “ Contribution ”) and (ii) Parent will make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of at least 80.1% of all of the outstanding UpstreamCo Shares (the “ Distribution ”);

WHEREAS, following the Distribution, Parent may undertake the Debt-for-Equity Exchange;

WHEREAS, for U.S. federal income tax purposes, it is intended that the Contribution, the Distribution (and the Debt-for-Equity Exchange, if any), taken together, qualify as transactions that are generally tax free pursuant to Sections 368(a)(1)(D) and 355(a) of the Code;

WHEREAS, the parties desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the Distribution, and to provide for and agree upon other matters relating to Taxes.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties hereby agree as follows:


Article 1. Definition of Terms . For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:

Active Trade or Business ” means, with respect to each of Parent and UpstreamCo, the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder) by such entity and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) of the trades or businesses relied upon to satisfy Section 355(b) of the Code with respect to the Distribution as conducted immediately prior to the Distribution.

Actually Realized ” or “ Actually Realizes ” means, for purposes of determining the timing of the incurrence of any Tax Liability or the realization of a Refund (or any related Tax cost or Tax Benefit), whether by receipt or as a credit or other offset to Taxes otherwise payable, by a Person in respect of any payment, transaction, occurrence or event, the time at which the amount of Taxes paid (or Refund realized) by such Person is increased above (or reduced below) the amount of Taxes that such Person would have been required to pay (or Refund that such Person would have realized) but for such payment, transaction, occurrence or event.

Adjusted Company ” has the meaning set forth in Section 10.02(c) .

Adjustment Request ” means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, Refund, or credit of Taxes, including (a) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for Refund of Taxes previously paid.

Affiliate ” has the meaning set forth in the Separation and Distribution Agreement.

Agreement ” has the meaning set forth in the Preamble.

Alcoa Australia ” means Alcoa Australia Holdings Pty. Ltd., a company organized under the Laws of Australia.

Alcoa Australia Combined Return ” means any Combined Return filed or required to be filed by Alcoa Australia.

Aluminio ” means Alcoa Aluminio S.A., a company organized under the laws of Brazil.

Ancillary Agreement ” has the meaning set forth in the Separation and Distribution Agreement.

Business Day ” means any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by Law to close in Pittsburgh, Pennsylvania or New York, New York.

Cash Distribution ” has the meaning set forth in the Separation and Distribution Agreement.

CFO Certificate ” has the meaning set forth in Section 7.03 .

 

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Code ” means the U.S. Internal Revenue Code of 1986, as amended.

Combined Return ” means a consolidated, affiliated, combined, unitary, group or other similar Tax Return (including a Tax Return with respect to a profit and/or loss sharing group, group payment or similar group or fiscal unity) that actually includes, by election or otherwise, one or more members of the Parent Group together with one or more members of the UpstreamCo Group (including, for the avoidance of doubt, any such Income Tax Return that is a Parent Consolidated Income Tax Return).

Companies ” or “ Company ” has the meaning set forth in the Preamble.

Compensatory Equity Interests ” has the meaning set forth in Section 6.02(a) .

Competent Authority ” means any “competent authority” as such term is used in any relevant tax treaty or other similar body established pursuant to any tax treaty.

Competent Authority Proceeding ” means any proceeding pursuant to the mutual assistance or mutual agreement provisions of any tax treaty or any similar proceeding before any Competent Authority.

Contribution ” has the meaning set forth in the Preamble.

Debt-for-Equity Exchange ” means the transfer of all or a portion of the Retained Shares by its creditors in exchange for outstanding Arconic debt obligations.

Distribution ” has the meaning set forth in the Preamble.

Distribution Date ” has the meaning set forth in the Separation and Distribution Agreement.

Due Date ” means the date (taking into account all valid extensions) upon which a Tax Return is required to be filed.

Effective Time ” has the meaning set forth in the Separation and Distribution Agreement.

Employee Matters Agreement ” means the Employee Matters Agreement, dated as of [•], 2016, by and between Parent and UpstreamCo.

ETVE Regime ” means the special tax regime applicable to Entidades de Tenecia de Valores Extranjeros under Spanish Tax Law.

Federal Income Tax ” means any Tax imposed by Subtitle A of the Code.

Federal Other Tax ” means any Tax imposed by the federal government of the United States of America other than any Federal Income Tax.

Federal Tax ” means any Federal Income Tax or Federal Other Tax.

 

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Federal Traceable Tax ” means any Federal Other Tax that can be clearly and directly traced to a specific location used, or function or activity engaged in, exclusively by a member or members of only one Group, including such Taxes listed on Schedule A (and, for the avoidance of doubt, excluding any Taxes traceable to any corporate locations, functions or activities that were used by or supported members of both Groups, such as property/rents or similar taxes imposed with respect to any Pre-Distribution Period on Parent’s New York City, NY, headquarters).

Fifty-Percent or Greater Interest ” has the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code and the Treasury Regulations thereunder.

Final Determination ” means the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the Laws of a State, local or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of Law) the right of the taxpayer to file a claim for Refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or a comparable agreement under the Laws of a State, local or foreign taxing jurisdiction; (d) by any allowance of a Refund in respect of an overpayment of Tax, but only after the expiration of all periods during which such Refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (e) by a final settlement resulting from a Competent Authority Proceeding or determination; or (f) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

Foreign Income Tax ” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulations Section 1.901-2.

Foreign Traceable Tax ” means any Foreign Other Tax that can be clearly and directly traced to a specific location used, or function or activity engaged in, exclusively by a member or members of only one Group, including such Taxes listed on Schedule B (and, for the avoidance of doubt, excluding any Taxes traceable to any corporate locations, functions or activities that were used by or supported members of both Groups).

Foreign Other Tax ” means any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Tax.

Foreign Tax ” means any Foreign Income Tax or Foreign Other Tax.

Former Parent Group Employee ” has the meaning ascribed to such term in the Employee Matters Agreement.

 

- 4 -


Former Parent Nonemployee Director ” has the meaning set forth in the Employee Matters Agreement.

Former UpstreamCo Group Employee ” means a “Former SpinCo Group Employee” as such term is defined in the Employee Matters Agreement.

Governmental Authority ” has the meaning ascribed to such term in the Separation and Distribution Agreement.

Group ” means the Parent Group or the UpstreamCo Group, or both, as the context requires.

High-Level Dispute ” means any dispute or disagreement (a) relating to liability under Section 7.06 of this Agreement or (b) in which the amount of liability in dispute exceeds $5 million.

Income Tax ” means any Federal Income Tax, State Income Tax or Foreign Income Tax.

Indemnitee ” has the meaning set forth in Section 13.03 .

Indemnitor ” has the meaning set forth in Section 13.03 .

Inversiones ” means Arconic Inversiones Espana S.L., a company organized under the Laws of Spain.

IRS ” means the United States Internal Revenue Service.

Joint Traceable Tax Contest ” means any Tax Contest in respect of both (i) Traceable Taxes that are Parent Retained Taxes and (ii) Traceable Taxes that are UpstreamCo Retained Taxes.

Law ” has the meaning set forth in the Separation and Distribution Agreement.

Loss ” has the meaning set forth in Section 6.01(b) .

Notified Action ” has the meaning set forth in Section 7.05(a) .

Parent ” has the meaning set forth in the Preamble.

Parent Affiliated Group ” means the affiliated group (as such term is defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which Parent is the common parent.

Parent Business ” has the meaning set forth in the Separation and Distribution Agreement.

Parent Comp Deduction ” has the meaning set forth in Section 6.02(a) .

 

- 5 -


Parent Federal Consolidated Income Tax Return ” means any U.S. federal income Tax Return for the Parent Affiliated Group.

Parent Group ” means Parent and each Person that is a Subsidiary of Parent (other than UpstreamCo and any other member of the UpstreamCo Group).

Parent Group Employees ” means the “Parent Group Employees” as such term is defined in the Employee Matters Agreement.

Parent Group Tax Attribute ” has the meaning set forth in Section 6.01(d) .

Parent Nonemployee Director ” has the meaning set forth in the Employee Matters Agreement.

Parent Retained Tax Benefit ” means (i) 12% of any Tax Benefit (in respect of Brazilian Foreign Income Taxes) attributable to a Pre-Distribution Period and Actually Realized by Aluminio as a result of a Final Determination, (ii) any Tax Benefit in respect of any Parent Retained Taxes described in clause (ii) of the definition of “Parent Retained Taxes” and (iii) any Tax Benefit in respect of a Parent Comp Deduction.

Parent Retained Taxes ” means (i) 12% of any Brazilian Foreign Income Taxes imposed on Aluminio for a Pre-Distribution Period and payable as a result of a Final Determination and (ii) any Traceable Taxes clearly and directly traced to a specific location used, or function or activity engaged in, exclusively by one or more members of the Parent Group; provided that Parent Retained Taxes shall not include any Taxes to the extent such Taxes are not required to be paid in cash to the relevant Tax Authority as a result of any Tax Attribute that existed as of immediately after the Distribution Date being available, at the time of the relevant Final Determination, to reduce (or eliminate) the cash payment obligation in respect of such Taxes.

Parent Return ” has the meaning set forth in Section 4.01 .

Parent Separate Return ” means any Separate Return of Parent or any other member of the Parent Group.

Past Practices ” has the meaning set forth in Section 4.03(a) .

Payment Date ” means (i) with respect to any Parent Federal Consolidated Income Tax Return, the due date for any required installment of estimated taxes determined under Section 6655 of the Code, the due date (determined without regard to extensions) for filing the return determined under Section 6072 of the Code, and the date the return is filed, and (ii) with respect to any other Tax Return, the corresponding or similar dates determined under the applicable Tax Law.

Permitted UpstreamCo Carryback ” has the meaning set forth in Section 6.01(d) .

 

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Person ” means any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. Federal Income Tax purposes.

Post-Distribution Period ” means any Tax Period beginning after the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Distribution Date.

Post-Distribution Ruling ” has the meaning set forth in Section 7.02(c) .

Pre-Distribution Period ” means any Tax Period ending on or before the Distribution Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Distribution Date; provided , that, for purposes of this definition, (a) with respect to any income Tax Return filed or required to be filed by Aluminio, the Distribution Date shall be deemed to be July 1, 2016 and (b) with respect to any Tax Return filed or required to be filed by Inversiones, the Distribution Date shall be deemed to be July 22, 2016.

Prime Rate ” has the meaning set forth in the Separation and Distribution Agreement.

Privilege ” means any privilege that may be asserted under applicable Law, including any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.

Privileged Documentation ” has the meaning ascribed to such term in Section 9.03 .

Property Tax ” means any real, personal and intangible ad valorem property Tax.

Proposed Acquisition Transaction ” means a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by UpstreamCo management or shareholders, is a hostile acquisition, or otherwise, as a result of which UpstreamCo would merge or consolidate with any other Person or as a result of which any Person or Persons would (directly or indirectly) acquire, or have the right to acquire, from UpstreamCo and/or one or more holders of outstanding shares of UpstreamCo Capital Stock, a number of shares of UpstreamCo Capital Stock that would, when combined with any other changes in ownership of UpstreamCo Capital Stock pertinent for purposes of Section 355(e) of the Code, comprise 40% or more of (A) the value of all outstanding shares of stock of UpstreamCo as of the date of such transaction, or, in the case of a series of transactions, the date of the last transaction of such series, or (B) the total combined voting power of all outstanding shares of voting stock of UpstreamCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (A) the adoption by UpstreamCo of a shareholder rights plan or (B) issuances by UpstreamCo that satisfy Safe Harbor VIII (relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be

 

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treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof are intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated into this definition and its interpretation.

Recipient ” means, with respect to any transfer of assets (including equity interests) or liabilities occurring pursuant to any of the Separation Transactions, the Person receiving such assets and/or liabilities.

Record Date ” has the meaning set forth in the Separation and Distribution Agreement.

Refund ” means any refund of Taxes, including any refund or reduction in Tax Liabilities by means of a credit or offset.

Relief ” means any relief, loss allowance, exemption, set-off, Refund, deduction, credit or Tax Attribute utilized in computing, or against, taxable income or Tax Liability.

Representation Letters ” means the statements of facts and representations, officer’s certificates, representation letters and any other materials (including, without limitation, a Ruling Request and any related supplemental submissions to the IRS or other Tax Authority) delivered by Parent, UpstreamCo or any of their respective Affiliates or representatives in connection with the rendering by Tax Advisors, and/or the issuance by the IRS or other Tax Authority, of the Tax Opinions/Rulings.

Responsible Company ” means, with respect to any Tax Return, the Company having responsibility for preparing such Tax Return under this Agreement.

Restriction Period ” means the period beginning on the date hereof and ending (and including) the two-year anniversary of the Distribution Date.

Retained Shares ” means the UpstreamCo Shares not distributed by Parent to its shareholders in the Distribution.

Retention Date ” has the meaning set forth in Section 9.01 .

Ruling Request ” means any letter filed by Parent with the IRS or other Tax Authority requesting a ruling regarding certain tax consequences of any of the Separation Transactions (including all attachments, exhibits, and other materials submitted with such ruling request letter) and any amendments or supplements to such ruling request letter.

Section 336(e) Election ” has the meaning set forth in Section 7.08 .

Section 7.03 Acquisition Transaction ” means any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 30% instead of 40%.

 

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Separate Parent Traceable Tax Contest ” means any Tax Contest solely in respect of any Traceable Tax that is (i) a Parent Retained Tax and (ii) reported or required to be reported on an UpstreamCo Separate Return or Alcoa Australia Combined Return.

Separate Return ” means (a) in the case of any Tax Return of any member of the Parent Group (including any consolidated, affiliated, combined, unitary, group or other similar Tax Return (including a Tax Return with respect to a profit and/or loss sharing group, group payment or similar group or fiscal unity)), any such Tax Return that does not include any member of the UpstreamCo Group and (b) in the case of any Tax Return of any member of the UpstreamCo Group (including any consolidated, affiliated, combined, unitary, group or other similar Tax Return (including a Tax Return with respect to a profit and/or loss sharing group, group payment or similar group or fiscal unity)), any such Tax Return that does not include any member of the Parent Group.

Separate Traceable Tax Contest ” means either a Separate Parent Traceable Tax Contest or a Separate UpstreamCo Traceable Tax Contest.

Separate UpstreamCo Traceable Tax Contest ” means any Tax Contest solely in respect of any Traceable Tax that is (i) an UpstreamCo Retained Tax and (ii) reported or required to be reported on a Parent Separate Return or Parent Combined Return.

Separation ” has the meaning set forth in the Recitals.

Separation and Distribution Agreement ” has the meaning set forth in the Recitals.

Separation Related Tax Contest ” means any Tax Contest in which the IRS, another Tax Authority or any other party asserts a position that could reasonably be expected to (a) adversely affect, jeopardize or prevent (i) the Tax-Free Status of the Contribution and the Distribution (and the Debt-for-Equity Exchange, if any) or (ii) a Separation Transaction (other than a Separation Transaction described in clause (i)) to have the tax treatment described in the Tax Opinions/Rulings (or, if not so described in the Tax Opinion/Rulings, in the Separation Step Plan) or to qualify as tax-free to the extent that tax-free treatment was intended or (b) otherwise affect the amount of Taxes imposed with respect to any of the Separation Transactions.

Separation Step Plan ” means the global step plan setting forth the specific transactions undertaken in anticipation and furtherance of the Separation, attached as Schedule 2.1(a) to the Separation and Distribution Agreement.

Separation Tax Losses ” means (i) all Taxes imposed pursuant to (or any reduction in a Refund resulting from) any settlement, Final Determination, judgment or otherwise; (ii) all third-party accounting, legal and other professional fees and court costs incurred in connection with such Taxes (or reduction in a Refund), as well as any other out-of-pocket costs incurred in connection with such Taxes (or reduction in a Refund); and (iii) all third-party costs, expenses and damages associated with any stockholder litigation or other controversy and any amount required to be paid by Parent (or any Affiliate of Parent) or UpstreamCo (or any Affiliate of UpstreamCo) in respect of any liability of or to shareholders, whether paid to shareholders or to the IRS or any other Tax Authority, in each case, resulting from (x) the failure of the Contribution and the Distribution to have Tax-Free Status; (y) the failure of a Separation

 

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Transaction to have the tax treatment described in the Tax Opinions/Rulings (or, if not so described in the Tax Opinion/Rulings, in the Separation Step Plan) or to qualify as tax-free to the extent that tax-free treatment was intended; provided that amounts shall be treated as having been required to be paid for purposes of clause (iii) of this definition to the extent they are paid in a good-faith compromise or settlement of an asserted claim.

Separation Transactions ” means the Contribution, the Distribution and the other transactions contemplated by the Separation and Distribution Agreement and the Separation Step Plan in furtherance of the Separation.

State Income Tax ” means any Tax imposed by any State of the United States or by any political subdivision of any such State or the District of Columbia that is imposed on or measured by income, including state and local franchise or similar Taxes measured by income, as well as any state or local franchise, capital or similar Taxes imposed in lieu of or in addition to a Tax imposed on or measured by income.

State Traceable Tax ” means any State Other Tax that can be clearly and directly traced to a specific location used, or function or activity engaged in, exclusively by a member or members of only one Group, including such Taxes listed on Schedule C (and, for the avoidance of doubt, excluding any Taxes traceable to any corporate locations, functions or activities that were used by or supported members of both Groups).

State Other Tax ” means any Tax imposed by any State of the United States or by any political subdivision of any such State or the District of Columbia, other than any State Income Tax.

State Tax ” means any State Income Tax or State Other Tax.

Straddle Period ” means any Tax Period that begins on or before and ends after the Distribution Date; provided , that, for purposes of this definition, (a) with respect to any Tax Return filed or required to be filed by Aluminio, the Distribution Date shall be deemed to be July 1, 2016 and (b) with respect to any Tax Return filed or required to be filed by Inversiones, the Distribution Date shall be deemed to be July 22, 2016.

Subsidiary ” has the meaning set forth in the Separation and Distribution Agreement.

Tax ” or “ Taxes ” means any taxes, fees, assessments, duties or other similar charges imposed by any Tax Authority, including, without limitation, income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers’ compensation, unemployment, disability, property, ad valorem , stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value-added, alternative minimum, estimated, unclaimed property or escheat, or other tax (including any fee, assessment, duty, or other charge in the nature of or in lieu of any tax), and any interest, penalties, additions to tax or additional amounts in respect of the foregoing. For the avoidance of doubt, Tax includes any increase in Tax as a result of a Final Determination.

Tax Advisor ” means tax counsel or accountant of recognized national standing.

 

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Tax Advisor Dispute ” has the meaning set forth in Section 14.01 .

Tax Attribute ” means a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other similar Tax Item that could reduce a Tax or create a Tax Benefit.

Tax Authority ” means any Governmental Authority imposing any Tax, charged with the collection of Taxes or otherwise having jurisdiction with respect to any Tax.

Tax Benefit ” means any loss, deduction, Refund, credit, offset or other Tax item reducing Taxes paid or payable. For purposes of this Agreement, the amount of any Tax Benefit Actually Realized by a Person as a result of any such Tax item shall be determined on a “with and without basis” as the excess of (a) the hypothetical liability of such Person for the relevant Tax for the relevant Tax Period, calculated as if such Tax item had not been utilized but with all other facts unchanged, over (b) the actual liability of such Person for such Tax for such Tax Period, calculated taking into account such Tax item (and, for this purpose, treating a Refund as a reduction in liability for Tax).

Tax Contest ” means an audit, review, examination or any other administrative or judicial proceeding with respect to Taxes (including any administrative or judicial review of any claim for any Refund or other Tax Benefit).

Tax-Free Status ” means the qualification of (i) the Contribution and the Distribution (and the Debt-for-Equity Exchange, if any), taken together, as a “reorganization” described in Sections 368(a)(1)(D) and 355(a) of the Code, (ii) the Distribution as a transactions in which the stock distributed thereby is “qualified property” for purposes of Sections 355(c) and 361(c) of the Code (and neither Section 355(d) or 355(e) of the Code cause such stock to be treated as other than “qualified property” for such purposes), (iii) the Contribution and the Distribution as transactions in which Parent, UpstreamCo, and the members of each of the Parent Group and Upstream Group, as applicable, recognize no income or gain for U.S. federal income tax purposes pursuant to Sections 355, 361 and/or 1032 of the Code, other than intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.

Tax Item ” means, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.

Tax Law ” means the Law Governmental Authority relating to any Tax.

Tax Liability ” means any liability or obligation for Taxes.

Tax Opinions/Rulings ” means the opinions of Tax Advisors and/or the rulings by the IRS or other Tax Authorities delivered to Parent in connection with the Contribution and the Distribution, or otherwise with respect to the Separation Transactions.

Tax Period ” means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.

 

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Tax Records ” means any Tax Returns, Tax Return workpapers, documentation relating to any Tax Contest, and any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) maintained or required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority, in each case, with respect to otherwise relating to Taxes.

Tax Return ” or “ Return ” means any report of Taxes due, any claim for Refund of Taxes paid, any information return with respect to Taxes, or any other report, statement, declaration, or document in respect of Taxes filed or required to be filed under the Code or other Tax Law, including any attachments, exhibits or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

Traceable Tax ” means any Federal Traceable Tax, State Traceable Tax or Foreign Traceable Tax.

Traceable Tax Contest ” means any Joint Traceable Tax Contest or any Separate Traceable Tax Contest.

Transaction Transfer Taxes ” means any sales, use, value-added, goods and services, stock transfer, registration, real estate transfer, stamp, documentary, notarial, filing, recordation and similar Taxes imposed on any transfer of assets (including equity interests) or liabilities occurring pursuant to the Separation Transactions.

Transferor ” means, with respect to any transfer of assets (including equity interests) or liabilities occurring pursuant to any of the Separations Transactions, the Person transferring such assets and/or liabilities.

Transferred Director ” has the meaning set forth in the Employee Matters Agreement.

Treasury Regulations ” means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.

Unqualified Tax Opinion ” means an unqualified “will” opinion of a Tax Advisor, which Tax Advisor is acceptable to Parent, and on which Parent may rely to the effect that (a) a transaction will not affect the Tax-Free Status of the Contribution, the Distribution and the Debt-for-Equity Exchange, if any, and (b) will not adversely affect any of the conclusions set forth in the Tax Opinions/Rulings; provided that any tax opinion obtained in connection with a proposed acquisition of UpstreamCo Capital Stock entered into during the Restriction Period shall not qualify as an Unqualified Tax Opinion unless such tax opinion concludes that such proposed acquisition will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Distribution. Any such opinion must assume that the Contribution and the Distribution (and the Debt-for-Equity Exchange, if any) would have qualified for Tax-Free Status if the transaction in question did not occur.

UpstreamCo Business ” has the meaning set forth in the Separation and Distribution Agreement.

 

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UpstreamCo Capital Stock ” means all classes or series of capital stock of UpstreamCo, including (i) the UpstreamCo Shares, (ii) all options, warrants and other rights to acquire such capital stock and (iii) all instruments properly treated as stock in UpstreamCo for U.S. federal income tax purposes.

UpstreamCo Carryback Item ” means any net operating loss, net capital loss, excess tax credit or other similar Tax item of any member of the UpstreamCo Group which may or must be carried from any Post-Distribution Period to any Pre-Distribution Period under the Code or other applicable Tax Law.

UpstreamCo Comp Deduction ” has the meaning set forth in Section 6.02(a) .

UpstreamCo Group Employees ” means the “SpinCo Group Employees” as such term is defined in the Employee Matters Agreement.

UpstreamCo Group ” has the meaning set forth in the Separation and Distribution Agreement.

UpstreamCo Retained Tax Benefit ” means (i) 49% of any Tax Benefit (with respect to Spanish Foreign Income Taxes) attributable to a Pre-Distribution Period and Actually Realized by Inversiones as a result of a Final Determination in respect of any claim by the Spanish Tax Authority against Inversiones arising under, or in respect of, the ETVE Regime (and any alternative claims in the event the ETVE-related claims are resolved in favor of Inversiones), (ii) any Tax Benefit in respect of any UpstreamCo Retained Taxes described in clause (iii) of the definition of “UpstreamCo Retained Taxes” and (iii) any Tax Benefit in respect of an UpstreamCo Comp Deduction.

UpstreamCo Retained Taxes ” means, (i) 49% of any Spanish Foreign Income Taxes payable as a result of a Final Determination in respect of any claim by the Spanish Tax Authority against Inversiones arising under, or in respect of, the ETVE Regime for any Pre-Distribution Period (and any alternative claims in the event the ETVE-related claims are resolved in favor of Inversiones), (ii) any Income Taxes payable as a result of a transfer pricing adjustment pursuant to any Competent Authority Proceeding in respect of any transaction occurring prior to the Distribution Date between any member of the UpstreamCo Group, on the one hand, and any member of the UpstreamCo Group or any member of the Parent Group, on the other hand (for the avoidance of doubt, for purposes of this clause (ii), any entity that is no longer in existence as of the Distribution Time but that would have been a member of the UpstreamCo Group or the Parent Group as of the Distribution Time had it been in existence at the Distribution Time shall be treated as a member of the UpstreamCo Group or a member of the Parent Group, respectively) and (iii) any Traceable Taxes clearly and directly traced to the specific location used, or function or activity engaged in, exclusively by one or more members of the UpstreamCo Group; provided that UpstreamCo Retained Taxes shall not include any Taxes to the extent such Taxes are not required to be paid in cash to the relevant Tax Authority as a result of any Tax Attribute that existed as of immediately after the Distribution Date being available, at the time of the relevant Final Determination, to reduce (or eliminate) the cash payment obligation in respect of such Taxes.

UpstreamCo Return ” has the meaning set forth in Section 4.02 .

 

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UpstreamCo Separate Return ” means any Separate Return of UpstreamCo or any member of the UpstreamCo Group.

UpstreamCo Shares ” means the shares of common stock, par value $0.01 per share, of UpstreamCo, representing all of the outstanding UpstreamCo Capital Stock as of immediately before the Effective Time.

UpstreamCo ” has the meaning set forth in the Preamble, and references herein to UpstreamCo shall include any entity treated as a successor to UpstreamCo.

Article 2. Allocation of Tax Liabilities.

Section 2.01 General Rule .

(a) Parent Liability . Parent shall be liable for, and shall indemnify and hold harmless the UpstreamCo Group from and against any liability for, any Taxes which are allocated to Parent, or for which Parent is responsible, pursuant to this Article 2 .

(b) UpstreamCo Liability . UpstreamCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for, any Taxes which are allocated to UpstreamCo, or for which UpstreamCo is responsible, pursuant to this Article 2 .

(c) Costs and Expenses . The amounts for which Parent or UpstreamCo, as applicable, is liable pursuant to Sections 2.01(a) and (b) , respectively, or for which either Company or a member of its Group is liable pursuant to Section 2.05, shall include all accounting, legal and other professional fees, and court costs incurred in connection with the relevant Taxes.

(d) Final Determination Taxes . For the avoidance of doubt, any reference to any Taxes due with respect to, attributable to or required to be reported on any Tax Return contained in Section 2.02 , Section 2.03 or Section 2.04 , and any reference to any Taxes in Section 2.05 , shall include, unless specifically excluded, a reference to any such Taxes imposed or payable as a result of a Final Determination.

Section 2.02 Allocation of United States Federal Taxes . Except as otherwise provided in Section 2.05, Federal Taxes shall be allocated as follows:

(a) Federal Income Taxes Relating to Combined Returns . Parent shall be responsible for any and all Federal Income Taxes due with respect to, attributable to or required to be reported on any Combined Return; provided, however, that UpstreamCo shall be responsible for any such Federal Income Taxes that are UpstreamCo Retained Taxes.

(b) Federal Income Taxes Relating to Separate Returns .

(i) Parent shall be responsible for any and all Federal Income Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period.

 

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(ii) UpstreamCo shall be responsible for any and all Federal Income Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period.

(c) Federal Other Taxes .

(i) Parent shall be responsible for any and all Federal Other Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period; provided , however , that UpstreamCo shall be responsible for any such Federal Other Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all Federal Other Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period; provided , however , that Parent shall be responsible for any such Federal Other Taxes that are Parent Retained Taxes.

Section 2.03 Allocation of State Taxes . Except as otherwise provided in Section 2.05, State Taxes shall be allocated as follows:

(a) State Income Taxes Relating to Combined Returns . Parent shall be responsible for any and all State Income Taxes due with respect to, attributable to or required to be reported on any Combined Return; provided , however , that UpstreamCo shall be responsible for any such State Income Taxes that are UpstreamCo Retained Taxes.

(b) State Income Taxes Relating to Separate Returns .

(i) Parent shall be responsible for any and all State Income Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period; provided , however , that UpstreamCo shall be responsible for any such State Income Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all State Income Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period.

(c) State Other Taxes Relating to Combined Returns . Parent shall be responsible for any and all State Other Taxes due with respect to, attributable to or required to be reported on any Combined Return; provided , however , that UpstreamCo shall be responsible for any such State Other Taxes that are UpstreamCo Retained Taxes.

(d) State Other Taxes Relating to Separate Returns .

(i) Parent shall be responsible for any and all State Other Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period; provided , however , that UpstreamCo shall be responsible for any such State Other Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all State Other Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period; provided , however , that Parent shall be responsible for any such State Other Taxes that are Parent Retained Taxes.

 

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Section 2.04 Allocation of Foreign Taxes . Except as otherwise provided in Section 2.05, Foreign Taxes shall be allocated as follows:

(a) Foreign Income Taxes Relating to Combined Returns .

(i) Parent shall be responsible for any and all Foreign Income Taxes due with respect to, attributable to or required to be reported on any Combined Return (other than any Alcoa Australia Combined Return); provided , however , that UpstreamCo shall be responsible for any such Foreign Income Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all Foreign Income Taxes due with respect to, attributable to or required to be reported on any Alcoa Australia Combined Return.

(b) Foreign Income Taxes Relating to Separate Returns .

(i) Parent shall be responsible for any and all Foreign Income Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period; provided , however , that UpstreamCo shall be responsible for any such Foreign Income Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all Foreign Income Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period; provided , however , that Parent shall be responsible for any such Foreign Income Taxes that are Parent Retained Taxes.

(c) Foreign Other Taxes Relating to Combined Returns .

(i) Parent shall be responsible for any and all Foreign Other Taxes due with respect to, attributable to or required to be reported on any Combined Return; provided , however , that UpstreamCo shall be liable for any such Foreign Other Taxes that are UpstreamCo Retained Taxes.

(d) Foreign Other Taxes Relating to Separate Returns .

(i) Parent shall be responsible for any and all Foreign Other Taxes due with respect to, attributable to or required to be reported on any Parent Separate Return for any Tax Period; provided , however , that UpstreamCo shall be responsible for any such Foreign Other Taxes that are UpstreamCo Retained Taxes.

(ii) UpstreamCo shall be responsible for any and all Foreign Other Taxes due with respect to, attributable to or required to be reported on any UpstreamCo Separate Return for any Tax Period; provided , however , that Parent shall be responsible for any such Foreign Other Taxes that are Parent Retained Taxes

 

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Section 2.05 Certain Transaction Transfer and Other Taxes .

(a) Transaction Transfer Taxes . Subject to Section 2.05(b) and (c) :

(i) Parent shall be responsible for all Taxes imposed on, arising from or assessed with respect to any transfer of assets (including equity interests) and/or liabilities by the Transferor occurring pursuant to the Separation Transactions; provided that Parent shall not be responsible for any such Taxes imposed on a member of the UpstreamCo Group pursuant to a Final Determination to the extent such Taxes are not required to be paid in cash to the relevant Tax Authority as a result of the utilization by any member of the UpstreamCo Group of any Tax Attribute that existed as of immediately after the Distribution Date being available, at the time of the relevant Final Determination, to reduce (or eliminate) the cash payment obligation in respect of such Taxes. Where relevant under applicable Law, The Transferor shall issue proper invoices usable by the Recipient to recover (by way of credit, Refund, rebate or input VAT) any Transaction Transfer Taxes in jurisdictions where they are recoverable. The Transferor and the Recipient shall cooperate to minimize any Transaction Transfer Taxes and in obtaining any credit, Refund or rebate of Transaction Transfer Taxes, or to apply an exemption or zero-rating for goods or services giving rise to any Transaction Transfer Taxes, including by filing any exemption or other similar forms or providing valid tax identification numbers or other relevant registration numbers, certificates or other documents. The Recipient and the Transferor shall cooperate regarding any requests for information, audits or similar requests by any Tax Authority concerning Transaction Transfer Taxes payable with respect to the transfers occurring pursuant to the Separation Transactions.

(ii) Notwithstanding anything to the contrary herein, any penalties or interest imposed in connection with any Taxes described in Section 2.05(a)(i) shall be the responsibility of UpstreamCo if such penalties or interest are the result of an action or failure to act by any member of the UpstreamCo Group.

(b) Parent Liability . Parent shall be liable for, and shall indemnify and hold harmless the UpstreamCo Group from and against any liability for:

(i) any Tax resulting from a breach by Parent of any representation or covenant in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and

(ii) any Separation Tax Losses for which Parent is responsible pursuant to Section 7.06(b) of this Agreement.

(c) UpstreamCo Liability . UpstreamCo shall be liable for, and shall indemnify and hold harmless the Parent Group from and against any liability for:

(i) any Tax resulting from a breach by UpstreamCo of any representation or covenant in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and

 

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(ii) any Separation Tax Losses for which UpstreamCo is responsible pursuant to Section 7.06(a) of this Agreement.

(d) Employment Taxes. Notwithstanding anything contained in this Article 2 to the contrary, this Agreement shall not apply with respect to any liability or responsibility for Taxes allocated pursuant to the Employee Matters Agreement.

Article 3. Proration of Taxes for Straddle Periods

Section 3.01 General Method of Proration . In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Distribution Periods and Post-Distribution Periods in accordance with the principles of Treasury Regulations Section 1.1502-76(b) as reasonably interpreted and applied by the Companies. No election shall be made under Treasury Regulations Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year’s Tax Items). If the Distribution Date is not an Accounting Cutoff Date, the provisions of Treasury Regulations Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the Tax Items (other than extraordinary Tax Items) for the month which includes the Distribution Date.

Section 3.02 Transaction Treated as Extraordinary Item . In determining the apportionment of Tax Items between Pre-Distribution Periods and Post-Distribution Periods, any Tax Items relating to the Separation Transactions shall be treated as extraordinary items described in Treasury Regulations Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent occurring on or prior to the Distribution Date) be allocated to Pre-Distribution Periods, and any Taxes related to such items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent occurring on or prior to the Distribution Date) be allocated to Pre-Distribution Periods.

Article 4. Preparation and Filing of Tax Returns.

Section 4.01 Parent Returns . Parent shall prepare or cause to be prepared (a) all Parent Federal Consolidated Income Tax Returns, (b) all other Combined Returns other than any Alcoa Australia Combined Return, and (c) all Parent Separate Returns (each, a “ Parent Return ”). Parent shall file or cause to be filed all Parent Returns and shall pay or cause to be paid all Taxes shown to be due on any such Parent Return to the relevant Tax Authority, and UpstreamCo shall make any payments to Parent required pursuant to Section 5.01 in respect of any such Parent Return.

Section 4.02 UpstreamCo Returns . UpstreamCo shall prepare and timely file, or cause to be prepared and timely filed (in each case, taking into account extensions), (a) all Alcoa Australia Combined Returns, (b) all UpstreamCo Separate Returns and any other Tax Return required to be filed by or with respect to a member of the UpstreamCo Group other than any Tax Return which Parent is required to prepare pursuant to Section 4.01 (each, an “ UpstreamCo Return ”). UpstreamCo shall file or cause to be filed all UpstreamCo Returns and shall pay or cause to be paid all Taxes shown to be due on any such UpstreamCo Return to the relevant Tax Authority, and Parent shall make any payments to UpstreamCo required pursuant to Section 5.01 in respect of any such UpstreamCo Return.

 

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Section 4.03 Tax Reporting Practices .

(a) Except as otherwise provided in Section 4.03(b) , in the case of any Tax Return in respect of which UpstreamCo is the Responsible Company and that is a Tax Return for any Pre-Distribution Period or any Straddle Period, such Tax Return shall be prepared in accordance with past practices, accounting methods, elections and conventions (“ Past Practices ”) used with respect to the Tax Returns in question, and, to the extent there is no Past Practice with respect to such item, in accordance with reasonable Tax accounting or other practices selected by UpstreamCo and reasonably acceptable to Parent.

(b) Except to the extent otherwise required by applicable Law or as a result of a Final Determination, (A) neither Parent nor UpstreamCo shall, and shall not permit or cause any member of its respective Group to, take any position that is inconsistent with the tax treatment of any of the Separation Transactions as having the treatment described in the Tax Opinions/Rulings (or, if not so described in the Tax Opinion/Rulings, in the Separation Step Plan); provided that in any case or with respect to any item where there is no relevant Tax Opinion/Ruling or description in the Separation Step Plan, the tax treatment of any of the Separation Transactions shall be as determined by Parent in its good faith judgment, and (B) UpstreamCo shall not, and shall not permit or cause any member of the UpstreamCo Group to, take any position with respect to an item of income, deduction, gain, loss or credit on a Tax Return, or otherwise treat such item in a manner which is inconsistent with the manner such item is reported on a Tax Return required to be prepared and filed by Parent pursuant to Section 4.01 hereof (including, without limitation, the claiming of a deduction previously claimed on any such Tax Return), except with the prior written consent of Parent.

Section 4.04 Consolidated or Combined Tax Returns .

(a) Parent Combined Returns . Except to the extent otherwise required pursuant to clause (A) of Section 4.03(b) and except in respect of any Alcoa Australia Combined Return or any matters relating thereto, Parent shall determine in its sole discretion whether to file a Tax Return for any Tax Period as a Combined Return and the entities to be included in any Combined Return, and Parent shall (and shall be entitled to) make or revoke any Tax elections, adopt or change any Tax accounting methods, and determine any other position taken on or in respect of any Combined Return (other than any Alcoa Australia Combined Return); provided that any Combined Return prepared and filed by Parent pursuant to this Agreement shall, to the extent relating to UpstreamCo or the UpstreamCo Group, be prepared in good faith. UpstreamCo will elect and join (and take any other action necessary to give effect to such election), and will cause its respective Affiliates to elect and join (and take any other action necessary to give effect to such election), in filing any Combined Returns (including any Parent Federal Consolidated Income Tax Returns) that Parent determines are required to be filed (or that Parent chooses to file) by the Companies or any of their Affiliates for Tax Periods ending on, before or after the Distribution Date in accordance with this Section 4.04(a) (for the avoidance of doubt, this sentence shall not apply to any Alcoa Australia Combined Return or any matters relating thereto).

(b) Alcoa Australia Combined Returns . Except to the extent otherwise required pursuant to Section 4.03 , UpstreamCo shall determine in its sole discretion whether to file the Alcoa Australia Combined Return as a Combined Return and the entities to be included in any

 

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Alcoa Australia Combined Return. Subject to Section 4.03 , Parent will elect and join (and take any other action necessary to give effect to such election), and will cause its respective Affiliates to elect and join (and take any other action necessary to give effect to such election), in filing any Alcoa Australia Combined Return.

Section 4.05 Right to Review Tax Returns .

(a) General . The Responsible Company with respect to any material Tax Return shall make such Tax Return (or the relevant portions thereof), related workpapers and other supporting documents available for review by the other Company, to the extent (i) such Tax Return relates to Taxes for which such other Company is or would reasonably be expected to be liable, (ii) such other Company is or would reasonably be expected to be liable, in whole or in part, for any additional Taxes owing as a result of adjustments to the amount of Taxes reported on such Tax Return, (iii) such Tax Return relates to Taxes for which the other party would reasonably be expected to have a claim for Tax Benefits under this Agreement, or (iv) reasonably necessary for the other party to confirm compliance with the terms of this Agreement. The Responsible Company shall (i) consult with the other Company with respect to the preparation of, and positions taken on, such Tax Return (to the extent relating to any matters described in clauses (i) through (iii) of the immediately preceding sentence), (ii) use reasonable efforts to make such Tax Return (or the relevant portions thereof), workpapers and other supporting documents available for review as required under this paragraph promptly once such Tax Return is materially complete, such that the other party has an opportunity to review and comment on such Tax Return prior to the filing thereof, and (iii) shall consider in good faith any comments provided by the other Company on such Tax Return reasonably in advance of the due date for filing such Tax Return (taking into account extensions). Parent and UpstreamCo shall attempt in good faith to resolve any disagreement arising out of the review of any Tax Return pursuant to this Section 4.05(a) . For the avoidance of doubt, any dispute among the Companies with respect to a Company’s compliance with the requirements of this Section 4.05(a) shall be resolved in accordance with the disagreement resolution provisions of Article 14 as promptly as practicable.

(b) Disputes . In the event the Companies have not resolved any disputed item or items with respect to a Tax Return described in Section 4.05(a) by the Due Date for such Tax Return, such Tax Return shall be filed as prepared by the Responsible Company (as revised to reflect all initially disputed items that the Companies have agreed upon prior to such date). Following such filing, such disputed items (or items) shall be resolved in accordance with Article 14 . In the event that the resolution of such disputed item (or items) in accordance with Article 14 with respect to a Tax Return is inconsistent with such Tax Return as filed, the Responsible Company (with cooperation from the other Company) shall, as promptly as practicable, amend such Tax Return to properly reflect the final resolution of the disputed item (or items). In the event that the amount of Taxes shown to be due and owing on a Tax Return is adjusted as a result of a resolution pursuant to Article 14 proper adjustment shall be made to the amounts previously paid or required to be paid in accordance with Article 5 in a manner that reflects such resolution.

(c) Executing Returns . In the case of any Tax Return which is required to be prepared and filed by one Company under this Agreement and which is required by Law to be signed by the other Company (or by its authorized representative), the Company which is legally required to sign such Tax Return shall not be required to sign such Tax Return under this

 

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Agreement unless there is at least a greater than 50% likelihood of prevailing on the merits for the Tax treatment of each material item reported on the Tax Return. For the avoidance of doubt, any dispute among the Companies with respect to the likelihood of any Tax treatment prevailing on the merits shall be resolved in accordance with the disagreement resolution provisions of Article 14 as promptly as practicable.

Section 4.06 Adjustment Requests and UpstreamCo Carryback Items . Unless Parent otherwise consents in writing, UpstreamCo shall (and shall cause each member of the UpstreamCo Group to) (i) not file any Adjustment Request with respect to any Combined Return (or any other Tax Return reflecting Taxes for which Parent is responsible under Article 2 ), (ii) make any available election to relinquish, waive or otherwise forgo a carryback of any UpstreamCo Carryback Item arising in a Post-Distribution Period to any Combined Return, and (iii) not make any affirmative election to claim any such Upstream Carryback Item. Unless UpstreamCo otherwise consents in writing, Parent shall not (and shall cause each member of the Parent Group not to) file any Adjustment Request with respect to any Alcoa Australia Combined Return.

Section 4.07 Apportionment of Earnings and Profits and Tax Attributes .

(a) If the Parent Affiliated Group has a Tax Attribute, the portion, if any, of such Tax Attribute required to be apportioned to UpstreamCo or the members of the UpstreamCo Group and treated as a carryover to the first Post-Distribution Period of UpstreamCo (or such member) shall be determined in good faith by Parent in accordance with Treasury Regulations Sections 1.1502-21, 1.1502-21T, 1.1502-22, 1.1502-79 and, if applicable, 1.1502-79A.

(b) No Tax Attribute with respect to consolidated Federal Income Tax of the Parent Affiliated Group, other than those Tax Attributes described in Section 4.07(a) , and no Tax Attribute with respect to consolidated, combined or unitary state, local or foreign Income Tax, in each case, arising in respect of a Combined Return (other than an Alcoa Australia Combined Return) shall be apportioned to UpstreamCo or any member of the UpstreamCo Group, except as Parent (or such member of the Parent Group as Parent shall designate) determines in good faith is otherwise required under applicable Law. No Tax Attribute with respect to any Alcoa Australia Combined Return shall be apportioned to Parent or any member of the Parent Group, except as UpstreamCo (or such member of the UpstreamCo Group shall designate) determines in good faith is otherwise required under applicable Law.

(c) Except for any Tax Attribute with respect to any Alcoa Australia Combined Return, Parent (or its designee) shall determine the portion, if any, of any Tax Attribute which must (absent a Final Determination to the contrary) be apportioned to UpstreamCo or any member of the UpstreamCo Group in accordance with this Section 4.07 and applicable Law and the amount of tax basis and earnings and profits to be apportioned to UpstreamCo or any member of the UpstreamCo Group in accordance with applicable Law, and shall provide written notice of the calculation thereof to UpstreamCo as soon as reasonably practicable after the information necessary to make such calculation becomes available to Parent. Solely to the extent relating to any Alcoa Australia Combined Return, UpstreamCo (or its designee) shall determine the portion, if any, of any Tax Attribute which must (absent a Final Determination to the contrary) be apportioned to Parent or any member of the Parent Group in accordance with this Section 4.07 and applicable Law and the amount of tax basis and earnings and profits to be

 

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apportioned to Parent or any member of the Parent Group in accordance with applicable Law, and shall provide written notice of the calculation thereof to Parent as soon as reasonably practicable after the information necessary to make such calculation becomes available to UpstreamCo. For the avoidance of doubt, neither Parent nor UpstreamCo shall be liable to the other Company (or any member of its Group) for any failure of any determination under this Section 4.07 to be accurate under applicable Law.

(d) The written notices delivered by Parent and UpstreamCo pursuant to Section 4.07(c) shall be binding on the other Company, and each member of its Group and shall not be subject to dispute resolution. Except to the extent otherwise required by applicable Law or pursuant to a Final Determination, neither Parent nor UpstreamCo shall (and each shall cause its Affiliates not to) take any position (whether on a Tax Return or otherwise) that is inconsistent with the information contained in such written notices.

Article 5. Payments.

Section 5.01 Payment of Taxes . In the case of any Tax Return reflecting Taxes for which the Company that is not the Responsible Company is responsible under Article 2 , the Responsible Company shall pay any Taxes required to be paid to the applicable Tax Authority on or before the relevant Payment Date (and provide notice and proof of payment to the other Company). The Responsible Company shall compute the amount of such Taxes allocable to the other Company under the provisions of Article 2 and shall provide written notice and demand for payment of such amount, accompanied by a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto, to the other Company. The other Company shall pay to the Responsible Company the amount of such Taxes allocable to the other Company under the provisions of Article 2 within twenty (20) Business Days of the date of receipt of such written notice and demand; provided that no such payment shall be required to be made earlier than five (5) Business Days prior to the relevant Payment Date.

Section 5.02 Adjustments Resulting in Underpayments . In the case of any adjustment pursuant to a Final Determination with respect to any Tax Return, the Responsible Company shall pay to the applicable Tax Authority when due any additional Taxes due with respect to such Tax Return required to be paid as a result of such adjustment. The Responsible Company shall compute the amount of such Taxes allocable to the other Company under the provisions of Article 2 and shall provide written notice and demand for payment of such amount, accompanied by a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto, to the other Company. The other Company shall pay to the Responsible Company the amount of such Taxes allocable to the other Company under the provisions of Article 2 within twenty (20) Business Days of the date of receipt of such written notice and demand; provided that no such payment shall be required to be made earlier than five (5) Business Days prior to the date the additional Tax is required to be paid to the applicable Tax Authority.

Section 5.03 Indemnification Payments . Unless otherwise specified in this Agreement, all indemnification payments required to be made under this Agreement shall be made within twenty (20) Business Days of the date of receipt by the indemnifying party of written notice from the indemnified party of the amount owed, together with reasonable documentation showing the basis for the calculation of such amount and evidence of payment of such amounts by the indemnified party to the relevant Tax Authority or other recipient.

 

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Section 5.04 Payors; Payees; Treatment . All payments made under this Agreement shall be made by Parent directly to UpstreamCo and by UpstreamCo directly to Parent; provided , however , that if the Companies mutually agree with respect to any such payment, any member of the Parent Group, on the one hand, may make such indemnification payment to any member of the UpstreamCo Group, on the other hand, and vice versa (for the avoidance of doubt, if a Company makes a request to the other Company to the effect that any payment required to be made by it to the other Company or received by it from the other Company, in each case, pursuant to this Agreement, be made or received by a member of the relevant Company’s Group other than a Company, the other Company’s consent to such request shall not be unreasonably withheld, conditioned or delayed). All payments made pursuant to this Agreement shall be treated in the manner described in Article 13 .

Article 6. Tax Benefits.

Section 6.01 Tax Benefits .

(a) Except as set forth below, (i) Parent shall be entitled to any Refund (and any interest thereon received from the applicable Tax Authority) of any Taxes (A) for which Parent is liable hereunder (other than any such Refund that is an UpstreamCo Retained Tax Benefit), or (B) that is a Parent Retained Tax Benefit and (ii) UpstreamCo shall be entitled to any Refund (and any interest thereon received from the applicable Tax Authority) (A) of any Taxes for which UpstreamCo is liable hereunder (other than any Refund to which Parent is entitled pursuant to clause (i) above) or (B) that is an UpstreamCo Retained Tax Benefit. The Company receiving a Refund to which another Company is entitled hereunder, in whole or in part, shall pay over the amount of such Refund (or portion thereof) (and any interest on such amount received from the applicable Tax Authority but net of any costs and expenses (including Taxes) incurred by the Company (or a member of its Group) receiving such Refund in connection with obtaining or securing such Refund) to such other Company within twenty (20) Business Days after the receipt of such Refund or application of such Refund against Taxes otherwise payable. To the extent that any Refund (or portion thereof) in respect of which any amounts were paid over pursuant to the immediately preceding sentence is subsequently disallowed by the applicable Tax Authority, the Company that received such amounts shall promptly repay such amounts (together with any penalties, interest or other charges imposed by the relevant Tax Authority) to the other Company.

(b) If (i) a member of the UpstreamCo Group Actually Realizes any Tax Benefit (A) as a result of an adjustment pursuant to a Final Determination that increases Taxes for which a member of the Parent Group is liable hereunder or otherwise, (B) as a result of any liability, obligation, loss or payment (each, a “ Loss ”) for which a member of the Parent Group is required to indemnify any member of the UpstreamCo Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement (in each case, without duplication of any amounts payable or taken into account under this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement), (C) that is a Parent Retained Tax Benefit (other than a Refund) or (D) as a result of any Section 336(e) Election (including, for the avoidance of doubt, any Tax Benefit Actually Realized by any member of the UpstreamCo Group as a result of any step-up in asset basis for U.S. federal income tax purposes resulting from such Section 336(e) Election, except to the extent any such Tax Benefit is directly attributable to Taxes imposed on any member of the Parent Group as a result of such

 

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Section 336(e) Election and for which a member of the UpstreamCo Group has actually indemnified Parent pursuant to this Agreement), or (ii) a member of the Parent Group Actually Realizes any Tax Benefit (A) as a result of an adjustment pursuant to a Final Determination that increases Taxes for which a member of the UpstreamCo Group is liable hereunder (other than any Taxes described in clause (ii) of the definition of “UpstreamCo Retained Taxes” (relating to certain Competent Authority adjustments)) or otherwise, (B) as a result of any Loss for which a member of the UpstreamCo Group is required to indemnify any member of the Parent Group pursuant to this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement (in each case, without duplication of any amounts payable or taken into account under this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement), or (C) that is an UpstreamCo Retained Tax Benefit (in each case, other than a Refund), UpstreamCo or Parent, as the case may be, shall make a payment to the other Company in an amount equal to the amount of such Actually Realized Tax Benefit in cash within twenty (20) Business Days of Actually Realizing such Tax Benefit. To the extent that any Tax Benefit (or portion thereof) in respect of which any amounts were paid over pursuant to the foregoing provisions of this Section 6.01(b) is subsequently disallowed by the applicable Tax Authority, the Company that received such amounts shall promptly repay such amounts (together with any penalties, interest or other charges imposed by the relevant Tax Authority) to the other Company.

(c) No later than twenty (20) Business Days after a Tax Benefit described in Section 6.01(b) is Actually Realized by a member of the Parent Group or a member of the UpstreamCo Group, Parent or UpstreamCo, as the case may be, shall provide the other Company with a written calculation of the amount payable to such other Company pursuant to Section 6.01(b) . In the event that Parent or UpstreamCo, as the case may be, disagrees with any such calculation described in this Section 6.01(c) , Parent or UpstreamCo shall so notify the other Company in writing within twenty (20) Business Days of receiving such written calculation. Parent and UpstreamCo shall endeavor in good faith to resolve such disagreement, and, failing that, the amount payable under this Article 6 shall be determined in accordance with the disagreement resolution provisions of Article 14 as promptly as practicable.

(d) UpstreamCo shall be entitled to any Refund that is attributable to, and would not have arisen but for, an UpstreamCo Carryback Item that is required to be carried back to a Pre-Distribution Period under applicable Law and is carried back pursuant to and in accordance with Section 4.06 (a “ Permitted UpstreamCo Carryback ”); provided , however , that UpstreamCo shall indemnify and hold the members of the Parent Group harmless from and against any and all related costs and expenses and any collateral Tax consequences resulting from or caused by any such Permitted UpstreamCo Carryback, including (but not limited to) the loss or postponement of any benefit from the use of any Tax Attribute of any member of the Parent Group (each, a “ Parent Group Tax Attribute ”) if (x) such Parent Group Tax Attribute expires unutilized, but would have been utilized but for such Permitted UpstreamCo Carryback, or (y) the use of such Parent Group Tax Attribute is postponed to a later Tax Period than the Tax Period in which such Parent Group Tax Attribute would have been utilized but for such Permitted UpstreamCo Carryback. Any such payment of the amount of such Refund made by Parent to UpstreamCo pursuant to this Section 6.01(d) shall be recalculated in light of any Final Determination (or any other facts that may arise or come to light after such payment is made, such as a carryback of a Parent Group Tax Attribute to a Tax Period in respect of which such Refund is received) that would affect the amount to which UpstreamCo is entitled, and an appropriate adjusting payment

 

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shall be made by UpstreamCo to Parent such that the aggregate amount paid pursuant to this Section 6.01(d) equals such recalculated amount. To the extent that any Refund (or portion thereof) in respect of which any amounts were paid over by Parent to UpstreamCo pursuant to the foregoing provisions of this Section 6.01(d) is subsequently disallowed by the applicable Tax Authority, UpstreamCo shall promptly repay such amounts (together with any penalties, interest or other charges imposed by the relevant Tax Authority) to ParentCo.

Section 6.02 Parent and UpstreamCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation .

(a) To the extent permitted by applicable Law, any and all Income Tax deductions arising (i) by reason of exercises of options to acquire Parent or UpstreamCo stock, vesting of “restricted” Parent stock or UpstreamCo stock, or settlement of stock appreciation rights, restricted stock awards, restricted stock units or performance share units, or exercises, vesting or settlement of any other compensatory equity or equity-based award, in each case, following the Distribution, with respect to Parent stock or UpstreamCo stock (such options, stock appreciation rights, restricted stock, restricted stock units, performance share units, deferred stock units, and other compensatory equity or equity-based awards, collectively, “ Compensatory Equity Interests ”) held by any Person shall be claimed (A) in the case of a Parent Group Employee, Former Parent Group Employee, Parent Nonemployee Director or Former Nonemployee Director, solely by the Parent Group, and (B) in the case of an UpstreamCo Group Employee, Former UpstreamCo Group Employee or Transferred Director, solely by the UpstreamCo Group and (ii) by reason of any other compensation or employee benefit payment shall be claimed (A) in the case of a Parent Group Employee, Former Parent Group Employee, Parent Nonemployee Director or Former Nonemployee Director (a “ Parent Comp Deduction ”), solely by the Parent Group and (B) in the case of an UpstreamCo Group Employee, Former UpstreamCo Group Employee or Transferred Director (an “ UpstreamCo Comp Deduction ”), solely by the UpstreamCo Group. To the extent that any Parent Comp Deduction may not be claimed under applicable Law by a member of the Parent Group but may be claimed under applicable Law by a member of the UpstreamCo Group, UpstreamCo shall (or shall cause the relevant member of the UpstreamCo Group) to claim such deduction. To the extent that any UpstreamCo Comp Deduction may not be claimed under applicable Law by a member of the UpstreamCo Group but may be claimed under applicable Law by a member of the Parent Group, Parent shall (or shall cause the relevant member of the Parent Group) to claim such deduction.

(b) Tax reporting and withholding with respect to Compensatory Equity Interests shall be governed by Section 4.02(h) of the Employee Matters Agreement. To the extent that any payroll, unemployment, contribution, social security or similar Taxes are not covered by the Employee Matters Agreement, (i) Parent shall be responsible for any such Taxes attributable to a Parent Group Employee, a Former Parent Group Employee, a Parent Nonemployee Director or a Former Nonemployee Director (and such Taxes shall be treated as Traceable Taxes that are clearly and directly traceable to one or more members of the Parent Group for all purposes of this Agreement) and (ii) UpstreamCo shall be responsible for any such Taxes attributable to an UpstreamCo Group Employee, a Former UpstreamCo Group Employee or Transferred Director (and such Taxes shall be treated as Traceable Taxes that are clearly and directly traceable to one or more members of the UpstreamCo Group for all purposes of this Agreement).

 

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Article 7. Tax-Free Status.

Section 7.01 Representations of and Restrictions on UpstreamCo .

(a) Each of Parent and UpstreamCo hereby represents and warrants that (A) it has examined the Ruling Request, the Representation Letters and the Tax Opinions/Rulings (including, without limitation, the representations to the extent that they relate to the plans, proposals, intentions and policies of it, its Subsidiaries, its business or its Group), and (B) to the extent in reference to it, its Subsidiaries, its business or its Group, the facts presented and the representations made therein are true, correct and complete.

(b) UpstreamCo hereby represents and warrants that (A) it has no plan or intention of taking any action, or failing to take any action (or causing or permitting any member of the UpstreamCo Group to take or fail to take any action) or knows of any circumstance, that could reasonably be expected to (i) adversely affect, jeopardize or prevent the Tax-Free Status of the Contribution and the Distribution (and the Debt-for-Equity Exchange, if any), (ii) adversely affect, jeopardize or prevent any Separation Transaction from having the tax treatment described in the Tax Opinions/Rulings (or, if not so described in the Tax Opinions/Rulings, in the Separation Step Plan) or to qualify under any Tax Law as wholly or partially tax-free or tax-deferred to the extent that tax-free or tax-deferred treatment was intended or (iii) cause any representation or factual statement made in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, the Ruling Request, the Representation Letters or the Tax Opinions/Rulings to be untrue, and (B) during the period beginning two years before the Distribution Date and ending on the Distribution Date, there was no “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the UpstreamCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding an acquisition of all or a significant portion of the UpstreamCo Capital Stock (and any predecessor); provided that no representation or warranty is made by UpstreamCo regarding any “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h) by any one or more officers or directors of Parent.

Section 7.02 Restrictions on UpstreamCo.

(a) UpstreamCo shall not take or fail to take, or cause or permit any Affiliate of UpstreamCo to take or fail to take, any action if such action or failure to act would be inconsistent with or cause to be untrue any statement, information, covenant or representation in any Ruling Request, Representation Letters or Tax Opinions/Rulings. UpstreamCo shall not take or fail to take, or cause or permit any Affiliate of UpstreamCo to take or fail to take, any action if such action or failure to act would or reasonably could be expected to adversely affect, jeopardize or prevent (A) the Tax-Free Status of the Contribution, the Distribution and the Debt-for-Equity Exchange, if any, or (B) any Separation Transaction from having the tax treatment described in the Tax Opinions/Rulings (or, if not so described in the Tax Opinions/Rulings, in the Separation Step Plan) or to qualify under any Tax Law as wholly or partially tax-free or tax-deferred to the extent that tax-free or tax-deferred treatment was intended.

 

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(b) From the date hereof until the first Business Day after the Restriction Period, UpstreamCo shall (i) maintain its status as a company engaged in the UpstreamCo Active Trade or Business and (ii) not engage in any transaction that would or reasonably could result in it ceasing to be a company engaged in the UpstreamCo Active Trade or Business for purpose of Section 355(b)(2) of the Code.

(c) From the date hereof until the first Business Day after the Restriction Period, UpstreamCo shall not:

(i) enter into or permit to occur any Proposed Acquisition Transaction, or, to the extent UpstreamCo has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Transaction to occur;

(ii) merge or consolidate with any other Person or liquidate or partially liquidate, provided that this Section 7.02(c)(ii) shall not apply to mergers, consolidations, liquidations, or partial liquidations effected exclusively between or among Affiliates of UpstreamCo in existence as of the date of this Agreement and which do not result in UpstreamCo (or any successor) ceasing to exist as a corporation for U.S. federal income tax purposes;

(iii) in a single transaction or series of transactions sell or transfer [•]% or more of the gross assets of any Active Trade or Business or [    ]% or more of the consolidated gross assets of UpstreamCo and its Affiliates (such percentages to be measured based on fair market value as of the Distribution Date);

(iv) redeem or otherwise repurchase (directly or through an Affiliate of UpstreamCo) any UpstreamCo stock, or rights to acquire stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by Revenue Procedure 2003-48);

(v) amend its certificate of incorporation (or other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of UpstreamCo Capital Stock (including, without limitation, through the conversion of one class of UpstreamCo Capital Stock into another class of UpstreamCo Capital Stock); or

(vi) take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation made in the Ruling Request, the Representation Letters or the Tax Opinions/Rulings) which in the aggregate (and taking into account any other transactions described in this subparagraph (c)) would or reasonably could have the effect of causing or permitting one or more persons (whether or not acting in concert) to acquire, directly or indirectly, stock representing a Fifty-Percent or Greater Interest in UpstreamCo (or any successor) or otherwise jeopardize the Tax-Free Status of the Contribution, the Distribution, the Debt-for-Equity Exchange, if any,

 

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in each case, unless prior to taking any such action set forth in the foregoing clauses (i) through (vi), (A) UpstreamCo shall have requested that Parent obtain a private letter ruling (including a supplemental ruling, if applicable) from the IRS (a “ Post-Distribution Ruling ”) in accordance with Section 7.05(b) and (d)  of this Agreement to the effect that such transaction will not affect the Tax-Free Status, and Parent shall have received such a Post-Distribution Ruling in form and substance satisfactory to Parent in its sole and absolute discretion, or (B) UpstreamCo shall have provided Parent with an Unqualified Tax Opinion in form and substance satisfactory to Parent in its sole and absolute discretion ( provided that Parent shall use reasonable efforts to timely make a determination as to whether an opinion is satisfactory to Parent, and provided , further , that in determining whether an opinion is satisfactory, Parent may consider, among other factors, the appropriateness of any underlying assumptions, and any management representations used as a basis for the Unqualified Tax Opinion and Parent may determine that no opinion would be acceptable to Parent) or (C) Parent shall have waived (which waiver may be withheld by Parent in its sole and absolute discretion) the requirement to obtain such Post-Distribution Ruling or Unqualified Tax Opinion.

Section 7.03 Certain Issuances of UpstreamCo Capital Stock . If UpstreamCo proposes to enter into any Section 7.03 Acquisition Transaction or, to the extent UpstreamCo has the right to prohibit any Section 7.03 Acquisition Transaction, proposes to permit any Section 7.03 Acquisition Transaction to occur, in each case, during the period from the date hereof until the first Business Day after the Restriction Period, UpstreamCo shall provide Parent, no later than ten (10) days following the signing of any written agreement with respect to the Section 7.03 Acquisition Transaction, with a written description of such transaction (including the type and amount of UpstreamCo Capital Stock to be issued in such transaction) and a certificate of the Chief Financial Officer of UpstreamCo to the effect that the Section 7.03 Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 7.02(c) apply (a “ CFO Certificate ”).

Section 7.04 Restrictions on Parent . Parent agrees that it shall not take or fail to take, or cause or permit any Affiliate of Parent to take or fail to take, any action if such action or failure to act would or reasonably could be inconsistent with or cause to be untrue any statement, information, covenant or representation in the Ruling Request, any Representation Letters or Tax Opinions/Rulings. Parent shall not take or fail to take, or cause or permit any Affiliate of Parent to take or fail to take, any action that would or reasonably could be expected to adversely affect, jeopardize or prevent (A) the Tax-Free Status of the Contribution, the Distribution and the Debt-for-Equity Exchange, if any, or (B) any Separation Transaction from having the tax treatment described in the Tax Opinion/Rulings (or, if not so described in the Tax Opinions/Rulings, in the Separation Step Plan) or to qualify under any Tax Law as wholly or partially tax-free or tax-deferred to the extent that tax-free or tax-deferred treatment was intended.

Section 7.05 Procedures Regarding Post-Distribution Rulings and Unqualified Tax Opinions .

(a) If UpstreamCo determines that it desires to take one of the actions described in clauses (i) through (vi) of Section 7.02(c) (a “ Notified Action ”), UpstreamCo shall notify Parent of this fact in writing.

 

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(b) Post-Distribution Rulings or Unqualified Tax Opinions at UpstreamCo’s Request . Unless Parent shall have waived the requirement to obtain such Post-Distribution Ruling or Unqualified Tax Opinion, upon the reasonable request of UpstreamCo pursuant to Section 7.02(c) , Parent shall cooperate with UpstreamCo and use commercially reasonable efforts to seek to obtain, as expeditiously as possible, a Post-Distribution Ruling from the IRS (and/or any other applicable Tax Authority) or an Unqualified Tax Opinion for the purpose of permitting UpstreamCo to take the Notified Action. Notwithstanding the foregoing, Parent shall not be required to file or cooperate in the filing of any request for a Post-Distribution Ruling under this Section 7.05(b) unless UpstreamCo represents that (A) it has reviewed such request for a Post-Distribution Ruling, and (B) all statements, information and representations relating to any member of the Upstream Group contained in such request for a Post-Distribution Ruling are (subject to any qualifications therein) true, correct and complete. UpstreamCo shall reimburse Parent for all reasonable costs and expenses, including out-of-pocket expenses and expenses relating to the utilization of Parent personnel, incurred by the Parent Group in obtaining a Post-Distribution Ruling or Unqualified Tax Opinion requested by UpstreamCo within ten (10) Business Days after receiving an invoice from Parent therefor.

(c) Post-Distribution Rulings or Unqualified Tax Opinions at Parent’s Request . Parent shall have the right to obtain a Post-Distribution Ruling or an Unqualified Tax Opinion at any time in its sole and absolute discretion. If Parent determines to obtain a Post-Distribution Ruling or an Unqualified Tax Opinion, UpstreamCo shall (and shall cause each Affiliate of UpstreamCo to) cooperate with Parent and take any and all actions reasonably requested by Parent in connection with obtaining the Post-Distribution Ruling or Unqualified Tax Opinion (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS, any other applicable Tax Authority or a Tax Advisor; provided that UpstreamCo shall not be required to make (or cause any Affiliate of UpstreamCo to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which matters or events it has no control). Parent shall reimburse UpstreamCo for all reasonable costs and expenses, including out-of-pocket expenses and expenses relating to the utilization of UpstreamCo personnel, incurred by the Parent Group in connection with such cooperation within ten (10) Business Days after receiving an invoice from UpstreamCo therefor.

(d) Parent shall have sole and exclusive control over the process of obtaining any Post-Distribution Ruling, and only Parent shall be permitted to apply for a Post-Distribution Ruling. In connection with obtaining a Post-Distribution Ruling, Parent shall (A) keep UpstreamCo informed in a timely manner of all material actions taken or proposed to be taken by Parent in connection therewith; (B) (1) reasonably in advance of the submission of any request for any Post-Distribution Ruling provide UpstreamCo with a draft copy thereof; (2) reasonably consider UpstreamCo’s comments on such draft copy; and (3) provide UpstreamCo with a final copy; and (C) provide UpstreamCo with notice reasonably in advance of, and UpstreamCo shall have the right to attend, any formally scheduled meetings with the IRS or other applicable Tax Authority (subject to the approval of the IRS or such Tax Authority) that relate to such Post-Distribution Ruling. Neither UpstreamCo nor any Affiliate of UpstreamCo directly or indirectly controlled by UpstreamCo shall seek any guidance from the IRS or any other Tax Authority (whether written, oral or otherwise) at any time concerning the Separation Transactions (including the impact of any transaction on the Separation Transactions).

 

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Section 7.06 Liability for Separation Tax Losses .

(a) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary (and in each case regardless of whether a Post-Distribution Ruling, Unqualified Tax Opinion or waiver described in clause (C) of Section 7.02(c) may have been provided), subject to Section 7.06(c) , UpstreamCo shall be responsible for, and shall indemnify, defend, and hold harmless Parent and its Affiliates from and against, any Separation Tax Losses that are attributable to or result from any one or more of the following: (A) the acquisition (other than pursuant to the Contribution, the Distribution, or any of the other Separation Transactions) of all or a portion of UpstreamCo’s and/or its Affiliates’ stock and/or assets by any means whatsoever by any Person, (B) any negotiations, understandings, agreements or arrangements by UpstreamCo or any of its Affiliates with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly a Fifty-Percent or Greater Interest in UpstreamCo (or any successor thereof), (C) any action or failure to act by UpstreamCo after the Distribution (including, without limitation, any amendment to UpstreamCo’s certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of UpstreamCo stock (including, without limitation, through the conversion of one class of UpstreamCo Capital Stock into another class of UpstreamCo Capital Stock), (D) any act or failure to act by UpstreamCo or any Affiliate of UpstreamCo described in Section 7.02 or Section 7.03 (regardless whether such act or failure to act may be covered by a Post-Distribution Ruling, Unqualified Tax Opinion or waiver described in clause (C) of Section 7.02(c) or a CFO Certificate) or (E) any breach by UpstreamCo of any of its agreements or representations set forth in Section 7.01 .

(b) Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.06(c) , Parent shall be responsible for, and shall indemnify, defend, and hold harmless UpstreamCo and its Affiliates from and against, any Separation Tax Losses that are attributable to, or result from any one or more of the following: (A) the acquisition of all or a portion of Parent’s and/or its Affiliates’ stock and/or its assets by any means whatsoever by any Person, (B) any negotiations, agreements or arrangements by Parent with respect to transactions or events (including, without limitation, stock issuances, pursuant to the exercise of stock options or otherwise, option grants, capital contributions or acquisitions, or a series of such transactions or events) that cause any of the Distribution to be treated as part of a plan pursuant to which one or more Persons acquire directly or indirectly stock of Parent (or any successor thereof) representing a Fifty-Percent or Greater Interest therein, or (C) any act or failure to act by Parent or a member of the Parent Group described in Section 7.04 or any breach by Parent of any of its agreements or representations set forth in Section 7.01(a) .

(c) To the extent that any Separation Tax Loss reasonably could be subject to indemnity under either or both Sections 7.06(a) and (b) , responsibility for such Separation Tax Loss shall be shared by Parent and UpstreamCo according to relative fault as determined by Parent in good faith.

 

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Section 7.07 Payment of Separation Taxes.

(a) Calculation of Separation Taxes Owed . Parent shall calculate in good faith the amount of any Separation Tax Losses for which UpstreamCo is responsible under Section 7.06 . Such calculation shall be binding on UpstreamCo absent manifest error.

(b) Notification of Separation Taxes Owed . At least fifteen (15) Business Days prior to the date of payment of any Separation Tax Losses, Parent shall notify UpstreamCo of the amount of any Separation Tax Losses for which UpstreamCo is responsible under Section 7.06 . In connection with such notification, Parent shall make available to UpstreamCo the portion of any Tax Return or other documentation and related workpapers that are relevant to the determination of the Separation Tax Losses attributable to UpstreamCo pursuant to Section 7.06 .

(c) Payment of Separation Taxes Owed .

(i) At least ten (10) Business Days prior to the date of payment of any Separation Tax Losses with respect to which New UpstreamCo has received notification pursuant to Section 7.07(b) , UpstreamCo shall pay to Parent the amount attributable to the UpstreamCo Group as calculated by Parent pursuant to Section 7.07(a) . If Parent determines that it does not have a reasonable basis to file a Tax Return in a manner consistent with the Tax Opinions/Rulings, UpstreamCo shall pay the amount of Separation Tax Losses for which it is responsible, as determined by Parent pursuant to Section 7.07(a) and reported to UpstreamCo pursuant to Section 7.07(b) , at least ten (10) Business Days before such Tax Return is due (taking into account extensions).

(ii) With respect to all other Separation Tax Losses, UpstreamCo shall pay to Parent the amount attributable to the UpstreamCo Group as calculated by Parent pursuant to Section 7.07(a) within five (5) Business Days of the receipt by UpstreamCo of notification of the amount due.

Section 7.08 Section 336(e) Election . If Parent determines, in its sole discretion, that a protective election under Section 336(e) of the Code (a “ Section 336(e) Election ”) shall be made with respect to the Distribution, UpstreamCo shall (and shall cause its relevant Affiliates to) join with Parent (or its relevant Affiliate) in the making of such election and shall take any action reasonably requested by Parent or that is otherwise necessary to effect such election. If a Section 336(e) Election is made, then this Agreement shall be amended in such a manner, if any, as is determined by Parent in good faith to take into account such Section 336(e) Election.

Article 8. Assistance and Cooperation.

Section 8.01 Assistance and Cooperation .

(a) The Companies shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other’s agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies, including (i) preparing and filing Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any Refund or any Tax Benefit, in each case, pursuant to this Agreement or otherwise, (iii) examinations of Tax Returns, and (iv) any administrative or

 

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judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making available, upon reasonable notice, all information and documents in their possession relating to the other Company and its Affiliates as provided in Article 9 . Each of the Companies shall also make available to the other, as reasonably requested and available, personnel (including employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceeding relating to Taxes.

(b) Any information or documents provided under this Article 8 or Article 9 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. Notwithstanding any other provision in this Agreement to the contrary, (i) neither Parent nor any of its Affiliates shall be required to provide UpstreamCo or any of its Affiliates or any other Person access to or copies of any information, documents or procedures (including the proceedings of any Tax Contest) other than information, documents or procedures that relate to UpstreamCo or any other member of the UpstreamCo Group, the business or assets of UpstreamCo or any other member of the UpstreamCo Group and (ii) in no event shall either of the Companies or any of its respective Affiliates be required to provide the other Company or any of its respective Affiliates or any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any Privilege. In addition, in the event that either Company determines that the provision of any information to the other Company or its Affiliates could be commercially detrimental, violate any Law or agreement or waive any Privilege, the parties shall use reasonable best efforts to permit compliance with its obligations under this Article 8 or Article 9 in a manner that avoids any such harm or consequence.

Section 8.02 Tax Return Information . UpstreamCo and Parent acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by Parent or UpstreamCo pursuant to this Agreement. UpstreamCo and Parent acknowledge that failure to conform to the deadlines set forth herein or reasonable deadlines otherwise set by Parent or UpstreamCo could cause irreparable harm. Each Company shall provide to the other Company information and documents relating to its Group required by the other Company to prepare Tax Returns. Any information or documents the Responsible Company requires to prepare such Tax Returns shall be provided in such form as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns on a timely basis (but in no event later than ninety (90) days after such request).

Section 8.03 Reliance by Parent . If any member of the UpstreamCo Group supplies information to a member of the Parent Group in connection with Taxes and an officer of a member of the Parent Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the Parent Group identifying the information being so relied upon, the chief financial officer of UpstreamCo (or any officer of UpstreamCo as designated by the chief financial officer of UpstreamCo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. UpstreamCo agrees to indemnify and hold harmless each member of the Parent Group and its directors,

 

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officers and employees from and against any fine, penalty or other cost or expense of any kind attributable to a member of the UpstreamCo Group having supplied, pursuant to this Article 8 , a member of the Parent Group with inaccurate or incomplete information in connection with a Tax Liability.

Section 8.04 Reliance by UpstreamCo . If any member of the Parent Group supplies information to a member of the UpstreamCo Group in connection with a Tax Liability and an officer of a member of the UpstreamCo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of such member of the UpstreamCo Group identifying the information being so relied upon, the chief financial officer of Parent (or any officer of Parent as designated by the chief financial officer of Parent) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. Parent agrees to indemnify and hold harmless each member of the UpstreamCo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the Parent Group having supplied, pursuant to this Article 8 , a member of the UpstreamCo Group with inaccurate or incomplete information in connection with a Tax Liability.

Article 9. Tax Records .

Section 9.01 Retention of Tax Records . Each Company shall preserve and keep all Tax Records (including emails and other digitally stored materials and related workpapers and other documentation) in its possession as of the date hereof or relating to Taxes of the Groups for Pre-Distribution Periods or Taxes or Tax matters that are the subject of this Agreement, in each case, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until at the earliest the later of (i) 90 days after the expiration of any applicable statutes of limitations (taking into account any extensions), or (ii) seven years after the Distribution Date (such later date, the “ Retention Date ”). After the Retention Date, each Company may dispose of such Tax Records upon 90 days’ prior written notice to the other Company. If, prior to the Retention Date, a Company reasonably determines that any Tax Records which it would otherwise be required to preserve and keep under this Article 9 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Company agrees, then such first Company may dispose of such Tax Records upon 90 days’ prior notice to the other Company. Any notice of an intent to dispose given pursuant to this Section 9.01 shall include a list of the Tax Records to be disposed of describing in reasonable detail each file, book or other record accumulation being disposed. The notified Company shall have the opportunity, at its cost, to copy or remove, within such 90-day period, all or any part of such Tax Records, and the other Company will then dispose of the same Tax Records.

Section 9.02 Access to Tax Records . The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records to the extent reasonably required by the other Company in connection with the preparation of financial accounting statements, audits, litigation, the preparation of Tax Returns or the resolution of items under this Agreement.

 

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Section 9.03 Preservation of Privilege . The parties hereto agree to (and to cause the applicable members of their respective Groups to) cooperate and use commercially reasonable efforts to maintain Privilege with respect to any documentation relating to Taxes existing prior to the Distribution Date or Separation Tax Losses to which Privilege may reasonably be asserted (any such documentation, “ Privileged Documentation ”), including by executing joint defense and/or common interest agreements where necessary or useful for this purpose. No member of the UpstreamCo Group shall provide access to or copies of, or otherwise disclose to any Person, any Privileged Documentation without the prior written consent of Parent, such consent not to be unreasonably withheld, conditioned or delayed. No member of the Parent Group shall provide access to or copies of or otherwise disclose to any Person any Privileged Documentation without the prior written consent of UpstreamCo, such consent not to be unreasonably withheld, conditioned or delayed. Notwithstanding any of the foregoing, in the event that (x) any Governmental Authority requests, outside of normal working hours, that either Company (or any of its Affiliates) provide to such Governmental Authority access to or copies of or otherwise disclose any Privileged Documentation, (y) immediate compliance with such request is required under applicable Law, and (z) such Company attempts in good faith to obtain the prior written consent of the other Company but is not able to do so, then such Company shall be permitted to comply with such request by such Governmental Authority without obtaining the prior written consent of the other Company and shall as promptly as practicable inform the other Company of such request and the access and/or disclosure provided pursuant thereto.

Article 10. Tax Contests .

Section 10.01 Notice . Each of the Companies shall provide prompt notice to the other Company of any written communication from a Tax Authority regarding any pending or threatened Tax audit, assessment or proceeding or other Tax Contest relating to Taxes, Refunds or other Tax Benefits for which it may be entitled to indemnification by the other Company hereunder or for which it may be required to indemnify the other Company hereunder. Such notice shall include copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability and/or other relevant Tax matters in reasonable detail. The failure of one Company to notify the other of such communication in accordance with the immediately preceding sentences shall not relieve such other Company of any liability or obligation to pay such Tax or make indemnification payments under this Agreement, except to the extent that the failure timely to provide such notification actually prejudices the ability of such other Company to contest such Tax liability (or contest any determination in respect of any Refund or Tax Benefit) or increases the amount of such Tax liability (or reduces the amount of such Refund or Tax Benefit).

Section 10.02 Control of Tax Contests .

(a) Separate Returns. Except in the case of any Competent Authority Proceeding (which shall be governed by Section 10.02(c) ) or any Traceable Tax Contests (which shall be governed by Section 10.02(d) ):

(i) In the case of any Tax Contest with respect to any Parent Separate Return, Parent shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(e) and Section 10.02(g) .

 

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(ii) In the case of any Tax Contest with respect to any UpstreamCo Separate Return, UpstreamCo shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Sections 10.02(f) and  (g) .

(b) Combined Tax Returns. Except in the case of any Competent Authority Proceeding (which shall be governed by Section 10.02(c) ) or any Traceable Tax Contests (which shall be governed by Section 10.02(d)):

(i) In the case of any Tax Contest with respect to any Combined Return (other than any Alcoa Australia Combined Return), Parent shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(e) and Section 10.02(g) .

(ii) In the case of any Tax Contest with respect to any Alcoa Australia Combined Return, UpstreamCo shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Sections 10.02(f) and  (g) .

(c) Competent Authority Proceedings . In the event that a Tax Authority proposes an adjustment with respect to a Tax Return of a Company (the “ Adjusted Company ”) or a member of its Group, and, in connection with such adjustment, a corresponding adjustment or other relief may be available to the other Company or a member of its Group pursuant to a Competent Authority Proceeding, the Adjusted Company shall promptly notify the other Company of such adjustment, and the Companies shall cooperate in good faith to determine whether to initiate a Competent Authority Proceeding to request such corresponding adjustment or other relief. If the Companies initiate any such Competent Authority Proceeding, or if any Competent Authority Proceeding that began before the date hereof remains ongoing, the Adjusted Company shall have the right to control such Competent Authority Proceeding; provided that (i) the Adjusted Company shall keep the other Company reasonably informed in a timely manner of all significant developments in respect of such Competent Authority Proceeding and all significant actions taken or proposed to be taken by the Adjusted Company with respect to such Tax Contest, (ii) the Adjusted Company shall timely provide the other Company with copies of any written materials prepared, furnished or received in connection with such Competent Authority Proceeding, (iii) the Adjusted Company shall consult with the other Company reasonably in advance of taking any significant action in connection with such Competent Authority Proceeding, (iv) the Adjusted Company shall consult with the other Company and offer the other Company a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Competent Authority Proceeding and shall consider the other Company’s comments in good faith, (v) the Adjusted Company shall conduct such Competent Authority Proceeding diligently and in good faith as if it were the only party in interest in connection with such Competent Authority Proceeding and (vi) the Adjusted Company shall not settle, compromise or abandon any such Competent Authority Proceeding without the prior written consent of the other Company, which consent shall not be unreasonably withheld, conditioned or delayed. The other Company shall cooperate with the Adjusted Company (including by providing any necessary information reasonably requested by the Adjusted Company) with respect to the conduct of any such Competent Authority Proceeding. In making any decisions in connection with any Competent Authority Proceeding described in

 

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this Section 10.02(c) (including the determination whether to initiate such Competent Authority Proceeding, relief to be sought pursuant to such Competent Authority Proceeding and actions to be taken in connection with such Competent Authority Proceeding), the Companies shall seek to minimize the aggregate Tax Liability of the Parent Group and the UpstreamCo Group.

(d) Traceable Tax Contests.

(i) Parent shall have exclusive control over any Separate Parent Traceable Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(e) and Section 10.02(g) ; provided that if Parent fails to defend a Separate Parent Traceable Tax Contest (whether by failing to participate in any portion of such Tax Contest or by failing to submit any materials in connection with such Tax Contest or otherwise), UpstreamCo shall have the right to assume exclusive control of such Tax Contest (at the Parent’s expense), including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(f) and Section 10.02(g).

(ii) UpstreamCo shall have exclusive control over any Separate UpstreamCo Traceable Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(f) and Section 10.02(g); provided that if UpstreamCo fails to defend a Separate UpstreamCo Traceable Tax Contest (whether by failing to participate in any portion of or by failing to submit any materials in connection with such Tax Contest or otherwise), Parent shall have the right to assume exclusive control of such Tax Contest (at UpstreamCo’s expense), including exclusive authority with respect to any settlement of such Tax Contest, subject to Section 10.02(e) and Section 10.02(g) .

(iii) In the event of any Joint Traceable Tax Contest, the Companies shall cooperate and shall jointly control such Tax Contest, subject to Section 10.02(g) . In the event of any disagreement regarding such Tax Contest, the provisions of Article 14 shall apply .

(e) UpstreamCo Rights. In the case of any Tax Contest described in Section 10.02(a)(i) , (b)(i) or Section 10.02(d)(i) or the proviso in Section 10.02(d)(ii) (other than, in each case, any Tax Contest described in Section 10.02(g) ), if (x) as a result of such Tax Contest, UpstreamCo could reasonably be expected to become liable to make any material indemnification payment to Parent hereunder and (y) Parent has control of such Tax Contest pursuant to Section 10.02(a)(i) , (b)(i) or Section 10.02(d)(i) or the proviso in Section 10.02(d)(ii) , as applicable, then (i) Parent shall keep UpstreamCo reasonably informed in a timely manner of all significant developments in respect of such Tax Contest and all significant actions taken or proposed to be taken by Parent with respect to such Tax Contest, (ii) Parent shall timely provide UpstreamCo with copies of any written materials prepared, furnished or received in connection with such Tax Contest, (iii) Parent shall consult with UpstreamCo reasonably in advance of taking any significant action in connection with such Tax Contest, (iv) Parent shall consult with UpstreamCo, offer UpstreamCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest and shall consider UpstreamCo’s comments in good faith, (v) Parent shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest and (vi) Parent shall not settle, compromise or abandon any such Tax Contest in a manner that would

 

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disproportionately disadvantage UpstreamCo and, in determining whether to settle, compromise or abandon any such Tax Contest, Parent shall otherwise make such determination in good faith as if it were the only party in interest in connection with such Tax Contest.

(f) Parent Rights . In the case of any Tax Contest described in Section 10.02(a)(ii) , (b)(ii) or (d)(ii) or the proviso in Section 10.02(d)(i), if (x) as a result of such Tax Contest, Parent could reasonably be expected to become liable to make any material indemnification payment to UpstreamCo hereunder and (y) UpstreamCo has the right to control such Tax Contest pursuant to Section 10.02(a)(ii) , (b)(ii) or (d)(ii) or the proviso in Section 10.02(d)(i) , then (i) UpstreamCo shall keep Parent reasonably informed in a timely manner of all significant developments in respect of such Tax Contest and all significant actions taken or proposed to be taken by UpstreamCo with respect to such Tax Contest, (ii) UpstreamCo shall timely provide Parent with copies of any written materials prepared, furnished or received in connection with such Tax Contest, (iii) UpstreamCo shall consult with Parent reasonably in advance of taking any significant action in connection with such Tax Contest, (iv) UpstreamCo shall consult with Parent and offer Parent a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest and shall consider Parent’s comments in good faith, (v) UpstreamCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest and (vi) UpstreamCo shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of Parent, which consent shall not be unreasonably withheld, conditioned or delayed.

(g) Separation Related Tax Contests. Parent shall have exclusive control over any Separation Related Tax Contest, including exclusive authority with respect to any settlement of such Tax Contest, subject to the following provisions of this Section 10.02(g) . In the event of any Separation Related Tax Contest as a result of which UpstreamCo could reasonably be expected to become liable for any Separation Tax Losses, (A) Parent shall keep UpstreamCo reasonably informed in a timely manner of all significant developments in respect of such Tax Contest and all significant actions taken or proposed to be taken by Parent with respect to such Tax Contest, (B) Parent shall timely provide UpstreamCo with copies of any written materials prepared, furnished or received in connection with such Tax Contest, (C) Parent shall consult with UpstreamCo reasonably in advance of taking any significant action in connection with such Tax Contest and (D) Parent shall offer UpstreamCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest. Notwithstanding anything in the preceding sentence to the contrary, the final determination of the positions taken, including with respect to settlement or other disposition, in any Separation Related Tax Contest shall be made in the sole discretion of Parent and shall be final and not subject to the dispute resolution provisions of Article 14 of this Agreement or Article VII of the Separation and Distribution Agreement.

(h) Power of Attorney.

(i) Each member of the UpstreamCo Group shall execute and deliver to Parent (or such member of the Parent Group as Parent shall designate) any power of attorney or other similar document reasonably requested by Parent (or such designee) in connection with any Tax Contest controlled by Parent that is described in this Article 10 .

 

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(ii) Each member of the Parent Group shall execute and deliver to UpstreamCo (or such member of the UpstreamCo Group as UpstreamCo shall designate) any power of attorney or other similar document reasonably requested by UpstreamCo (or such designee) in connection with any Tax Contest controlled by UpstreamCo that is described in this Article 10 .

Article 11. Effective Date; Termination of Prior Intercompany Tax Allocation Agreements . This Agreement shall be effective as of the Effective Time. To the knowledge of the parties hereto, there are no prior intercompany Tax allocation agreements or arrangements solely between or among Parent and/or any of its Subsidiaries, on the one hand, and UpstreamCo and/or any of its Subsidiaries, on the other hand and no termination of any such arrangement or agreement, or any settlement of amounts owing in respect of any such arrangement or agreement should be required. To the extent that, contrary to the expectation of the parties, there is any such intercompany arrangement or agreement in place as of immediately prior to the Effective Time, (i) such arrangement or agreement shall be deemed terminated as of the Effective Time, and (ii) amounts due under such agreements as of the date on which the Effective Time occurs shall be settled as promptly as practicable. Upon such settlement, no further payments by or to Parent or any of its Subsidiaries or by or to UpstreamCo or any of its Subsidiaries with respect to such agreements shall be made, and all other rights and obligations resulting from such agreements between the Companies and their Affiliates shall cease at such time. Any payments pursuant to such agreements shall be disregarded for purposes of computing amounts due under this Agreement.

Article 12. Survival of Obligations . The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.

Article 13. Treatment of Payments; Tax Gross-Up.

Section 13.01 Treatment of Tax Indemnity and Tax Benefit Payments . In the absence of any change in Tax treatment under the Code or other applicable Tax Law and except as otherwise agreed between the Companies, for all Income Tax purposes, the Companies agree to treat, and to cause their respective Affiliates to treat, (i) any indemnity payment required by this Agreement or by the Separation and Distribution Agreement as, as applicable, (A) a contribution by Parent to UpstreamCo or a distribution by UpstreamCo to Parent, as the case may be, occurring immediately prior to the Distribution (but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Section 1552 of the Code or the Treasury Regulations thereunder or Treasury Regulations Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws)), (B) an adjustment to the purchase price, or (C) as payments of an assumed or retained liability; and (ii) any payment of interest or State Income Taxes by or to a Tax Authority, as taxable or deductible, as the case may be, to the Company entitled under this Agreement to retain such payment or required under this Agreement to make such payment.

Section 13.02 Tax Gross-Up . If, notwithstanding the manner in which payments described in clause (i) of Section 13.01 were reported, there is an adjustment to the Tax Liability of a Company as a result of its receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement, such payment shall be appropriately adjusted so that the amount of

 

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such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive.

Section 13.03 Interest . Anything herein to the contrary notwithstanding, to the extent one Company (“ Indemnitor ”) makes a payment of interest to another Company (“ Indemnitee ”) under this Agreement with respect to the period from the date that the Indemnitee made a payment of Tax to a Tax Authority to the date that the Indemnitor reimbursed the Indemnitee for such Tax payment, the interest payment shall be treated as interest expense to the Indemnitor (deductible to the extent provided by Law) and as interest income by the Indemnitee (includible in income to the extent provided by Law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the Indemnitor or increase in Tax to the Indemnitee.

Article 14. Disagreements.

Section 14.01 Dispute Resolution . The Companies desire that collaboration will continue between them. Accordingly, they will try, and they will cause their respective Group members to try, to resolve in good faith all disagreements regarding their respective rights and obligations under this Agreement, including any amendments hereto. In furtherance thereof, in the event of any dispute or disagreement (other than a High-Level Dispute) (a “ Tax Advisor Dispute ”) between any member of the Parent Group and any member of the UpstreamCo Group as to the interpretation of any provision of this Agreement or the performance of obligations hereunder, the Tax departments of the Companies shall negotiate in good faith to resolve the Tax Advisor Dispute. If, within thirty (30) Business Days such good faith negotiations do not resolve the Tax Advisor Dispute, then the matter will be referred to such Tax Advisor as the Companies mutually agree. The Tax Advisor may, in its discretion, obtain the services of any third-party appraiser, accounting firm or consultant that the Tax Advisor deems necessary to assist it in resolving such disagreement. The Tax Advisor shall resolve the Tax Advisor Dispute according to such procedures as the Tax Advisor deems advisable and shall furnish written notice to the Companies of its resolution of any such Tax Advisor Dispute as soon as practicable, but in any event no later than 45 days after its acceptance of the matter for resolution. Any such resolution by the Tax Advisor shall be consistent with the terms of this Agreement, and if so consistent, shall be conclusive and binding on the Companies. Following receipt of the Tax Advisor’s written notice to the Companies of its resolution of the Tax Advisor Dispute, the Companies shall each take or cause to be taken any action necessary to implement such resolution of the Tax Advisor. In accordance with Article 16 , each Company shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Tax Advisor. All fees and expenses of the Tax Advisor in connection with such referral shall be shared equally by the Companies. Any High-Level Dispute shall be resolved pursuant to the procedures set forth in Article VII of the Separation and Distribution Agreement.

Section 14.02 Injunctive Relief . Nothing in this Article 14 will prevent either Company from seeking injunctive relief if any delay resulting from the efforts to resolve the Tax Advisor Dispute through the Tax Advisor (or any delay resulting from the efforts to resolve any High-Level Dispute through the procedures set forth in Article VII of the Separation and Distribution Agreement) could result in serious and irreparable injury to either Company. Notwithstanding

 

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anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, Parent and UpstreamCo are the only members of their respective Groups entitled to commence a dispute resolution procedure under this Agreement, and each of Parent and UpstreamCo will cause its respective Group members not to commence any dispute resolution procedure other than through such party as provided in this Article 14 .

Article 15. Late Payments . Any amount owed by one party to another party under this Agreement which is not paid when due shall bear interest at the Prime Rate plus two percent (2%), compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Article 15 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Article 15 or the interest rate provided under such other provision.

Article 16. Expenses . Except as otherwise provided in this Agreement, each party and its Affiliates shall bear their own expenses incurred in connection with the preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.

Article 17. General Provisions.

Section 17.01 Addresses and Notices . All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service or by registered or certified mail postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 17.01 ):

If to Parent:

Alcoa Inc.

390 Park Avenue

New York, New York 10022

Attention: Chief Legal Officer

Facsimile: [ · ]

and

 

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Alcoa Inc.

390 Park Avenue

New York, New York 10022

Attention: Chief Financial Officer

Facsimile: [ · ]

If to UpstreamCo:

Alcoa Upstream Corporation

390 Park Avenue

New York, New York 10022 Attention: Chief Legal Officer

Facsimile: [ · ]

and

Alcoa Upstream Corporation

390 Park Avenue

New York, New York 10022 Attn: Chief Financial Officer

Facsimile: [ · ]

A Company may, by notice to the other Company, change the address to which such notices are to be given.

Section 17.02 Assignability . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns (including, but not limited to, any successor of Parent or UpstreamCo succeeding to the Tax Attributes of either under Section 381 of the Code); provided that neither Company nor any such party thereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Company hereto. Notwithstanding the foregoing, no such consent shall be required for the assignment of a party’s rights and obligations under this Agreement and the Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole ( i.e. , the assignment of a party’s rights and obligations under this Agreement and all Ancillary Agreements all at the same time) in connection with a change of control of a Company so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Company. Nothing in this Section 17.02 is intended to, or shall be construed to, prohibit either Company or any member of its Group from being party to or undertaking a change of control.

Section 17.03 Waiver . Waiver by a Company of any default by the other Company of any provision of this Agreement shall not be deemed a waiver by the waiving Company of any subsequent or other default, nor shall it prejudice the rights of the other Company. No failure or delay by a Company in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.

 

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Section 17.04 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. Upon such determination, the Companies shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Companies.

Section 17.05 Authority . Parent represents on behalf of itself and each other member of the Parent Group, and UpstreamCo represents on behalf of itself and each other member of the UpstreamCo 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 this Agreement and to consummate the transactions contemplated hereby; and (ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.

Section 17.06 Further Action . The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Article 10 .

Section 17.07 Entire Agreement . This Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Companies 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 Companies other than those set forth or referred to herein or therein. In the event of any inconsistency between this Agreement, the Separation and Distribution Agreement, or any other agreements relating to the transactions contemplated by the Separation and Distribution Agreement with respect to matters addressed herein, the provisions of this Agreement shall control.

Section 17.08 Mutual Drafting . This Agreement shall be deemed to be the joint work product of the Companies, and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.

Section 17.09 No Double Recovery . No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement or under any other agreement or action at Law or equity. Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at Law or equity before recovering under the remedies provided in this Agreement.

Section 17.10 Currency . All amounts payable pursuant to this Agreement shall be payable in U.S. dollars, based on the conversion rate used at the time that the obligation to pay arises in the financial reporting systems of the party receiving such payment.

 

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Section 17.11 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Companies and delivered to the other Company. Each Company acknowledges that it and each other Company is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by email in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Company expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by email in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it shall not assert that any such signature or delivery is not adequate to bind such Company to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Company at any time, it shall as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.

Section 17.12 Governing Law . This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common Law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.

Section 17.13 Jurisdiction . If any dispute arises out of or in connection with this Agreement, except as expressly contemplated by another provision of this Agreement, the parties irrevocably (and the parties will cause each other member of their respective Group to irrevocably) (a) consent and submit to the exclusive jurisdiction of federal and state courts located in Delaware, (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.

Section 17.14 Amendment . No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Company, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Company against whom it is sought to enforce such waiver, amendment, supplement or modification.

Section 17.15 Performance . Parent shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by any member of the Parent Group. UpstreamCo shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by any member of the UpstreamCo Group. Each Company (including its permitted successors and assigns) further agrees that it shall (a) give timely notice of the terms, conditions and continuing obligations contained in this Agreement to all of the other members of its Group and (b) cause all of the other members of its Group not to take any action or fail to take any such action inconsistent with such Company’s obligations under this Agreement.

 

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Section 17.16 Injunctions . Subject to the provisions of Article 14, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Company that is, or is to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of their respective 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 Companies agree that the remedies at law for any breach or threatened breach, 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 by each of the Companies.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, each party has caused this Agreement to be executed on its behalf by a duly authorized officer on the date first set forth above.

 

Alcoa Inc.
By:    
  Name:
  Title:
Alcoa Upstream Corporation
By:    
  Name:
  Title:

[Signature Page to Tax Matters Agreement]

Exhibit 10.1

Form of Alcoa Corporation 2016 Stock Incentive Plan

SECTION 1. PURPOSE. The purpose of the Alcoa Corporation 2016 Stock Incentive Plan is to encourage selected Directors and Employees to acquire a proprietary interest in the long-term growth and financial success of the Company and to further link the interests of such individuals to the long-term interests of stockholders.

SECTION 2. DEFINITIONS. As used in the Plan, the following terms have the meanings set forth below:

Affiliate ” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Securities Exchange Act of 1934, as amended.

Award ” means any Option, Stock Appreciation Right, Restricted Share Award, Restricted Share Unit, Converted Award, or any other right, interest, or option relating to Shares or other property granted pursuant to the provisions of the Plan.

Award Agreement ” means any written or electronic agreement, contract, or other instrument or document evidencing any Award granted by the Committee hereunder (and, in the case of a Converted Award, originally between Alcoa Inc. and the Participant), which may, but need not, be executed or acknowledged by both the Company and the Participant.

Board ” means the Board of Directors of the Company.

Change in Control ” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(a) any one person or more than one person acting as a group (as determined in accordance with Section 1.409A-3(i)(5)(v)(B) of the regulations promulgated under the Code) (a “ Person ”) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person), in either case whether by purchase in the market, tender offer, reorganization, merger, statutory share exchange or consolidation, other similar transaction involving the Company or any of its subsidiaries or otherwise (a “ Transaction ”), common stock of the Company possessing 30% or more of the total voting power of the stock of the Company unless (A) all or substantially all of the individuals and entities that were the beneficial owners of the then-outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or the combined voting power of the then outstanding voting securities of the Company (the “ Outstanding Company Voting Securities ”) immediately prior to such Transaction own, directly or indirectly, 50% or more of the then outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Transaction (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Transaction of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Transaction were members of the board of directors of the Company at the time of the Transaction (which in the case of a market purchase shall be the date 30% ownership was first acquired, in the case of a tender offer, when at least 30% of the Company’s shares were tendered, and in other events upon the execution of the initial agreement or of the action of the Board providing for such Transaction); and provided, further, that, for purposes of this paragraph, the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, or (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate;

(b) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the Company’s Board before the date of such appointment or election; or

(c) any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person) assets of the Company that have a total gross fair market value of more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions.

 

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Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if its sole purpose is to (i) change the jurisdiction of the Company’s incorporation, or (ii) create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

Code ” means the U.S. Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

Committee ” means the Compensation and Benefits Committee of the Board, any successor to such committee or a subcommittee thereof or, if the Board so determines, another committee of the Board, in each case composed of no fewer than two directors, each of whom is a Non-Employee Director and an “outside director” within the meaning of Section 162(m) of the Code, or any successor provision thereto.

Company ” means Alcoa Corporation, a Delaware corporation.

Contingency Period ” has the meaning set forth in SECTION 8.

Converted Award ” means an Award that is issued to satisfy the automatic adjustment and conversion of awards over Alcoa Inc. common stock contemplated under the Employee Matters Agreement. Converted Awards may be in the form of Options or Restricted Share Units, including Restricted Share Units that are Performance Awards. For avoidance of doubt, any Converted Award will be governed by the provisions of the original award agreement applicable to such Converted Award.

“Covered Employee ” means a “covered employee” within the meaning of Section 162(m)(3) of the Code, or any successor provision thereto.

Director ” means a member of the Board who is not an Employee.

Employee ” means any employee (including any officer or employee director) of the Company or of any Subsidiary.

Employee Matters Agreement ” means the Employee Matters Agreement dated [●], 2016 by and between Alcoa Inc. and the Company relating to the transfer of employees in connection with the separation of the Company’s business from Alcoa Inc.’s business, which agreement is incorporated herein by reference.

Equity Restructuring ” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split (including a reverse stock split), spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the price of Shares (or other securities) and causes a change in the per share value of the Shares underlying outstanding Awards.

Executive Officer ” means an officer who is designated as an executive officer by the Board or by its designees in accordance with the definition of executive officer under Rule 3b-7 of the U.S. Securities Exchange Act of 1934, as amended.

Exercisable Time-Based Award ” has the meaning set forth in SECTION 12.

Fair Market Value ” with respect to Shares on any given date means the closing price per Share on that date as reported on the New York Stock Exchange or other stock exchange on which the Shares principally trade. If the New York Stock Exchange or such other exchange is not open for business on the date fair market value is being determined, the closing price as reported for the next business day on which that exchange is open for business will be used.

Family Member ” has the same meaning as such term is defined in Form S-8 (or any successor form) promulgated under the U.S. Securities Act of 1933, as amended.

Non-Employee Directo r” has the meaning set forth in Rule 16b-3(b)(3) under the U.S. Securities Exchange Act of 1934, as amended, or any successor definition adopted by the U.S. Securities and Exchange Commission.

Option ” means any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine. All Options granted under the Plan are intended to be nonqualified stock options for purposes of the Code.

 

2


Other Awards ” has the meaning set forth in SECTION 10.

Participant ” means an Employee or a Director who is selected to receive an Award under the Plan.

Performance Award ” means any award granted pursuant to SECTION 11 hereof in the form of Options, Stock Appreciation Rights, Restricted Share Units, Restricted Shares or other awards of property, including cash, that have a performance feature described in SECTION 11.

Performance Period ” means that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured. A Performance Period may not be less than one year.

Plan ” means this Alcoa Corporation 2016 Stock Incentive Plan, as may be amended from time to time.

“Replacement Award” means an Award resulting from adjustments or substitutions referred to in Section 4(f) herein, provided that such Award is issued by a company (foreign or domestic) the majority of the equity of which is listed under and in compliance with the domestic company listing rules of the New York Stock Exchange or with a similarly liquid exchange which has comparable standards to the domestic company listing standards of the New York Stock Exchange.

Restricted Shares ” has the meaning set forth in SECTION 8.

Restricted Share Unit ” has the meaning set forth in SECTION 9.

Shares ” means the shares of common stock of the Company, $0.01 par value.

Stock Appreciation Right ” means any right granted under SECTION 7.

Subsidiary ” means any corporation or other entity in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock in such corporation or entity, and any corporation, partnership, joint venture, limited liability company or other business entity as to which the Company possesses a significant ownership interest, directly or indirectly, as determined by the Committee.

Substitute Awards ” means Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or any of its Subsidiaries or with which the Company or any of its Subsidiaries combines.

“Time-Based Award” means any Award granted pursuant to the Plan that is not a Performance Award.

SECTION 3. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to: (i) select the Employees of the Company and its Subsidiaries to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Award to be granted to each Employee Participant hereunder; (iii) determine the number of Shares to be covered by each Employee Award granted hereunder; (iv) determine the terms and conditions of any Employee Award granted hereunder, and make modifications to such terms and conditions with respect to any outstanding Employee Award, in each case, which are not inconsistent with the provisions of the Plan; (v) determine whether, to what extent and under what circumstances Employee Awards may be settled in cash, Shares or other property or canceled or suspended; (vi) determine whether, to what extent and under what circumstances cash, Shares and other property and other amounts payable with respect to an Employee Award under this Plan shall be deferred either automatically or at the election of the Participant; (vii) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (viii) determine whether any corporate transaction, such as a sale or spin-off of a division or business unit, or a joint venture, shall be deemed to result in a Participant’s termination of service for purposes of Awards granted under the Plan; (ix) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan, including, without limiting the generality of the foregoing, make any determinations necessary to effectuate the purpose of Section 12(a)(v) below. Decisions of the Committee shall be final, conclusive and binding upon all persons, including the Company, any Participant and any stockholder; provided that the Board shall approve any decisions affecting Director Awards.

 

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The Board shall have full power and authority, upon the recommendation of the Governance and Nominating Committee of the Board to: (i) select the Directors of the Company to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Award to be granted to each Director Participant hereunder; (iii) determine the number of Shares to be covered by each Director Award granted hereunder; (iv) determine the terms and conditions of any Director Award granted hereunder, and make modifications to such terms and conditions with respect to any outstanding Director Award, in each case, which are not inconsistent with the provisions of the Plan; (v) determine whether, to what extent and under what circumstances Director Awards may be settled in cash, Shares or other property or canceled or suspended; and (vi) determine whether, to what extent and under what circumstances cash, Shares and other property and other amounts payable with respect to a Director Award under this Plan shall be deferred either automatically or at the election of the Director. For purposes of the Plan, Awards to a Director shall not exceed $250,000 based on grant date fair value (determined in accordance with U.S. generally accepted accounting principles) in any one-year period.

SECTION 4. SHARES SUBJECT TO THE PLAN.

(a) Number of Shares Reserved under the Plan. Subject to the adjustment provisions of Section 4(f) below and the provisions of Section 4(b), up to [●] Shares may be issued under the Plan. Each Share issued pursuant to an Award other than an Option or a Stock Appreciation Right shall count as 2.33 Shares for purposes of the foregoing authorization. Each Share issued pursuant to an Option or Stock Appreciation Right shall be counted as one Share for each Option or Stock Appreciation Right. For the avoidance of doubt, any Shares issued pursuant to a Converted Award shall reduce the maximum number of Shares issuable under this Section 4(a).

(b) Share Replenishment . In addition to the Shares authorized by Section 4(a), Shares underlying Awards that are granted under the Plan, which are subsequently forfeited, cancelled or expire in accordance with the terms of the Award shall become available for issuance under the Plan. The following Shares shall not become available for issuance under the Plan: (x) Shares tendered in payment of an Option or other Award, and (y) Shares withheld for taxes. Shares purchased by the Company using Option proceeds shall not be added to the Plan limit and if Stock Appreciation Rights are settled in Shares, each Stock Appreciation Right shall count as one Share whether or not Shares are actually issued or transferred under the Plan.

(c) Issued Shares . Shares shall be deemed to be issued hereunder only when and to the extent that payment or settlement of an Award is actually made in Shares. Notwithstanding anything herein to the contrary, the Committee may at any time authorize a cash payment in lieu of Shares, including without limitation if there are insufficient Shares available for issuance under the Plan to satisfy an obligation created under the Plan.

(d) Source of Shares . Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued Shares, treasury Shares or Shares purchased in the open market or otherwise.

(e) Substitute Awards. Shares issued or granted in connection with Substitute Awards shall not reduce the Shares available for issuance under the Plan or to a Participant in any calendar year.

(f) Adjustments . Subject to SECTION 12:

(i) Corporate Transactions other than an Equity Restructuring . In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the price of the Shares other than an Equity Restructuring, the Committee shall make such adjustments, if any, as the Committee in its discretion may deem appropriate to reflect such change with respect to (i) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Sections 4(a) and 13(f) hereof); (ii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (c) the grant or exercise price per Share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended to be “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto, shall be made consistent with the requirements of Section 162(m) of the Code.

 

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In the event of any transaction or event described above in this Section 4(f)(i) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in applicable laws or accounting principles may be made within a reasonable period of time after such change), is hereby authorized to take actions, including but not limited to any one or more of the following actions, whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, provided that the number of Shares subject to any Award will always be a whole number:

 

  (A) To provide for either (I) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described above in this Section 4(f)(i) the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment) or (II) the replacement of such Award with other rights or property selected by the Committee in its sole discretion;

 

  (B) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

 

  (C) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Shares and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards;

 

  (D) To provide that such Award shall be exercisable or payable or fully vested with respect to all Shares covered thereby; or

 

  (E) To provide that the Award cannot vest, be exercised or become payable after such event.

(ii) Equity Restructuring . In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in this Section 4(f), the Committee will adjust the terms of the Plan and each outstanding Award as it deems equitable to reflect the Equity Restructuring, which may include (i) adjusting the number and type of securities subject to each outstanding Award and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Sections 4(a) and 13(f) hereof); (ii) adjusting the terms and conditions of (including the grant or exercise price), and the performance targets or other criteria included in, outstanding Awards; and (iii) granting new Awards or making cash payments to Participants. The adjustments provided under this Section 4(f)(ii) will be nondiscretionary and final and binding on all interested parties, including the affected Participant and the Company; provided that the Committee will determine whether an adjustment is equitable and the number of Shares subject to any Award will always be a whole number.

SECTION 5. ELIGIBILITY. Any Director or Employee shall be eligible to be selected as a Participant.

 

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SECTION 6. STOCK OPTIONS. Options may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Any Option granted under the Plan may be evidenced by an Award Agreement in such form as the Committee from time to time approves. Any such Option shall be subject to the terms and conditions required by this SECTION 6 and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee may deem appropriate in each case.

(a) Option Price . The purchase price (or Option price) per Share purchasable under an Option shall be determined by the Committee in its sole discretion; provided that, except in connection with an adjustment provided for in Section 4(f), Substitute Awards or Converted Awards, such purchase price shall not be less than the Fair Market Value of one Share on the date of the grant of the Option. The Committee may, in its sole discretion, establish a limit on the amount of gain that can be realized on an Option.

(b) Option Period . The term of each Option granted hereunder shall not exceed ten years from the date the Option is granted.

(c) Exercisability . Options shall be exercisable at such time or times as determined by the Committee at or subsequent to grant, provided, however, that the minimum vesting period of an Option shall be one year except in connection with an adjustment provided for in Section 4(f), Substitute Awards or Converted Awards.

(d) Method of Exercise . Subject to the other provisions of the Plan, any Option may be exercised by the Participant in whole or in part at such time or times, and the Participant may make payment of the Option price in such form or forms, including, without limitation, payment by delivery of cash, Shares or other consideration (including, where permitted by law and the Committee, Awards) having a fair market value on the exercise date equal to the total Option price, or by any combination of cash, Shares and other consideration as the Committee may specify in the applicable Award Agreement.

SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted to Participants on such terms and conditions as the Committee may determine, subject to the requirements of the Plan. A Stock Appreciation Right shall confer on the holder a right to receive, upon exercise, the excess of (i) the Fair Market Value of one Share on the date of exercise or, if the Committee shall so determine, at any time during a specified period before the date of exercise over (ii) the grant price of the right on the date of grant, or if granted in connection with an outstanding Option on the date of grant of the related Option, as specified by the Committee in its sole discretion, which, except in the case of Substitute Awards, Converted Awards or in connection with an adjustment provided in Section 4(f), shall not be less than the Fair Market Value of one Share on such date of grant of the right or the related Option, as the case may be. Any payment by the Company in respect of such right may be made in cash, Shares, other property or any combination thereof, as the Committee, in its sole discretion, shall determine. The Committee may, in its sole discretion, establish a limit on the amount of gain that can be realized on a Stock Appreciation Right.

(a) Grant Price . The grant price for a Stock Appreciation Right shall be determined by the Committee, provided, however, and except as provided in Section 4(f) and for Substitute Awards and Converted Awards, that such price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right.

(b) Term . The term of each Stock Appreciation Right shall not exceed ten years from the date of grant, or if granted in tandem with an Option, the expiration date of the Option. The minimum vesting period of a Stock Appreciation Right shall be one year, except in connection with an adjustment provided for in Section 4(f), Substitute Awards or Converted Awards.

(c) Time and Method of Exercise . The Committee shall establish the time or times at which a Stock Appreciation Right may be exercised in whole or in part.

SECTION 8. RESTRICTED SHARES.

(a) Definition . A Restricted Share means any Share issued with the contingency or restriction that the holder may not sell, transfer, pledge or assign such Share and with such other contingencies or restrictions as the Committee, in its sole discretion, may impose (including, without limitation, any contingency or restriction on the right to vote such Share and the right to receive any cash dividends), which contingencies and restrictions may lapse separately or in combination, at such time or times, in installments or otherwise, as the Committee may deem appropriate.

 

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(b) Issuance . A Restricted Share Award shall be subject to contingencies or restrictions imposed by the Committee during a period of time specified by the Committee (the “Contingency Period”). Restricted Share Awards may be issued hereunder to Participants, for no cash consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The terms and conditions of Restricted Share Awards need not be the same with respect to each recipient.

(c) Registration . Any Restricted Share issued hereunder may be evidenced in such manner as the Committee in its sole discretion shall deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Restricted Shares awarded under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, contingencies and restrictions applicable to such Award.

(d) Forfeiture . Except as otherwise determined by the Committee at the time of grant or thereafter or as otherwise set forth in the terms and conditions of an Award, upon termination of service for any reason during the Contingency Period, all Restricted Shares still subject to any contingency or restriction shall be forfeited by the Participant and reacquired by the Company.

(e) Minimum Restrictions . Restricted Share Awards that are restricted only on the passage of time shall have a minimum three-year pro-rata restriction period (the restrictions lapse each year as to 1/3 of the Restricted Share Awards), except in connection with an adjustment provided for in Section 4(f), Substitute Awards or Converted Awards; provided, however, that a restriction period of less than this period may be approved for Awards with respect to up to 5% of the Shares authorized under the Plan.

(f) Section   83(b) Election . A Participant may, with the consent of the Committee, make an election under Section 83(b) of the Code to report the value of Restricted Shares as income on the date of grant.

SECTION 9. RESTRICTED SHARE UNITS.

(a) Definition . A Restricted Share Unit is an Award of a right to receive, in cash or Shares, as the Committee may determine, the Fair Market Value of one Share, the grant, issuance, retention and/or vesting of which is subject to such terms and conditions as the Committee may determine at the time of the grant, which shall not be inconsistent with this Plan.

(b) Terms and Conditions. In addition to the terms and conditions that may be established at the time of a grant of Restricted Share Unit Awards, the following terms and conditions apply:

(i) Restricted Share Unit Awards may not be sold, pledged (except as permitted under Section 15(a)) or otherwise encumbered prior to the date on which the Shares are issued, or, if later, the date on which any applicable contingency, restriction or performance period lapses.

(ii) Restricted Share Unit Awards that are vested only due to the passage of time shall have a minimum three-year pro-rata vesting period (1/3 vests each year), except in connection with an adjustment provided for in Section 4(f), Substitute Awards or Converted Awards; provided, however, that a vesting period of less than three years may be approved for Restricted Share Unit Awards with respect to up to 5% of the Shares authorized under the Plan.

(iii) Shares (including securities convertible into Shares) subject to Restricted Share Unit Awards may be issued for no cash consideration or for such minimum consideration as may be required by applicable law. Shares (including securities convertible into Shares) purchased pursuant to a purchase right granted under this SECTION 9 thereafter shall be purchased for such consideration as the Committee shall in its sole discretion determine, which shall not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.

(iv) The terms and conditions of Restricted Share Unit Awards need not be the same with respect to each recipient.

SECTION 10. OTHER AWARDS. Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other Awards”) may be granted to Participants. Other Awards may be paid in Shares, cash or any other form of property as the

 

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Committee shall determine. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom, and the time or times at which, such Awards shall be made, the number of Shares to be granted pursuant to such Awards and all other conditions of the Awards. The terms and conditions of Other Awards need not be the same with respect to each recipient. Other Awards shall not exceed 5% of the Shares available for issuance under this Plan.

SECTION 11. PERFORMANCE AWARDS. Awards with a performance feature are referred to as “Performance Awards”. Performance Awards may be granted in the form of Options, Stock Appreciation Rights, Restricted Share Units, Restricted Shares or Other Awards with the features and restrictions applicable thereto. The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award, provided that the minimum performance period shall be one year. Performance Awards may be paid in cash, Shares, other property or any combination thereof in the sole discretion of the Committee. The performance levels to be achieved for each Performance Period and the amount of the Award to be paid shall be conclusively determined by the Committee. Except as provided in SECTION 12, each Performance Award shall be paid following the end of the Performance Period or, if later, the date on which any applicable contingency or restriction has ended.

SECTION 12. CHANGE IN CONTROL PROVISIONS.

(a) Effect of a Change in Control on Existing Awards under this Plan . Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise at the time of grant with respect to a particular Award, in the event of a Change in Control:

(i) any Time-Based Award consisting of Options, Stock Appreciation Rights or any other Time-Based Award in the form of rights that are exercisable by Participants upon vesting (“Exercisable Time-Based Award”), that is outstanding as of the date on which a Change in Control shall be deemed to have occurred and that is not then vested, shall become vested and exercisable, unless replaced by a Replacement Award;

(ii) any Time-Based Award that is not an Exercisable Time-Based Award that is outstanding as of the date on which a Change in Control shall be deemed to have occurred and that is not then vested, shall become free of all contingencies, restrictions and limitations and shall become vested and transferable, unless replaced by a Replacement Award;

(iii) any Replacement Award for which an Exercisable Time-Based Award has been exchanged upon a Change in Control shall vest and become exercisable in accordance with the vesting schedule and term for exercisability that applied to the corresponding Exercisable Time-Based Award immediately prior to such Change in Control, provided , however , that if within twenty four (24) months of such Change in Control, the Participant’s service with the Company or a Subsidiary is terminated without Cause (as such term is defined in the Alcoa Corporation Change in Control Severance Plan) or by the Participant for Good Reason (as such term is defined in the Alcoa Corporation Change in Control Severance Plan), such Award shall become vested and exercisable to the extent outstanding at the time of such termination of service. Any Replacement Award that has become vested and exercisable pursuant to this paragraph shall expire on the earlier of (A) thirty six (36) months following the date of termination of such Participant’s service (or, if later, the conclusion of the applicable post-termination exercise period pursuant to the applicable Award Agreement) and (B) the last day of the term of such Replacement Award;

(iv) any Replacement Award for which a Time-Based Award that is not an Exercisable Time-Based Award has been exchanged upon a Change in Control shall vest in accordance with the vesting schedule that applied to the corresponding Time-Based Award immediately prior to such Change in Control, provided , however , that if within twenty four (24) months of such Change in Control, the Participant’s service with the Company or a Subsidiary is terminated without Cause (as such term is defined in the Alcoa Corporation Change in Control Severance Plan) or by the Participant for Good Reason (as such term is defined in the Alcoa Corporation Change in Control Severance Plan), such Award shall become free of all contingencies, restrictions and limitations and become vested and transferable to the extent outstanding;

(v) any Performance Award shall be converted so that such Award is no longer subject to any performance condition referred to in SECTION 11 above, but instead is subject to the passage of time, with the number or value of such Replacement Award determined as follows: (A) if 50% or more of the Performance Period has been completed as of the date on which such Change in Control is deemed to have occurred, the number or value of such Award shall be based on actual performance during the Performance Period; or (B) if less than 50% of the Performance Period has been completed as of the date on which such Change in Control is deemed to have occurred, the number or value of such Award shall be the target number or value. Paragraphs (i) through (iv) above shall govern the terms of such Time-Based Award.

 

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(b) Change in Control Settlement . Notwithstanding any other provision of this Plan, if approved by the Committee, upon a Change in Control, a Participant may receive a cash settlement under clauses (i) and (ii) below of existing Awards that are vested and exercisable as of the date on which such Change in Control shall be deemed to have occurred:

(i) a Participant who holds an Option or Stock Appreciation Right may, in lieu of the payment of the purchase price for the Shares being purchased under the Option or Stock Appreciation Right, surrender the Option or Stock Appreciation Right to the Company and receive cash, within 30 days of the Change in Control, in an amount equal to the amount by which the Fair Market Value of the Shares on the date of the Change in Control exceeds the purchase price per Share under the Option or Stock Appreciation Right multiplied by the number of Shares granted under the Option or Stock Appreciation Right; and

(ii) a Participant who holds Restricted Share Units may, in lieu of receiving Shares which have vested under Section 12(a)(ii) of this Plan, receive cash, within 30 days of a Change in Control, in an amount equal to the Fair Market Value of the Shares on the date of the Change in Control multiplied by the number of Restricted Share Units held by the Participant.

SECTION 13. CODE SECTION 162(m) PROVISIONS.

(a) Notwithstanding any other provision of this Plan, if the Committee determines at the time a Restricted Share Award, a Performance Award or a Restricted Share Unit Award is granted to a Participant that such Participant is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this SECTION 13 is applicable to such Award.

(b) If an Award is subject to this SECTION 13, then the lapsing of contingencies or restrictions thereon and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement by the Company on a consolidated basis, and/or by specified Subsidiaries or divisions or business units of the Company, as appropriate, of one or more objective performance goals established by the Committee. Performance goals shall be set by the Committee (and any adjustments shall be made by the Committee) within the time period prescribed by, and shall otherwise comply with, the requirements of Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.

(c) As the Committee deems appropriate, performance goals established by the Committee may be based upon (x) the achievement of specified levels of Company, Subsidiary, division or business unit performance under one or more of the measures described below, (y) the improvement in Company, Subsidiary, division or business unit performance under one or more of the measures, and (z) Company, Subsidiary or business unit performance under one or more of the measures relative to the performance of other comparator companies or groups of companies or an external index or indicator. Performance goals may include a threshold level of performance below which no Award will be earned, levels of performance at which an Award will become partially earned, and a level of performance at which an Award will be fully earned. Any of the measures listed below, as applicable, may be calculated to exclude special items, unusual or infrequently occurring items or nonrecurring items or may be normalized for fluctuations in market forces, including, but not limited to, foreign currency exchange rates and the price of aluminum on the London Metal Exchange:

(i) earnings, including earnings margin, operating income, earnings before or after taxes, and earnings before or after interest, taxes, depreciation, and amortization;

 

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(ii) book value per share;

(iii) pre-tax income, after-tax income, income from continuing operations, or after tax operating income;

(iv) operating profit;

(v) earnings per common share (basic or diluted);

(vi) return on assets (net or gross);

(vii) return on capital;

(viii) return on invested capital;

(ix) sales, revenues or growth in or returns on sales or revenues;

(x) share price appreciation;

(xi) total stockholder return;

(xii) cash flow, operating cash flow, free cash flow, cash flow return on investment (discounted or otherwise), cash on hand, reduction of debt, capital structure of the Company including debt to capital ratios;

(xiii) implementation or completion of critical projects or processes;

(xiv) economic profit, economic value added or created;

(xv) cumulative earnings per share growth;

(xvi) achievement of cost reduction goals;

(xvii) return on stockholders’ equity;

(xviii) total stockholders’ return;

(xix) reduction of days working capital, working capital or inventory;

(xx) operating margin or profit margin;

(xxi) capital expenditures;

(xxii) cost targets, reductions and savings, productivity and efficiencies;

(xxiii) strategic business criteria, consisting of one or more objectives based on market penetration, geographic business expansion, customer satisfaction (including product quality and delivery), employee satisfaction, human resources management (including diversity representation), supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons;

(xxiv) personal professional objectives, including any of the foregoing performance measures, the implementation of policies and plans, the negotiation of transactions, the development of long-term business goals, formation of joint ventures, research or development collaborations, technology and best practice sharing within the Company, and the completion of other corporate goals or transactions;

(xxv) sustainability measures, community engagement measures or environmental, health or safety goals of the Company or the Subsidiary or business unit of the Company for or within which the Participant is primarily employed; or

(xxvi) audit and compliance measures.

(d) Notwithstanding any provision of this Plan other than Section 4(f) and SECTION 12, with respect to any Award that is subject to this SECTION 13, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals.

(e) The Committee shall have the power to impose such other restrictions on Awards subject to this SECTION 13 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

(f) For purposes of complying with Code Section 162(m) limitations on “performance-based compensation,” and subject to the adjustment provisions of Section 4(f), no Participant may be granted Options and/or Stock Appreciation Rights in any calendar year with respect to more than 10,000,000 Shares, or Restricted Share Awards or Restricted Share Unit Awards covering more than 4,000,000 Shares. The maximum dollar value payable with respect to Performance Awards that are valued with reference to property other than Shares and granted to any Participant in any one calendar year is $15,000,000. Notwithstanding the foregoing, the number of Shares subject to Converted Awards shall be disregarded for purposes of the limitations set forth in this Section 13(f).

 

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SECTION 14. AMENDMENTS AND TERMINATION. The Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time; provided that notwithstanding any other provision in this Plan, no such amendment, alteration, suspension, discontinuation or termination shall be made: (a) without stockholder approval, if such approval would be required pursuant to applicable law or the requirements of the New York Stock Exchange or such other stock exchange on which the Shares trade; or (b) without the consent of the affected Participant, if such action would impair the rights of such Participant under any outstanding Award, except as provided in Sections 15(e) and 15(f). Notwithstanding anything to the contrary herein, the Committee may amend the Plan in such manner as may be necessary so as to have the Plan conform to local rules and regulations in any jurisdiction outside the United States or to qualify for or comply with any tax or regulatory requirement for which or with which the Board or Committee deems it necessary or desirable to qualify or comply.

SECTION 15. GENERAL PROVISIONS.

(a) Transferability of Awards . Awards may be transferred by will or the laws of descent and distribution. Except as set forth herein, awards shall be exercisable, during the Participant’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative. Unless otherwise provided by the Committee or limited by applicable laws, a Participant may, in the manner established by the Committee, designate a beneficiary to exercise the rights of the Participant with respect to any Award upon the death of the Participant. Unless otherwise provided by the Committee or limited by applicable laws, Awards may be transferred to one or more Family Members, individually or jointly, or to a trust whose beneficiaries include the Participant or one or more Family Members under terms and conditions established by the Committee. The Committee shall have authority to determine, at the time of grant, any other rights or restrictions applicable to the transfer of Awards; provided however , that no Award may be transferred to a third party for value or consideration. Except as provided in this Plan or the terms and conditions established for an Award, any Award shall be null and void and without effect upon any attempted assignment or transfer, including, without limitation, any purported assignment, whether voluntary or by operation of law, pledge, hypothecation or other disposition, attachment, divorce or trustee process or similar process, whether legal or equitable.

(b) Award Entitlement . No Employee or Director shall have any claim to be granted any Award under the Plan and there is no obligation for uniformity of treatment of Employees or Directors under the Plan.

(c) Terms and Conditions of Award . The prospective recipient of any Award under the Plan shall be deemed to have become a Participant subject to all the applicable terms and conditions of the Award upon the grant of the Award to the prospective recipient, unless the prospective recipient notifies the Company within 30 days of the grant that the prospective recipient does not accept the Award. This Section 15(c) is without prejudice to the Company’s right to require a Participant to affirmatively accept the terms and conditions of an Award.

(d) Award Adjustments . Except as provided in SECTION 13, the Committee shall be authorized to make adjustments in Performance Award criteria or in the terms and conditions of other Awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in applicable laws, regulations or accounting principles. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect.

(e) Committee Right to Cancel . The Committee shall have full power and authority to determine whether, to what extent and under what circumstances any Award shall be canceled or suspended at any time prior to a Change in Control: (i) if an Employee, without the consent of the Committee, while employed by the Company or a Subsidiary or after termination of such employment, becomes associated with,

 

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employed by, renders services to or owns any interest (other than an interest of up to 5% in a publicly traded company or any other nonsubstantial interest, as determined by the Committee) in any business that is in competition with the Company or any Subsidiary; (ii) in the event of the Participant’s willful engagement in conduct which is injurious to the Company or any Subsidiary, monetarily or otherwise; (iii) in the event of an Executive Officer’s misconduct described in Section 15(f); or (iv) in order to comply with applicable laws as described in Section 15(h) below. For purposes of clause (ii), no act, or failure to act, on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant’s act, or failure to act, was in the best interest of the Company or a Subsidiary. In the event of a dispute concerning the application of this Section 15(e), no claim by the Company shall be given effect unless the Board determines that there is clear and convincing evidence that the Committee has the right to cancel an Award or Awards hereunder, and the Board finding to that effect is adopted by the affirmative vote of not less than three quarters of the entire membership of the Board (after reasonable notice to the Participant and an opportunity for the Participant to provide information to the Board in such manner as the Board, in its sole discretion, deems to be appropriate under the circumstances).

(f) Clawback . Notwithstanding any other provision of the Plan to the contrary, in accordance with the Company’s Corporate Governance Guidelines, if the Board learns of any misconduct by an Executive Officer that contributed to the Company having to restate all or a portion of its financial statements, the Board will, to the full extent permitted by governing law, in all appropriate cases, effect the cancellation and recovery of Awards (or the value of Awards) previously granted to the Executive Officer if: (i) the amount of the Award was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, (ii) the executive engaged in intentional misconduct that caused or partially caused the need for the restatement, and (iii) the amount of the Award had the financial results been properly reported would have been lower than the amount actually awarded. Furthermore, all Awards (including Awards that have vested in accordance with the Award Agreement) shall be subject to the terms and conditions, if applicable, of any other recoupment policy adopted by the Company from time to time or any recoupment requirement imposed under applicable laws, rules, regulations or stock exchange listing standards, including, without limitation, recoupment requirements imposed pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Section 304 of the Sarbanes-Oxley Act of 2002, or any regulations promulgated thereunder, or recoupment requirements under the laws of any other jurisdiction.

(g) Stock Certificate Legends . All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the U.S. Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(h) Compliance with Securities Laws and Other Requirements . No Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Company in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. Federal securities laws and any other laws, rules, regulations, stock exchange listing or other requirements to which such offer, if made, would be subject. Without limiting the foregoing, the Company shall have no obligation to issue or deliver Shares pursuant to Awards granted hereunder prior to: (i) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and (ii) completion of any registration or other qualification with respect to the Shares under any applicable law in the United States or in a jurisdiction outside of the United States or procurement of any ruling or determination of any governmental body that the Company determines to be necessary or advisable or at a time when any such registration, qualification or determination is not current, has been suspended or otherwise has ceased to be effective. The inability or impracticability of the Company to obtain or maintain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained, and shall constitute circumstances in which the Committee may determine to amend or cancel Awards pertaining to such Shares, with or without consideration to the affected Participants.

 

12


(i) Dividends . No Award of Options or Stock Appreciation Rights shall have the right to receive dividends or dividend equivalents. To the extent that the Board, in its discretion, declares a dividend on the Shares: (i) a recipient of an Award of Restricted Shares shall receive dividends on the Restricted Shares subject to such contingencies or restrictions, if any, as the Committee, in its sole discretion, may impose; and (ii) dividend equivalents shall accrue on Restricted Share Units (including Restricted Share Units that have a performance feature) and shall only be paid if and when such Restricted Share Units vest, unless otherwise determined by the Committee. Any dividend equivalents that accrue on Restricted Share Units will be calculated at the same rate as dividends paid on the common stock of the Company. Notwithstanding any provision herein to the contrary, no dividends or dividend equivalents shall be paid on Restricted Share Units that have not vested or on Restricted Share Units that have not been earned during a Performance Period.

(j) Consideration for Awards . Except as otherwise required in any applicable Award Agreement or by the terms of the Plan, recipients of Awards under the Plan shall not be required to make any payment or provide consideration other than the rendering of services.

(k) Delegation of Authority by Committee . The Committee may delegate to one or more Executive Officers or a committee of Executive Officers the right to grant Awards to Employees who are not Executive Officers or Directors of the Company and to cancel or suspend Awards to Employees who are not Executive Officers or Directors of the Company.

(l) Tax Obligations . The Company shall be authorized to withhold from any Award granted or payment due under the Plan the amount of Tax Obligations due in respect of an Award or payment hereunder and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such Tax Obligations, including without limitation requiring the Participant to pay cash, withholding otherwise deliverable cash or Shares having a fair market value equal to the amount required to be withheld, forcing the sale of Shares issued pursuant to an Award (or exercise or vesting thereof) having a fair market value equal to the amount required to be withheld, or requiring the Participant to deliver to the Company already-owned Shares having a fair market value equal to the amount required to be withheld. For purposes of the foregoing, “Tax Obligations” means tax, social insurance and social security liability obligations and requirements in connection with the Awards, including, without limitation, (i) all U.S. Federal, state, and local income, employment and any other taxes (including the Participant’s U.S. Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company (or a Subsidiary, as applicable), (ii) the Participant’s and, to the extent required by the Company (or a Subsidiary, as applicable), the Company’s (or a Subsidiary’s) fringe benefit tax liability, if any, associated with the grant, vesting, or exercise of an Award or sale of Shares issued under the Award, and (iii) any other taxes, social insurance, social security liabilities or premium for which the Participant has an obligation, or which the Participant has agreed to bear, with respect to such Award (or exercise thereof or issuance of Shares or other consideration thereunder). Furthermore, the Committee shall be authorized to, but is not required to, establish procedures for election by Participants to satisfy such obligations for the payment of such taxes by delivery of or transfer of Shares to the Company or by directing the Company to retain Shares otherwise deliverable in connection with the Award. All personal taxes applicable to any Award under the Plan are the sole liability of the Participant.

(m) Other Compensatory Arrangements . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

(n) Governing Law . The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware, United States of America, without reference to principles of conflict of laws, and construed accordingly.

(o) Severability . If any provision of this Plan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.

 

13


(p) Awards to Non-U.S. Employees . Awards may be granted to Employees and Directors who are foreign nationals or residents or employed outside the United States, or both, on such terms and conditions different from those applicable to Awards to Employees and Directors who are not foreign nationals or residents or who are employed in the United States as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law, regulations or tax policy. Without limiting the generality of the foregoing, the Committee or the Board, as applicable, are specifically authorized to (i) adopt rules and procedures regarding the conversion of local currency, withholding procedures and handling of stock certificates which vary with local requirements and (ii) adopt sub-plans, Award Agreements and Plan and Award Agreement addenda as may be deemed desirable to accommodate foreign laws, regulations and practice. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s or a Subsidiary’s obligation with respect to tax equalization for Employees on assignments outside their home countries. Notwithstanding the discretion of the Committee under this section, the Participant remains solely liable for any applicable personal taxes.

(q) Repricing Prohibited . Except as provided in Section 4(f), the terms of outstanding Options or Stock Appreciation Rights may not be amended, and action may not otherwise be taken without stockholder approval, to: (i) reduce the exercise price of outstanding Options or Stock Appreciation Rights, (ii) cancel outstanding Options or Stock Appreciation Rights in exchange for Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights, or (iii) replace outstanding Options or Stock Appreciation Rights in exchange for other Awards or cash at a time when the exercise price of such Options or Stock Appreciation Rights is higher than the Fair Market Value of a Share.

(r) Deferral. The Committee may require or permit Participants to elect to defer the issuance of Shares or the settlement of Awards in cash or other property to the extent that such deferral complies with Section 409A of the Code and any regulations or guidance promulgated thereunder. The Committee may also authorize the payment or crediting of interest, dividends or dividend equivalents on any deferred amounts.

(s) Compliance with Section   409A of the Code . Except to the extent specifically provided otherwise by the Committee and notwithstanding any other provision of the Plan, Awards under the Plan are intended to satisfy the requirements of Section 409A of the Code (and the Treasury Department guidance and regulations issued thereunder) so as to avoid the imposition of any additional taxes or penalties under Section 409A of the Code. If the Committee determines that an Award, payment, distribution, transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a Participant to become subject to any additional taxes or other penalties under Section 409A of the Code, then unless the Committee specifically provides otherwise, such Award, payment, distribution, transaction or other action or arrangement shall not be given effect to the extent it causes such result and the related provisions of the Plan and/or Award Agreement will be deemed modified, or, if necessary, suspended in order to comply with the requirements of Section 409A of the Code to the extent determined appropriate by the Committee, in each case without the consent of or notice to the Participant. Although the Company may attempt to avoid adverse tax treatment under Section 409A of the Code, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on holders of Awards under the Plan.

(t) Effect of Headings . The Section headings and subheadings herein are for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.

SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the Plan after [●], but any Award theretofore granted may extend beyond that date. The Plan became effective as of the Company’s separation from Alcoa Inc. on [●].

 

14

Exhibit 10.18

Execution Version

 

 

 

REVOLVING CREDIT AGREEMENT

dated as of September 16, 2016

among

ALCOA UPSTREAM CORPORATION,

as Holdings,

ALCOA NEDERLAND HOLDING B.V.

as the Borrower,

THE LENDERS AND ISSUERS NAMED HEREIN, and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

 

 

JPMORGAN CHASE BANK, N.A.,

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

BANCO BILBAO VIZCAYA ARGENTARIA, S.A. NEW YORK BRANCH,

BNP PARIBAS SECURITIES CORP.,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

BANCO BRADESCO S.A. – NEW YORK BRANCH,

CITIBANK N.A.,

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,

DEUTSCHE BANK SECURITIES INC.,

GOLDMAN SACHS BANK USA,

MORGAN STANLEY SENIOR FUNDING, INC.,

SUMITOMO MITSUI BANKING CORPORATION,

SUNTRUST BANK and

ABN AMRO CAPITAL USA LLC,

as Joint Lead Arrangers and Bookrunners,

CITIBANK N.A.,

as Syndication Agent,

and

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH and

MORGAN STANLEY SENIOR FUNDING, INC.,

as Co-Documentation Agents

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I

 

DEFINITIONS AND CONSTRUCTION

     1   

SECTION 1.01.

 

Defined Terms

     1   

SECTION 1.02.

 

Terms Generally; Accounting Principles

     60   

SECTION 1.03.

 

Exchange Rates; Currency Equivalents

     61   

SECTION 1.04.

 

Rounding-Off

     62   

SECTION 1.05.

 

Pro Forma Calculations

     62   

ARTICLE II

 

THE CREDITS

     63   

SECTION 2.01.

 

Commitments

     63   

SECTION 2.02.

 

Loans

     63   

SECTION 2.03.

 

Notice of Borrowings

     65   

SECTION 2.04.

 

Interest Elections

     65   

SECTION 2.05.

 

Repayment of Loans; Evidence of Debt

     67   

SECTION 2.06.

 

Fees

     68   

SECTION 2.07.

 

Interest on Loans

     70   

SECTION 2.08.

 

Default Interest

     71   

SECTION 2.09.

 

Alternate Rate of Interest

     71   

SECTION 2.10.

 

Termination and Reduction of Commitments

     72   

SECTION 2.11.

 

Prepayment

     72   

SECTION 2.12.

 

Reserve Requirements; Change in Circumstances

     73   

SECTION 2.13.

 

Change in Legality

     75   

SECTION 2.14.

 

Indemnity

     76   

SECTION 2.15.

 

Pro Rata Treatment

     76   

SECTION 2.16.

 

Sharing of Setoffs

     77   

SECTION 2.17.

 

Payments

     77   

SECTION 2.18.

 

Taxes

     78   

SECTION 2.19.

 

Assignment of Loans and Commitments Under Certain Circumstances

     83   

SECTION 2.20.

 

Mitigation

     83   

SECTION 2.21.

 

Extensions of Maturity Date

     84   

SECTION 2.22.

 

Letters of Credit

     86   

SECTION 2.23.

 

Defaulting Lender

     94   

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

     95   

SECTION 3.01.

 

Organization

     95   

SECTION 3.02.

 

Authorization

     96   

SECTION 3.03.

 

Enforceability

     96   

SECTION 3.04.

 

Governmental Approvals

     96   

SECTION 3.05.

 

No Conflict

     96   

SECTION 3.06.

 

Financial Statements

     97   

 

i


TABLE OF CONTENTS

(continued)

 

         Page  

SECTION 3.07.

 

No Defaults

     97   

SECTION 3.08.

 

Litigation and Environmental Matters

     98   

SECTION 3.09.

 

No Material Adverse Change

     98   

SECTION 3.10.

 

Employee Benefit Plans

     98   

SECTION 3.11.

 

Title to Properties; Possession Under Leases; IP

     99   

SECTION 3.12.

 

Investment Company Act

     100   

SECTION 3.13.

 

Tax Returns

     100   

SECTION 3.14.

 

Compliance with Laws and Agreements

     100   

SECTION 3.15.

 

Disclosure; No Material Misstatements

     100   

SECTION 3.16.

 

Use of Proceeds; Federal Reserve Regulations

     101   

SECTION 3.17.

 

Sanctions; Anti-Corruption Laws

     101   

SECTION 3.18.

 

Subsidiaries

     101   

SECTION 3.19.

 

[Reserved]

     101   

SECTION 3.20.

 

Solvency

     102   

SECTION 3.21.

 

Collateral Matters

     102   

SECTION 3.22.

 

Centre of Main Interest and Establishments

     103   

ARTICLE IV

 

CONDITIONS OF EFFECTIVENESS, LENDING, AND LETTERS OF CREDIT

     104   

SECTION 4.01.

 

Effective Date

     104   

SECTION 4.02.

 

Initial Funding Date

     105   

SECTION 4.03.

 

All Borrowings and Issuances of Letters of Credit

     109   

ARTICLE V

 

AFFIRMATIVE COVENANTS

     109   

SECTION 5.01.

 

Financial Statements, Reports, etc

     109   

SECTION 5.02.

 

Notices of Material Events

     112   

SECTION 5.03.

 

Information Regarding Collateral

     112   

SECTION 5.04.

 

Maintenance of Properties

     113   

SECTION 5.05.

 

Obligations and Taxes

     113   

SECTION 5.06.

 

Insurance

     114   

SECTION 5.07.

 

Existence; Businesses and Properties

     114   

SECTION 5.08.

 

Maintenance of Ratings

     115   

SECTION 5.09.

 

Books and Records; Inspection and Audit Rights

     115   

SECTION 5.10.

 

Compliance with Laws

     115   

SECTION 5.11.

 

Use of Proceeds and Letters of Credit

     116   

SECTION 5.12.

 

Additional Subsidiaries

     117   

SECTION 5.13.

 

Further Assurances

     117   

SECTION 5.14.

 

[Reserved]

     118   

SECTION 5.15.

 

Designation of Subsidiaries

     118   

SECTION 5.16.

 

Post-Initial Funding Date Matters

     118   

 

ii


TABLE OF CONTENTS

(continued)

 

         Page  

ARTICLE VI

 

NEGATIVE COVENANTS

     119   

SECTION 6.01.

 

Indebtedness; Certain Equity Securities

     119   

SECTION 6.02.

 

Liens

     124   

SECTION 6.03.

 

Fundamental Changes

     126   

SECTION 6.04.

 

Investments, Loans, Advances, Guarantees and Acquisitions

     128   

SECTION 6.05.

 

Asset Sales

     132   

SECTION 6.06.

 

[Reserved]

     134   

SECTION 6.07.

 

Hedging Agreements and Commercial Agreements

     134   

SECTION 6.08.

 

Restricted Payments; Certain Payments of Indebtedness

     134   

SECTION 6.09.

 

Transactions with Affiliates

     136   

SECTION 6.10.

 

Restrictive Agreements

     137   

SECTION 6.11.

 

Amendment of Material Documents

     139   

SECTION 6.12.

 

Interest Expense Coverage Ratio

     139   

SECTION 6.13.

 

Leverage Ratio

     139   

SECTION 6.14.

 

Changes in Fiscal Periods

     139   

SECTION 6.15.

 

Maintenance of Ownership in AWAC

     139   

SECTION 6.16.

 

Centre of Main Interest

     139   

ARTICLE VII

 

EVENTS OF DEFAULT

     140   

ARTICLE VIII

 

THE ADMINISTRATIVE AGENT

     146   

SECTION 8.01.

 

Authorization and Action

     146   

SECTION 8.02.

 

Administrative Agent’s Reliance, Etc

     148   

SECTION 8.03.

 

Posting of Communications

     149   

SECTION 8.04.

 

The Administrative Agent Individually

     150   

SECTION 8.05.

 

[Reserved]

     151   

SECTION 8.06.

 

Successor Administrative Agent

     151   

SECTION 8.07.

 

Parallel Debt

     152   

SECTION 8.08.

 

Acknowledgements of Lenders and Issuers

     152   

SECTION 8.09.

 

Collateral Matters

     153   

SECTION 8.10.

 

Credit Bidding

     154   

ARTICLE IX

 

MISCELLANEOUS

     155   

SECTION 9.01.

 

Notices

     155   

SECTION 9.02.

 

Survival of Agreement

     156   

SECTION 9.03.

 

Binding Effect

     157   

SECTION 9.04.

 

Successors and Assigns

     158   

SECTION 9.05.

 

Expenses; Indemnity

     163   

SECTION 9.06.

 

Right of Setoff

     165   

SECTION 9.07.

 

Applicable Law

     166   

SECTION 9.08.

 

Waivers; Amendment

     166   

SECTION 9.09.

 

Interest Rate Limitation

     171   

SECTION 9.10.

 

Entire Agreement

     171   

SECTION 9.11.

 

Waiver of Jury Trial

     171   

 

iii


TABLE OF CONTENTS

(continued)

 

         Page  

SECTION 9.12.

 

Severability

     171   

SECTION 9.13.

 

Counterparts

     172   

SECTION 9.14.

 

Headings

     172   

SECTION 9.15.

 

Jurisdiction, Consent to Service of Process

     172   

SECTION 9.16.

 

Conversion of Currencies

     173   

SECTION 9.17.

 

National Security Laws

     173   

SECTION 9.18.

 

Confidentiality

     174   

SECTION 9.19.

 

Release of Liens and Guarantees

     175   

SECTION 9.20.

 

No Fiduciary Relationship

     175   

SECTION 9.21.

 

Non-Public Information

     176   

SECTION 9.22.

 

[Reserved]

     176   

SECTION 9.23.

 

Excluded Swap Obligations

     176   

SECTION 9.24.

 

Acknowledgement and Consent to Bail-In of EEA Financial Institutions

     177   

SECTION 9.25.

 

Dutch CIT Fiscal Unity

     177   

SECTION 9.26.

 

Collateral and Guarantee Principles Relating to US Secured Obligations

     178   

SECTION 9.27.

 

Acknowledgement of Certain Restrictions

     178   

 

iv


TABLE OF CONTENTS

(continued)

 

         Page  
REFERENCES   
EXHIBITS :   

Exhibit A

 

Form of Assignment and Assumption

  

Exhibit B-1

 

Form of Collateral Agreement

  

Exhibit B-2

 

Form of Guarantee Agreement

  

Exhibit C

 

Form of Perfection Certificate

  

Exhibit D

 

Form of Supplemental Perfection Certificate

  

Exhibit E

 

Form of Letter of Credit Request

  

Exhibit F-1

 

Form of U.S. Tax Compliance Certificate for Foreign Lenders that are not Partnerships for U.S. Federal Income Tax Purposes

  

Exhibit F-2

 

Form of U.S. Tax Compliance Certificate for Non-U.S. Participants that are not Partnerships for U.S. Federal Income Tax Purposes

  

Exhibit F-3

 

Form of U.S. Tax Compliance Certificate for Non-U.S. Participants that are Partnerships for U.S. Federal Income Tax Purposes

  

Exhibit F-4

 

Form of U.S. Tax Compliance Certificate for Foreign Lenders that are Partnerships for U.S. Federal Income Tax Purposes

  

Exhibit G

 

Form of Global Intercompany Note

  

Exhibit H

 

Form of Solvency Certificate

  

SCHEDULES :

    

Schedule 1.01(a)

 

Approved Asset Dispositions

  

Schedule 1.01(b)

 

Exclusions from Designated Subsidiaries

  

Schedule 1.01(c)

 

Excluded Assets

  

Schedule 1.01(d)

 

Guaranty and Security Principles

  

Schedule 1.02

 

Mortgaged Properties

  

Schedule 2.01

 

Lenders and Commitments and Letter of Credit Commitments

  

Schedule 3.08

 

Disclosed Matters

  

Schedule 3.18

 

Subsidiaries

  

Schedule 6.01

 

Existing Indebtedness

  

Schedule 6.02

 

Existing Liens

  

Schedule 6.04

 

Existing Investments

  

Schedule 6.10

 

Existing Restrictions

  

Schedule 6.15

 

Existing Shareholdings

  

 

v


REVOLVING CREDIT AGREEMENT dated as of September 16, 2016 (as the same may be amended, modified or supplemented from time to time, the “ Agreement ”), among ALCOA UPSTREAM CORPORATION, a Delaware corporation (“ Holdings ”), ALCOA NEDERLAND HOLDING B.V., a besloten vennootschap met beperkte aansprakelijkheid incorporated under the laws of the Netherlands (the “ Borrower ”), the Lenders (such term and each other capitalized term used but not defined herein having the meaning ascribed thereto in Article I), the Issuers, and JPMORGAN CHASE BANK N.A., as Administrative Agent.

WHEREAS, the Borrower has requested that the Lenders and Issuers make available a revolving credit and letter of credit facility; and

WHEREAS, the proceeds of such revolving credit and letter of credit facility are to be used to provide working capital or for other general corporate purposes; and

WHEREAS, the Lenders and Issuers are willing to make available to the Borrower such revolving credit and letter of credit facility upon the terms and subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS AND CONSTRUCTION

SECTION 1.01. Defined Terms . As used in this Agreement, the following terms shall have the meanings set forth below:

AAHP ” shall mean Alcoa Australian Holdings Pty Ltd., an Australian proprietary limited company.

Adjusted LIBO Rate ” shall mean, with respect to any LIBOR Borrowing for any Interest Period (or, solely for purposes of clause (c) of the defined term “Base Rate”, for purposes of determining the Base Rate as of any date), an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) in the case of Borrowings denominated in Dollars, (i) the LIBO Rate for such Interest Period (or such date, as applicable) multiplied by (ii) the Statutory Reserve Rate and (b) in the case of Borrowings denominated Euros, the LIBO Rate for such Interest Period.

Administrative Agent ” shall mean JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders and Issuers hereunder and under the other Loan Documents, or, as applicable, such Affiliates thereof as it shall from time to time designate for the purpose of performing its obligations hereunder in such capacity, including with respect to any Loan denominated in Euros, J.P. Morgan Europe Limited, and its successors in such capacity as provided in Article VIII.


Administrative Questionnaire ” shall mean an administrative questionnaire in a form supplied by the Administrative Agent.

Affiliate ” shall mean, when used with respect to a specified 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.

Agreement ” shall have the meaning assigned to such term in the preamble hereto.

Alcoa ” shall mean Alcoa Inc., a Pennsylvania corporation. As of the date hereof, Alcoa Inc. is expected to be renamed Arconic Inc. following the consummation of the Spin-Off.

Alcoa Inespal ” shall mean Alcoa Inespal, S.L., a Spanish sociedad limitada.

Alcoa Ma’aden Guarantees ” shall mean any guarantees of the Ma’aden Indebtedness by Alcoa existing as of the Effective Date.

Alcoa Saudi ” shall mean Alcoa Saudi Limited, a Hong Kong limited company.

Alcoa WolinBec ” shall mean Alcoa WolinBec Company, a Canadian corporation.

Anti-Corruption Laws ” shall mean all laws, rules and regulations of any jurisdiction applicable to Holdings or its subsidiaries from time to time concerning or relating to bribery and corruption.

 

2


Applicable Margin ” shall mean, for any day, with respect to any Loan or with respect to the Commitment Fees payable hereunder, the applicable rate per annum set forth below under the caption “Base Rate Spread”, “LIBOR Spread” or “Commitment Fee Rate”, as applicable, based upon the Leverage Ratio as of the end of the fiscal quarter of Holdings for which consolidated financial statements have heretofore been most recently delivered pursuant to Section 5.01(a) or 5.01(b); provided that until the delivery to the Administrative Agent pursuant to Section 5.01(a) or 5.01(b) as of and for the first fiscal quarter beginning after the Initial Funding Date, the Applicable Rate shall be the applicable rate per annum set forth below in Category 3:

 

Leverage Ratio:

  Base Rate
Spread
    LIBOR Spread     Commitment Fee
Rate
 

Category 1

Less than or equal to 0.75 to 1.00

    0.75     1.75     0.225

Category 2

Greater than 0.75 to 1.00 but less than or equal to 1.25 to 1.00

    1.00     2.00     0.300

Category 3

Greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00

    1.25     2.25     0.375

Category 4

Greater than 1.75 to 1.00

    1.50     2.50     0.450

For purposes of the foregoing, each change in the Applicable Rate resulting from a change in the Leverage Ratio shall be effective during the period commencing on and including the date of delivery to the Administrative Agent pursuant to Section 5.01(a) or 5.01(b) of the consolidated financial statements indicating such change and ending on the date immediately preceding the effective date of the next such change; provided that if the foregoing would result in the Applicable Rate being based on Category 1 or Category 2 prior to the date that is six months following the Initial Funding Date, the Applicable Rate shall be based on Category 3 until such date; provided further that the Leverage Ratio shall be deemed to be in Category 4 at the option of the Administrative Agent or at the request of the Required Lenders if the Borrower fails to deliver the consolidated financial statements required to be delivered by it pursuant to Section 5.01(a) or 5.01(b) or the certificate of a Financial Officer required pursuant to Section 5.01(c) during the period from the expiration of the time for delivery thereof until such consolidated financial statements and such certificate are delivered.

Applicant ” shall mean, with respect to any Letter of Credit, whether the applicant thereof is Holdings or the Borrower.

Approved Asset Dispositions ” shall mean the sale or other disposition of the assets set forth on Schedule 1.01(a).

Approved Bank ” shall mean any (a) commercial bank or (b) any other entity regularly engaged in the business of extending revolving credit, in each case of (a) and (b), organized under the laws of the United States or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000.

Approved Electronic Platform ” shall have the meaning assigned to such term in Section 8.03(a).

Approved Fund ” shall mean any Person (other than a natural person and any holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person) that is engaged in making, purchasing, holding or

 

3


investing in commercial loans and similar extensions of credit in the ordinary course of its activities and 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 ” shall mean JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banco Bilbao Vizcaya Argentaria, S.A. New York Branch, BNP Paribas Securities Corp., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Banco Bradesco S.A., New York Branch, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc., Goldman Sachs Bank USA, Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation, SunTrust Bank and ABN AMRO Capital USA LLC, in their capacities as joint lead arrangers and bookrunners.

ASC Alumina ” shall mean ASC Alumina Inc., a Delaware corporation.

Assignment and Assumption ” shall mean an assignment and assumption entered into by a Lender and an assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit A or such other form as shall be approved by the Administrative Agent.

Attributable Receivables Indebtedness ” at any time shall mean the principal amount of Indebtedness which (a) if a Permitted Receivables Facility is structured as a secured lending agreement, would constitute the principal amount of such Indebtedness or (b) if a Permitted Receivables Facility is structured as a purchase agreement, would be outstanding at such time under the Permitted Receivables Facility if the same were structured as a secured lending agreement rather than a purchase agreement.

Available Credit ” shall mean, at any time, (a) the then effective Commitments minus (b) the aggregate Revolving Credit Outstandings at such time.

Available Amount ” shall mean, at any time, (a) the sum of (i) 50% of Consolidated Net Income for the period (taken as one period) beginning on September 30, 2016, to the end of Holding’s most recently ended fiscal quarter for which financial statements have been delivered pursuant to Section 5.01(a) or Section 5.01(b), as applicable, plus (ii) the Net Proceeds from any sale or issuance of Equity Interests (other than Disqualified Equity Interests) of Holdings to the extent such Net Proceeds are received by Holdings, plus (iii) the amount of any investment made using the Available Amount of Holdings, the Borrower or any Restricted Subsidiary in any Unrestricted Subsidiary that has been re-designated as a Restricted Subsidiary or that has been merged, amalgamated or consolidated with or into Holdings, the Borrower or any Restricted Subsidiary; plus (iv) to the extent not otherwise included in the Consolidated Net Income, the aggregate amount of returns of capital to Holdings, the Borrower or any Restricted Subsidiary in respect of investments made pursuant to Section 6.04(w) in reliance on the Available Amount; plus (v) the Net Proceeds of a sale or other disposition of any Unrestricted Subsidiary (including the issuance of stock of an Unrestricted Subsidiary) received by Holdings, the Borrower or any Restricted Subsidiary; plus (vi) to the extent not otherwise included in the Consolidated Net Income, dividends or other

 

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distributions or returns on capital received by Holdings, the Borrower or any Restricted Subsidiary from an Unrestricted Subsidiary (excluding any Specified Investments made under Section 6.04(s) ) minus (b) the sum at such time of investments, loans and advances previously or concurrently made under Section 6.04(w) in reliance on the Available Amount.

AWAC ” shall mean the joint venture known as Alcoa World Alumina and Chemicals among Alcoa and its Affiliates (or, following the Spin-Off Date, Holdings and its Affiliates), on the one hand, and Alumina Limited and its Affiliates, on the other hand, that is operated pursuant to the AWAC Agreements.

AWAC Agreements ” shall mean, collectively, all agreements, understandings, side letters or other arrangements governing AWAC and the respective rights and obligations of the joint venture partners thereof, including (a) each charter, articles or certificate of organization or incorporation and bylaws or other organizational or governing documents of each AWAC Entity, (b) the Formation Agreement, dated December 21, 1994 (c) the Charter of the Strategic Council, dated December 21, 1994, (d) the Letter of Understanding, dated May 16, 1995, and (e) the Amended Enterprise Funding Agreement, dated June 10, 2010, in each case, as such documents may be amended, modified, or otherwise supplemented from time to time (including any proposed amendment, supplement or modification to any AWAC Agreement disclosed by Holdings to the Administrative Agent on or prior to the date hereof).

AWAC Entities ” shall mean, collectively, each of the existing or subsequently acquired or organized entities through which AWAC is operated.

AWAC Parents ” shall mean, collectively, each existing or subsequently acquired or organized subsidiary of Holdings, other than any AWAC Entity, that directly holds Equity Interests in any AWAC Entity.

Bail-In Action ” shall mean 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 ” shall mean, 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.

Bankruptcy Code ” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, or any successor statute.

 

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Base Rate ” shall mean, for any period, the rate determined by the Administrative Agent as the fluctuating interest rate per annum as shall be in effect from time to time, which rate per annum shall be equal at all times to the highest of the following:

(a) the rate of interest announced publicly by the Administrative Agent at its principal office in New York, New York, from time to time, as its prime rate for loans denominated in Dollars;

(b) 0.5% per annum plus the NYFRB Rate; and

(c) the Adjusted LIBO Rate for a one-month Interest Period commencing on such day (or if such day is not a Business Day, the immediately preceding Business Day) for deposits in Dollars plus 1.0% per annum.

If the Administrative Agent shall have reasonably determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the NYFRB Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, then the Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the prime rate referred to in clause (a) of this definition, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change.

Base Rate Borrowing ” shall mean a Borrowing comprised of Base Rate Loans.

Base Rate Loan ” shall mean any Loan bearing interest at a rate determined by reference to the Base Rate in accordance with the provisions of Article II.

Board ” shall mean the Board of Governors of the Federal Reserve System of the United States.

Borrower ” shall have the meaning assigned to such term in the preamble hereto.

Borrowing ” shall mean any group of Loans of a single Type made by the Lenders, converted or continued on a single date and as to which a single Interest Period is in effect.

Business Day ” shall mean a day of the year on which banks are not required or authorized to close in New York City and if the applicable Business Day relates to notices, determinations, fundings and payments in connection with (a) the LIBO Rate or any LIBOR Loan, such day that is also a day on which deposits in Dollars are carried on in the London interbank market and (b) a Borrowing denominated in Euros, such day that is also a TARGET Date.

Cash Management Services ” shall mean the treasury management services (including controlled disbursements, zero balance arrangements, cash sweeps, employee credit or purchase card programs, automated clearinghouse transactions, return items, overdrafts, temporary advances, interest and fees and interstate depository network services, foreign exchange, netting and currency management services and any other demand deposit or operating account relationships or other cash management services) provided to Holdings, the Borrower or any Restricted Subsidiary.

 

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Capital Lease Obligations ” of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. For purposes of Section 6.02 , a Capital Lease Obligation shall be deemed to be secured by a Lien on the property being leased and such property shall be deemed to be owned by the lessee.

Change in Law ” shall mean the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption of 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, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives promulgated thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or 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, CRD IV or CRR, in each case shall be deemed to be a “Change in Law”, regardless of the date enacted, adopted, promulgated or issued.

CLO ” shall have the meaning assigned to such term in Section 9.04(b).

Code ” shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time.

Collateral ” shall mean any and all assets, whether real or personal, tangible or intangible, on which Liens are granted or purported to be granted pursuant to the Security Documents as security for any of the Secured Obligations, but which shall exclude any Excluded Assets.

Collateral Agreement ” shall mean the Collateral Agreement among Holdings, the Borrower, the Subsidiary Loan Parties party thereto and the Administrative Agent, substantially in the form of Exhibit B-1 , with such revisions as may be agreed between the Borrower and the Administrative Agent.

Collateral and Guarantee Requirement ” shall mean, at any time, the requirement that

 

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(a) The Administrative Agent shall have received the following:

(i) from Holdings, the Borrower and each other Designated Subsidiary a counterpart of the Guarantee Agreement duly executed and delivered on behalf of such Person or in the case of any Person that becomes a Designated Subsidiary after the Initial Funding Date, a supplement to the Guarantee Agreement, in the form specified therein, duly executed and delivered on behalf of such Person, together with the opinions and documents of the type referred to in paragraphs (a) and (b) of Section 4.02 with respect to such Person; provided , however , that US Secured Obligations shall only be guaranteed by US Obligations Loan Parties, and Global Secured Obligations shall be guaranteed by US Obligations Loan Parties and each other Loan Party;

(ii) from Holdings, the Borrower and each Designated Subsidiary that (A) is a US Obligations Loan Party (other than Aluminerie Lauralco, Sàrl), (B) holds Equity Interests of any Subsidiary organized in a US Jurisdiction or (C) owns material Collateral located in a US Jurisdiction, a counterpart of the Collateral Agreement duly executed and delivered on behalf of such Person (or in the case of any Person that meets such qualifications in clauses (A), (B) or (C) after the Initial Funding Date, a supplement to the Collateral Agreement, in the form specified therein), duly executed and delivered on behalf of such person, together with the opinions and documents of the type referred to in paragraphs (a) and (b) of Section 4.02 with respect to such Person; provided , however , that only US Collateral shall secure US Secured Obligations, and Non-US Collateral and US Collateral shall secure Global Secured Obligations; and

(iii) from Holdings, the Borrower and each Designated Subsidiary that (A) is not organized in a US Jurisdiction or (B) holds Equity Interests of any Foreign Subsidiary organized in a Specified Collateral Jurisdiction other than the United States that is a Material Subsidiary and not otherwise exempted from being pledged pursuant to the Guaranty and Security Principles, a counterpart of a Foreign Mortgage (to the extent such Person owns a Mortgaged Property), Foreign Security Agreement or Foreign Pledge Agreement governed by the laws of a Specified Collateral Jurisdiction (or in the case of any Person that meets such qualifications in clauses (A) or (B) after the Initial Funding Date, a supplement to a, or new, Foreign Mortgage (to the extent such Person owns a Mortgaged Property), Foreign Security Agreement or Foreign Pledge Agreement governed by the laws of a Specified Collateral Jurisdiction) in each case, subject to the Guaranty and Security Principles and in each case duly executed and delivered by or on behalf of such Person, together with the opinions and documents of the type referred to in paragraphs (a) and (b) of Section 4.02 with respect to such Person; provided , however , that (x) only US Collateral shall secure US Secured Obligations, and Non-US Collateral and US Collateral shall secure Global Secured Obligations and (y) US Secured Obligations shall only be guaranteed by US Obligations Loan Parties and Global Secured Obligations shall be guaranteed by US Obligations Loan Parties and each other Loan Party.

(b) all outstanding Equity Interests of (i) the Borrower, (ii) each AWAC Parent, (iii) Aluminerie Lauralco, Sàrl and (iv) each other Material Subsidiary to

 

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the extent held by a Loan Party, shall have been pledged, in each case, pursuant to an appropriate Security Document described in paragraph (a) above (to be governed by the laws of the applicable issuer’s jurisdiction to the extent constituting a Specified Collateral Jurisdiction), and the Administrative Agent shall, to the extent required by the applicable Security Document, have received certificates or other instruments representing all such Equity Interests, together with undated stock powers or other instruments of transfer with respect thereto endorsed in blank;

(c) all Indebtedness of Holdings, the Borrower and each Restricted Subsidiary, in each case, that is owing to any Loan Party shall be evidenced by a promissory note, which may be the Global Intercompany Note, which in each case shall have been pledged pursuant to an appropriate Security Document described in paragraph (a), and the Administrative Agent shall have received such Global Intercompany Note and any other promissory notes, together with undated instruments of transfer with respect thereto endorsed in blank; provided , however , that only any portions thereof constituting US Collateral shall secure the US Secured Obligations, and any portions thereof constituting Non-US Collateral or US Collateral shall secure the Global Secured Obligations;

(d) all documents and instruments, including Uniform Commercial Code financing statements and other similar documents and instruments, required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create the Liens intended to be created by the Security Documents and perfect such Liens to the extent required by, and with the priority required by, the Security Documents, shall have been filed, registered or recorded or delivered to the Administrative Agent for filing, registration or recording;

(e) the Administrative Agent shall have received (i) counterparts of a Mortgage with respect to each Mortgaged Property duly executed, acknowledged and witnessed and delivered by the record owner of such Mortgaged Property, (ii) a lender’s policy or policies of title insurance issued by a nationally recognized title insurance company (to the extent customarily available in the applicable jurisdiction) insuring the Lien of each such Mortgage for a value reasonably agreed to between the Administrative Agent and Holdings for each such Mortgaged Property (without requirement of delivery of an appraisal or other third-party valuation) as a valid and enforceable first Lien on the Mortgaged Property described therein, free of any other Liens except, other than with respect to any judgment liens, as permitted by Section 6.02, together with such endorsements, coinsurance and reinsurance as the Administrative Agent may reasonably request, provided , however that in no event shall the aggregate amount of such policies of title insurance exceed the maximum principal balance of the Loans, (iii) a completed standard “life of loan” flood hazard determination form with respect to each Mortgaged Property on which a “Building” (as defined in 12 CFR Chapter III, Section 339.2) is located (together with a notice about special flood hazard area status and flood disaster assistance duly executed by Holding or the Borrower), (iv) if any Mortgaged Property on which a “Building” (as defined in 12 CFR Chapter III, Section 339.2) is located in an area determined by the Federal Emergency Management Agency to have special flood hazards, evidence of such flood insurance as may be required under applicable law,

 

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including Regulation H of the Board, and (v) such surveys (it being agreed that delivery of neither a new survey nor an update to an existing survey shall be required in any jurisdiction where the Title Company will issue a lender’s Title Policy with the standard survey exception omitted from such Title Policy without requiring delivery of any survey) and local counsel legal opinions as the Administrative Agent may reasonably request with respect to any such Mortgage or Mortgaged Property, provided , however , with respect to Mortgaged Property located outside of a US Jurisdiction, (A) the documents in clause (ii) through (v) of this paragraph shall only be required to the extent it is customary market practice for Mortgages in the applicable jurisdiction, and (B) such Mortgages shall be subject to the Guaranty and Security Principles; provided , further , however , that only the Mortgaged Properties constituting US Collateral shall secure the US Secured Obligations, and Mortgaged Properties constituting US Collateral or Non-US Collateral shall secure the Global Secured Obligations;

(f) the Administrative Agent shall have received a counterpart, duly executed and delivered by the applicable Loan Party and the applicable depositary bank or securities intermediary, as applicable, of a Control Agreement with respect to (i) each deposit account maintained by any Loan Party with any depositary bank (other than any Excluded Deposit Account) and (ii) each securities account maintained by any Loan Party with any securities intermediary (other than any Excluded Securities Account), in each case, to the extent such account is located in a US Jurisdiction or any other Specified Collateral Jurisdiction; provided , however , that only such deposit accounts constituting US Collateral shall secure US Secured Obligations, and such deposit accounts constituting US Collateral or Non-US Collateral shall secure the Global Secured Obligations; and

(g) each Loan Party shall have obtained all consents and approvals required to be obtained by it in connection with the execution and delivery of all Security Documents to which it is a party, the performance of its obligations thereunder and the granting by it of the Liens thereunder, except such consents for which the failure to obtain would not reasonably be expected to have a materially adverse effect on the validity, grant, perfection or priority of the security interests purported to be granted to the extent required under the Security Documents.

The foregoing definition:

(i) shall not require the creation or perfection of pledges of or security interests in, or the obtaining of title insurance, legal opinions or other deliverables (solely with respect to Mortgaged Property located in a US Jurisdiction, other than any deliverables required under clause (e)(iii) or (e)(iv) of this definition) with respect to, particular assets of the Loan Parties (other than with respect to pledges of the Equity Interests in any AWAC Parent), or the provision of Guarantees by any Designated Subsidiary, if and for so long as the Administrative Agent, in consultation with the Borrower, reasonably determines that the burden or cost of creating or perfecting such pledges or security interests in such assets, or obtaining such title insurance, legal opinions or other deliverables in respect of such assets, or providing such Guarantees (taking into account any adverse tax

 

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consequences (including the imposition of withholding or other material Taxes on Lenders)), shall be excessive in view of the practical benefits to be obtained by the Lenders therefrom or would result in material adverse tax consequences to Holdings and its Affiliates;

(ii) shall not require control agreements or perfection by “control” with respect to Equity Interests (other than in respect of any certificated Equity Interests that are required to be pledged pursuant to this definition);

(iii) shall not require landlord waivers, estoppels, collateral access agreements or similar rights;

(iv) shall not require that any actions be taken to create or perfect any security interest in the Collateral in any jurisdiction other than any US Jurisdiction and any other Specified Collateral Jurisdiction (it being understood that there shall be no Security Documents governed under the laws of any jurisdiction other than any US Jurisdiction or any other Specified Collateral Jurisdiction);

(v) shall not require the creation or perfection of pledges of or security interests in, or the obtaining of title insurance, legal opinions or other deliverables with respect to, particular assets of the Loan Parties (other than with respect to pledges of the Equity Interests in any AWAC Parent), or the provision of Guarantees by any Designated Subsidiary (A) to the extent exempted pursuant to the Guaranty and Security Principles or (B) to the extent such asset is an “Excluded Asset”.

All security interests and guarantees provided by any Foreign Subsidiary shall be subject to the Guaranty and Security Principles. The Administrative Agent may grant extensions of time for the creation and perfection of security interests in or the obtaining of title insurance, legal opinions or other deliverables with respect to particular assets or the provision of Guarantees by any Designated Subsidiary (including extensions beyond the Initial Funding Date or in connection with assets acquired, or Subsidiaries formed or acquired, after the Initial Funding Date) where it reasonably determines that such action cannot be accomplished without undue effort or expense by the time or times at which it would otherwise be required to be accomplished by this Agreement or the Security Documents. Notwithstanding anything to the contrary herein, (x) the guarantors of US Secured Obligations shall be limited to the US Obligations Loan Parties, (y) Collateral for the US Secured Obligations shall be limited to the US Collateral, and (z) the creation or perfection of pledges of or security interests in the assets of any joint venture entities (including the AWAC Entities) and the Equity Interests of any AWAC Entities shall not be required, and no AWAC Entities shall be required to grant any guarantees with respect to the Secured Obligations.

Commercial Agreement ” shall mean any commodity prepayment contract, contract with payment or performance delays or any other equivalent agreement, in each case, relating to a commodity transaction that is not a Hedging Agreement, resulting in a performance risk or credit exposure, as applicable.

 

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Commercial Tort Claim ” shall have the meaning specified in the New York UCC.

Commitment ” shall mean, with respect to each Lender, the commitment of such Lender to make Loans and acquire interests in Letters of Credit as set forth in this Agreement in the aggregate principal amount not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in any Assignment and Assumption pursuant to which such Lender first becomes a Lender hereunder, as the same may be terminated or reduced from time to time pursuant to Section 2.10 (“ Termination and Reduction of Commitments ”), Article VII (“ Events of Default ”) or Section 9.04 (“ Successors and Assigns ”) or extended pursuant to Section 2.21 (“ Extensions of Maturity Date ”). As of the date hereof, the aggregate amount of Commitments is $1,500,000,000.

Commitment Fee ” shall have the meaning assigned to such term in Section 2.06(a).

Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.).

Communications ” shall mean, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to this Agreement or any other Loan Document or the transactions contemplated herein or therein that is distributed to the Administrative Agent, any Lender or any Issuer by means of electronic communications pursuant to Section 8.03 or Section 9.01, including through the Approved Electronic Platform.

Consolidated Cash Interest Expense ” shall mean, for any period, the excess of (a) the sum of, without duplication,

(i) the interest expense in connection with Indebtedness of the type set forth in clauses (a), (b), (c) and (f) of the definition of “Indebtedness” and including imputed interest expense in respect of Capital Lease Obligations, of Holdings, the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, to the extent paid in cash,

(ii) any interest or other financing costs accrued during such period in respect of Indebtedness of the type specified in clause (i) above of Holdings, the Borrower or any Restricted Subsidiary that is required to be capitalized rather than included in consolidated interest expense of Holdings for such period in accordance with GAAP,

(iii) any cash payments made during such period in respect of obligations referred to in clause (b)(ii) below that were amortized or accrued in a previous period,

 

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minus (b) the sum of, without duplication,

(i) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization or write-off of capitalized interest or other financing costs (including legal and accounting costs) paid in a previous period,

(ii) to the extent included in such consolidated interest expense for such period, non-cash amounts attributable to amortization of debt discounts or accrued interest payable in kind for such period,

(iii) to the extent included in such consolidated interest expense for such period, one-time expenses in connection with the Transactions and the issuance of the Senior Unsecured Debt and other incurrences of Indebtedness or issuances of Equity Interests, and

(iv) interest income of Holdings, the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

Consolidated Cash Interest Expense shall be deemed to be (a) for the four fiscal quarter period ended December 31, 2016, Consolidated Cash Interest Expense for the period from the Initial Funding Date to and including December 31, 2016, multiplied by a fraction equal to (x) 365 divided by (y) the number of days actually elapsed from the Initial Funding Date to December 31, 2016, (b) for the four fiscal quarter period ended March 31, 2017, Consolidated Cash Interest Expense for the period from the Initial Funding Date to and including March 31, 2017, multiplied by a fraction equal to (x) 365 divided by (y) the number of days actually elapsed from the Initial Funding Date to March 31, 2017, (c) for the four fiscal quarter period ended June 30, 2017, Consolidated Cash Interest Expense for the period from the Initial Funding Date to and including June 30, 2017, multiplied by a fraction equal to (x) 365 divided by (y) the number of days actually elapsed from the Initial Funding Date to June 30, 2017 and (d) for the four fiscal quarter period ended September 30, 2017, Consolidated Cash Interest Expense for the period from the Initial Funding Date to and including September 30, 2017, multiplied by a fraction equal to (x) 365 divided by (y) the number of days actually elapsed from the Initial Funding Date to September 30, 2017.

Consolidated EBITDA ” shall mean, for any period, Consolidated Net Income for such period plus (a) without duplication and to the extent deducted in determining such Consolidated Net Income, the sum of

(i) consolidated interest expense for such period,

(ii) consolidated income tax expense for such period,

(iii) all amounts attributable to depreciation and amortization for such period (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period), and any impairment charges or write-offs with respect to goodwill and other intangible assets (but excluding any charge or write-off with respect to an item that was included in Consolidated Net Income in a prior period),

 

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(iv) non-recurring non-cash charges for such period (but excluding any such non-cash charge in respect of an item that was included in Consolidated Net Income in a prior period and any such charge that results from the write-down or write-off of inventory) and any non-cash expenses or charges recorded in accordance with GAAP relating to currency valuation of foreign denominated debt,

(v) fees and expenses incurred during such period in connection with the Transactions and the issuance of the Senior Unsecured Debt,

(vi) fees and expenses incurred during such period in connection with any proposed or actual issuance, extinguishment, repayment, refinancing or amendment of any Indebtedness or issuance of Equity Interests, or any proposed or actual acquisitions,

(vii) non-recurring integration expenses in connection with acquisitions, or any charges, out-of-pocket costs and expenses incurred during such period in respect of restructurings, plant closings, headcount reductions, consolidation, separation or closure of facilities, cost saving initiatives or other similar actions, including severance charges in respect of employee terminations, in an amount not to exceed 15% of Consolidated EBITDA during any one fiscal year of Holdings,

(viii) non-cash expenses during such period resulting from the grant of stock options or other equity-related incentives to any director, officer or employee of Holdings, the Borrower or any Restricted Subsidiary pursuant to a written plan or agreement approved by the board of directors of Holdings,

(ix) non-cash exchange, translation or performance losses during such period relating to any Hedging Agreements and any non-cash expenses or charges recorded in accordance with GAAP relating to currency valuation of foreign denominated debt,

(x) any losses during such period attributable to early extinguishment of Indebtedness or obligations under any Hedging Agreement, and any non-cash charges or unrealized losses during such period attributable to the application of “mark-to-market” accounting in respect of any Hedging Agreement,

(xi) any losses during such period resulting from the sale or disposition of any asset of Holdings, the Borrower or any Restricted Subsidiary outside the ordinary course of business,

(xii) the cumulative effect of a change in accounting principles,

(xiii) extraordinary expenses or charges for such period,

(xiv) any net income (loss) attributable to any non-controlling interests; and

(xv) one-time out-of-pocket transactional costs and expenses relating to Permitted Acquisitions or other Investments not prohibited under Section 6.04, Investments outside the ordinary course of business and any dispositions (regardless of whether consummated), including legal fees, advisory fees and upfront financing fees.

 

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provided that any cash payment made with respect to any noncash items added back in computing Consolidated EBITDA for any prior period pursuant to this clause (a) (or that would have been added back had this Agreement been in effect during such period) shall be subtracted in computing Consolidated EBITDA for the period in which such cash payment is made,

and minus (b) without duplication and to the extent included in determining such Consolidated Net Income, the sum of

(i) any extraordinary gains for such period,

(ii) any non-cash gains for such period (other than any such non-cash gains (A) in respect of which cash was received in a prior period or will be received in a future period and (B) that represent the reversal of any accrual in a prior period for, or the reversal of any cash reserves established in a prior period for, anticipated cash charges),

(iii) non-cash exchange, translation or performance gains relating to any foreign currency hedging transactions or currency fluctuations,

(iv) any income relating to defined benefits pension or post-retirement benefit plans,

(v) all gains during such period resulting from the sale or disposition of any asset of the Borrower or any Restricted Subsidiary outside the ordinary course of business,

(vi) any gains during such period attributable to early extinguishment of Indebtedness or obligations under any Hedging Agreement, and any non-cash gains or unrealized gains during such period attributable to the application of “mark-to-market” accounting in respect of any Hedging Agreement,

(vii) the cumulative effect of a change in accounting principles, all determined on a consolidated basis in accordance with GAAP, and

(viii) solely for purposes of the calculation set forth in Section 6.12, interest income of Holdings, the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

Consolidated EBITDA shall be $313,000,000, $156,000,000 and $304,000,000 for the fiscal quarters ended December 31, 2015, March 31, 2016, and June 30, 2016, respectively.

 

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Consolidated Net Income ” shall mean, for any period, the net income or loss of Holdings, the Borrower and the Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded:

(a) the income of any Person (other than Holdings and the Borrower) that is not a consolidated Restricted Subsidiary, except to the extent of the amount of cash dividends or other cash distributions actually paid by such Person to Holdings, the Borrower or any consolidated Restricted Subsidiary during such period,

(b) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets or investments in debt and equity securities or as a result of a change in law or regulation, in each case, pursuant to GAAP and the amortization of intangibles arising pursuant to GAAP (other than, in any case, the write-off or write-down of inventory),

(c) stock-based award compensation expenses.

In addition, to the extent not already included in Consolidated Net Income, Consolidated Net Income shall include the amount of proceeds received from business interruption insurance or reimbursement of expenses and charges that are covered by indemnification and other reimbursement provisions in connection with any Permitted Acquisitions or other investment or any disposition of any asset permitted hereunder.

Consolidated Net Worth ” shall mean, at any time, the consolidated net worth of Holdings and its consolidated subsidiaries at such time (including minority interests), computed and consolidated in accordance with GAAP.

Consolidated Total Assets ” shall mean, as of any date, the total amount of assets of Holdings, the Borrower and the Restricted Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP.

Control ” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies, or the dismissal or appointment of the management, of a Person, whether through the ownership of Voting Stock, by contract or otherwise, and “ Controlling ” and “ Controlled ” shall have meanings correlative thereto.

Control Agreement ” shall mean, with respect to any deposit account or securities account maintained by any Loan Party, a control agreement or similar agreement or acknowledgment to the extent required to create, perfect or maintain the priority of the Administrative Agent’s security interest in any account located in a US Jurisdiction or any other Specified Collateral Jurisdiction, in each case, in form and substance reasonably satisfactory to the Administrative Agent, duly executed and delivered by such Loan Party and the depositary bank or the securities intermediary, as the case may be, with which such account is maintained.

CRD IV ” means Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directive 2006/48/EC and 2006/49/EC.

 

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Credit Party ” shall mean the Administrative Agent, each Issuer and each Lender.

CRR ” means the Council Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012.

Default ” shall mean any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, constitute an Event of Default.

Defaulting Lender ” shall mean, at any time, subject to Section 2.23, (a) any Lender that has failed for two or more Business Days to comply with its obligations under this Agreement to (i) make a Loan, (ii) make a payment to an Issuer in respect of a Letter of Credit or (iii) make any other payment due to a Credit Party hereunder (each a “ funding obligation ”), unless, in the case of clause (i) above, such Lender has notified the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding has not been satisfied (which conditions precedent, together with the applicable default, if any, will be specifically identified in such writing) or is the subject of a specifically identified good faith dispute, (b) any Lender that has notified Holdings, the Borrower or any Credit Party in writing, or has stated publicly, that it does not intend to comply with its funding obligations hereunder, unless such writing or statement states that such position is based on such Lender’s determination that one or more conditions precedent to funding cannot be satisfied (which conditions precedent, together with the applicable default, if any, will be specifically identified in such writing or public statement), or generally under other loan agreements or credit agreements or other similar/other financing agreements, (c) any Lender that has, for three or more Business Days after written request of the Administrative Agent or the Borrower, failed to confirm in writing to the Administrative Agent or the Borrower that it will comply with its prospective funding obligations hereunder ( provided , that such Lender will cease to be a Defaulting Lender pursuant to this clause (c) upon the Administrative Agent’s or the Borrower’s receipt of such written confirmation), (d) any Lender with respect to which a Lender Insolvency Event has occurred and is continuing with respect to such Lender or its Parent Company or (e) any Lender that has, or has a Parent Company that has, become the subject of a Bail-In Action ( provided , in each case, that neither the reallocation of funding obligations provided for in Section 2.23 as a result of a Lender being a Defaulting Lender nor the performance by Non-Defaulting Lenders of such reallocated funding obligations will by themselves cause the relevant Defaulting Lender to become a Non-Defaulting Lender). Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any of clauses (a) through (e) above will be conclusive and binding absent manifest error, and such Lender will be deemed to be a Defaulting Lender (subject to Section 2.23) upon notification of such determination by the Administrative Agent to the Borrower, each Issuer and each other Lender.

 

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Designated Non-Cash Consideration ” shall mean the fair market value of non-cash consideration received by the Borrower or a Restricted Subsidiary in connection with a disposition pursuant to Section 6.05 that is designated as Designated Non-Cash Consideration pursuant to a certificate of an executive 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).

Designated Subsidiary ” shall mean, subject to the Guaranty and Security Principles in all cases, each wholly owned Subsidiary other than:

(a) an Unrestricted Subsidiary;

(b) a Restricted Subsidiary that is not a Material Subsidiary;

(c) a Restricted Subsidiary that is a (i) captive insurance company, (ii) not-for-profit entity, (iii) special purpose entity, (iv) joint venture, (v) a Receivables Entity or (vi) broker-dealer, in each case, pursuant to transactions not prohibited by this Agreement;

(d) a Restricted Subsidiary prohibited or restricted by applicable law or by contract from providing the Guarantee required by the Collateral and Guarantee Requirement (including any requirement to obtain the consent of any governmental authority or third party (other than Holdings, the Borrower and the Subsidiaries), unless such consent has been received), but in any event, only for so long as and to the extent such restriction exists, and with respect to any contractual restriction, only to the extent permitted under this Agreement and existing on the Initial Funding Date or on the date the applicable Person becomes a Subsidiary or Restricted Subsidiary and not entered into in contemplation of the entry into this Agreement or of becoming a Subsidiary or Restricted Subsidiary;

(e) a Restricted Subsidiary with respect to which the Borrower and the Administrative Agent reasonably determine that the burden or cost (including any adverse tax consequences) of obtaining the Guarantee required by the Collateral and Guarantee Requirement from such Restricted Subsidiary would be excessive in view of the benefits to be obtained by the Lenders therefrom;

(f) any Restricted Subsidiary located in any jurisdiction other than a Specified Collateral Jurisdiction; and

(g) each Restricted Subsidiary listed in Schedule 1.01(b);

provided that, notwithstanding the foregoing clauses (a) through (g), Holdings and each existing or subsequently acquired or organized subsidiary of Holdings that directly holds Equity Interests in any AWAC Parent shall be deemed to be a Designated Subsidiary.

Determination Date ” shall mean (a) the Initial Funding Date, (b) the last Business Day of each calendar quarter, (c) each date (with such date to be reasonably

 

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determined by the Administrative Agent) that is on or about the date of (i) a Borrowing request or an Interest Election Request with respect to any Loan, (ii) the Issuance of a Letter of Credit or (iii) a Reimbursement Date, (d) if an Event of Default has occurred and is continuing, any other Business Day as determined by the Administrative Agent in its sole discretion and (e) any other Business Day as determined by the Administrative Agent in its reasonable discretion.

Disclosed Matter ” shall have the meaning assigned to such term in Section 3.08.

Disqualified Equity Interest ” shall mean any Equity Interest that (a) requires the payment of any dividends (other than dividends payable solely in shares of Qualified Equity Interests); (b) matures or is mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase at the option of the holders thereof, in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise, prior to the date that is 91 days after the Latest Maturity Date (determined as of the date of issuance thereof or, in the case of any such Equity Interests outstanding on the date hereof, as of the date hereof), other than (i) upon payment in full of the Loan Document Obligations, reduction of the Letter of Credit Obligations to zero and termination of the Commitments or (ii) upon a “change in control”; provided that any payment required pursuant to this clause (ii) is contractually subordinated in right of payment to the Loan Document Obligations on terms reasonably satisfactory to the Administrative Agent and such requirement is applicable only in circumstances that are market on the date of issuance of such Equity Interests; (c) requires the maintenance or achievement of any financial performance standards other than as a condition to the taking of specific actions or provide remedies to holders thereof (other than voting and management rights and increases in pay-in-kind dividends); or (d) is convertible or exchangeable, automatically or at the option of any holder thereof, into (i) any Indebtedness (other than any Indebtedness described in clause (j) of the definition thereof) or (ii) any Equity Interests or other assets other than Qualified Equity Interests, in each case at any time prior to the date that is 91 days after the Latest Maturity Date (determined as of the date of issuance thereof or, in the case of any such Equity Interests outstanding on the date hereof, as of the date hereof); provided that an Equity Interest in any Person that is issued to any employee or to any plan for the benefit of employees or by any such plan to such employees shall not constitute a Disqualified Equity Interest solely because it may be required to be repurchased by such Person or any of its subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.

Documentary Letter of Credit ” shall mean any Letter of Credit that is drawable upon presentation of documents evidencing the sale or shipment of goods purchased by Holdings, the Borrower or any of the Restricted Subsidiaries in the ordinary course of its business.

Co-Documentation Agents ” shall mean Credit Suisse AG, Cayman Islands Branch and Morgan Stanley Senior Funding, Inc., each in its capacity as co-documentation agent under this Agreement.

 

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Dollar Equivalent ” shall mean (a) with respect to any amount denominated in Dollars, such amount and (b) with respect to any amount denominated in Euros, the equivalent amount thereof in Dollars at such time as determined in accordance with Section 1.03(a) using the Exchange Rate with respect to such currency at the time in effect under the provisions of such Section (except as otherwise expressly provided in Section 2.22(h) (“ Reimbursements ”)).

Dollars ” or “ $ ” shall mean lawful money of the United States.

Domestic Subsidiary ” shall mean any Restricted Subsidiary that is not a Foreign Subsidiary.

Dutch CITA ” shall mean the Dutch Corporate Income Tax Act 1969 ( Wet op de vennootschapsbelasting 1969 ).

Dutch CIT Fiscal Unity ” shall mean a fiscal unity ( fiscale eenheid ) for Dutch corporate income tax purposes (within the meaning of Article 15 of the Dutch CITA).

Dutch Loan Party ” shall mean a Loan Party incorporated under the laws of the Netherlands.

Dutch Security Document ” shall have the meaning assigned to such term in Section 8.07.

EEA Financial Institution ” shall mean (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 institution established in an EEA Member Country which is a subsidiary of an institution described in clause (a) or (b) of this definition and is subject to consolidated supervision with its parent.

EEA Member Country ” shall mean any of the member states of the European Union, Iceland, Liechtenstein and Norway.

EEA Resolution Authority ” shall mean 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 ” shall mean the date on which the conditions specified in Section 4.01 are first satisfied (or waived in accordance with Section 9.08).

Effective Date Form 10 ” means the Form 10 (without giving effect to any amendment, modification or supplement thereto made or filed with the SEC after the date that is three Business Days prior to the Effective Date, other than any such amendments, supplements or modifications that are not material and adverse to the rights or interests of

 

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the Lenders or made with the prior written approval of the Administrative Agent); provided, however, that any such amendments, supplements or modifications shall not be deemed to be material and adverse to the rights or interests of the Lenders if relating to (i) the inclusion of information for which there are placeholders in the Form 10 (as on file with the SEC on the date that is three Business Days prior to the Effective Date), such as the distribution ratio and the distribution and record dates or (ii) the sale of the Yadkin Facility, solely to the extent that the financial impact of any modifications, supplements or amendments pursuant to this clause (ii) were reflected in the projections provided to the Lenders prior to the date of the Engagement Letter.

Effective Date Spin-Off Documents ” means the Spin-Off Documents, the terms of which will be consistent with the Effective Date Form 10 (other than any waiver, amendments or modifications that are not material and adverse to the rights or interests of the Lenders or made with the prior written consent of the Administrative Agent), and any other document to effectuate the Spin-Off that is designated as an Effective Date Spin-Off Document prior to the Initial Funding Date ( provided that such designation would not, as reasonably determined by the Administrative Agent, be material and adverse to the rights or interests of the Lenders).

Electronic Signature ” shall mean an electronic sound, symbol or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.

Eligible Assignee ” shall mean (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person, other than, in each case, a natural person (and any holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person), a Defaulting Lender or Holdings, the Borrower, any Subsidiary or any other Affiliate of Holdings.

Engagement Letter ” shall mean the engagement letter, dated July 19, 2016, between Alcoa and JPMorgan Chase Bank, N.A. and relating to this Agreement.

Environmental Laws ” shall mean all applicable treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to (a) the environment, (b) the preservation or reclamation of natural resources, (c) the generation, use, handling, transportation, storage, treatment, disposal, Release or threatened Release of any Hazardous Material or (d) health and safety matters, including exposure to Hazardous Materials.

Environmental Liability ” shall mean any liability, obligation, loss, claim, action, order or cost, contingent or otherwise (including for any damages, costs of medical monitoring, costs of environmental remediation or restoration, administrative oversight costs, consultants’ or attorneys’ fees, fines, penalties and indemnities), directly or indirectly resulting from or based upon (a) any actual or alleged violation of any applicable Environmental Law or permit, license or approval issued thereunder, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous

 

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Materials, (c) exposure to any Hazardous Materials, (d) the Release or threatened Release of any Hazardous Materials or (e) any contract or binding agreement or order pursuant to which liability is assumed or imposed with respect to any of the foregoing.

Equity Interests ” shall mean shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests (whether voting or non-voting) in, or interests in the income or profits of, a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing (other than, prior to the date of such conversion, Indebtedness that is convertible into Equity Interests).

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

ERISA Affiliate ” shall mean any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and which is treated as a single employer under Section 414 of the Code.

ERISA Event ” shall mean (i) any Reportable Event; (ii) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (iii) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (iv) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (v) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (vi) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vii) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent within the meaning of Title IV of ERISA, or in endangered or critical status within the meaning of Section 305 of ERISA; (viii) the occurrence of a “prohibited transaction” with respect to which Holdings or any of its subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Code) or with respect to which Holdings or any such subsidiary could otherwise be liable; (ix) any other similar event or condition with respect to a Plan or Multiemployer Plan that could result in liability of Holdings, the Borrower or any Restricted Subsidiary and (x) any Foreign Benefit Event.

EU Bail-In Legislation Schedule ” shall mean the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

Euro ” or “ ” shall mean the single currency of participating member states of the European Union.

 

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Event of Default ” shall have the meaning assigned to such term in Article VII.

Exchange Act ” shall mean the United States Securities Exchange Act of 1934.

Exchange Rate ” shall mean, on any day, with respect to the applicable currency (other than Dollars), the rate at which such currency may be exchanged into Dollars, as set forth at approximately 10:00 a.m., Local Time, on such day on the Reuters World Currency Page “FX=” for such currency. In the event that such rate does not appear on any Reuters World Currency Page, then the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Borrower or, in the absence of such agreement, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of such currency are then being conducted, at or about 10:00 a.m., Local Time, on such date for the purchase of Dollars for delivery two Business Days later; provided that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Borrower, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be presumed correct absent manifest error.

Excluded Assets ” shall mean:

(a) the Excluded Equity Interests;

(b) the Excluded Deposit Accounts described in clauses (a) and (d) of the definition thereof;

(c) the Excluded Securities Accounts described in clause (x) of the definition thereof;

(d) motor vehicles and other assets subject to certificates of title (other than to the extent a security interest therein may be perfected by the filing of a financing statement);

(e) any Commercial Tort Claim with a value of less than $15,000,000 or for which no claim has been filed in a court of competent jurisdiction;

(f) any governmental or regulatory licenses, authorizations, certificates, charters, franchises, approvals and consents (whether Federal, State or otherwise) to the extent that and for so long as a security interest therein is prohibited or restricted thereby or requires any consent or authorization from a governmental or regulatory authority that has not been obtained other than to the extent such prohibition or restriction is ineffective under the Uniform Commercial Code or other applicable law notwithstanding such prohibition;

 

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(g) any property to the extent the pledge thereof or grant of security interests therein (x) is prohibited or restricted by any applicable law, rule or regulation, or (y) requires any consent, approval, license or other authorization of any third party ( provided that such requirement existed on the Effective Date or at the time of the acquisition of such property and was not incurred in contemplation of the entry into this Agreement or the acquisition of such property (other than in the case of capital leases and purchase money financings, in each case, that are permitted under the Credit Agreement)) or governmental or regulatory authority, in each case of (x) and (y), other than to the extent such prohibition, restriction or requirement is ineffective under the Uniform Commercial Code or other applicable law notwithstanding such prohibition, restriction or requirement;

(h) any lease, license or agreement (not otherwise subject to clause (f) above) or any property that is subject to a purchase money security interest or similar arrangement, to the extent that and for so long as a grant of a security interest therein (x) would violate or invalidate such lease, license or agreement or purchase money security interest or similar arrangement, in each case, that are permitted under the Credit Agreement or create a right of termination in favor of any other party thereto (other than Holdings, the Borrower or any Subsidiary) after giving effect to the applicable anti-assignment provisions of the Uniform Commercial Code or other applicable law or (y) would require governmental or regulatory approval, consent or authorization (other than to the extent such requirement is ineffective under the Uniform Commercial Code or other applicable law notwithstanding such requirement);

(i) Letter-of-Credit Rights, except to the extent constituting Supporting Obligations of other Collateral;

(j) any intent-to-use trademark application prior to the filing of a “Statement of Use” or “Amendment to Allege Use” with respect thereto, to the extent, if any, that, and solely during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable Federal law;

(k) assets where the burden or cost (including any adverse tax consequences) of obtaining a security interest therein exceeds the practical benefit to the Lenders afforded thereby as reasonably determined between the Borrower and the Administrative Agent;

(l) any assets to the extent a security interest in such assets would result in material adverse tax consequences to Holdings or the Borrower, any direct or indirect parent company of Holdings or the Borrower or any of the Restricted Subsidiaries as reasonably determined by the Borrower and the Administrative Agent;

(m) any assets excluded by application of the Guaranty and Security Principles; and

(n) any assets that are listed on Schedule 1.01(c),

 

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in each case other than (I) any Proceeds, substitutions or replacements of any of the assets described in clauses (a) through (n) (unless any such Proceeds, substitution or replacement would in itself constitute an asset described in clauses (a) through (n)) and (II) Equity Interests issued by any AWAC Parent.

Excluded Deposit Account ” shall mean (a) any deposit account the funds in which are used, in the ordinary course of business, solely for the payment of salaries and wages, workers’ compensation and similar expenses, (b) deposit accounts not falling under any other exception in this definition of Excluded Deposit Accounts, the average daily balance in which does not at any time exceed $10,000,000 for all such accounts in any consecutive thirty day period (other than concentration accounts), (c) any deposit account that is a zero-balance disbursement account, (d) any deposit account the funds in which consist solely of (i) funds held by Holdings, the Borrower or any Restricted Subsidiary in trust for any director, officer or employee of Holdings, the Borrower or any Restricted Subsidiary or any employee benefit plan maintained by Holdings, the Borrower or any Restricted Subsidiary or (ii) funds representing deferred compensation for the directors and employees of Holdings, the Borrower or any Restricted Subsidiary and (e) any account held in any Specified Collateral Jurisdiction other than the United States for which a Control Agreement is not required pursuant to the Guaranty and Security Principles.

Excluded Equity Interests ” shall mean (i) Equity Interests in any Person (other than any wholly owned Subsidiary or any AWAC Parent), to the extent the assignment, pledge and grant requires, pursuant to the constituent documents of such Person or any related joint venture, shareholder or similar agreement binding on any shareholder, partner or member of such Person or applicable law, (a) the consent of any governing body of or Persons (other than of the Borrower or any of its Affiliates) holding Equity Interests in such Person and such consent shall not have been obtained (other than to the extent such requirement is ineffective under the Uniform Commercial Code or other applicable law notwithstanding such requirement) or (b) any notifications to be made to any other shareholder, partner or member of such Person (other than the Borrower or any of its Affiliates), other than general notice filings or notifications in connection with exercise of remedies on and after an Event of Default, in each case, as reasonably determined by Holdings, and (ii) Equity Interests in any AWAC Entities.

Excluded Securities Account ” shall mean any (x) securities account the securities entitlements in which consist solely of (a) securities entitlements held by Holdings, the Borrower or any Restricted Subsidiary in trust for any director, officer or employee of Holdings, the Borrower or any Restricted Subsidiary or any employee benefit plan maintained by Holdings, the Borrower or any Restricted Subsidiary or (b) securities entitlements representing deferred compensation for the directors and employees of Holdings, the Borrower or any Restricted Subsidiary and (y) securities account held in any Specified Collateral Jurisdiction other than the United States for which a Control Agreement is not required pursuant to the Guaranty and Security Principles.

 

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Excluded Swap Guarantor ” shall mean any Subsidiary Loan Party (a) 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) by virtue of such Subsidiary Loan Party’s failure to constitute an “eligible contract participant,” as defined in the Commodity Exchange Act and the regulations thereunder (determined after giving effect to any applicable keepwell, support, or other agreement for the benefit of such Subsidiary Loan Party), at the time the Guarantee of (or grant of such security interest by, as applicable) such Subsidiary Loan Party becomes or would become effective with respect to such Swap Obligation or (b) with respect to which any Swap Obligation has been designated as an “Excluded Swap Obligation” of such Subsidiary Loan Party as specified in any agreement between the Borrower or the Subsidiary Loan Party, on the one hand, and the hedge bank applicable to such Swap Obligation, on the other hand.

Excluded Swap Obligations ” shall mean, with respect to any Subsidiary Loan Party, (a) any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Subsidiary Loan Party of, or the grant by such Subsidiary Loan Party 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 Subsidiary Loan Party’s failure to constitute an “eligible contract participant,” as defined in the Commodity Exchange Act and the regulations thereunder (determined after giving effect to any applicable keepwell, support, or other agreement for the benefit of such Subsidiary Loan Party), at the time the Guarantee of (or grant of such security interest by, as applicable) such Subsidiary Loan Party becomes or would become effective with respect to such Swap Obligation or (b) any other Swap Obligation designated as an “Excluded Swap Obligation” of such Subsidiary Loan Party as specified in any agreement between the Borrower or the Subsidiary Loan Party, on the one hand, and the hedge bank applicable to such Swap Obligation, on the other hand. 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 excluded in accordance with the first sentence of this definition.

Excluded Taxes ” shall mean (i) any Taxes based upon, or measured by, any Lender’s, any Issuer’s, any Transferee’s or the Administrative Agent’s net income, net receipts or net profits (including franchise or similar Taxes imposed in lieu of such Taxes), but only to the extent such Taxes are imposed by a taxing authority (a) in a jurisdiction (or political subdivision thereof) under the laws of which such Lender, Issuer, Transferee or the Administrative Agent is organized or incorporated, (b) in a jurisdiction (or a political subdivision thereof) in which such Lender, Issuer, Transferee or the Administrative Agent is a resident for the purpose of Tax on the basis of its place of effective management being situated therein, (c) in a jurisdiction (or political subdivision thereof) in which such Lender, Issuer, Transferee or the Administrative Agent does business, or (d) in a jurisdiction (or political subdivision thereof) in which such Lender, Issuer, Transferee or the Administrative Agent maintains a lending office (or branch), or

 

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(e) in a jurisdiction (or political subdivision thereof) in which such Lender, Issuer, Transferee or the Administrative Agent is subject to non-resident taxation in respect of amounts received in or from that jurisdiction, inter alia , as a result of such Lender, Issuer, Transferee or the Administrative Agent having a substantial interest ( aanmerkelijk belang ) in one or more of the Loan Parties as laid down in the Dutch Income Tax Act 2001 ( Wet inkomstenbelasting 2001 ), (ii) any franchise Taxes, branch Taxes, branch profits Taxes or any similar Taxes imposed by any jurisdiction (or political subdivision thereof) described in clause (i), (iii) with regard to any Lender, Issuer or Transferee, any withholding Tax of the Netherlands (and in the case of any US Secured Obligations or other Secured Obligations of Holdings or a Domestic Subsidiary, and any United States federal withholding Tax) that is (a) imposed on amounts payable to such Lender, Issuer or Transferee pursuant to a law in effect on the date on which (i) such Lender, Issuer or Transferee acquires an applicable interest in a Loan Document Obligation (other than in the case of an assignment made at the request of the Borrower) or (ii) such Lender designates a new lending office, except in each case to the extent that such Lender, Issuer or Transferee’s predecessor or assignor, as applicable, was entitled to receive such additional amounts pursuant to Section 2.18(a) immediately before such Lender, Issuer, or Transferee acquired the applicable interest or immediately before such Lender changed its lending office, or (b) attributable to such Lender’s, Issuer’s or Transferee’s failure to comply with Section 2.18(g), (h) or (i), as applicable (including, for the avoidance of doubt, any U.S. federal backup withholding), (iv) any Tax that is found in a final, non-appealable judgment by a court of competent jurisdiction to have been imposed solely as a result of any Lender’s, Issuer’s, Transferee’s or the Administrative Agent’s gross negligence or willful misconduct and (v) any withholding Taxes imposed under FATCA.

Excluded US Obligations Payor ” shall mean any Person other than a US Obligations Loan Party.

Existing Maturity Date ” shall have the meaning assigned to such term in Section 2.21(a).

Extended Maturity Effective Date ” shall have the meaning assigned to such term in Section 2.21(b).

Extension Request ” shall have the meaning assigned to such term in Section 2.21(a).

Facility ” shall mean the Commitments and the provisions herein related to the Loans and Letters of Credit.

Factoring Transaction ” means any transaction or series of transactions entered into by Holdings, the Borrower or any Restricted Subsidiary pursuant to which such party consummates a “true sale” of its Receivables to a non-related third party on market terms as determined in good faith by the senior management of Holdings, provided that (i) such Factoring Transaction is non-recourse to Holdings, the Company or any Restricted Subsidiary and their assets, other than any recourse solely attributable to a breach by Holdings, the Borrower or any Restricted Subsidiary of representations and

 

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warranties that are customarily made by a seller in connection with a “true sale” of Receivables on a non-recourse basis, and (ii) such Factoring Transaction is consummated pursuant to customary contracts, arrangements or agreements entered into with respect to the “true sale” of Receivables on market terms of similar factoring transactions.

FATCA ” shall mean Sections 1471 through 1474 of the Code (or any amended or successor provision of the Code that is substantively comparable and not materially more onerous to comply with); any applicable intergovernmental agreement entered into in respect thereof; any current or future regulations, administrative guidance or official interpretations thereof; and any agreement entered into pursuant to Section 1471(b)(1) of the Code.

Federal ” shall refer to the Federal government of the United States.

Federal Funds Rate ” shall mean, for any period, a fluctuating interest rate per annum equal for each day during such period to the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner as the NYFRB shall set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as the federal funds effective rate. Notwithstanding the foregoing, if the Federal Funds Rate shall be less than zero, such rate shall be deemed zero for the purposes of this Agreement.

Financial Officer ” of any Person shall mean the chief financial officer, principal accounting officer, treasurer or controller of such Person. Unless otherwise specified, “Financial Officer” shall mean a Financial Officer of Holdings.

Foreign Benefit Event ” shall mean (a) with respect to any Foreign Pension Plan, (i) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (ii) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (iii) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee to administer any such Foreign Pension Plan, or to the insolvency of any such Foreign Pension Plan and (iv) the incurrence of any liability of Holdings, the Borrower or any Restricted Subsidiary under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein and (b) with respect to any Foreign Plan, (i) the occurrence of any transaction that is prohibited under any applicable law and could result in the incurrence of any liability by Holdings, the Borrower or any Restricted Subsidiary, or the imposition on Holdings, the Borrower or any Restricted Subsidiary of any fine, excise tax or penalty resulting from any noncompliance with any applicable law and (ii) any other event or condition that could reasonably be expected to result in liability of Holdings, the Borrower or any Restricted Subsidiary.

Foreign Pension Plan ” shall mean any benefit plan which under applicable law of any jurisdiction other than the United States is required to be funded through a trust or other funding vehicle other than a trust or funding vehicle maintained exclusively by a Governmental Authority.

 

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Foreign Plan ” shall mean any plan or arrangement established or maintained outside the United States for the benefit of present or former employees of Holdings, the Borrower or any Restricted Subsidiary.

Foreign Mortgage ” shall mean a Mortgage governed by the laws of a jurisdiction other than a US Jurisdiction.

Foreign Pledge Agreement ” shall mean a pledge or charge agreement granting a Lien on Equity Interests in a Foreign Subsidiary in order to, in the case of such Equity Interests constituting US Collateral, secure all the Secured Obligations and in the case of such Equity Interests constituting Non-US Collateral, secure only the Global Secured Obligations, and, in each case, governed by the law of the jurisdiction of organization of such Foreign Subsidiary and in form and substance reasonably satisfactory to the Administrative Agent.

Foreign Security Agreement ” shall mean an agreement (a) granting a Lien on assets owned by any Foreign Subsidiary or (b) providing a guarantee by any Foreign Subsidiary, in each case of (a) and (b), to secure the Global Secured Obligations and/or the US Secured Obligations, as applicable, governed by the law of the jurisdiction of organization of such Foreign Subsidiary and in form and substance reasonably satisfactory to the Administrative Agent, and including each Dutch Security Document.

Foreign Subsidiary ” shall mean any Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia.

Form 10 ” shall mean the registration statement on Form 10, originally filed by Holdings with the SEC on June 29, 2016, as amended on August 12, 2016, September 1, 2016, and September 13, 2016, and as the same may be amended, supplemented or modified on or prior to the date that is three Business Days prior to the Effective Date (including any amendment, supplement or modification disclosed by Holdings to the Lenders in writing on or prior to such date even if such amendment, supplement or modification has not yet been reflected in such registration statement), and, except as otherwise expressly provided herein, as further amended, supplemented or modified pursuant to a filing with the SEC after such date.

GAAP ” shall mean generally accepted accounting principles in the United States as in effect from time to time.

Global Intercompany Note ” shall mean the global intercompany promissory note substantially in the form of Exhibit G pursuant to which intercompany obligations and advances (i) owed by any Loan Party are subordinated to the Secured Obligations and (ii) owed to any Loan Party are pledged to the Administrative Agent as Collateral to secure the Secured Obligations.

 

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Global Secured Cash Management Obligations ” shall mean the due and punctual payment and performance of any and all obligations of the Borrower and each Foreign Subsidiary (whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor)) arising in respect of Cash Management Services provided to any such Person that (a) are owed to the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, or to any person that, at the time such obligations were incurred, was the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, (b) are owed on the Initial Funding Date to a person that is a Lender or an Affiliate of a Lender as of the Initial Funding Date or (c) are owed to a person that is a Lender or an Affiliate of a Lender at the time such obligations are incurred.

Global Secured Commercial Obligations ” shall mean all Secured Commercial Obligations that are not US Secured Commercial Obligations.

Global Secured Hedging Obligations ” shall mean all Secured Hedging Obligations that are not US Secured Hedging Obligations.

Global Secured Obligations ” shall mean, collectively, (a) all the Loan Document Obligations (other than the US Loan Document Obligations), (b) all the Global Secured Cash Management Obligations, (c) all the Global Secured Hedging Obligations and (d) all the Global Secured Commercial Obligations. For avoidance of doubt, the Global Secured Obligations shall not include any US Secured Obligations.

Governmental Authority ” shall mean any nation, sovereign or government, any state, province or other political subdivision thereof and any entity or authority exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, including any central bank or stock exchange.

Grupiara ” means Grupiara Participacoes SA, a Brazilian sociedade anônima.

Guarantee ” of or by any Person (the “ guarantor ”) shall mean any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable by another Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or advance or supply funds for the purchase or payment of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or other obligation; provided , however , that the term “Guarantee” shall not include endorsements for collection or deposit, in either case in the ordinary course of business or

 

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customary and reasonable indemnity obligations in effect on the Initial Funding Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount, as of any date of determination, of any Guarantee shall be the principal amount outstanding on such date of the Indebtedness guaranteed thereby (or, in the case of (i) any Guarantee the terms of which limit the monetary exposure of the guarantor or (ii) any Guarantee of an obligation that does not have a principal amount, the maximum monetary exposure as of such date of the guarantor under such Guarantee (as determined, in the case of clause (i), pursuant to such terms or, in the case of clause (ii), reasonably and in good faith by a Financial Officer)). The term “Guarantee” used as a verb has a corresponding meaning.

Guarantee Agreement ” means (i) the Guarantee Agreement among Holdings, Borrower and each other Loan Party required to execute a guarantee under the Collateral and Guarantee Requirement, substantially in the form of Exhibit B-2, and (ii) with respect to any Foreign Subsidiary to the extent not a party to the Guarantee Agreement under clause (i), any other written guarantee of payment and performance substantially similar to the Guarantee Agreement described in clause (i) in form and substance as reasonably requested by the Administrative Agent, in each case, as such form may be modified to account for changes that are necessary, based on the advice of counsel for the Borrower and the Administrative Agent, as a result of requirements or limitations under any laws applicable to the Subsidiary Loan Parties that are Foreign Subsidiaries, or otherwise as agreed between the Borrower and the Administrative Agent.

Guaranty and Security Principles ” shall mean the principles pursuant to which Collateral and guarantees from Designated Subsidiaries located outside of the United States shall be provided, as set forth in Schedule 1.01(d) hereto.

Hazardous Materials ” shall mean all explosive, radioactive, hazardous or toxic materials, substances, wastes or other pollutants, including petroleum or petroleum by-products or distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, or chlorofluorocarbons and other ozone-depleting substances.

Hedging Agreement ” shall mean any agreement with respect to any swap, forward, future or derivative transaction, or any option or similar agreement, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of the foregoing transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of Holdings, the Borrower or any Restricted Subsidiary shall be a Hedging Agreement.

Holdings ” shall have the meaning assigned to it in the preamble hereto.

Icelandic Subsidiary Loan Parties ” shall mean (a) Alcoa á Íslandi ehf., (b) Reyðarál ehf., and (c) Alcoa-Fjarðaál sf.

 

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IFRS ” shall mean the International Financial Reporting Standards set by the International Accounting Standards Board (or the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or the SEC, as the case may be) or any successor thereto, as in effect from time to time.

Indebtedness ” of any Person at any time shall mean, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and for the deferred purchase price of property or services (other than (i) trade accounts payable and other accrued obligations, in each case incurred in the ordinary course of business, and (ii) any purchase price adjustment or earnout incurred in connection with an acquisition, except to the extent that the amount payable pursuant to such purchase price adjustment or earnout is, or becomes, a liability on the balance sheet of such Person in accordance with GAAP and is not paid within 60 days after becoming due and payable), (d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed by such Person, (e) all Guarantees by such Person of Indebtedness of others, (f) all Capital Lease Obligations of such Person, (g) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (h) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, and (i) all Disqualified Equity Interests issued by such Person, valued, as of the date of determination, at the greater of (A) the maximum aggregate amount that would be payable upon maturity, redemption, repayment or repurchase thereof (or of Disqualified Equity Interests or Indebtedness into which such Disqualified Equity Interests are convertible or exchangeable) and (B) the maximum liquidation preference of such Disqualified Equity Interests. 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 Person’s 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 Indebtedness of any Person for purposes of clause (d) above shall (unless such Indebtedness has been assumed by such Person or such Person has otherwise become liable for the payment thereof) be deemed to be equal to the lesser of (i) the aggregate unpaid amount of such Indebtedness and (ii) the fair market value of the property encumbered thereby as determined by such Person in good faith.

Indemnified Taxes ” shall mean Taxes other than Excluded Taxes.

Indemnitee ” shall have the meaning assigned to it in Section 9.05(b).

Information Memorandum ” means the Confidential Information Memorandum dated July 19, 2016, relating to the Transactions.

 

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Initial Funding Date ” shall mean the date on or after the Effective Date on which the conditions specified in Section 4.02 are first satisfied (or waived in accordance with Section 9.08).

Initial Funding Date Distribution ” shall mean the payment, on or after the Initial Funding Date (but no later than the Spin-Off Date), of a cash distribution or other cash transfer in an aggregate amount not to exceed $1,500,000,000, through intervening subsidiaries of Alcoa, to Alcoa with a portion of the Net Proceeds of the Senior Unsecured Debt and other cash on hand of Holdings, the Borrower and the Subsidiaries.

Initial Scheduled Maturity Date ” shall mean the earlier of (i) the date that is five years following the Initial Funding Date and (ii) December 31, 2021.

Insolvency Regulation ” shall mean the Council Regulation (EC) No.1346/2000 29 May 2000 on Insolvency Proceedings.

Intellectual Property ” shall have the meaning specified in the Collateral Agreement.

Interest Election Request ” shall have the meaning specified in Section 2.04(a).

Interest Payment Date ” shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a LIBOR Borrowing with an Interest Period of more than three months’ duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months’ duration been applicable to such Borrowing, and, in addition, the effective date of any continuation of such Borrowing in its existing Type or conversion of such Borrowing to a Borrowing of a different Type, and the applicable Maturity Date.

Interest Period ” shall mean (a) as to any LIBOR Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect; provided , however , that the Borrower may not elect any Interest Period that ends after any Maturity Date, and (b) as to any Base Rate Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) any Maturity Date and (iii) the date such Borrowing is prepaid in accordance with Section 2.11; provided , however , that in each case of clauses (a) and (b) above, if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a LIBOR Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day.

 

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Interpolated Screen Rate ” shall mean, with respect to any LIBOR Borrowing for any Interest Period (or for purposes of determining the Base Rate in accordance with clause (c) of the definition thereof and assuming an Interest Period of one month), a rate per annum which results from interpolating on a linear basis between (a) the applicable LIBO Screen Rate for the longest maturity for which a LIBO Screen Rate is available that is shorter than such Interest Period and (b) the applicable LIBO Screen Rate for the shortest maturity for which a LIBO Screen Rate is available that is longer than such Interest Period, in each case at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period (or, for purposes of determining the Base Rate in accordance with clause (c) of the definition thereof, on the applicable date of determination).

Investment Company Act ” shall mean the U.S. Investment Company Act of 1940.

ISP ” shall mean, with respect to any standby Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practices, Inc. (or such later version thereof as may be in effect at the time of issuance of such Letter of Credit).

Issue ” shall mean, with respect to any Letter of Credit, to issue, extend the expiry of, renew (including any auto-renewal thereof) or increase the maximum face amount (including by deleting or reducing any scheduled decrease in such maximum face amount) of, such Letter of Credit. The terms “Issued” and “Issuance” shall have a corresponding meaning.

Issuer ” shall mean each Lender or Affiliate of a Lender that (a) is listed on the signature pages hereof as an “Issuer” or (b) is designated by the Borrower and hereafter becomes an Issuer with the approval of the Administrative Agent by agreeing pursuant to an agreement with and in form and substance satisfactory to the Administrative Agent and the Borrower to be bound by the terms hereof applicable to Issuers.

Latest Maturity Date ” shall mean, at any time, the latest of the Maturity Dates in respect of the Loans and Commitments that are outstanding at such time.

Lenders ” shall mean the financial institutions or other entities listed on Schedule 2.01 and any other financial institution or other entity that has become a party hereto pursuant to an Assignment and Assumption, in each case that (i) has a Commitment, (ii) holds a Loan or (iii) participates in any Letter of Credit, other than any such financial institution or other entity that has ceased to be a party hereto pursuant to an Assignment and Assumption or otherwise; provided , however , that Section 9.05 ( Expenses; Indemnity ) shall continue to apply to each such Person that ceases to be a party hereto pursuant to an Assignment and Assumption or otherwise as if such Person is a “Lender”.

 

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Lender Insolvency Event ” shall mean that (i) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (ii) a Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, intervenor or sequestrator or the like has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment. Notwithstanding anything to the contrary above, a Lender will not be a Defaulting Lender solely by virtue of the ownership or acquisition of any stock in such Lender or its Parent Company by any Governmental Authority; provided that such ownership interest does not result in or provide such Lender 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 permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Lender.

Letter of Credit ” shall mean any letter of credit Issued pursuant to Section 2.22. A Letter of Credit may be a Standby Letter of Credit or a Documentary Letter of Credit.

Letter of Credit Commitments ” shall mean, with respect to each Issuer, the commitment of such Issuer to issue Letters of Credit hereunder. The initial amount of each Issuer’s Letter of Credit Commitment is set forth on Schedule 2.01, or if an Issuer has entered into an Assignment and Assumption or became an Issuer pursuant to the terms hereunder, the amount set forth for such Issuer as its Letter of Credit Commitment in the Register maintained by the Administrative Agent or as otherwise set forth pursuant to the terms hereunder.

Letter of Credit Obligations ” shall mean, at any time, the Dollar Equivalent of the aggregate of all liabilities at such time of the Borrower or Holdings to all Issuers with respect to Letters of Credit, whether or not any such liability is contingent, including, without duplication, the sum of (a) the Reimbursement Obligations at such time and (b) the Letter of Credit Undrawn Amounts at such time.

Letter of Credit Reimbursement Agreement ” shall mean, collectively, with respect to any Letters of Credit Issued by an Issuer hereunder, applications, agreements and other documentation as such Issuer generally employs in the ordinary course of its business for the Issuance of letters of credit of the same type as such Letters of Credit, each in form and substance reasonably acceptable to it and, if applicable, duly executed by the Borrower or Holdings.

Letter of Credit Request ” shall have the meaning specified in Section 2.22(c).

Letter-of-Credit Rights ” shall have the meaning specified in the New York UCC.

 

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Letter of Credit Sublimit ” shall mean $750,000,000.

Letter of Credit Undrawn Amounts ” shall mean, at any time, the aggregate undrawn face amount of all Letters of Credit outstanding at such time.

Leverage Ratio ” shall mean, on any date, the ratio of (a) Total Indebtedness as of such date to (b) Consolidated EBITDA for the period of four consecutive fiscal quarters of Holdings ended on such date (or, if such date is not the last day of a fiscal quarter, ended on the last day of the fiscal quarter of Holdings most recently ended prior to such date).

LIBO Rate ” shall mean, with respect to any LIBOR Borrowing denominated in Dollars or Euros for any Interest Period, an interest rate equal to the London interbank offered rate as administered by the ICE Benchmark Administration (or any Person that takes over administration of such rate for the relevant currency) for deposits in such currency for a period equal to the Interest Period for such LIBOR Borrowing that appears on the Reuters LIBOR01 Page (or any page that can reasonably be considered a replacement page) (such applicable rate being called the “ LIBO Screen Rate ”) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. If no LIBO Screen Rate shall be available for a particular Interest Period but LIBO Screen Rates shall be available for maturities both longer and shorter than such Interest Period, then the LIBO Rate for such Interest Period shall be the Interpolated Screen Rate. The Administrative Agent shall determine the LIBO Rate and such determination shall be conclusive absent manifest error. Notwithstanding the foregoing, if the LIBO Rate shall be less than zero, such rate shall be deemed zero for the purposes of this Agreement.

LIBO Screen Rate ” shall have the meaning assigned to such term in the definition of the term “LIBO Rate”.

LIBOR Borrowing ” shall mean a Borrowing comprised of LIBOR Loans.

LIBOR Loan ” shall mean any Loan during any period in which it bears interest based on the Adjusted LIBO Rate in accordance with the provisions of Article II.

Lien ” shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

Loan Document Obligations ” shall mean, collectively, (a) the due and punctual payment by the Borrower of (i) the principal of 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 the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates

 

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set for prepayment or otherwise, and (ii) each payment required to be made by the Borrower under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral, (b) the due and punctual payment by Holdings of each payment required to be made by Holdings under this Agreement in respect of any US Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon and obligations to provide cash collateral and (c) the due and punctual payment and performance of all other amounts, obligations (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), covenants and duties owing by each other Loan Party to the Administrative Agent, any Lender, any Issuer, or any Indemnitee, of every type and description (whether by reason of an extension of credit, opening or amendment of a Letter of Credit or payment of any draft drawn or other payment thereunder, loan, guaranty, indemnification or otherwise), present or future, arising under or pursuant to this Agreement or any other Loan Document, whether primary or secondary, direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired and whether or not evidenced by any note, guaranty or other instrument or for the payment of money, including all Letters of Credit and other fees, interest, charges, expenses, attorneys’ fees and disbursements, and other sums chargeable to a Loan Party under this Agreement or any other Loan Document.

Loan Documents ” shall mean, collectively, this Agreement, each Extension Request, the Collateral Agreement, the Guarantee Agreement, each Mortgage, each other Security Document, the Global Intercompany Note, the Notes (if any, but excluding for purposes of Section 9.04 (“ Successors and Assigns ”) (and, in each case, any amendment, restatement, waiver, supplement or other modification to any of the foregoing).

Loan Parties ” shall mean, collectively, Holdings, the Borrower and the Subsidiary Loan Parties.

Local Time ” means (a) with respect to any Loan or Borrowing denominated in Dollars or any Letter of Credit denominated in Dollars, New York City time, and (b) with respect to any Loan or Borrowing denominated in Euros or any Letter of Credit denominated in Euros, London time.

Loans ” shall mean the loans made by the Lenders to the Borrower pursuant to this Agreement. Each Loan shall be a LIBOR Loan or a Base Rate Loan.

Ma’aden Entities ” shall mean Ma’aden Aluminium Company, Ma’aden Rolling Company, Saudi Auto Rolling JV, and Ma’aden Bauxite & Alumina Company.

Ma’aden Operations ” shall mean the operations, business and assets (including any refineries, smelters or rolling assets) owned or operated by the Ma’aden Entities.

 

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Ma’aden Guarantees ” shall mean (i) the guarantees by Holdings or the Borrower of the Ma’aden Indebtedness or (ii) any back-to-back guarantees by Holdings or the Borrower to Alcoa, in respect to any Alcoa Ma’aden Guarantees.

Ma’aden Indebtedness ” shall mean any Indebtedness incurred in connection to the Ma’aden Operations, as set forth in Schedule 6.01.

Material Adverse Effect ” shall mean a materially adverse effect on the business, assets, operations or financial condition of Holdings, the Borrower and the Restricted Subsidiaries, taken as a whole, or a material impairment (i) of the ability of the Loan Parties, taken as a whole, to perform the payment obligations under this Agreement or any other Loan Document or (ii) of the rights of or remedies available to the Administrative Agent or the Lenders under this Agreement or any other Loan Document.

Material Indebtedness ” shall mean Indebtedness (other than the Loans, the Letters of Credit (including the Letter of Credit Obligations) and the Guarantees under the Loan Documents), or obligations in respect of one or more Hedging Agreements, of any one or more of Holdings, the Borrower and the Restricted Subsidiaries in an aggregate principal amount of $100,000,000 or more. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of Holdings, the Borrower or any Restricted Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that Holdings, the Borrower or such Restricted Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.

Material Real Property ” means any real property acquired after the Effective Date (or owned by a Person at the time it becomes a Subsidiary after the Effective Date), that is located in the United States or a Specified Collateral Jurisdiction, wholly owned in fee (or the foreign jurisdiction equivalent) by any Loan Party and having a fair market value that, in the reasonable opinion of the Borrower, exceeds $15,000,000.

Material Subsidiary ” shall mean each Restricted Subsidiary (a) the consolidated total assets of which equal 5.0% or more of the consolidated total assets of Holdings, the Borrower and the Restricted Subsidiaries or (b) the consolidated revenues of which equal 5.0% or more of the consolidated revenues of Holdings, the Borrower and the Restricted Subsidiaries, in each case as of the end of or for the most recent period of four consecutive fiscal quarters of Holdings for which financial statements have been delivered pursuant to Section 5.01(a) or 5.01(b) (or, prior to the first delivery of any such financial statements, as of the end of or for the period of four consecutive fiscal quarters of Holdings most recently ended prior to the Initial Funding Date); provided that if, at the end of or for any such most recent period of four consecutive fiscal quarters, the combined consolidated total assets or combined consolidated revenues of all Restricted Subsidiaries that under clauses (a) and (b) above would not constitute Material Subsidiaries shall have exceeded 7.5% of the consolidated total assets of Holdings, the Borrower and the Restricted Subsidiaries or 7.5% of the consolidated revenues of Holdings, the Borrower and the Restricted Subsidiaries, respectively, then one or more of

 

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such excluded Restricted Subsidiaries shall for all purposes of this Agreement be deemed to be Material Subsidiaries in descending order based on the amounts of their consolidated total assets or consolidated revenues, as applicable, until such excess shall have been eliminated. For purposes of this definition, the consolidated total assets and consolidated revenues of Holdings, the Borrower and the Restricted Subsidiaries as of any date prior to, or for any period that commenced prior to, the Initial Funding Date shall be determined on a pro forma basis to give effect to the Transactions to occur on the Initial Funding Date or the Spin-Off Date.

Maturity Date ” shall mean the earlier of (a) (i) the Initial Scheduled Maturity Date, if the Borrower does not deliver an Extension Request, (ii) with respect to any Commitment, Loan or other right or obligation hereunder of any Lender or Issuer that did not consent to any Extension Request, the Initial Scheduled Maturity Date, (iii) with respect to any Commitment, Loan or other right or obligation hereunder of any Lender or Issuer that has consented to any Extension Request, if each of the conditions set forth in Section 2.21(b) with respect to such Extension Request shall have been satisfied, the applicable extended Maturity Date provided for therein and (b) the date on which the Loan Document Obligations become due and payable pursuant to Article VII.

Maximum Rate ” has the meaning assigned to such term in Section 9.09.

MNPI ” shall mean material information concerning Holdings, the Borrower, any Subsidiary or any Affiliate of any of the foregoing or their respective securities that has not been disseminated in a manner making it available to investors generally, within the meaning of Regulation FD under the Securities Act and the Exchange Act. For purposes of this definition, “material information” means information concerning Holdings, the Borrower, the Subsidiaries or any Affiliate of any of the foregoing or any of their respective securities that could reasonably be expected to be material for purposes of the United States Federal and State securities laws and, where applicable, foreign securities laws.

Moody’s ” shall mean Moody’s Investors Service, Inc., and any successor to its rating agency business.

Mortgage ” shall mean a mortgage, deed of trust, or other security document granting a Lien on any Mortgaged Property to secure the Secured Obligations. Each Mortgage shall be reasonably satisfactory in form and substance to the Administrative Agent.

Mortgaged Property ” shall mean, initially, each parcel of real property and the improvements thereto owned by a Loan Party in fee (or the foreign jurisdiction equivalent) and identified on Schedule 1.02 , and shall include each other parcel of Material Real Property and the improvements thereon on which a Mortgage is required to be granted pursuant to Section 5.12 or 5.13.

Multiemployer Plan ” shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other than

 

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one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.

Net Proceeds ” shall mean, with respect to any event, (a) the cash proceeds received in respect of such event, including (i) any cash received in respect of any non-cash proceeds (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment or earnout, but excluding any reasonable interest payments), but only as and when received, (ii) in the case of a casualty, insurance proceeds and (iii) in the case of a condemnation or similar event, condemnation awards and similar payments, minus (b) the sum, without duplication, of (i) all reasonable fees and out-of-pocket expenses paid in connection with such event by Holdings, the Borrower and the Restricted Subsidiaries to Persons other than Affiliates of Holdings, the Borrower or any Restricted Subsidiary, (ii) in the case of a sale, transfer, lease or other disposition of an asset (including pursuant to a sale and leaseback transaction or a casualty or a condemnation or similar proceeding), (x) the amount of all payments that are permitted hereunder and are made by Holdings, the Borrower and the Restricted Subsidiaries as a result of such event to repay Indebtedness (other than the Loans) secured by such asset or otherwise subject to mandatory prepayment as a result of such event, (y) the pro rata portion of net cash proceeds thereof attributable to minority interests and not available for distribution to or for the account of Holdings, the Borrower and the Restricted Subsidiaries as a result thereof, and (z) the amount of any Indebtedness directly associated with such asset and retained by Holdings, the Borrower or any Restricted Subsidiary and (iii) the amount of all taxes paid (or reasonably estimated to be payable) by Holdings, the Borrower and the Restricted Subsidiaries, and the amount of any reserves established by Holdings, the Borrower and the Restricted Subsidiaries in accordance with GAAP to fund purchase price adjustment, indemnification and other liabilities (other than any earnout obligations, but including pension and other post-employment benefit liabilities and liabilities related to environmental matters). For purposes of this definition, in the event any contingent liability reserve established with respect to any event as described in clause (b)(iii) above shall be reduced, the amount of such reduction shall, except to the extent such reduction is made as a result of a payment having been made in respect of the contingent liabilities with respect to which such reserve has been established, be deemed to be receipt, on the date of such reduction, of cash proceeds in respect of such event.

New York UCC ” shall have the meaning specified in the Collateral Agreement.

Non-Consenting Lender ” shall have the meaning assigned to such term in Section 9.08(c).

Non-Defaulting Lender ” shall mean, at any time, a Lender that is not a Defaulting Lender.

Non-US Collateral ” shall mean all Collateral other than the US Collateral.

 

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Norsk Alcoa Smelting ” shall mean Norsk Alcoa Smelting AS, a Norwegian aksjeselskaper .

Note ” shall have the meaning given such term in Section 2.05(e).

NYFRB ” shall mean the Federal Reserve Bank of New York.

NYFRB Rate ” shall mean, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or, for any day that is not a Business Day, for the immediately preceding Business Day); provided , however , that, if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a Federal funds transaction quoted at 11:00 a.m., New York City time, on such day to the Administrative Agent from a Federal funds broker of recognized standing selected by it; provided further , however , that if any of the aforesaid rates shall be less than zero, then such rate shall be deemed to be zero for all purposes of this Agreement.

OFAC ” shall mean the United States Treasury Department Office of Foreign Assets Control.

Other Permitted Initial Funding Date Indebtedness ” shall mean Indebtedness (a) consisting of (i) Senior Unsecured Debt, (ii) Indebtedness incurred in the ordinary course of business, including short term debt for working capital, capital leases, purchase money debt, equipment financings and any Indebtedness described in the Effective Date Form 10, (iii) accounts receivable sale or securitization programs, (iv) bilateral lines of credit, including any domestic or foreign working capital facility, or (v) Indebtedness under any federal new markets tax credit program or any federal subsidized loans for any U.S. facilities of Holdings, the Borrower or the Restricted Subsidiaries and (b) in each case, that is permitted under Section 6.01(a)(iv).

Other Taxes ” shall have the meaning assigned to such term in Section 2.18(b).

Outside Date ” shall mean June 30, 2017.

Overnight Bank Funding Rate ” shall mean, for any date, the rate comprised of both overnight federal funds and overnight eurodollar borrowings by U.S.-managed banking offices of depositary institutions, as such composite rate shall be determined by the NYFRB as set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate (from and after such date as the NYFRB shall commence to publish such composite rate).

Parent Company ” shall mean, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the stock of such Lender.

 

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Participant ” shall have the meaning assigned to such term in Section 9.04(c).

Participant Register ” shall have the meaning assigned to such term in Section 9.04(c).

PBGC ” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

Perfection Certificate ” shall mean (a) with respect to the US Obligations Loan Parties (other than the Borrower and Aluminerie Lauralco, Sàrl) and any Loan Party organized in Canada, a certificate in the form of Exhibit C or any other form reasonably approved by the Administrative Agent, and (b) with respect to any other Loan Party, a certificate relating to the disclosure of Collateral information, if any, that is functionally equivalent to the Perfection Certificate in clause (a) to the extent customarily delivered to lenders in any applicable Specified Collateral Jurisdiction.

Permitted Acquisition ” shall mean any transaction or series of related transactions for the purpose of or resulting in the acquisition by Holdings, the Borrower or any Restricted Subsidiary of all the outstanding Equity Interests (other than directors’ qualifying shares) in, all or substantially all the assets of or all or substantially all the assets constituting a business unit, division, product line or line of business of a Person if (a) such acquisition was not preceded by, or consummated pursuant to, a hostile offer (including a proxy contest), (b) no Event of Default has occurred and is continuing or would result therefrom, (c) such acquisition and all transactions related thereto are consummated in accordance with applicable laws in all material respects, (d) all actions required to be taken with respect to such acquired or newly formed Subsidiary or such acquired assets under Sections 5.12 (“ Additional Subsidiaries ”) and 5.13 (“ Further Assurances ”) shall have been taken (or arrangements for the taking of such actions reasonably satisfactory to the Administrative Agent shall have been made), within 15 Business Days after the date of such acquisition (or such longer period as the Administrative Agent may agree in writing), (e) Holdings is in compliance, on a Pro Forma Basis after giving effect to such acquisition as of the last day of the most recently ended fiscal quarter of Holdings, with the financial covenants contained in Sections 6.12, (f) the Leverage Ratio, calculated on a Pro Forma Basis after giving effect to such acquisition as of the last day of the most recently ended fiscal quarter of Holdings, is less than 2.00 to 1.00, (g) the business of such Person or such assets, as applicable, constitutes a business permitted by Section 6.03(b) and (h) with respect to any transaction or series of related transactions involving consideration of more than $50,000,000, the Borrower has delivered to the Administrative Agent a certificate of a Financial Officer to the effect set forth in clauses (a) through (g) above, together with all relevant financial information for the Person or assets to be acquired and setting forth reasonably detailed calculations demonstrating compliance with clauses (e) and (f) above (which calculations shall, if made as of the last day of any fiscal quarter of Holdings for which Holdings has not delivered to the Administrative Agent the financial statements and certificate of a Financial Officer required to be delivered by Section 5.01(a) or (b) and Section 5.01(c), respectively, be accompanied by a reasonably detailed calculation of Consolidated EBITDA and Consolidated Cash Interest Expense for the relevant period).

 

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Permitted Encumbrances ” shall mean:

(a) Liens imposed by law for Taxes or other similar governmental charges that are not yet due or are being contested in compliance with Section 5.05;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’ and other like Liens imposed by law (other than any Lien imposed pursuant to Section 430(k) of the Code or Section 303(k) of ERISA or a violation of Section 436 of the Code), arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.05;

(c) pledges and deposits made (i) in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of Holdings, the Borrower or any Restricted Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (i) above;

(d) pledges and deposits made (i) to secure the performance of bids, trade contracts (other than for payment of Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of Holdings, the Borrower or any Restricted Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (i) above;

(e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (l) of Article VII;

(f) easements, zoning and similar restrictions, encroachments, restrictions on use of real property, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any obligations for borrowed money and do not detract from the value of the affected property or interfere in any material respect with the ordinary conduct of business of Holdings, the Borrower or any Restricted Subsidiary;

(g) Liens arising from Permitted Investments described in clause (d) of the definition of the term “Permitted Investments”;

(h) banker’s liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with depository institutions and securities accounts and other financial assets maintained with a securities intermediary; provided that such deposit accounts or funds and securities accounts or other financial assets are not established or deposited for the purpose of providing collateral for any Indebtedness and are not subject to restrictions on access by Holdings, the Borrower or any Restricted Subsidiary in excess of those required by applicable banking regulations;

 

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(i) (i) Liens arising by virtue of Uniform Commercial Code financing statement filings (or similar filings under applicable law) regarding operating leases entered into by Holdings, the Borrower and the Restricted Subsidiaries in the ordinary course of business and (ii) Liens regarding goods consigned or entrusted to or bailed to a Person in the ordinary course of business in connection with the processing, reprocessing, recycling or tolling of such goods;

(j) 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;

(k) Liens representing any interest or title of a licensor, lessor or sublicensor or sublessor, or a licensee, lessee or sublicensee or sublessee, in the property subject to any lease, license or sublicense or concession agreement permitted by this Agreement;

(l) Liens representing non-exclusive licenses of Intellectual Property granted in the ordinary course of business;

(m) ground leases in respect of real property on which facilities owned or leased by Holdings, the Borrower or any of its Restricted Subsidiaries are located and other Liens affecting the interest of any landlord (and any underlying landlord) of any real property leased by Holdings, the Borrower or any Restricted Subsidiary, so long as such ground lease or other Lien, as applicable, does not interfere with the ordinary conduct of business of Holdings, the Borrower or any Restricted Subsidiary;

(n) leases, licenses, subleases or sublicenses granted to others that do not (A) interfere in any material respect with the business of the Borrower and its Restricted Subsidiaries, taken as a whole, or (B) secure any Indebtedness;

(o) Liens securing insurance premium financing arrangements; provided that such Liens are limited to the applicable unearned insurance premiums;

(p) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

(q) right of set-off relating to purchase orders and other similar arrangements entered into with customers or any Subsidiary in the ordinary course of business;

 

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(r) 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;

(s) Liens arising under the Dutch General Banking Terms and Conditions ( Algemene bankvoorwaarden ); and

(t) Liens that are contractual rights of set-off;

provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness, other than Liens referred to in clauses (c) and (d) above securing letters of credit, bank guarantees or similar instruments.

Permitted Holdings Successor ” shall mean any successor of Holdings that (a) becomes the direct parent of the Borrower and owns no other direct Subsidiaries, (b) has expressly assumed (and is in compliance with) all the obligations of Holdings under this Agreement and the other Loan Documents to which Holdings is a party pursuant to a supplement hereto and thereto, as applicable, in a form reasonable satisfactory to the Administrative Agent, (c) is organized under the laws of the United States, any State thereof or the District of Columbia and (d) the direct or indirect holders of the Voting Stock of which immediately following such Person becoming the direct parent of the Borrower are substantially the same as the holders of Holding’s Voting Stock immediately prior to such transaction.

Permitted Investments ” shall mean:

(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

(b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, a rating of A-1 or better from S&P or P-1 or better from Moody’s;

(c) investments in certificates of deposit, banker’s acceptances and demand or time deposits, in each case maturing within 180 days from the date of acquisition thereof, issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any Approved Bank ;

(d) 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 (c) above;

(e) “money market funds” that (i) comply with the criteria set forth in Rule 2a-7 of the Investment Company Act, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000; and

 

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(f) in the case of the Borrower or any Foreign Subsidiary, other short-term investments that are analogous to the foregoing, are of comparable credit quality and are customarily used by companies in the jurisdiction of such Foreign Subsidiary for cash management purposes.

Permitted Receivables Facility ” shall mean the receivables facility or facilities created under the Permitted Receivables Facility Documents providing for the sale or pledge by Holdings, the Borrower and/or one or more other Receivables Sellers of Permitted Receivables Facility Assets (thereby providing financing to the Borrower and the Receivables Sellers) to the Receivables Entity (either directly or through another Receivables Seller) for fair market value (as determined in good faith by the Borrower), which in turn shall sell or pledge interests in the respective Permitted Receivables Facility Assets to third-party lenders or investors pursuant to the Permitted Receivables Facility Documents (with the Receivables Entity permitted to issue notes or other evidences of Indebtedness secured by Permitted Receivables Facility Assets or investor certificates, purchased interest certificates or other similar documentation evidencing interests in the Permitted Receivables Facility Assets) in return for the cash used by the Receivables Entity to purchase the Permitted Receivables Facility Assets from the Borrower and/or the respective Receivables Sellers, in each case as more fully set forth in the Permitted Receivables Facility Documents.

Permitted Receivables Facility Assets ” shall mean (a) Receivables (whether now existing or arising in the future) of Holdings, the Borrower and the Restricted Subsidiaries which are transferred or pledged to the Receivables Entity pursuant to the Permitted Receivables Facility and any related Permitted Receivables Related Assets which are also so transferred or pledged to the Receivables Entity and all proceeds thereof and (b) loans to Holdings, the Borrower and the Restricted Subsidiaries secured by Receivables (whether now existing or arising in the future) of Holdings, the Borrower and the Restricted Subsidiaries which are made pursuant to the Permitted Receivables Facility.

Permitted Receivables Facility Documents ” shall mean each of the documents and agreements entered into in connection with the Permitted Receivables Facility, including all documents and agreements relating to the issuance, funding and/or purchase of certificates and purchased interests, or the issuance of notes or other evidence of Indebtedness secured by such notes, all of which documents and agreements shall be in form and substance reasonably customary for transactions of this type, in each case as such documents and agreements may be amended, modified, supplemented, refinanced or replaced from time to time so long as (in the good faith determination of Holdings) either (a) the terms as so amended, modified, supplemented, refinanced or replaced are reasonably customary for transactions of this type or (b)(x) any such amendments, modifications, supplements, refinancings or replacements do not impose any conditions or requirements on Holdings, the Borrower or any of the Restricted Subsidiaries that, taken as a whole, are more restrictive in any material respect than those in existence immediately prior to any such amendment, modification, supplement, refinancing or replacement as determined by Holdings in good faith and (y) any such amendments, modifications, supplements, refinancings or replacements are not adverse in any material respect to the interests of the Lenders as determined by Holdings in good faith.

 

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Permitted Receivables Related Assets ” shall mean any other assets that are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving receivables similar to Receivables and any collections or proceeds of any of the foregoing.

Person ” shall mean any natural person, corporation, organization, business trust, joint venture, association, company, partnership, Governmental Authority or other entity.

Plan ” shall mean any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code which is maintained for employees of the Borrower or any ERISA Affiliate.

Private Side Lender Representatives ” means, with respect to any Lender, representatives of such Lender that are not Public Side Lender Representatives.

Proceeds ” shall have the meaning specified in the New York UCC.

Professional Lender ” shall mean (i) until the publication of an interpretation of public (within the meaning of the Capital Requirements Regulation (EU/575/2013)) by the competent authority/ies, any Person who qualifies as a professional market party within the meaning of the Dutch Act on financial supervision ( Wet op het financieel toezicht ) or otherwise qualifies as not forming part of the public, or (ii) as soon as the interpretation of the term public (within the meaning of the Capital Requirements Regulation (EU/575/2013)) has been published by the relevant authority/ies, any Person who does not form part of the public.

Pro Forma Basis ” shall mean, with respect to the calculation of the financial covenants contained in Sections 6.12 and 6.13 or otherwise for purposes of determining the Leverage Ratio, Consolidated Cash Interest Expense or Consolidated EBITDA as of any date, that such calculation shall give pro forma effect to all Permitted Acquisitions, all designations of Restricted Subsidiaries as Unrestricted Subsidiaries, all designations of Unrestricted Subsidiaries as Restricted Subsidiaries, all issuances, incurrences or assumptions of Indebtedness (with any such Indebtedness being deemed to be amortized over the applicable testing period in accordance with its terms), all sales, transfers or other dispositions of any Equity Interests in a Subsidiary or all or substantially all the assets of a Subsidiary or division or line of business of a Subsidiary outside the ordinary course of business (and any related prepayments or repayments of Indebtedness) and all Subsidiary Designations, in each case, that have occurred during (or, if such calculation is being made for the purpose of determining whether any proposed acquisition will constitute a Permitted Acquisition or any Subsidiary Designation may be made, since the beginning of) the four consecutive fiscal quarter period of Holdings most recently ended on or prior to such date as if they occurred on the first day of such four consecutive fiscal quarter period (including expected cost savings

 

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(without duplication of actual cost savings) to the extent 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 as interpreted by the Staff of the SEC, and as certified by a Financial Officer). 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 date of determination had been the applicable rate for the entire period (taking into account any Hedging Agreement applicable to such Indebtedness if such Hedging Agreement has a remaining term in excess of 12 months).

Proposed Change ” shall have the meaning assigned to such term in Section 9.08(c).

Public Side Lender Representatives ” shall mean, with respect to any Lender, representatives of such Lender that do not wish to receive MNPI.

Qualified ECP Guarantor ” shall mean, in respect of any Swap Obligation, each Subsidiary Loan Party that has total assets exceeding $10,000,000 or that otherwise constitutes an “eligible contract participant” under the Commodity Exchange Act or any rules or regulations promulgated thereunder or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) at the time such Swap Obligation is incurred.

Qualified Equity Interests ” shall mean Equity Interests of Holdings other than Disqualified Equity Interests.

Ratable Portion ” or “ ratably ”, unless the context otherwise requires, shall mean, for any Lender, the percentage obtained by dividing (i) the amount of the Commitment of such Lender by (ii) the sum of the aggregate outstanding amount of the Commitments of all Lenders (or, at any time on or after the Commitments have terminated or expired, the percentage obtained by dividing the principal amount of such Lender’s Revolving Credit Outstandings by the aggregate principal amount of all Revolving Credit Outstandings).

Receivables ” shall mean all accounts receivable (including all rights to payment created by or arising from sales of goods, leases of goods or the rendition of services rendered no matter how evidenced whether or not earned by performance).

Receivables Entity ” shall mean a wholly-owned Restricted Subsidiary of Holdings that engages in no activities other than in connection with the financing of Receivables of the Receivables Sellers and that is designated (as provided below) as the “Receivables Entity” and (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by Holdings, the Borrower or any other Restricted Subsidiary (excluding Guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates Holdings, the Borrower or any other Restricted Subsidiary in any way (other than pursuant to Standard Securitization Undertakings) or (iii) subjects

 

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any property or asset of Holdings, the Borrower or any other Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither Holdings, the Borrower nor any other Restricted Subsidiary has any contract, agreement, arrangement or understanding (other than pursuant to the Permitted Receivables Facility Documents (including with respect to fees payable in the ordinary course of business in connection with the servicing of accounts receivable and related assets)) on terms less favorable to the Borrower or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Borrower (as determined by the Borrower in good faith), and (c) to which neither Holdings, the Borrower nor any other Restricted Subsidiary has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results. Any such designation shall be evidenced to the Administrative Agent by filing with the Administrative Agent a certificate of a Financial Officer of the Borrower certifying that, to the best of such officer’s knowledge and belief after consultation with counsel, such designation complied with the foregoing conditions.

Receivables Sellers ” shall mean Holdings, the Borrower and those Restricted Subsidiaries (other than Receivables Entities) that are from time to time party to the Permitted Receivables Facility Documents.

Refinancing Indebtedness ” shall mean, in respect of any Indebtedness (the “ Original Indebtedness ”), any Indebtedness that extends, renews or refinances such Original Indebtedness (or any Refinancing Indebtedness in respect thereof); provided that:

(a) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of such Original Indebtedness except by an amount no greater than accrued and unpaid interest with respect to such Original Indebtedness and any bona fide fees, premium and expenses relating to such extension, renewal or refinancing;

(b) the stated final maturity of such Refinancing Indebtedness shall not be earlier than the earlier of (i) the stated final maturity of such Original Indebtedness and (ii) the date that is 91 days after the Latest Maturity Date in effect on the date of such extension, renewal or refinancing (except for any such Indebtedness in the form of a bridge or other interim credit facility intended to be refinanced or replaced with long-term Indebtedness, which such Indebtedness, upon the maturity thereof, automatically converts into Indebtedness that satisfies the requirement set forth in this definition;

(c) such Refinancing Indebtedness shall not be required to be repaid, prepaid, redeemed, repurchased or defeased, whether on one or more fixed dates, upon the occurrence of one or more events or at the option of any holder thereof (except, in each case, (x) upon the occurrence of an event of default or a change in control or as and to the extent such repayment, prepayment, redemption, repurchase or defeasance would have been required pursuant to the terms of such Original Indebtedness and (y) in the case of any such Refinancing Indebtedness in the form of a bridge or other interim credit

 

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facility intended to be refinanced or replaced with long-term Indebtedness, upon the incurrence of such refinancing or replacement Indebtedness so long as such refinancing or replacement Indebtedness would have constituted Refinancing Indebtedness if originally incurred to refinance such Original Indebtedness) prior to the earlier of (i) the maturity of such Original Indebtedness and (ii) the date 91 days after the Latest Maturity Date in effect on the date of such extension, renewal or refinancing, provided that, notwithstanding the foregoing, scheduled amortization payments (however denominated) of such Refinancing Indebtedness shall be permitted so long as the weighted average life to maturity of such Refinancing Indebtedness shall be no shorter than the shorter of (x) the weighted average life to maturity of such Original Indebtedness remaining as of the date of such extension, renewal or refinancing and (y) the remaining term to maturity of the Commitments under this Agreement;

(d) such Refinancing Indebtedness shall not constitute an obligation (including pursuant to a Guarantee) of any Restricted Subsidiary that shall not have been (or, in the case of after-acquired Restricted Subsidiaries, shall not have been required to become pursuant to the terms of the Original Indebtedness) an obligor in respect of such Original Indebtedness, and shall not constitute an obligation of the Borrower or Holdings if such Person shall not have been an obligor in respect of such Original Indebtedness, and, in each case, shall constitute an obligation of Holdings, the Borrower or such Restricted Subsidiary, as applicable, only to the extent of their obligations in respect of such Original Indebtedness;

(e) if such Original Indebtedness shall have been subordinated to the Loan Document Obligations, such Refinancing Indebtedness shall also be subordinated to the Loan Document Obligations on terms not less favorable in any material respect to the Lenders; and

(f) such Refinancing Indebtedness shall not be secured by any Lien on any asset other than the assets that secured such Original Indebtedness (or would have been required to secure such Original Indebtedness pursuant to the terms thereof) or, in the event Liens securing such Original Indebtedness shall have been contractually subordinated to any Lien securing the Loan Document Obligations, by any Lien that shall not have been contractually subordinated to at least the same extent.

Register ” shall have the meaning given such term in Section 2.05(b).

Regulation U ” shall mean Regulation U of the Board or any Governmental Authority succeeding to its functions, as in effect from time to time.

Reimbursement Date ” shall have the meaning specified in Section 2.22(h).

Reimbursement Obligations ” shall mean, as and when matured, the obligation of Holdings or the Borrower, as applicable, to pay, on the date payment is made or scheduled to be made to the beneficiary under each such Letter of Credit (or at such other date as may be specified in the applicable Letter of Credit Reimbursement

 

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Agreement) and in the currency specified in Section 2.17(c), all amounts of each draft and other requests for payments drawn under Letters of Credit, and all other matured reimbursement or repayment obligations of Holdings or the Borrower to any Issuer with respect to amounts drawn under Letters of Credit.

Related Parties ” shall mean, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, trustees, managers, advisors, representatives and controlling persons of such Person and such Person’s Affiliates.

Release ” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into or through the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within or upon any building, structure, facility or fixture.

Reportable Event ” shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).

Required Lenders ” shall mean, collectively, Lenders having more than fifty percent (50%) of the sum of (x) the aggregate principal amount of all Revolving Credit Outstandings and (y) the aggregate amount of the unused Commitments. A Defaulting Lender shall not be included in the calculation of “Required Lenders.”

Requirement of Law ” shall mean, with respect to any Person, (a) the charter, articles or certificate of organization or incorporation and bylaws or other organizational or governing documents of such Person and (b) any law (including common law), statute, ordinance, treaty, rule, regulation, order, decree, writ, injunction, settlement agreement or determination of any arbitrator or court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

Reset Date ” shall have the meaning assigned to such term in Section 1.03(a).

Restricted Payment ” shall mean any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Holdings, the Borrower or any Restricted Subsidiary, or any payment or distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, exchange, conversion, cancelation or termination of any Equity Interests in Holdings, the Borrower or any Restricted Subsidiary, or any other payment (including any payment under any Hedging Agreement) that has a substantially similar effect to any of the foregoing.

Restricted Subsidiary ” shall mean each Subsidiary other than an Unrestricted Subsidiary.

 

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Revolving Credit Outstandings ” shall mean, at any particular time, the sum of (a) the Dollar Equivalent of the aggregate principal amount of the Loans outstanding at such time and (b) the Letter of Credit Obligations outstanding at such time.

Revolving Credit Period ” shall mean, with respect to each Lender and Issuer, the period from and including the Initial Funding Date to, but excluding, the applicable Maturity Date (or in the case of any Issuance of any Letter of Credit, 5 Business Days prior to the applicable Maturity Date) or any earlier date on which the Commitments shall be terminated.

Revolving Exposure ” shall mean, with respect to any Lender at any time, the sum of (a) the Dollar Equivalent of the outstanding principal amount of such Lender’s Loans and (b) such Lender’s Letter of Credit Obligations.

Reynolds Becancour ” shall mean Reynolds Becancour Inc, a Delaware corporation.

S&P ” shall mean Standard & Poor’s Ratings Services, a division of McGraw Hill Financial Inc., and any successor to its rating agency business.

Sanctioned Person ” shall mean, at any time, (a) any Person listed in any Sanctions-related list of designated persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom (b) any Person located, organized or resident in a Sanctioned Territory, (c) any Person that is a target of Sanctions as a result of a relationship of ownership or control.

Sanctioned Territory ” means, at any time, a country or territory which is itself, or whose government is, the subject of any Sanctions broadly prohibiting dealings with such government, country or territory (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).

Sanctions ” shall mean sanctions or trade embargoes imposed, administered or enforced by (a) OFAC, the U.S. Department of State or the U.S. Department of Commerce, (b) the United Nations Security Council or (c) the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.

SEC ” shall mean the Securities and Exchange Commission (or any successor agency).

Secured Cash Management Obligations ” shall mean the Global Secured Cash Management Obligations and the US Secured Cash Management Obligations.

Secured Commercial Obligations ” shall mean the due and punctual payment and performance of any and all obligations of Holdings, the Borrower and each Restricted Subsidiary arising under each Commercial Agreement (a) entered into by any such Person that (i) is with a counterparty that is the Administrative Agent, an Arranger

 

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or an Affiliate of any of the foregoing, or any Person that, at the time such Commercial Agreement was entered into, was the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, (ii) is in effect on the Initial Funding Date with a counterparty that is a Lender or an Affiliate of a Lender as of the Initial Funding Date or (iii) is entered into after the Initial Funding Date with a counterparty that is a Lender or an Affiliate of a Lender at the time such Commercial Agreement is entered into and (b) designated by Holdings or the Borrower in writing to the Administrative Agent as a Secured Commercial Obligation, provided that the aggregate amount of obligations of Holdings, the Borrower and the Restricted Subsidiaries under all Secured Commercial Obligations shall not exceed $100,000,000 at any time outstanding.

Secured Hedging Obligations ” shall mean the due and punctual payment and performance of any and all obligations of Holdings, the Borrower and each Restricted Subsidiary arising under each Hedging Agreement entered into by any such Person that (a) is with a counterparty that is the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, or any Person that, at the time such Hedging Agreement was entered into, was the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, (b) is in effect on the Initial Funding Date with a counterparty that is a Lender or an Affiliate of a Lender as of the Initial Funding Date or (c) is entered into after the Initial Funding Date with a counterparty that is a Lender or an Affiliate of a Lender at the time such Hedging Agreement is entered into. Notwithstanding the foregoing, in the case of any Excluded Swap Guarantor, “Secured Hedging Obligations” shall not include Excluded Swap Obligations of such Excluded Swap Guarantor.

Secured Obligations ” shall mean the Global Secured Obligations and the US Secured Obligations.

Secured Parties ” shall mean, collectively, (a) each Lender, (b) the Administrative Agent, (c) each Arranger, (d) each Issuer, (e) each provider of Cash Management Services the obligations under which constitute Secured Cash Management Obligations, (f) each counterparty to any Hedging Agreement the obligations under which constitute Secured Hedging Obligations, (g) each counterparty to any Commercial Agreement the obligations under which constitute Secured Commercial Obligations, (h) the beneficiaries of each indemnification obligation undertaken by any Loan Party under this Agreement or any other Loan Document, (i) the other Persons the obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Agreement and (j) the successors and assigns of each of the foregoing.

Securities Act ” shall mean the United States Securities Act of 1933.

Security Documents ” shall mean the Collateral Agreement, the Guarantee Agreement, the Foreign Security Agreements, the Foreign Pledge Agreements, the Foreign Mortgages, the Mortgages and each other security agreement or other instrument or document executed and delivered pursuant to Sections 5.12 or 5.13 to secure any of the Secured Obligations.

 

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Senior Unsecured Debt ” shall mean (a) the senior unsecured notes or term loans issued by the Borrower on or before the Initial Funding Date in connection with the Spin-Off and (b) to the extent senior unsecured notes are issued under clause (a), any substantially identical senior unsecured notes that are registered under the Securities Act and issued in exchange for the senior unsecured notes described in clause (a) of this definition.

Senior Unsecured Debt Documents ” shall mean the credit agreement or indenture, all side letters, instruments, agreements and other documents evidencing or governing the Senior Unsecured Debt, providing for any Guarantee or other right in respect thereof, affecting the terms of the foregoing or entered into in connection therewith and all schedules, exhibits and annexes to each of the foregoing.

Spanish Subsidiary Loan Parties ” shall mean Alcoa Inespal Aviles S.L., Alcoa Inespal Coruna S.L. and Aluminio Español S.L.

Specified Collateral Jurisdiction ” shall mean the United States, Australia, Brazil, Canada, Luxembourg, the Netherlands, and Norway and, solely with respect to (a) pledges of Equity Interests in AWAC Parents, any other jurisdiction in which any AWAC Parent is organized and (b) security interests in and perfection actions with respect to any deposit account owned by a Loan Party (other than Excluded Deposit Accounts), the jurisdiction in which such deposit account is located or maintained.

Specified Company ” shall mean each of (a) AAHP, ASC Alumina, Alcoa Inespal, Alcoa Saudi, Grupiara and (b) Alcoa WolinBec, Norsk Alcoa Smelting and Reynolds Becancour.

Spin-Off ” shall mean the spin-off of Holdings from Alcoa, as more fully described in the Form 10.

Spin-Off Date ” shall mean the date, occurring on or after the Initial Funding Date but not later than the first calendar day after the Initial Funding Date, on which the Spin-Off shall have been consummated.

Spin-Off Documents ” shall mean (a) the Separation and Distribution Agreement, (b) the Transition Services Agreement, (c) the Tax Matters Agreement, (d) the Employee Matters Agreement, (e) the Stockholder and Registration Rights Agreement, (f) the Alcoa Corporation to Arconic Inc. Patent, Know-How, and Trade Secret License Agreement, (g) the Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, (h) the Alcoa Corporation to Arconic Inc. Trademark License Agreement, (i) the Master Agreement for the Supply of Primary Aluminum, (j) the Massena Lease and Operations Agreement, (k) the Fusina Lease and Operations Agreement, and (l) the Toll Processing and Services Agreement, in each case, to be entered into between Alcoa or Affiliates thereof, on the one hand, and Holdings or Affiliates thereof, on the other hand, in connection with the Spin-Off, and together with any other agreements, instruments or other documents entered into in connection with any of the foregoing.

 

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Standard Securitization Undertakings ” means representations, warranties, covenants and indemnities entered into by the Borrower or any Restricted Subsidiary in connection with the Permitted Receivables Facility that are reasonably customary in an accounts receivable financing transaction.

Standby Letter of Credit ” shall mean any Letter of Credit that is not a Documentary Letter of Credit.

State ” shall refer to any State of the United States.

Statutory Reserve Rate ” shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority (domestic or foreign) to which the Administrative Agent or any Lender (including any branch, Affiliate or fronting office making or holding a Loan) is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. LIBOR Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

subsidiary ” shall mean, with respect to any Person (herein referred to as the “parent”) at any date, any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the Voting Stock or, in the case of a partnership, more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held or (b) the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP.

Subsidiary ” shall mean any subsidiary of Holdings (other than the Borrower).

Subsidiary Designation ” shall mean (a) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (b) any designation of an Unrestricted Subsidiary as a Restricted Subsidiary, in each case in accordance with Section 5.15.

Subsidiary Guarantor ” shall mean each Designated Subsidiary that is or, after the date hereof, becomes a party to the Collateral Agreement, the Guarantee Agreement, a Foreign Pledge Agreement, a Foreign Security Agreement, a Mortgage or a Foreign Mortgage.

Subsidiary Loan Party ” shall mean each Subsidiary Guarantor, provided that, for the purposes of Article VI, each Icelandic Subsidiary Loan Party, each Spanish Subsidiary Loan Party and Alcoa Inespal shall also be deemed to be a Subsidiary Loan Party.

 

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Successor Entity ” has the meaning assigned to such term in Section 6.03(a).

Supplemental Perfection Certificate ” shall mean (a) with respect to the US Obligations Loan Parties (other than the Borrower and Aluminerie Lauralco, Sàrl) and any Loan Party organized in Canada, a certificate in the form of Exhibit D or any other form reasonably approved by the Administrative Agent and (b) with respect to any other Loan Party, a post-closing certificate relating to the disclosure of Collateral information, if any, that is functionally equivalent to the Supplemental Perfection Certificate in clause (a) to the extent customarily delivered to lenders in any applicable Specified Collateral Jurisdiction.

Supporting Obligations ” shall have the meaning specified in the New York UCC.

Swap Obligation ” shall mean 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.

Syndication Agent ” shall mean Citibank, N.A., in its capacity as syndication agent under this Agreement.

TARGET Date ” shall mean a day on which TARGET2 (or, if such payment system ceases to be operative, such other payment system, if any, determined by the Administrative Agent to be a suitable replacement) is operating.

TARGET2 ” shall mean the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007.

Taxes ” shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings of a similar nature, and including, (i) income, franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad valorem, value added, sales, use, service, real or personal property, capital stock, license, payroll, withholding, disability, employment, social security, workers compensation, unemployment compensation, utility, mineral severance, excise, stamp, windfall profits, transfer and gains taxes, (ii) customs, duties, imposts, charges, levies or other similar assessments of any kind, and (iii) interest, penalties and additions to tax imposed with respect thereto.

Ticking Fee ” shall have the meaning assigned to such term in Section 2.06(c).

Total Commitment ” shall mean, at any time, the aggregate amount of the Commitments of all Lenders, as in effect at such time.

 

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Total Indebtedness ” shall mean, as of any date, the aggregate principal amount of Indebtedness of Holdings, the Borrower and the Restricted Subsidiaries outstanding as of such date of the type set forth clauses (a), (b), (c) and (f) of the definition of “Indebtedness”, other funded Indebtedness that would appear on a balance sheet prepared as of such date on a consolidated basis in accordance with GAAP and Indebtedness incurred pursuant to Permitted Receivables Facilities, provided that, for the avoidance of doubt, “Total Indebtedness” shall not include any Indebtedness in respect of Hedging Agreements.

Transaction Costs ” shall mean all fees, costs and expenses incurred or payable by Holdings, the Borrower or any Subsidiary in connection with the Transactions.

Transactions ” shall mean, collectively, (a) the execution, delivery and performance by each Loan Party of the Loan Documents (including this Agreement) to which it is to be a party, the borrowing of Loans, the use of the proceeds thereof and the Issuance of Letters of Credit hereunder, (b) the consummation of the Spin-Off and the other transactions contemplated by the Spin-Off Documents (including the payment of the Initial Funding Date Distribution), and (c) the payment of the Transaction Costs.

Transferee ” shall mean any transferee or assignee of any Lender, including a participation holder.

Type ”, when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, “ Rate ” shall mean the Adjusted LIBO Rate and the Base Rate.

Uniform Commercial Code ” shall have the meaning specified in the Collateral Agreement.

United States ” shall mean the United States of America.

Unrestricted Subsidiary ” shall mean (a) any Subsidiary that is formed or acquired after the Initial Funding Date and is designated as an Unrestricted Subsidiary by the Borrower pursuant to Section 5.15 (“ Designation of Subsidiaries ”) subsequent to the Initial Funding Date and (b) any subsidiary of an Unrestricted Subsidiary. As of the Initial Funding Date, there shall be no Unrestricted Subsidiaries.

US Collateral ” shall mean, collectively,

(a) all Collateral owned by each US Obligations Loan Party (other than Collateral owned by the Borrower and Aluminerie Lauralco, Sàrl),

(b) 65% of the Equity Interests of the Borrower,

(c) 100% of the Equity Interests of AAHP,

 

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(d) 65% of the Equity Interests of Aluminerie Lauralco, Sàrl, and

(e) all products and proceeds of the foregoing;

provided , however , that except as set forth in clause (c) (or clause (e) with respect to clause (c)), US Collateral shall not include any Equity Interests of the Borrower or any Foreign Subsidiary in excess of 65% of the outstanding Equity Interests of such Foreign Subsidiary (and shall, for the avoidance of doubt, include no more than 65% of the Voting Stock of any of the Borrower, Aluminerie Lauralco, Sàrl, or any other Foreign Subsidiary (other than AAHP) in any event) or any Collateral owned by any Foreign Subsidiary. For the avoidance of doubt, only US Collateral shall secure US Secured Obligations, and Non-US Collateral and US Collateral shall secure Global Secured Obligations.

US Jurisdiction ” shall mean the United States, any State thereof, the District of Columbia or any territory or possession thereof that has adopted the Uniform Commercial Code.

US Letter of Credit ” shall have the meaning assigned to such term in Section 2.22(a).

US Letter of Credit Sublimit ” shall mean $400,000,000.

US Loan Document Obligations ” shall mean (i) the Loan Document Obligations in respect of or in connection with US Letters of Credit and (ii) any other Loan Document Obligations of Holdings or a Domestic Subsidiary.

US Obligations Loan Parties ” shall mean Holdings, the Borrower, Aluminerie Lauralco, Sàrl and each other Loan Party that is a Domestic Subsidiary (other than any Domestic Subsidiary owned directly or indirectly, in whole or in part by a Foreign Subsidiary or any Domestic Subsidiary which is a disregarded entity for U.S. federal income tax purposes and substantially all the assets of which consist of equity interests (or equity interests and non-equity interests) in one or more Subsidiaries that are “controlled foreign corporations” for U.S. federal income tax purposes).

US Secured Cash Management Obligations ” shall mean the due and punctual payment and performance of any and all obligations of Holdings and each Domestic Subsidiary (whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor)) arising in respect of Cash Management Services provided to any such Person that (a) are owed to the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, or to any person that, at the time such obligations were incurred, was the Administrative Agent, an Arranger or an Affiliate of any of the foregoing, (b) are owed on the Initial Funding Date to a person that is a Lender or an Affiliate of a Lender as of the Initial Funding Date or (c) are owed to a person that is a Lender or an Affiliate of a Lender at the time such obligations are incurred.

 

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US Secured Commercial Obligations ” shall mean any Secured Commercial Obligations that are (i) obligations of Holdings or a Domestic Subsidiary and (ii) not specifically designated as Global Secured Commercial Obligations by Holdings through written notice to the Administrative Agent.

US Secured Hedging Obligations ” shall mean any Secured Hedging Obligations that are (i) obligations of Holdings or a Domestic Subsidiary and (ii) designated as US Secured Hedging Obligations by Holdings through written notice to the Administrative Agent.

US Secured Obligations ” shall mean, collectively, (a) the US Loan Document Obligations, (b) the US Secured Cash Management Obligations, (c) the US Secured Hedging Obligations and (d) the US Secured Commercial Obligations.

USA PATRIOT Act ” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.

VAT ” shall mean (a) any tax imposed in compliance with the Council Directive of November 28, 2006 on the common system of value added tax (EC Directive 2006/112), and (b) any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to such tax referred to in paragraph (a) above, or imposed elsewhere.

Voting Stock ” with respect to the Equity Interests of any Person shall mean issued and outstanding Equity Interests of any class or classes (however designated) having ordinary voting power for the election of the directors or other governing body of such Person (other than as a limited partner of such Person), other than Equity Interests having such power only by reason of the occurrence of a contingency.

wholly owned Subsidiary ” shall mean, 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. Unless otherwise specified, the term “wholly owned Subsidiary” refers to a wholly owned Subsidiary of Holdings.

Withdrawal Liability ” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

Write-Down and Conversion Powers ” shall mean, 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.

 

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Yadkin Facility ” shall mean the Yadkin Hydro power plant located in Stanly County, NC, USA.

SECTION 1.02. Terms Generally; Accounting Principles . (a) The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. Unless the context requires otherwise or except as expressly provided herein, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, amended and restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any definition of or reference to any statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), unless otherwise expressly stated to the contrary, (iii) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (iv) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (v) all references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require 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) Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided , however , that, (i) if the Borrower notifies the Administrative Agent that it requests an amendment to any provision hereof to eliminate the effect of any change in GAAP on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP ( provided such change in GAAP occurs after the date hereof), then such provision shall be interpreted on the basis of GAAP in effect immediately before such change became effective until such notice shall have been withdrawn or such provision amended in accordance herewith and (ii) notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, (A) without giving effect to any election under Statement of Financial Accounting Standards 159, The Fair Value Option for Financial Assets and Financial Liabilities , or any successor thereto (including pursuant to the Accounting Standards Codification), to value any Indebtedness of Holdings, the Borrower or any Subsidiary at “fair value”, as defined therein, (B) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner

 

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as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof, and (C) without giving effect to any change to GAAP occurring after the date hereof as a result of the adoption of any proposals set forth in the Proposed Accounting Standards Update, Leases (Topic 842) , issued by the Financial Accounting Standards Board on May 16, 2013, or any other proposals issued by the Financial Accounting Standards Board in connection therewith, in each case if such change would require treating any lease (or similar arrangement conveying the right to use) as a capital lease where such lease (or similar arrangement) would not have been required to be so treated under GAAP as in effect on the date hereof. If at any time the SEC permits or requires United States reporting companies to use IFRS in lieu of GAAP for reporting purposes, Holdings may notify the Administrative Agent that it has elected to so use IFRS in lieu of GAAP and, upon any such notice, references herein to GAAP shall thereafter be construed to mean IFRS as in effect from time to time; provided that, to the extent that such election would affect any financial ratio or other requirement set forth in this Agreement, (i) Holdings and the Borrower shall provide to the Administrative Agent financial statements and other documents reasonably requested by the Administrative Agent or any Lender setting forth a reconciliation with respect to such ratio or requirement made before and after giving effect to such election and (ii) if the Borrower, the Administrative Agent or the Required Lenders shall so request, the Administrative Agent, the Required 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; provided , further , that until such time as such an amendment shall have become effective, references herein to GAAP shall be construed to mean GAAP as in effect and applied immediately before such election to use IFRS.

SECTION 1.03. Exchange Rates; Currency Equivalents .

(a) Not later than 10:00 a.m., Local Time, on each Determination Date, the Administrative Agent shall (x) determine the Exchange Rate as of such Determination Date with respect to Euro, which shall be conclusive absent manifest error and (y) give notice thereof to the Lenders and the Borrower. The Exchange Rates so determined shall become effective (i) in the case of the initial Determination Date, on the Initial Funding Date and (ii) in the case of each subsequent Determination Date, on the first Business Day immediately following such Determination Date (a “ Reset Date ”), shall remain effective until the next succeeding Reset Date and shall for all purposes of this Agreement (other than any provision expressly requiring the use of a current exchange rate) be the Exchange Rates employed in converting any amounts between Dollars and Euro.

(b) Solely for purposes of Article II and related definitional provisions to the extent used therein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as determined by the Administrative Agent and notified to the applicable Lender and the Borrower in accordance with paragraph (a) of this Section.

(c) Notwithstanding any other provision of this Agreement, amounts denominated in a currency other than Dollars will be converted to Dollars for the

 

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purposes of (A) calculating the financial maintenance covenants under Sections 6.12 and 6.13, and (B) calculating the Consolidated Cash Interest Expense and the Leverage Ratio (other than for purposes of determining compliance with Sections 6.12 and 6.13) at the exchange rates then used by Holdings in its financial statements.

(d) For purposes of Section 6.01, the amount of any Indebtedness denominated in any currency other than Dollars shall be calculated based on the applicable Exchange Rate, in the case of such Indebtedness incurred or committed, on the date that such Indebtedness was incurred or committed, as applicable; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a currency other than Dollars, and such refinancing would cause the applicable Dollar-denominated restriction to be exceeded if calculated at the applicable Exchange Rate on the date of such refinancing, such Dollar-denominated restrictions shall be deemed not to have been exceeded so long as the principal amount of such Refinancing Indebtedness does not exceed the sum of (i) the outstanding or committed principal amount, as applicable, of such Indebtedness being refinanced plus (ii) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing.

(e) For purposes of Article VI, the amount of any Indebtedness, Liens, investments, asset sales and Restricted Payments, as applicable, denominated in any currency other than Dollars shall be calculated based on the applicable Exchange Rate. If any basket is exceeded solely as a result of fluctuations in the applicable Exchange Rate after the last time such basket was utilized, such basket will not be deemed to have been exceeded solely as a result of such fluctuations in the applicable Exchange Rate.

SECTION 1.04. Rounding-Off . The Administrative Agent may, in its discretion, set up appropriate rounding off mechanisms or otherwise round-off amounts hereunder to the nearest higher or lower amount in whole Dollars or Euros, as applicable, or cents thereof, to ensure amounts owing by any party hereunder or that otherwise need to be calculated or converted hereunder are expressed in whole Dollars or Euros, as applicable, or in whole cents thereof, as may be necessary or appropriate.

SECTION 1.05. Pro Forma Calculations. With respect to any period during which any Permitted Acquisition or any sale, transfer or other disposition of any Equity Interests in a Subsidiary or all or substantially all the assets of a Subsidiary or division or line of business of a Subsidiary outside the ordinary course of business occurs, or during which any Subsidiary Designation occurs, for purposes of determining compliance with the covenants contained in Sections 6.12 and 6.13 or otherwise for purposes of determining the Leverage Ratio, Consolidated EBITDA and Consolidated Cash Interest Expense, calculations with respect to such period shall be made on a Pro Forma Basis.

 

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ARTICLE II

THE CREDITS

SECTION 2.01. Commitments . Subject to the terms and conditions herein set forth, each Lender agrees, severally and not jointly, to make revolving credit loans in Dollars or Euros to the Borrower during the Revolving Credit Period applicable to such Lender in accordance with the terms hereof; provided , however , that (i) after giving effect to any Borrowing, (A) the Dollar Equivalent of the aggregate principal amount of the outstanding Loans shall not exceed the Total Commitment and (B) the Dollar Equivalent of the aggregate principal amount of the outstanding Loans denominated in Euros shall not exceed $750,000,000, (ii) at all times the aggregate principal amount of all outstanding Loans made by each Lender shall equal its Ratable Portion of the aggregate principal amount of all outstanding Loans, (iii) at no time shall any Lender be obligated to make a Loan in excess of such Lender’s Ratable Portion of the Available Credit and (iv) the Dollar Equivalent of the aggregate principal amount of Loans made on the Initial Funding Date shall not exceed $100,000,000. Within the limits set forth in this Section 2.01, the Borrower may borrow, pay or prepay Loans and reborrow at any time during the Revolving Credit Period, subject to the terms, conditions and limitations set forth herein.

SECTION 2.02. Loans . (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective applicable Commitments; provided , however , that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). At the commencement of each Interest Period for any LIBOR Borrowing, such Borrowing shall be in an aggregate principal amount which, in the case of any LIBOR Borrowing denominated in Dollars, is an integral multiple of $1,000,000 and not less than $25,000,000, and in the case of any LIBOR Borrowing denominated in Euros, is an integral multiple of €1,000,000 and not less than €25,000,000; provided that a LIBOR Borrowing that results from a continuation of an outstanding LIBOR Borrowing may be in an aggregate amount that is equal to such outstanding Borrowing. At the time that each Base Rate Borrowing is made, such Borrowing shall be in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $50,000,000 (or an aggregate principal amount equal to (i) the remaining balance of the applicable Commitments or (ii) the amount that is required to finance the reimbursement of a Reimbursement Obligation as contemplated by Section 2.22(h), as the case may be).

(b) Each Borrowing shall be comprised entirely of LIBOR Loans or Base Rate Loans, as the Borrower may request pursuant to Section 2.03; provided , however , that Borrowings denominated in Euros shall be comprised entirely of LIBOR Loans. Each Lender may at its option fulfill its Commitment with respect to any Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided , however , that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement or any of

 

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the Borrower’s rights thereunder. Borrowings of more than one Type may be outstanding at the same time; provided , however , that the Borrower shall not be entitled to request any Borrowing which, if made, would result in an aggregate of more than ten (or such greater number as may be agreed to by the Administrative Agent) separate LIBOR Loans in each currency (Dollars or Euros) of any Lender being made to the Borrower and outstanding under this Agreement at any one time. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans.

(c) Each Lender shall make each Loan that is (A) a Base Rate Loan or (B) a LIBOR Loan, to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 1:00 p.m., Local Time, and the Administrative Agent shall promptly thereafter credit the amounts so received to the general deposit account of the Borrower maintained with the Administrative Agent, or such other account as the Borrower may designate in a written notice to the Administrative Agent, or, in the case of Base Rate Loans made to finance the reimbursement of a Reimbursement Obligation as provided in Section 2.22(h), to the applicable Issuer, in each case as specified by the Borrower in the applicable Borrowing request. If such Loans are not made on such date because any condition precedent to a Borrowing herein specified shall not have been met or waived, the Administrative Agent shall return the amounts so received to the respective Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the time of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to (A) in the case of Loans denominated in Dollars, Base Rate Loans and (B) in the case of Loans denominated in Euros, LIBOR Loans and (ii) in the case of such Lender, (A) in the case of Loans denominated in Dollars, the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (B) in the case of Loans denominated in Euros, the rate determined by the Administrative Agent to be the cost to it of funding such amount (in the case of each of clause (A) and (B) of this clause (ii), which determination shall be conclusive absent manifest error). 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 shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Loan as part of such Borrowing for purposes of this Agreement.

 

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(d) The occurrence of any Lender becoming a Defaulting Lender shall not relieve any other Lender of its obligation to make a Loan or payment on such date but no such other Lender shall be responsible for the failure of any Defaulting Lender to make a Loan or payment required under this Agreement.

(e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert to or continue, any Borrowing if the Interest Period requested with respect thereto would end after any Maturity Date applicable thereto.

SECTION 2.03. Notice of Borrowings . In order to request a Borrowing, a Borrower shall give written or faxed notice (or telephone notice promptly confirmed in writing or by fax) (a) in the case of a Base Rate Borrowing, to the Administrative Agent not later than 12:00 noon, New York City time, on the Business Day of such proposed Borrowing or (b) in the case of a LIBOR Borrowing, to the Administrative Agent not later than 10:00 a.m., Local Time, three Business Days before such proposed Borrowing (or in the case of a LIBOR Borrowing to be made on the Initial Funding Date, one Business Day). Such notice shall be irrevocable, and shall in each case refer to this Agreement and specify (i) whether such Borrowing is to be denominated in Dollars or Euros; (ii) in the case of a Borrowing denominated in Dollars, whether such Borrowing is to be a LIBOR Borrowing or a Base Rate Borrowing; (iii) the date of such Borrowing (which shall be a Business Day) and the amount thereof; (iv) if such Borrowing is to be a LIBOR Borrowing, the Interest Period with respect thereto; (v) the location and number of the account of the Borrower to which funds are to be disbursed, which shall comply with the requirements of Section 2.02(c), or, in the case of any Base Rate Borrowing requested to finance the reimbursement of a Reimbursement Obligation as provided in Section 2.22(h), the identity of the applicable Issuer; and (vi) that as of such date Sections 4.03(a) and 4.03(b) are satisfied. In the case of a Borrowing denominated in Dollars, if no election as to the Type of Borrowing is specified in any such notice, then such requested Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any LIBOR Borrowing is specified in any such notice, then the Borrower giving the notice of Borrowing shall be deemed to have selected an Interest Period of one month’s duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.03 and of each Lender’s portion of the requested Borrowing.

SECTION 2.04. Interest Elections . (a) Subject to the terms and conditions set forth in this Agreement, (i) at the option of the Borrower, each Borrowing denominated in Dollars initially shall be of the Type specified in the applicable Borrowing request, (ii) each Borrowing denominated in Euros shall be a LIBOR Borrowing, and (iii) each LIBOR Borrowing shall have an initial Interest Period as specified in the Borrowing request with respect to such Borrowing. Thereafter, the Borrower may elect (each an “ Interest Election Request ”) to convert such Borrowing to a different Type (other than in the case of a Borrowing denominated in Euros) or to continue such Borrowing in its existing Type and, in the case of a LIBOR Borrowing, may elect Interest Periods therefor, all as provided in this Section. In the case of any Borrowing denominated in Dollars, the applicable Borrower may elect different options

 

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with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an Interest Election Request, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing request would be required under Section 2.03 if such Borrower were requesting a Borrowing of the Type (and in the currency) resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or fax to the Administrative Agent of a written Interest Election Request signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Sections 2.02 and 2.03:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a LIBOR Borrowing; and

(iv) if the resulting Borrowing is a LIBOR Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a LIBOR Borrowing but does not specify an Interest Period, then the applicable Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a LIBOR Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period (i) in the case of a LIBOR Borrowing denominated in Dollars, such Borrowing shall be converted to a Base Rate Borrowing and (ii) in the case of a LIBOR Borrowing denominated in Euros, such Borrowing shall be continued as a LIBOR Borrowing with an Interest Period of one month’s duration. Notwithstanding any contrary provision hereof, if an Event of Default under clause (h) or (i) of Article VII has

 

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occurred and is continuing with respect to Holdings or the Borrower, or if any other Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the applicable Borrower of the election to give effect to this sentence on account of such other Event of Default, then, in each such case, so long as such Event of Default is continuing (i) no outstanding Base Rate Borrowing may be converted to a LIBOR Borrowing and (ii) unless repaid, each LIBOR Borrowing (A) denominated in Dollars, shall be converted to a Base Rate Borrowing at the end of the Interest Period applicable thereto and (B) denominated in Euros, shall be continued as a LIBOR Borrowing with an Interest Period of one month’s duration.

SECTION 2.05. Repayment of Loans; Evidence of Debt . (a) The outstanding principal balance of each Loan shall be payable by the Borrower on the applicable Maturity Date.

(b) The Administrative Agent, acting as a non-fiduciary agent of the Borrower or Holdings, as applicable, solely for this purpose and for tax purposes, shall establish and maintain at one of its offices a record of ownership (the “ Register ”) in which the Administrative Agent agrees to register by book entry each Lender’s and each Issuer’s interest in each Loan, each Letter of Credit and each Reimbursement Obligation, and in the right to receive any payments hereunder and any assignment of any such interest or rights. In addition, the Administrative Agent, acting as a non-fiduciary agent of the Borrower solely for this purpose and for tax purposes, shall establish and maintain accounts in the Register in accordance with its usual practice in which it shall record (i) the names and addresses of the Lenders and the Issuers, (ii) the Commitments of each Lender from time to time, (iii) the amount of each Loan made and, if a LIBOR Loan, the Interest Period applicable thereto, (iv) the amount of any principal or interest due and payable, and paid, by the Borrower or Holdings to, or for the account of, each Lender hereunder, (v) the amount that is due and payable, and paid, by the Borrower or Holdings to, or for the account of, each Issuer, including the amount of Letter of Credit Obligations (specifying the amount of any Reimbursement Obligations) due and payable to an Issuer, and (vi) the amount of any sum received by the Administrative Agent hereunder from the Borrower or Holdings, whether such sum constitutes principal or interest (and the type of Loan to which it applies), fees, expenses or other amounts due under the Loan Documents and each Lender’s and Issuer’s, as the case may be, share thereof, if applicable.

(c) Notwithstanding anything to the contrary contained in this Agreement, the Loans (including the Notes evidencing such Loans) and the Reimbursement Obligations are registered obligations and the right, title, and interest of the Lenders and the Issuers and their respective assignees in and to such Loans or Reimbursement Obligations, as the case may be, shall be transferable only upon notation of such transfer in the Register. A Note shall only evidence a Lender’s or a registered assignee’s right, title and interest in and to the related Loan, and in no event is any such Note to be considered a bearer instrument or obligation. This Section 2.05 and Section 9.04 shall be construed so that the Loans and Reimbursement Obligations are at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and any related regulations (or any successor provisions of the Code or such regulations).

 

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(d) The entries made in the Register and in the accounts therein maintained pursuant to clauses (b) and (c) above shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations recorded therein; provided , however , that the failure of the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower or Holdings, as applicable, to repay any amounts due hereunder in accordance with the terms of this Agreement. In addition, the Borrower, each Applicant, the Administrative Agent, the Lenders and the Issuers shall treat each Person whose name is recorded in the Register as a Lender or as an Issuer, as applicable, for all purposes of this Agreement. Information contained in the Register with respect to any Lender or Issuer shall be available for inspection by the Borrower, the Administrative Agent, such Lender or such Issuer at any reasonable time and from time to time upon reasonable prior notice.

(e) Notwithstanding any other provision of this Agreement, in the event any Lender shall request a promissory note evidencing the Loans made by it hereunder (each a “ Note ”) to the Borrower, the Borrower shall deliver such a Note, reasonably satisfactory to the Administrative Agent, payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns), and, subject to Section 2.05(c), the interests represented by such Note shall at all times (including after any assignment of all or part of such interests pursuant to Section 9.04) be represented by one or more promissory notes in such form.

SECTION 2.06. Fees . (a)  Commitment Fees. The Borrower agrees to pay in immediately available Dollars for the account of the Lenders as set forth below in this Section 2.06, a commitment fee (collectively, the “ Commitment Fee ”) at a rate per annum equal to the Applicable Margin on the average daily unused amount of such Lender’s Commitment, for the period from and including the Initial Funding Date to but excluding the earlier of the date such Commitment is terminated and the applicable Maturity Date. Accrued Commitment Fees shall be payable in arrears (i) on the last Business Day of each calendar quarter, commencing on the first such Business Day following the Initial Funding Date, for the account of each Lender, (ii) on each Maturity Date, for the account of each Lender the Commitment of which terminates on such date, and (iii) on any date on which the Commitments shall be terminated in whole (or, in the case of Letters of Credit, fully cash collateralized in accordance with the last paragraph of Article VII), for the account of each Lender; provided , however , that if any Revolving Credit Outstandings shall be outstanding after the date on which the Commitments have been terminated in whole, then such Commitment Fee shall be payable on demand. All Commitment Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days (including the first day but excluding the last day).

 

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(b) Letter of Credit Fees . Each Applicant agrees to pay in immediately available Dollars or Euros, as applicable, the following amounts with respect to Letters of Credit issued by any Issuer to it:

(i) to each Issuer of a Letter of Credit, with respect to each Letter of Credit issued by such Issuer to such Applicant, an issuance fee equal to a percentage per annum to be mutually agreed upon by such Applicant and such Issuer of the undrawn face amount of such Letter of Credit, during the period from and including the Initial Funding Date to but excluding the later of the date on which such Issuer ceases to be an Issuer hereunder and the date on which such Issuer ceases to have any exposure to Letter of Credit Obligations in respect of such Letters of Credit;

(ii) to the Administrative Agent for the ratable benefit of the Lenders, with respect to each Letter of Credit issued to such Applicant, a participation fee accruing at a rate per annum equal to the Applicable Margin for LIBOR Loans on the undrawn face amount of such Letter of Credit, during the period from and including the Initial Funding Date to but excluding the later of the date on which such Lender’s Commitment terminates and the date on which such Lender ceases to have any exposure to the Letter of Credit Obligations; and

(iii) to the Issuer of any Letter of Credit issued to such Applicant, with respect to the issuance, amendment, renewal, extension or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with such Issuer’s standard schedule for such charges in effect at the time of issuance, amendment, renewal, extension, transfer or drawing, as the case may be, payable within 10 days after demand.

(iv) All fees payable under this Section 2.06(b) shall be computed on the basis of the actual number of days elapsed in a year of 360 days (including the first day but excluding the last day). Issuance fees and participation fees payable under the foregoing clauses (i) and (ii), respectively, and accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Initial Funding Date; provided that all such fees shall be payable on each Maturity Date and any such fees accruing after the date on which the Commitment of any applicable Lender or Issuer terminates shall be payable on demand.

(c) Ticking Fees. The Borrower agrees to pay in immediately available Dollars for the account of the Lenders as set forth below in this Section 2.06, a ticking fee (collectively, the “ Ticking Fee ”) at a rate per annum equal to 0.125% of the Total Commitment, for the period from and including the date that is 90 days following the Effective Date to but excluding the earlier of (i) the Initial Funding Date and (ii) the date the Commitments are terminated in accordance with this Agreement, and payable on such date. The Ticking Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days (including the first day but excluding the last day).

(d) Upfront Fees . The Borrower agrees to pay, on the date that is 90 days after the Effective Date, in immediately available Dollars for the account of each Lender on such date, an upfront fee equal to 0.375% of the aggregate amount of such Lender’s Commitment on such date.

 

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(e) The Borrower agrees to pay to the Administrative Agent and the Arrangers, for their respective accounts, the fees payable in the amounts and at the times separately agreed upon among the Borrower and the Administrative Agent or any Arranger.

(f) All fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the applicable Issuer, in the case of fees payable to it), for distribution, if and as appropriate, among the Lenders. Once paid, the fees shall not be refundable under any circumstances except in the case of an error which results in the payment of fees in excess of those due and payable as of such date, in which case the applicable Lenders or Issuers shall cause a refund in the amount of such excess to be paid to the Borrower or Holdings, as applicable.

(g) Defaulting Lender Fees . Notwithstanding anything herein to the contrary, but subject to Section 9.26, during such period as a Lender is a Defaulting Lender, such Defaulting Lender will not be entitled to any fees relating to such Defaulting Lender’s unused Commitments accruing during such period pursuant to clauses (a) and (b) above (without prejudice to the rights of the Non-Defaulting Lenders in respect of such fees); provided , that (i) to the extent that a Ratable Portion of the Letter of Credit Obligations of such Defaulting Lender is reallocated to the Non-Defaulting Lenders pursuant to Section 2.23(a) (“ Reallocation of Defaulting Lender Commitment ”), such fees that would have accrued for the benefit of such Defaulting Lender will instead accrue for the benefit of and be payable to such Non-Defaulting Lenders, pro rata in accordance with their respective Commitments, (ii) to the extent that all or any portion of such Letter of Credit Obligations cannot be so reallocated and is not cash collateralized pursuant to Section 2.23(a) (“ Reallocation of Defaulting Lender Commitment ”), such fees will, without prejudice to any rights or remedies of any Issuer or any Lender hereunder, instead accrue for the benefit of and be payable to the relevant Issuer and the pro rata payment provisions of Section 2.15 will automatically be deemed adjusted to reflect the provisions of this paragraph), and (iii) in no event shall the Borrower be required to pay any Commitment Fee in respect of the Commitments of a Defaulting Lender that otherwise would have been required to have been paid to such Lender during such period such Lender is a Defaulting Lender.

SECTION 2.07. Interest on Loans . (a) Subject to the provisions of Section 2.08, the unpaid principal amount of the Loans comprising each Base Rate Borrowing shall bear interest for each day (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, when the Base Rate is determined by reference to clause (a) of the definition of Base Rate and over a year of 360 days at all other times) at a rate per annum equal to the Base Rate from time to time in effect during the Interest Period for such Borrowing plus the Applicable Margin.

(b) Subject to the provisions of Section 2.08, the unpaid principal amount of the Loans comprising each LIBOR Borrowing shall bear interest (computed on

 

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the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.

(c) Interest on each Loan shall be payable by the Borrower on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period; provided that, if a Loan, or a portion thereof, is repaid on the same day on which such Loan is made, one day’s interest shall accrue on the portion of such Loan so prepaid. The applicable Adjusted LIBO Rate or Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.08. Default Interest . If the Borrower or Holdings, as applicable shall default in the payment of the principal of or interest on any Loan or any Reimbursement Obligation or any other amount becoming due hereunder, by acceleration or otherwise, the Borrower or Holdings, as applicable shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum equal to (a) in the case of overdue principal of any Loan, the rate otherwise applicable to such Loan as provided in Section 2.07 plus 2% per annum, or (b) in the case of any other amount, the rate applicable to Base Rate Borrowings plus 2% per annum. Payment or acceptance of the increased rates of interest provided for in this Section is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent, any Issuer or any Lender.

SECTION 2.09. Alternate Rate of Interest . In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a LIBOR Loan, the Administrative Agent shall have determined in good faith that Dollar or Euro deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market or other market in which Lenders ordinarily raise Dollars or Euros, as applicable, to fund Loans of the requested Type, or that the rates at which such Dollar or Euro, as applicable, deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining its LIBOR Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, then the Administrative Agent shall, as soon as practicable thereafter, give written or faxed notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (a) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, an affected LIBOR Borrowing shall be ineffective, (b) any affected LIBOR Borrowing that is requested to be continued shall (i) if denominated in Dollars, be continued as a Base Rate Borrowing and (ii) if denominated in Euros, be repaid on the last day of the then-current Interest Period applicable thereto and (c) any Borrowing request for an affected

 

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LIBOR Borrowing shall (i) in the case of a Borrowing denominated in Dollars, be deemed to be a request for a Base Rate Borrowing and (ii) in the case of a Borrowing denominated in Euros, be ineffective (and no Lender shall be obligated to make a Loan on account thereof). Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error.

SECTION 2.10. Termination and Reduction of Commitments . (a) Unless previously terminated, the Commitment of each Lender shall terminate on the applicable Maturity Date.

(b) Upon at least ten (10) Business Days’ prior irrevocable, written or faxed notice (which notice may be conditioned upon the closing of any financing arrangement obtained to refinance or replace the Facility) to the Administrative Agent, the Borrower may at any time during the Revolving Credit Period in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; provided , however , that (i) each partial reduction shall be in an integral multiple of $5,000,000 and in a minimum principal amount of $50,000,000 and (ii) the Total Commitment shall not be reduced to an amount that is less than the aggregate principal amount of the Revolving Credit Outstandings (after giving effect to any simultaneous prepayment pursuant to Section 2.11).

(c) Each reduction in Commitments hereunder shall be made ratably among the Lenders in accordance with each such Lender’s Ratable Portion of the Total Commitment. The Borrower shall pay to the Administrative Agent for the account of the applicable Lenders, on the date of each such termination or reduction pursuant to this Section 2.10, the Commitment Fee on the amount of the Commitments so terminated or reduced accrued to the date of such termination or reduction.

(d) The Commitment of each Lender shall terminate if, prior to the Initial Funding Date, Holdings receives a public corporate family rating from Moody’s of B1 or lower or a public corporate credit rating of B+ or lower from S&P.

SECTION 2.11. Prepayment . (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, upon at least three Business Days’ prior written or faxed notice (or telephone notice promptly confirmed by written or faxed notice) to the Administrative Agent; provided , however , that each partial prepayment shall be in an amount which is, in the case of Borrowings denominated in Dollars, an integral multiple of $1,000,000 and not less than $25,000,000, and in the case of Borrowings denominated in Euros, an integral multiple of €1,000,000 and not less than €25,000,000.

(b) On the date of any termination or reduction of any Commitment pursuant to Section 2.10, the Borrower shall pay or prepay so much of the Loans (or cash collateralize Letters of Credit in accordance with the last paragraph of Article VII), as shall be necessary in order that, after giving effect to such reduction or termination, the aggregate principal amount of the Revolving Credit Outstandings shall not exceed the Total Commitment so reduced.

 

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(c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable (but may be conditioned upon the closing of any financing arrangement obtained to refinance or replace the Facility) and shall commit the Borrower to prepay the Loan to which such notice relates by the amount stated therein on the date stated therein. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. All prepayments under this Section shall be subject to Section 2.14 (“ Indemnity ”) but otherwise without premium or penalty. All prepayments under this Section 2.11 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment.

(d) If at any time, (i) the aggregate principal amount of Revolving Credit Outstandings exceeds the Total Commitment at such time (other than as a result of any revaluation of the Dollar Equivalent of Loans or any part of the Letter of Credit Obligations on any Determination Date in accordance with Section 1.03) or (ii) the aggregate principal amount of Revolving Credit Outstandings exceeds 105% of the Total Commitment at such time solely as a result of any revaluation of the Dollar Equivalent of Loans or any part of the Letter of Credit Obligations on any Determination Date in accordance with Section 1.03, the Borrower shall forthwith prepay the Loans then outstanding in an amount equal to such excess. If any such excess remains after repayment in full of the aggregate outstanding Loans, each Applicant shall provide cash collateral for the Letter of Credit Obligations with respect to Letters of Credit issued to such Applicant in accordance with the last paragraph of Article VII in an amount equal to the amount of such excess.

SECTION 2.12. Reserve Requirements; Change in Circumstances . (a) Notwithstanding any other provision herein other than Section 2.14(c), 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 such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuer;

(ii) impose on any Lender or any Issuer or the London interbank market or other market in which Lenders ordinarily raise Dollars or Euros, as applicable, to fund Loans of the requested Type, or any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein; or

(iii) subject the Administrative Agent, any Lender or any Issuer to any Taxes (other than (A) Indemnified Taxes indemnifiable pursuant to Section 2.18 and (B) Excluded Taxes) on its loans, loan principal, letters of credit, commitments or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;

 

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and the result of any of the foregoing shall be to increase the cost to such Lender of funding, making, converting, continuing or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such 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 Issuer hereunder (whether of principal, interest or otherwise), then the Borrower (or, with respect to the US Letters of Credit, Holdings) will pay to such Lender or such Issuer, as applicable, upon demand such additional amount or amounts as will compensate such Lender or such Issuer, as applicable for such additional costs or expenses incurred or reduction suffered.

(b) If any Lender or any Issuer reasonably determines that any Change in Law regarding capital adequacy or liquidity has had or would have the effect of reducing the rate of return on the capital of such Lender or Issuer or any holding company of such Lender or Issuer by an amount reasonably determined by such Lender or Issuer or such holding company as a consequence of this Agreement, the Commitments of each Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit Issued by such Issuer, or such Lender’s or Issuer’s obligations hereunder (taking into consideration such Lender’s or Issuer’s policies and the policies of such Lender’s or such Issuer’s holding company with respect to capital adequacy and/or liquidity and such Lender’s or such Issuer’s desired return on capital), then from time to time upon demand of such Lender or such Issuer (with a copy of such demand to the Administrative Agent), the Borrower (or, with respect to the US Letters of Credit, Holdings) shall pay to such Lender or such Issuer such additional amount or amounts as will compensate such Lender or such Issuer or such Lender’s or such Issuer’s holding company for such reduction; provided , that such additional amounts shall not be duplicative of any amounts to the extent otherwise paid by Holdings or the Borrower, as the case may be, under any other provision of this Agreement.

(c) A certificate of each Lender or Issuer setting forth such amount or amounts as shall be necessary to compensate such Lender or such Issuer or its Parent Company as specified in paragraph (a) or (b) above, as the case may be, together with a statement of reasons for such demand and showing the calculation for such amounts shall be delivered to the Borrower and shall be conclusive absent manifest error. Notwithstanding any other provision of this Section, no Lender shall demand compensation for any increased cost or reduction pursuant to this Section in respect of any Change in Law described in the proviso to the definition of the term “Change in Law” unless such certificate states that it is the general policy or practice of such Lender or Issuer to demand such compensation in similar circumstances from similarly-situated borrowers under similar credit facilities (to the extent such Lender or Issuer has the right under such similar credit facilities to do so). The Borrower shall pay or cause to be paid to each Lender the amount shown as due on any such certificate delivered by it within ten (10) days after its receipt of the same.

(d) Except as provided in this paragraph, failure or delay on the part of any Lender or Issuer to demand compensation pursuant to this Section with respect to any period shall not constitute a waiver of such Lender’s or such Issuer’s right to demand

 

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compensation with respect to such period or any other period. The protection of this Section 2.12 shall be available to each Lender and to each Issuer regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. No Lender or Issuer shall be entitled to compensation under this Section 2.12 for any costs or expenses incurred or reductions suffered with respect to any date unless it shall have notified the Borrower that it will demand compensation for such costs or reductions under paragraph (c) above not more than 120 days after the later of (i) such date and (ii) the date on which it shall have or reasonably should have become aware of such costs or reductions; provided that if the applicable Change in Law giving rise to such costs, expenses or reductions is retroactive, then the 120 day period referred to above shall be extended to include the period of retroactive effect thereof. In the event the Borrower or Holdings shall reimburse any Lender pursuant to this Section 2.12 for any cost and the Lender shall subsequently receive a refund in respect thereof, the Lender shall so notify Holdings or the Borrower, as applicable, and shall pay to Holdings or the Borrower, as applicable the portion of such refund which it shall determine in good faith to be allocable to the cost so reimbursed.

SECTION 2.13. Change in Legality . (a) Notwithstanding any other provision herein other than Section 2.14(c), if any Change in Law shall make it unlawful for any Lender to make or maintain any LIBOR Loan or to give effect to its obligations as contemplated hereby with respect to any LIBOR Loan, then, by written or faxed notice to the Borrower and the Administrative Agent, such Lender may:

(i) declare that LIBOR Loans will not thereafter be made by such Lender hereunder, whereupon any request by a Borrower for a LIBOR Borrowing shall, as to such Lender only, (A) in the case of a LIBOR Borrowing to be denominated in Dollars, be deemed a request for a Base Rate Loan or (B) in the case of a LIBOR Borrowing to be denominated in Euros, be ineffective (and such Lender shall not be obligated to make a Loan on account thereof), in each case, unless such declaration shall be subsequently withdrawn; and

(ii) require that all outstanding LIBOR Loans made by it (A) that are denominated in Dollars be converted to Base Rate Loans, in which event all such LIBOR Loans shall automatically be so converted as of the effective date of such notice as provided in paragraph (b) below (with the interest rate on such Base Rate Loans of such Lender, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Adjusted LIBO Rate component of the Base Rate) or (B) that are denominated in Euros be prepaid promptly following the effective date of such notice.

In the event any Lender shall exercise its rights under clause (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the LIBOR Loans that would have been made by such Lender or the converted LIBOR Loans of such Lender shall instead be applied to repay the Loans made by such Lender in lieu of, or resulting from the conversion of, such LIBOR Loans.

 

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(b) For purposes of this Section 2.13, a notice by any Lender shall be effective as to each LIBOR Loan, if lawful, on the last day of the Interest Period applicable to such LIBOR Loan; in all other cases such notice shall be effective on the date of receipt.

SECTION 2.14. Indemnity . The Borrower shall indemnify each Lender against any loss, cost or expense (excluding loss of anticipated profits) which such Lender may sustain or incur as a consequence of (a) any failure to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article IV, (b) any failure by the Borrower to borrow, convert, continue or prepay any Loan hereunder on the date specified in any notice delivered pursuant hereto (whether or not such notice may be revoked in accordance with the terms hereof), (c) any payment, prepayment or conversion of a LIBOR Loan required by any other provision of this Agreement or otherwise made or deemed made on a date other than the last day of the Interest Period applicable thereto, other than any loss of profit resulting from any event, circumstance or condition set forth in Section 2.12 or 2.13, (d) any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise), (e) the occurrence of any Event of Default or (f) the assignment of a LIBOR Loan other than on the last day of the Interest Period applicable thereto as the result of a request by a Borrower pursuant to Section 2.19 (“ Assignment of Loans and Commitments Under Certain Circumstances ”) or Section 9.08(c), including, in each such case, any loss, cost, or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a LIBOR Loan. Such loss, cost or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid or not borrowed (assumed to be the Adjusted LIBO Rate applicable thereto) for the period from the date of such payment, prepayment or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for deposits in the applicable currency of a comparable amount and period from other banks in the London interbank market. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section together with a statement of reasons for such demand and the calculation of such amount or amounts shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

SECTION 2.15. Pro Rata Treatment . Except as required under Section 2.13 ( Change in Legality ) or as provided under Section 2.06(g) ( Defaulting Lender Fees ), each Borrowing, each payment or prepayment of principal of any Borrowing, each payment of interest on the Loans, each payment of the Commitment Fees and each conversion or continuation of any Borrowing with a Borrowing of any

 

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Type, shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Loans). All payments of fees (other than the Commitment Fees) and all other payments in respect of any other Loan Document Obligation shall be allocated among such of the Lenders and Issuers as are entitled thereto and, for such payments allocated to the Lenders, in proportion to their respective Ratable Portions.

SECTION 2.16. Sharing of Setoffs . Each Lender agrees that if it shall, through the exercise of a right of banker’s lien, setoff or counterclaim against the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any principal of or interest on any of its Loan or Loans or any of its participations in Letters of Credit as a result of which the unpaid principal portion of its Revolving Credit Outstandings and accrued interest thereon shall be proportionately less than the unpaid principal portion of the Revolving Credit Outstandings and accrued interest thereon of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price in cash for, a participation in the Revolving Credit Outstandings of such other Lender, so that the aggregate amount of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in Letters of Credit; provided , however , that, (i) if any such purchase or purchases or adjustments shall be made pursuant to this Section and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by Holdings or the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in Letters of Credit to any Eligible Assignee. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in any of the Revolving Credit Outstandings deemed to have been so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Loan or otherwise extended credit directly to the Borrower in the amount of such participation.

SECTION 2.17. Payments . (a) Each payment or prepayment by the Borrower of the principal of or interest on any Loans, any fees payable to the Administrative Agent or the Lenders or any other amounts due hereunder or under any other Loan Document shall be made, without any defense, setoff, recoupment or counterclaim, not later than the time (subject to clause (b) below) expressly required hereunder or under such other Loan Document (or, if no time is expressly required, not later than 12:00 (noon), New York City time, on the date when due, in the currency specified herein (or, if no such currency is specified, in Dollars), in immediately available

 

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funds. All such payments shall be made to the account or accounts as may be specified by the Administrative Agent, except that payments required to be made directly to any Issuer shall be so made, payments pursuant to Sections 2.12 ( Reserve Requirements; Change in Circumstances ), 2.14 ( Indemnity ), 2.18 ( Taxes ) and 9.05 ( Expenses; Indemnity ) shall be made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall be made to the persons specified therein. The Administrative Agent shall distribute any such payment received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.

(b) Whenever any payment (including principal of or interest on any Borrowing or any fees or other amounts) hereunder shall become due, or otherwise would occur, on a day that is not a Business Day, except as provided in the definition of Interest Period, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, if applicable.

(c) Each payment by Holdings or the Borrower of any Loan, Reimbursement Obligation (including interest or fees in respect thereof) and each reimbursement of various costs, expenses or other Loan Document Obligation shall be made in the currency in which such Loan was made, such Letter of Credit issued or such cost, expense or other Loan Document Obligation was incurred; provided , that the Letter of Credit Reimbursement Agreement for a Letter of Credit may specify another currency for the Reimbursement Obligation in respect of such Letter of Credit.

(d) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed Reimbursement Obligations, interest and fees then due hereunder, such funds shall be, subject to Section 9.26, applied (i) first, towards 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, towards payment of principal and unreimbursed Reimbursement Obligations then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed Reimbursement Obligations then due to such parties.

(e) In the event that any financial statements delivered under Section 5.01(a) or 5.01(b), or any compliance certificate delivered under Section 5.01(c), shall prove to have been materially inaccurate, and such inaccuracy shall have resulted in the payment of any interest or fees at rates lower than those that were in fact applicable for any period (based on the actual Leverage Ratio), then, if such inaccuracy is discovered prior to the termination of the Commitments and the repayment in full of the principal of all Loans and the reduction of the Reimbursement Obligations to zero, the Borrower shall pay to the Administrative Agent, for distribution to the Lenders and the Issuers (or former Lenders and Issuers) as their interests may appear, the accrued interest or fees that should have been paid but were not paid as a result of such misstatement.

SECTION 2.18. Taxes . (a) Any and all payments by or on behalf of any Loan Party hereunder or under any other Loan Document shall be made free and

 

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clear of and without deduction for any Indemnified Taxes, unless required by law. If any Loan Party shall be required by law to deduct any Indemnified Taxes from or in respect of any sum payable hereunder to the Lenders or the Issuers (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.18) such Lender or Issuer (or Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law; provided , however , that no Transferee of any Lender shall be entitled to receive any greater payment under this Section 2.18 than such Lender would have been entitled to receive immediately before assignment, participation or other transfer with respect to the rights assigned, participated or transferred unless such assignment, participation or transfer shall have been made (A) prior to the occurrence of an event (including any change in treaty, law or regulation) giving rise to such greater payment or (B) at the request of the Borrower.

(b) In addition, the Loan Parties shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes imposed with respect to an assignment (other than an assignment made at the request of the Borrower) as a result of a present or former connection between a Lender, Issuer or Transferee and the jurisdiction imposing such Tax (other than connections arising from such Lender, Issuer or Transferee having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement or any other Loan Document, or sold or assigned an interest in this Agreement or any other Loan Document) (herein referred to as “ Other Taxes ”).

(c) The Loan Parties will indemnify each Lender and each Issuer (or Transferee) and the Administrative Agent for the full amount of Indemnified Taxes and Other Taxes payable pursuant to Section 2.18(a) or Section 2.18(b) (including any Indemnified Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.18(c)) paid by such Lender or Issuer (or Transferee) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Such indemnification shall be made within 30 days after the date any Lender or Issuer (or Transferee) or the Administrative Agent, as the case may be, makes written demand therefor, together with a statement of reasons for such demand and the calculations of such amount. Such calculations, if made in good faith, absent manifest error, shall be final and conclusive on all parties.

(d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by any Loan Party in respect of any payment to any Lender or Issuer (or Transferee) or the Administrative Agent, such Loan Party will furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof (or other evidence satisfactory to the Administrative Agent).

 

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(e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.18 shall survive the payment in full of the principal of and interest on all Loans made hereunder.

(f) Each Lender and each Issuer (or Transferee) represents to the Borrower that, on the date such Lender or Issuer (or such Transferee) becomes a party to this Agreement, it is eligible to receive payments of interest hereunder from the Borrower without withholding in respect of United States Federal withholding tax (except, in the case of a Transferee of any Lender, as a result of the occurrence of an event (including a change in treaty, law or regulation) after the date of this Agreement giving rise to withholding to which such Lender would be subject).

(g) Each Lender and each Issuer (or Transferee), other than a Transferee described in the exception in Section 2.18(f), that is not a “ United States person ,” within the meaning of Section 7701(a)(30) of the Code, shall, on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such Transferee becomes a participation holder hereunder), deliver to the Borrower and the Administrative Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-8BEN, Form W-8BEN-E, Form W-8ECI, or any other applicable certificate or statement of exemption, properly completed and duly executed by such Lender or Issuer (or Transferee) establishing that payment made to such Lender or Issuer (or Transferee) is (i) not subject to United States Federal withholding tax under the Code because such payments are effectively connected with the conduct by such Lender or Issuer (or Transferee) of a trade or business in the United States, (ii) totally exempt from United States Federal withholding tax under a provision of an applicable tax treaty, or (iii) eligible for the benefits of the exemption for portfolio interest under Section 881(c) of the Code, in which case such Lender or Issuer (or Transferee) shall also deliver an applicable certificate consistent with the exhibits in Exhibit F to the effect that such Lender or 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. In addition, each such Lender or Issuer (or such Transferee) and each Transferee described in the exception in Section 2.18(f) shall, if legally able to do so, thereafter deliver such certificates, documents or other evidence from time to time establishing that payments received hereunder are not subject to, or subject to a reduced rate of, such withholding upon receipt of a written request therefor from the Borrower, Holdings or the Administrative Agent or within 30 days of any certificate or statement of exemption previously provided becoming incorrect. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to, or subject to a reduced rate of, United States Federal withholding tax, the Borrower, Holdings or the Administrative Agent shall withhold such taxes from such payments at the applicable statutory rate.

 

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(h) Each Lender and each Issuer (or Transferee) that is a “ United States person ,” within the meaning of Section 7701(a)(30) of the Code, shall, on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such Transferee becomes a participation holder hereunder), deliver to the Borrower and the Administrative Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form W-9 or any other applicable certificate or statement of exemption properly completed and duly executed by such Lender or Issuer (or Transferee) establishing that payment made to such Lender or Issuer (or Transferee) is not subject to United States Federal backup withholding tax under the Code. In addition, each such Lender or Issuer (or such Transferee) shall, if legally able to do so, thereafter deliver such certificates, documents or other evidence from time to time establishing that payments received hereunder are not subject to such withholding upon receipt of a written request therefor from the Borrower or the Administrative Agent. Unless the Borrower, Holdings and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments hereunder are not subject to United States Federal backup withholding tax, the Borrower, Holdings or the Administrative Agent shall withhold such taxes from such payments at the applicable statutory rate.

(i) Each Lender or Issuer (or Transferee) that is entitled to any exemption or reduction of non-U.S. withholding tax with respect to any payment under this Agreement shall, on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such Transferee becomes a participation holder hereunder), deliver to the Borrower and the Administrative Agent such certificates, documents or other evidence, as required by law, or as may reasonably be requested by the Borrower, establishing that such payment is not subject to, or is subject to a reduced rate of, withholding. In addition, each such Lender or Issuer (or such Transferee) shall, if legally able to do so, thereafter deliver such certificates, documents or other evidence from time to time establishing that payments received hereunder are not subject to such withholding upon receipt of a written request therefor from the Borrower or the Administrative Agent. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such certificates, documents or other evidence shall not be required if in the Lender’s or Issuer’s (or Transferee’s) reasonable judgment such completion, execution or submission would subject such Lender or Issuer (or Transferee) to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender or Issuer (or Transferee).

(j) The Loan Parties shall not be required to pay any additional amounts to any Lender or Issuer (or Transferee) in respect of any withholding tax pursuant to paragraph (a) above to the extent that the obligation to pay such additional amounts would not have arisen but for a failure by such Lender or Issuer (or Transferee) to deliver the certificates, documents or other evidence required to be delivered under the

 

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preceding paragraph (g), (h) or (i) unless such failure is attributable to (i) a change in applicable law, regulation or official interpretation thereof or (ii) an amendment or modification to or a revocation of any applicable tax treaty or a change in official position regarding the application or interpretation thereof, in each case on or after the date such Lender or Issuer (or Transferee) became a party to this Agreement.

(k) Any Lender or Issuer (or Transferee) claiming any additional amounts payable pursuant to this Section 2.18 shall use reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to, at the expense of the Borrower or Holdings, as applicable, file any certificate or document reasonably requested in writing by the Borrower or Holdings if the making of such a filing would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Lender or Issuer (or Transferee), be otherwise disadvantageous to such Lender or Issuer (or Transferee).

(l) If any Lender or Issuer (or Transferee) or the Administrative Agent receives a refund in respect of any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Loan Party pursuant to this Section 2.18, it shall promptly repay such refund to such Loan Party (to the extent of amounts that have been paid by such Loan Party under this Section 2.18 with respect to such refund), net of all out-of-pocket expenses (including Taxes imposed with respect to such refund) of such Lender or Issuer (or Transferee) or the Administrative Agent and without interest (other than interest paid by the relevant taxing authority with respect to such refund); provided , however , that such Loan Party, upon the request of such Lender or Issuer (or Transferee) or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Lender or Issuer (or Transferee) or the Administrative Agent in the event such Lender or Issuer (or Transferee) or the Administrative Agent is required to repay such refund. Nothing in this Section 2.18 shall obligate any Lender or Issuer (or Transferee) or the Administrative Agent to apply for any such refund. Notwithstanding anything to the contrary in this paragraph (l), in no event will any indemnified party be required to pay any amount to any indemnifying party pursuant to this paragraph the payment of which would place such indemnified party in a less favorable net after-Tax position than such 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 paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(m) Nothing contained in this Section 2.18 shall require any Lender or Issuer (or Transferee) or the Administrative Agent to make available any of its tax returns (or any other information relating to its Taxes which it deems to be confidential).

(n) The Loan Parties shall not be required to reimburse any Lender or Issuer (or Transferee) or the Administrative Agent with respect to any Indemnified Taxes or Other Taxes unless such Lender, Issuer, Transferee or the Administrative Agent notifies the Borrower or Holdings, as applicable, of the amount of such Indemnified Taxes or Other Taxes on or before the second anniversary of the date such Lender, Issuer, Transferee or the Administrative Agent pays such Indemnified Taxes or Other Taxes.

 

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(o) All amounts set out, or expressed in, this Agreement, a note or any other Loan Document to be payable by any Loan Party to any Lender, Issuer (or Transferee) or the Administrative Agent which (in whole or in part) constitute the consideration for a supply or supplies for VAT purposes shall be deemed to be exclusive of any VAT which is chargeable on such supply or supplies, and accordingly, if VAT is or becomes chargeable on any supply made by any Lender, Issuer (or Transferee) or Administrative Agent under this Agreement, a note or any other Loan Document and such Lender, Issuer (or Transferee) or Administrative Agent is required to account to the relevant tax authority for the VAT, that Loan Party shall pay to such Lender, Issuer (or Transferee) or Administrative Agent (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of such VAT (and such Lender, Issuer (or Transferee) or Administrative Agent shall promptly provide an appropriate VAT invoice to such Loan Party) unless such VAT is owed by that Loan Party to the relevant Tax authority under a reverse charge mechanism.

SECTION 2.19. Assignment of Loans and Commitments Under Certain Circumstances . In the event that (i) any Lender shall have delivered a notice or certificate pursuant to Section 2.12 ( Reserve Requirements; Change in Circumstances ) or 2.13 ( Change in Legality ), (ii) the Borrower or Holdings, as applicable shall be required to make additional payments to or for the account of any Lender under Section 2.18 or (iii) any Lender becomes a Defaulting Lender, the Borrower shall have the right, at its own expense and effort, upon notice to such Lender and the Administrative Agent, to require such Lender to assign and delegate without recourse (in accordance with and subject to the consents required by and all other restrictions and processing and recordation fees contained in Section 9.04) all its interests, rights (other than its rights to payments already due pursuant to Section 2.12 or 2.18) and obligations under this Agreement and the other Loan Documents to another Eligible Assignee which shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment and delegation); provided , however , that (i) no such assignment shall conflict with any law, rule or regulation or order of any Governmental Authority, (ii) the Borrower or the assignee, as the case may be, shall pay to the affected Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by it hereunder and all other amounts accrued for its account or owed to it hereunder and (iii) in the case of any such assignment and delegation resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.18, such assignment will result in a material reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver or consent by such Lender or otherwise (including as a result of any action taken by such Lender under paragraph (a) above), the circumstances entitling the Borrower or Holdings to require such assignment and delegation have ceased to apply.

SECTION 2.20. Mitigation . If any Lender requests compensation under Section 2.12, or if the Borrower or Holdings is required to pay any material amount of

 

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Indemnified Taxes, Other Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.18, then such Lender (at the request of the Borrower or Holdings, as applicable) shall use its commercially reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign and delegate its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Lender, such designation or assignment and delegation (A) would eliminate or materially reduce amounts payable pursuant to Sections 2.12 or 2.18, as the case may be, in the future and (B) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower and Holdings hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment and delegation.

SECTION 2.21. Extensions of Maturity Date .

(a) The Borrower may, by written notice to the Administrative Agent (each an “ Extension Request ”) given on any date no later than forty-five (45) days prior to the then existing Maturity Date (the “ Existing Maturity Date ”), request that the Lenders and Issuers extend the Existing Maturity Date in accordance with this Section. The Administrative Agent shall promptly advise the Lenders and the Issuers of any Extension Request given pursuant to this Section 2.21.

(b) The Existing Maturity Date shall be extended with respect to the Commitment, Loans and the other rights and obligations of the Lenders or Issuers that, each acting in its sole discretion, have consented to such Extension Request (it being understood and agreed that any Lender or Issuer that shall have failed to exercise such right as set forth below shall be deemed to have not consented), to the date specified in such Extension Request, if (A) the Administrative Agent shall have received the written consent of the Required Lenders to the applicable Extension Request prior to the date to be agreed upon by the Borrower and the Administrative Agent following the date on which the applicable Extension Request has been given (each such date, an “ Extended Maturity Effective Date ”); (B) the representations and warranties hereof the Loan Parties set forth in the Loan Documents shall be true and correct in all material respects (or, in the case of representations and warranties qualified as to materiality, in all respects) on and as of the applicable Extended Maturity Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representation and warranty shall be true and correct in all material respects (or, in the case of representations and warranties qualified as to materiality, in all respects) as of such earlier date; (C) no Event of Default or Default shall have occurred and be continuing on or as of the applicable Extended Maturity Effective Date (after giving effect to such extension); and (D) the Administrative Agent shall have received (x) the relevant Extension Request and (y) a certificate dated the applicable Extended Maturity Effective Date confirming the satisfaction of the condition set forth in clause (B) above and that as of such Extended Maturity Effective Date, no Event of Default or Default has occurred and is continuing. In no event shall the Maturity Date be extended with respect to the Commitments, Loans or any other right or obligations hereunder of any Lender or Issuer without the prior written consent of such Lender or Issuer to such extension.

 

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(c) In the event that any Lender or any Issuer shall not have consented to an Extension Request, the Borrower shall have the right, at its own expense and effort, upon notice to such Lender or Issuer and the Administrative Agent, to require such Lender or Issuer to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 9.04) all its interests, rights and obligations under this Agreement and the other Loan Documents to another Eligible Assignee ( provided , in the case of a replacement of an Issuer, that such Eligible Assignee complies with the definition of Issuer hereunder) that has informed the Administrative Agent of its consent to such Extension Request in writing prior to the applicable Extended Maturity Effective Date, which shall assume such obligations; provided , however , that (i) no such assignment shall conflict with any law, rule or regulation or order of any Governmental Authority and (ii) the Borrower or the assignee, as the case may be, shall pay to the affected Lender or Issuer in immediately available funds on the date of such termination or assignment the principal of and interest accrued to the date of payment on the Loans made or Letter of Credit Issued by such affected Lender or Issuer, as applicable, and all other amounts accrued for such affected Lender’s or Issuer’s account or owed to it hereunder.

(d) If an Extension Request has become effective hereunder:

(i) not later than the fifth Business Day prior to the Existing Maturity Date, Holdings and the Borrower, as applicable, shall pay or prepay so much of the Loans (or cash collateralize Letters of Credit in accordance with the last paragraph of Article VII), such that, after giving effect to such prepayments and such provision of cash collateral, the aggregate Revolving Credit Outstandings as of such date will not exceed the aggregate Commitments of the Lenders that consented to such Extension Request (and neither Holdings nor the Borrower shall be permitted thereafter to request any Loan or any Issuance of a Letter of Credit if, after giving effect thereto, the Revolving Credit Outstandings would exceed the aggregate amount of the Commitments so extended); and

(ii) on the Existing Maturity Date, the Commitment of each Lender that did not consent to such Extension Request shall, to the extent not assumed, assigned or transferred as provided in paragraph (c) of this Section, terminate, and the Borrower shall repay all the Loans of each such Lender, to the extent such Loans shall not have been so purchased, assigned and transferred, in each case together with accrued and unpaid interest and all fees and other amounts owing to such Lender hereunder, it being understood and agreed that, subject to satisfaction of the conditions set forth in Section 4.03, such repayments may be funded with the proceeds of new Borrowings made simultaneously with such repayments by the Lenders that consented to such Extension Request, which such Borrowings shall be made ratably by such consenting Lenders in accordance with their extended Commitments.

 

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(e) Notwithstanding any provision of this Agreement to the contrary, it is hereby agreed that no extension of an Existing Maturity Date in accordance with the express terms of this Section shall be deemed to (i) violate the first sentence of Section 2.10(c) or Section 2.15 (“ Pro Rata Treatment ”) or any other provision of this Agreement requiring the ratable reduction of Commitments or the ratable sharing of payments or (ii) require the consent of all Lenders or all affected Lenders under Section 9.08(b).

SECTION 2.22. Letters of Credit . (a)  General. On the terms and subject to the conditions contained in this Agreement, each Issuer shall Issue one or more Letters of Credit denominated in Dollars or Euros in a form reasonably acceptable to the Administrative Agent and the applicable Issuer from time to time on any Business Day during the Revolving Credit Period (x) at the request of Holdings and for the account of Holdings (or for the account of any Domestic Subsidiary so long as Holdings is a joint and several co-applicant with respect thereto) (each Letter of Credit pursuant to this clause (x), a “ US Letter of Credit ”) or (y) at the request of the Borrower and for the account of the Borrower (or for the account of any Foreign Subsidiary so long as the Borrower is a joint and several co-applicant with respect thereto); provided , however , that neither Holdings nor the Borrower shall request, and no Issuer shall Issue, any Letter of Credit upon the occurrence of any of the following:

(i) such Issuer shall have received any written notice of the type described in clause (d) below;

(ii) after giving effect to the Issuance of such Letter of Credit, the aggregate Revolving Credit Outstandings would exceed the Total Commitment in effect at such time;

(iii) after giving effect to the Issuance of such Letter of Credit, (A) the Letter of Credit Obligations in respect of US Letters of Credit would exceed the US Letter of Credit Sublimit, (B) the portion of the Letter of Credit Obligations attributable to Letters of Credit issued by any Issuer will not exceed the Letter of Credit Commitment of such Issuer (unless otherwise agreed to by such Issuer) or (C) the Letter of Credit Obligations would exceed the Letter of Credit Sublimit (and upon each Issuance of any Letter of Credit, the Borrower shall be deemed to represent and warrant that it is compliance with this clause (iii));

(iv) any fees due in connection with a requested Issuance have not been paid;

(v) such Letter of Credit or the proceeds of such Letter of Credit would be made available to any Person (i) to fund any activity or business of or with any Sanctioned Person or in any Sanctioned Country except to the extent permissible for a Person required to comply with Sanctions or (ii) in any manner that would result in a violation of any Sanctions applicable to any party hereto; or

 

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(vi) any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain such Issuer from Issuing such Letter of Credit or any Requirement of Law applicable to such Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuer shall prohibit, or request that such Issuer refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuer with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such Issuer is not otherwise compensated) not in effect on the date of this Agreement or result in any unreimbursed loss, cost or expense that was not applicable, in effect or known to such Issuer as of the date of this Agreement and that such Issuer in good faith deems material to it.

Each Issuer agrees that it shall not permit any Issuance of a Letter of Credit to occur unless it shall have given to the Administrative Agent written notice thereof as required under paragraph (f) of this Section and the Administative Agent shall have confirmed, upon written request directed to rea.n.seth@jpmorgan.com, that the applicable Issuance will not violate clause (ii) or (iii) of this paragraph (a). Each Applicant unconditionally and irrevocably agrees that, in connection with any Letter of Credit issued for its account and for the account of any Domestic Subsidiary or Foreign Subsidiary, as applicable, as provided in the first sentence of this Section, it will be fully responsible for the reimbursement of Reimbursement Obligations in respect of Letters of Credit for which it was the Applicant, the payment of interest thereon and the payment of fees due under Section 2.06(b) ( Letter of Credit Fees ) with respect to such Letters of Credit to the same extent as if it were the sole account party in respect of such Letter of Credit. None of the Lenders (other than, subject to the satisfaction of the conditions set forth in this Section 2.22, the Issuers in their capacity as such) shall have any obligation to Issue any Letter of Credit. Notwithstanding anything else to the contrary in this Agreement, none of Credit Suisse AG, Cayman Islands Branch, Goldman Sachs Bank USA, Deutsche Bank AG New York Branch (or any of its affiliates) nor Morgan Stanley Senior Funding, Inc., shall be required to issue Documentary Letters of Credit.

(b) Expiration Date. In no event shall the expiration date of any Letter of Credit (i) be more than one year after the date of issuance thereof (or, in the case of any renewal or extension thereof, one year after such renewal or extension) or (ii) be less than five Business Days prior to the Initial Scheduled Maturity Date (or, with respect to any Letter of Credit Issued by any Issuer that has consented to an Extension Request, if each of the conditions set forth in Section 2.21(b) with respect to such Extension Request shall have been satisfied, the applicable extended Maturity Date), unless cash collateralized or backstopped prior to the relevant date of issuance pursuant to arrangements satisfactory to the applicable Issuer; provided , however , that any Letter of Credit may provide, in the sole discretion of the applicable Issuer, for the renewal thereof for additional periods less than or equal to one year, as long as, (x) on or before the expiration of each such term and each such period, each of the Applicant and the Issuer of such Letter of Credit shall have the option to prevent such renewal and (y) neither the Applicant nor the Issuer shall permit any such renewal to extend the expiration date of any Letter of Credit beyond the date set forth in clause (ii) above, unless cash

 

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collateralized or backstopped prior to the date of such renewal pursuant to arrangements satisfactory to the applicable Issuer. Subject to the foregoing clauses (x) and (y), if any Letter of Credit providing for the automatic renewal thereof has been Issued by any Issuer, the Lenders shall be deemed to have authorized (but may not require) such Issuer to permit the extension of such Letter of Credit.

(c) Letter of Credit Requests. In connection with the Issuance of each Letter of Credit, the Applicant thereof shall give the relevant Issuer and the Administrative Agent at least two Business Days’ prior written notice, in substantially the form of Exhibit E (or in such other written or electronic form as is acceptable to the Issuer), of the requested Issuance of such Letter of Credit (a “ Letter of Credit Request ”). Such notice shall be irrevocable and shall specify the Issuer of such Letter of Credit, the currency of issuance and face amount of the Letter of Credit requested (whose Dollar Equivalent shall not be less than $1,000,000), the date of Issuance of such requested Letter of Credit (which date shall be a Business Day), the date on which such Letter of Credit is to expire (which date shall be a Business Day and shall comply with the paragraph (b) of this Section) and, in the case of an issuance, the name and address of the Person for whose benefit the requested Letter of Credit is to be issued. Such notice, to be effective, must be received by the relevant Issuer and the Administrative Agent not later than 11:00 a.m. (Local Time) on the second Business Day prior to the requested Issuance of such Letter of Credit. If requested by the applicable Issuer, the applicable Applicant also shall submit a letter of credit application on such Issuer’s standard form in connection with any request for a Letter of Credit, and provide such other information as shall be requested by the applicable Issuer as necessary to enable such Issuer to Issue such Letter of Credit.

(d) Certain Conditions. Subject to the satisfaction of the conditions set forth in this Section 2.22, the relevant Issuer shall Issue, on the requested date, a Letter of Credit in accordance with such Issuer’s usual and customary business practices. No Issuer shall Issue (or, in the case of an automatic renewal permitted pursuant to paragraph (b) of this Section, permit the renewal of) any Letter of Credit in the period commencing on the first Business Day after it receives written notice from any Lender or the Administrative Agent that one or more of the conditions precedent contained in Section 4.03 or paragraph (a) above (other than the condition set forth in clause (iv) of paragraph (a) above, to the extent such clause relates to fees owing to the Issuer of such Letter of Credit and its Affiliates) are not on such date satisfied or duly waived and ending when such conditions are satisfied or duly waived. No Issuer shall otherwise be required to determine that, or take notice whether, the conditions precedent set forth in Section 4.03 or paragraph (a) above have been satisfied in connection with the Issuance of any Letter of Credit.

(e) Letter of Credit Reimbursement Agreements. Each Applicant agrees that, if requested by the Issuer of any Letter of Credit, it shall execute a Letter of Credit Reimbursement Agreement in respect to any Letter of Credit Issued hereunder. Notwithstanding anything contained in any Letter of Credit Reimbursement Agreement or other application or agreement (other than this Agreement or any Security Document) submitted by any Applicant to, or entered into by any Applicant with, any Issuer relating

 

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to any Letter of Credit, (i) all provisions of such Letter of Credit Reimbursement Agreement or other application or agreement purporting to grant Liens in favor of such Issuer to secure obligations in respect of such Letter of Credit shall be disregarded, it being agreed that such obligations shall be secured to the extent provided in this Agreement and in the Security Documents, and (ii) in the event of any conflict between the terms of this Agreement and the terms of such Letter of Credit Reimbursement Agreement or other application or agreement, as applicable, the terms and conditions of this Agreement shall govern.

(f) Issuer Reports. Each Issuer shall comply with the following:

(i) unless otherwise agreed by the Administrative Agent, give the Administrative Agent written notice (or telephonic notice confirmed promptly thereafter in writing), of (i) periodic activity (for such period or recurrent periods as shall be requested by the Administrative Agent) in respect of Letters of Credit Issued by such Issuer, including all Issuances, extensions, amendments and renewals, all expirations and cancelations and all disbursements and reimbursements, (ii) reasonably prior to the time that such Issuer Issues, amends, renews or extends any Letter of Credit, the date of such Issuance, amendment, renewal or extension, and the stated amount of the Letters of Credit Issued, amended, renewed or extended by it and outstanding after giving effect to such Issuance, amendment, renewal or extension (and whether the amounts thereof shall have changed), (iii) on each Business Day on which such Issuer makes any disbursement in respect of a Letter of Credit, the date and amount of such disbursement, (iv) on any Business Day on which an Applicant fails to reimburse a Reimbursement Obligation required to be reimbursed by it to such Issuer on such day, the date of such failure and the amount of such Reimbursement Obligation and (v) on any other Business Day, such other information as the Administrative Agent shall reasonably request as to the Letters of Credit Issued by such Issuer (which notice the Administrative Agent shall promptly transmit to each Lender);

(ii) [Reserved]; and

(iii) no later than 10 Business Days following the last day of each calendar quarter, provide to the Administrative Agent (and the Administrative Agent shall provide a copy to each Lender requesting the same) and the Borrower separate schedules for Documentary Letters of Credit and Standby Letters of Credit issued by it, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate Letter of Credit Obligations, in each case outstanding at the end of each quarter and any information requested by any Applicant or the Administrative Agent relating thereto.

(g) Participations. Immediately upon the issuance by an Issuer of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) in accordance with the terms and conditions of this Agreement and without any further action on the part of the applicable Issuer or any Lender, such Issuer shall be deemed to

 

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have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from such Issuer an undivided interest and participation, to the extent of such Lender’s Ratable Portion of the Commitments, in such Letter of Credit and the obligations of the applicable Applicant with respect thereto (including all Letter of Credit Obligations with respect thereto) and any security therefor and guaranty pertaining thereto. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuer, such Lender’s Ratable Portion of each Reimbursement Obligation not reimbursed by the applicable Applicant on the date due as provided in paragraph (h) of this Section, or of any reimbursement payment required to be refunded to the applicable Applicant for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit, the occurrence and continuance of a Default, any reduction or termination of the Commitments or any force majeure or other event that under any rule of law or uniform practices to which any Letter of Credit is subject (including Section 3.14 of ISP) permits a drawing to be made under such Letter of Credit after the expiration thereof or of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(h) Reimbursements. Each Applicant agrees to pay to the Issuer of any Letter of Credit, irrespective of any claim, set-off, defense or other right that such Applicant may have at any time against such Issuer or any other Person, the amount of all Reimbursement Obligations owing to such Issuer (i) under any Letter of Credit (other than US Letters of Credit) with respect to which it is an applicant no later than the Business Day immediately following the day that the Applicant receives written notice from the Issuer that payment has been made under such Letter of Credit (the date such payment is due, the “ Reimbursement Date ”) and (ii) under any US Letters of Credit with respect to which it is an applicant, no later than three Business Days immediately following the day that the Applicant receives such notice; provided that, with respect to any Letter of Credit to be reimbursed in Dollars in accordance with the terms of this Agreement and the applicable Letter of Credit Reimbursement Agreement, if the amount of the Dollar Equivalent of such Reimbursement Obligation is $10,000,000 or more, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with a Base Rate Borrowing in an equivalent amount and, to the extent so financed, the applicable Applicant’s obligation to make such payment shall be discharged and replaced by the resulting Base Rate Borrowing. The applicable Applicant shall cause the applicable Issuer to be reimbursed in the currency specified in Section 2.17(c). In the case of any reimbursement in Dollars of a drawing under a Letter of Credit denominated in a currency other than Dollars, the applicable Issuer shall notify the applicable Applicant of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. In the event that any Issuer makes any payment under any Letter of Credit and the applicable Applicant shall not have repaid such amount to such Issuer pursuant to this clause (h) or any such payment by the applicable Applicant is rescinded or set aside for any reason, such Reimbursement Obligation shall be payable on demand with interest

 

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thereon computed (i) from and including the date on which such Reimbursement Obligation arose to but excluding the Reimbursement Date, at the rate of interest applicable during such period to Loans that are Base Rate Loans and (ii) from and including the Reimbursement Date to but excluding the date of repayment in full, at the rate of interest applicable during such period to past due Loans that are Base Rate Loans, and such Issuer shall promptly notify the Administrative Agent, which shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Administrative Agent for the account of such Issuer the amount of such Lender’s Ratable Portion of such payment (or the Dollar Equivalent thereof, determined using the Exchange Rate as of the date thereof, if such payment was made in any currency other than Dollars) in immediately available Dollars. If the Administrative Agent so notifies such Lender prior to 11:00 a.m. (New York time) on any Business Day, such Lender shall make available to the Administrative Agent for the account of such Issuer its Ratable Portion of the amount of such payment on such Business Day (and if such notification is later than 11:00 a.m. (New York time), such amount shall be made available on the immediately following Business Day) in immediately available funds, in the same manner as provided in Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c) shall apply, mutatis mutandis , to the payment obligations of the Lenders pursuant to this paragraph), and the Administrative Agent shall promptly remit to the applicable Issuer the amounts so received by it from the Lenders. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuer for a Reimbursement Obligation (other than the funding of a Base Rate Borrowing as contemplated above) shall not constitute a Loan and shall not relieve the applicable Applicant of its obligation to reimburse such Reimbursement Obligation. Interest accrued pursuant to this paragraph shall be paid to the Administrative Agent, for the account of the applicable Issuer, except that interest accrued on and after the date of payment by any Lender pursuant to this paragraph to reimburse such Issuer shall be for the account of such Lender to the extent of such payment, and shall be payable on demand or, if no demand has been made, on the date on which the applicable Applicant reimburses the applicable Reimbursement Obligation in full. Whenever any Issuer receives from any Applicant a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuer any payment from a Lender pursuant to this clause (h), such Issuer shall pay over to the Administrative Agent any amount received in excess of such Reimbursement Obligation and, upon receipt of such amount, the Administrative Agent shall promptly pay over to each Lender, in immediately available funds, an amount equal to such Lender’s Ratable Portion of the amount of such payment adjusted, if necessary, to reflect the respective amounts the Lenders have paid in respect of such Reimbursement Obligation.

(i) Interim Interest. If and to the extent such Lender shall not have so made its Ratable Portion of the amount of the payment required by clause (h) above available to the Administrative Agent for the account of such Issuer, such Lender agrees to pay to the Administrative Agent for the account of such Issuer forthwith on demand any such unpaid amount together with interest thereon, for the first Business Day after payment was first due at the Federal Funds Rate and, thereafter, until such amount is repaid to the Administrative Agent for the account of such Issuer, at a rate per annum equal to the rate applicable to Base Rate Loans under the Facility.

 

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(j) Obligations Absolute. The applicable Applicant’s obligation to pay each Reimbursement Obligation and the obligations of the Lenders to make payments to the Administrative Agent for the account of the Issuers with respect to Letters of Credit shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, including the occurrence of any Default or Event of Default, and irrespective of any of the following:

(i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein;

(ii) any draft or other document presented under a 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;

(iii) payment by the Issuer under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(iv) any other act or omission to act or delay of any kind of the Issuer, the Lenders, the Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.22, constitute a legal or equitable discharge of, or provide a right of setoff against, the Applicant’s obligations hereunder.

None of the Administrative Agent, the Lenders, the Issuers or any of their respective Related Parties shall have any liability or responsibility by reason of or in connection with the Issuance or transfer of any Letter of Credit, any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any other act, failure to act or other event or circumstance; provided that the foregoing shall not be construed to excuse any Issuer from liability to the applicable Applicant to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the applicable Applicant to the extent permitted by applicable law) suffered by the applicable Applicant that are caused by such Issuer’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence, bad faith or willful misconduct on the part of an Issuer (with such absence to be presumed unless otherwise determined by a court of competent jurisdiction in a final and nonappealable judgment), such Issuer shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, the

 

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Issuer may, in its sole discretion, either accept documents that appear on their face to be in substantial compliance with the terms of a Letter of Credit, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit, the Issuer may rely exclusively on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in substantial compliance with the terms of such Letter of Credit, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit, and any such acceptance, payment or refusal shall be deemed not to constitute willful misconduct, bad faith or gross negligence of the Issuer.

(k) Disbursement Procedures. Each Issuer shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Each Issuer shall promptly notify the Administrative Agent and the applicable Applicant of such demand for payment and whether such Issuer has made a disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the applicable Applicant of its obligation to reimburse such Issuer and the Lenders with respect to any such disbursement in accordance with paragraph (h) of this Section.

(l) Letter of Credit Obligations Determination. For all purposes of this Agreement, the amount of a Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases (other than any such increase consisting of the reinstatement of an amount previously drawn thereunder and reimbursed), whether or not such maximum stated amount is in effect at the time of determination.

(m) Applicability of ISP and UCP .

(i) Unless otherwise expressly agreed by the Issuer and the applicable Applicant when a Letter of Credit is issued, (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.

(ii) 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.

 

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SECTION 2.23. Defaulting Lender .

(a) Reallocation of Defaulting Lender Commitment . Notwithstanding any provision of this Agreement to the contrary, but subject to Section 9.26, if a Lender becomes, and during the period it remains, a Defaulting Lender, the following provisions shall apply with respect to any outstanding Loan Document Obligations:

(i) the Ratable Portion of such Defaulting Lender with respect to any Letter of Credit Obligations will, subject to the limitation in the first proviso below, automatically be reallocated (effective on the date such Lender becomes a Defaulting Lender) among the Lenders that are Non-Defaulting Lenders pro rata in accordance with their respective Commitments; provided , that (A) the sum of each Non-Defaulting Lender’s Ratable Portion of the Revolving Credit Outstandings may not in any event exceed the Commitment of such Non-Defaulting Lender as in effect at the time of such reallocation and (B) subject to Section 9.23, neither such reallocation nor any payment by a Non-Defaulting Lender pursuant thereto will constitute a waiver or release of any claim Holdings, the Borrower, the Administrative Agent, the Issuer or any other Lender may have against such 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 Lender’s increased exposure following such reallocation, or cause such Defaulting Lender to be a Non-Defaulting Lender;

(ii) to the extent that any portion (the “ unreallocated portion ”) of the Ratable Portion of such Defaulting Lender with respect to any Letter of Credit Obligations cannot be so reallocated, whether by reason of the first proviso in clause (i) above or otherwise, the applicable Applicant will, not later than three Business Days after demand by the Administrative Agent (including at the direction of any applicable Issuer), (A) deposit in a cash collateral account maintained with the Administrative Agent an amount equal to the aggregate amount of the unreallocated portion of such Letter of Credit Obligations or (B) make other arrangements satisfactory to the Administrative Agent, and to the applicable Issuer or Issuers, as the case may be, in their sole discretion to protect them against the risk of non-payment by such Defaulting Lender; and

(iii) any amount paid by Holdings or the Borrower or otherwise received by the Administrative Agent for the account of a Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity payments or other amounts) will not be paid or distributed to such Defaulting Lender, but will instead be retained by the Administrative Agent in a segregated, non-interest bearing account until (subject to Section 2.10 ( Termination and Reduction of Commitments )) the termination of the Commitments and payment in full of all Loan Document Obligations hereunder and will be applied by the Administrative Agent, to the fullest extent permitted by law, to the making of

 

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payments from time to time in the following order of priority: first to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent under this Agreement, second to the payment of any amounts owing by such Defaulting Lender to the Issuer under this Agreement, third to the payment of post-default interest and then current interest due and payable to the Lenders hereunder other than Defaulting Lenders, ratably among them in accordance with the amounts of such interest then due and payable to them, fourth to the payment of fees then due and payable to the Non-Defaulting Lenders hereunder, ratably among them in accordance with the amounts of such fees then due and payable to them, fifth to pay principal and Reimbursement Obligations then due and payable to the Non-Defaulting Lenders hereunder ratably in accordance with the amounts thereof then due and payable to them, sixth to the ratable payment of other amounts then due and payable to the Non-Defaulting Lenders, and seventh after the termination of the Commitments and payment in full of all Loan Document Obligations hereunder, to pay amounts owing under this Agreement to such Defaulting Lender or as a court of competent jurisdiction may otherwise direct.

(b) Cure . If Holdings, the Borrower, the Administrative Agent and each Issuer agree in writing in their discretion that a Lender is no longer a Defaulting Lender, as the case may be, 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 amounts then held in the segregated account referred to in Section 2.23(a)), such Lender will, to the extent applicable, purchase at par such portion of outstanding Loans of the other Lenders and/or make such other adjustments as the Administrative Agent may determine to be necessary to cause such Lender to hold Loans and participate in Letter of Credit Obligations in accordance with its Ratable Portion, whereupon such Lender will cease to be a Defaulting Lender and will be a Non-Defaulting Lender and the relevant Applicant shall be released from the cash collateralization requirements set forth in Sections 2.23(a)(ii) with respect to the unreallocated portion relating to such 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 Non-Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender having been a Defaulting Lender.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Each of Holdings and the Borrower represents and warrants to each of the Lenders, the Issuers and the Administrative Agent as follows:

SECTION 3.01. Organization . Each of Holdings, the Borrower and each Restricted Subsidiary is duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of organization and is duly qualified to do

 

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business as a foreign corporation (or other entity, as applicable) and, where applicable, is in good standing in all other jurisdictions in which the ownership of its properties or the nature of its activities or both makes such qualification necessary, except to the extent that failure to be so qualified, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.02. Authorization . Each Loan Party has the requisite power and authority, corporate or otherwise, to carry on its business as now conducted, to execute, deliver and carry out the Transactions and the provisions of this Agreement and each other Loan Document to which it is a party, or to become a party to this Agreement or any other Loan Document in accordance with the terms hereof and the terms of each other Loan Document, to borrow hereunder (if applicable) and to perform its obligations under each Loan Document to which it is a party, and all such action has been duly and validly authorized by all necessary proceedings, corporate or otherwise, on its part.

SECTION 3.03. Enforceability . This Agreement and each other Loan Document to which any Loan Party is a party have been duly executed and delivered by each such Loan Party and constitutes the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, except as limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.

SECTION 3.04. Governmental Approvals . No material authorization, consent, approval, license, exemption or other action by, and no registration, qualification, designation, declaration or filing with, any Governmental Authority is necessary in connection with the Transactions except (a) such as have been obtained or made and are in full force and effect (or, in the case of filings relating to the consummation of the Spin-Off, such as will be obtained or made and will be in full force and effect substantially concurrently with the initial Borrowings on the Initial Funding Date) and (b) filings necessary to perfect Liens created under the Loan Documents.

SECTION 3.05. No Conflict . None of the execution and delivery by Holdings and the Borrower of this Agreement and by each Loan Party of each other Loan Document to which such Loan Party is a party, the consummation by such Loan Party of the Transactions or performance by the Loan Parties of or compliance by the Loan Parties with the terms and conditions hereof or thereof will (a) violate any Requirement of Law applicable to Holdings, the Borrower or any Loan Party, (b) conflict with or result in a breach or default under its charter or Memorandum and Articles of Association or by-laws (or equivalent organizational or governing documents), as applicable, or any AWAC Agreement, (c) conflict with or result (alone or with notice or lapse of time or both) in a breach or default which is material in the context of this Agreement under any material agreement or instrument to which any Loan Party is a party or by which it or any of its properties, whether now owned or hereafter acquired, may be subject or bound, or give rise to a right thereunder to require any payment, repurchase or redemption to be made by Holdings, the Borrower or any Loan Party or give rise to a right of, or result in, termination, cancelation or acceleration of any obligation thereunder and (d) result in the creation or imposition of any Lien prohibited by Section 6.02 upon any property or assets, whether now owned or hereafter acquired, by Holdings, the Borrower or any Loan Party.

 

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SECTION 3.06. Financial Statements . (a) The Borrower has furnished to the Lenders copies of (i) Holdings’s audited combined balance sheet as of December 31, 2014 and 2015, and the related combined statements of operations, comprehensive income, shareholders’ equity and cash flows for the years ended December 31, 2013, 2014, and 2015, all audited by and accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants (without a “going concern” statement or like qualification or exception and without any qualification or exception as to the scope of such audit) and (ii) unaudited combined balance sheets as of March 31, 2016 and June 30, 2016 (and comparable periods for the prior fiscal year) and the related unaudited combined statements of operations, comprehensive income and shareholders’ equity and cash flows for the three months and six months, as applicable, then ended (and comparable periods for the prior fiscal year), in each case certified by a Financial Officer of Holdings. Such financial statements (including the notes thereto) present fairly, in all material respects, the financial condition of Holdings and its consolidated subsidiaries as of such dates and the results of their operations and cash flows for the periods then ended (subject, in the case of said balance sheets as at March 31, 2016 and June 30, 2016, and said statements of income, shareholders equity and cash flows for the three months and six months, as applicable, then ended, to the absence of footnote disclosure and normal year-end audit adjustments), all in conformity with GAAP consistently applied (except as otherwise disclosed in such financial statements).

(b) The Borrower has heretofore furnished to the Lenders, to the extent available, Holdings’s pro forma combined balance sheet as of the date hereof, prepared giving effect to the Transactions as if the Transactions had occurred on such date. Such pro forma financial statement, if furnished, (i) has been prepared by Holdings in good faith, based on the assumptions used to prepare the pro forma financial statements included in the Information Memorandum (which assumptions are believed by Holdings and the Borrower on the date hereof to be reasonable), (ii) is based on the best information available to Holdings and the Borrower as of the date of delivery thereof after due inquiry, (iii) accurately reflects all adjustments determined by Holdings in good faith to be necessary to give effect to the Transactions and (iv) presents fairly, in all material respects, the pro forma financial position of Holdings and its consolidated subsidiaries as of such date as if the Transactions had occurred on such date.

SECTION 3.07. No Defaults . No event has occurred and is continuing and no condition exists which constitutes a Default or Event of Default hereunder.

 

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SECTION 3.08. Litigation and Environmental Matters . Except as set forth in the financial statements referred to in Section 3.06 and the Effective Date Form 10 or otherwise disclosed on Schedule 3.08 (each matter so disclosed, a “ Disclosed Matter ”):

(a) there is no pending or, to the knowledge of Holdings, the Borrower or any Restricted Subsidiary, threatened action, suit, investigation or proceeding by or before any arbitrator or Governmental Authority (i) against Holdings, the Borrower or any Restricted Subsidiary or that involve the Transactions, that in each case, has a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any of the Loan Documents.

(b) except with respect to any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, none of Holdings, the Borrower or any Restricted Subsidiary (i) has failed to comply with any applicable Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any applicable Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.

SECTION 3.09. No Material Adverse Change . Except as set forth in the financial statements referred to in Section 3.06 and the Effective Date Form 10, there has been no event, change or condition that has had, or would reasonably be expected to have, a material adverse effect on the business, assets, liabilities (contingent or otherwise), operations or financial condition of Holdings, the Borrower and the Restricted Subsidiaries, taken as a whole, since December 31, 2015.

SECTION 3.10. Employee Benefit Plans . (a)  U.S. Plans . Each Plan is in compliance with all requirements of ERISA and the regulations and published interpretations thereunder except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. No Reportable Event has occurred as to which Holdings, the Borrower, any Restricted Subsidiary or any ERISA Affiliate was required to file a report with the PBGC that alone or together with any other Reportable Event would reasonably be expected to result in a liability of such Borrower to the PBGC in an aggregate amount in excess of $50,000,000. The aggregate present value of all benefit liabilities under the Plans (based on the assumptions used to fund such Plans) did not, as of the last annual valuation dates applicable thereto, exceed the aggregate value of the assets of the Plans by more than 10% of Consolidated Net Worth. None of Holdings, the Borrower, any Restricted Subsidiary or any ERISA Affiliate has incurred any Withdrawal Liability that would reasonably be expected to result in a Material Adverse Effect. None of Holdings, the Borrower, any Restricted Subsidiary or any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, and none of Holdings, the Borrower or any Restricted Subsidiary has knowledge of any fact which would reasonably be expected to result in the reorganization or termination of a Multiemployer Plan where such reorganization or termination has resulted or would reasonably be expected to result, through increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect.

 

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(b) Foreign Plans . Each Foreign Plan is in compliance with all requirements of law applicable thereto and the respective requirements of the governing documents for such plan except to the extent such non-compliance could not reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Pension Plan, none of Holdings, the Borrower, any Restricted Subsidiary, their respective Affiliates or any of their directors, officers, employees or agents has engaged in a transaction which would subject Holdings, the Borrower or any Restricted Subsidiary, directly or indirectly, to a tax or civil penalty which could reasonably be expected to result in a Material Adverse Effect. With respect to each Foreign Plan, adequate reserves have been established in the financial statements furnished to Lenders in respect of any unfunded liabilities in accordance with applicable law and prudent business practice or, where required, in accordance with ordinary accounting practices in the jurisdiction in which such Foreign Plan is maintained. The aggregate unfunded liabilities, after giving effect to any such reserves for such liabilities, with respect to such Foreign Plans could not reasonably be expected to result in a Material Adverse Effect. There are no actions, suits or claims (other than routine claims for benefits) pending or threatened in writing against any of Holdings, the Borrower, any Restricted Subsidiary or any of their Affiliates with respect to any Foreign Plan which could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

SECTION 3.11. Title to Properties; Possession Under Leases; IP . (a) Each of Holdings, the Borrower and the Restricted Subsidiaries has good title to (or the equivalent in foreign jurisdictions), or valid leasehold interests in, all its material properties and assets (including, after the Initial Funding Date, the Mortgaged Property), except for any failures to have such title or interest that would not reasonably be expected to have a Material Adverse Effect. All such property is free and clear of Liens, other than Liens created under the Loan Documents and any Liens permitted by Section 6.02.

(b) Except where failure to comply would not reasonably be expected to have a Material Adverse Effect, (i) each of Holdings, the Borrower and the Restricted Subsidiaries has complied with all obligations under all leases to which it is a party and all such leases are in full force and effect, and (ii) each of Holdings, the Borrower and the Restricted Subsidiaries enjoys peaceful and undisturbed possession under all such leases.

(c) (i) Except for any infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, (A) the use by Holdings, the Borrower and each Restricted Subsidiary of trademarks and tradenames, does not infringe any trademarks or tradenames of any other Person; and (B) the use, production, and sale of products by Holdings, the Borrower and each Restricted Subsidiary does not infringe any trade secrets, copyrights, patents or other intellectual property of any other Person; and (ii) no claim or litigation by any Person alleging infringement of any trademarks, tradenames, copyrights, patents, trade secrets or other intellectual property owned or used by (to the extent such claim or litigation is a result of the use thereof) Holdings, the Borrower or any Restricted Subsidiary is pending or threatened in writing against Holdings, the Borrower or any Restricted Subsidiary that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect.

 

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(d) As of the Initial Funding Date, none of Holdings, the Borrower or any Restricted Subsidiary has received written notice of, any pending condemnation proceeding affecting any Mortgaged Property or any sale or disposition thereof in lieu of condemnation. Neither any Mortgaged Property nor any interest therein is subject to any right of first refusal, option or other contractual right to purchase such Mortgaged Property or interest therein (other than in connection with a sale permitted by Section 6.05).

SECTION 3.12. Investment Company Act . None of Holdings, the Borrower or any Subsidiary Guarantor is required to be registered as an “investment company” under, the Investment Company Act of 1940.

SECTION 3.13. Tax Returns . Each of Holdings, the Borrower and the Restricted Subsidiaries has filed or caused to be filed all material Federal, State, local and foreign tax returns required to have been filed by it in all jurisdictions in which such tax returns are required to be filed and all such tax returns are true, complete and correct, except as would not be reasonably expected, individually or in the aggregate, to result in a Material Adverse Effect. Each of Holdings, the Borrower and the Restricted Subsidiaries has paid or caused to be paid all material taxes shown to be due and payable on such returns or on any assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained on the applicable financial statements in accordance with GAAP. As of the date of this Agreement, the fiscal unity ( fiscale eenheid ) for Dutch corporate income tax purposes consists of Dutch Loan Parties only.

SECTION 3.14. Compliance with Laws and Agreements . (a) Each of Holdings, the Borrower and each Restricted Subsidiary is in compliance with all Requirements of Law, except where the failure to comply, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

(b) None of Holdings, the Borrower nor any Restricted Subsidiary is in default in any material manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default would reasonably be expected to result in a Material Adverse Effect.

SECTION 3.15. Disclosure; No Material Misstatements . Except for information not prepared by or on behalf of Holdings, the Borrower or any Restricted Subsidiary and expressly disclaimed thereby, no information, report, financial statement, certificate, exhibit or schedule furnished by or on behalf of Holdings, the Borrower or any Restricted Subsidiary to any Arranger, the Administrative Agent, any Issuer or any Lender in connection with the negotiation of this Agreement or any other Loan Document or included herein or therein or delivered pursuant hereto or thereto (as modified or supplemented by other information so provided) contained or contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or

 

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are made, not misleading; provided that, with respect to projected financial information, each of Holdings and the Borrower represents only that such information was prepared in good faith based upon assumptions believed by it to be reasonable at the time so furnished and, if such projected financial information was furnished prior to the Effective Date, as of the Effective Date (it being understood and agreed that any such projected financial information may vary from actual results and that such variations may be material).

SECTION 3.16. Use of Proceeds; Federal Reserve Regulations . The proceeds of any Loan and any Letter of Credit will be used as set forth in Section 5.11. None of Holdings, the Borrower or any Restricted Subsidiary is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U of the Board), or extending credit for the purpose of purchasing or carrying margin stock. No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation (including on the part of any Lender) of any regulations of the Board, including Regulations U and X.

SECTION 3.17. Sanctions; Anti-Corruption Laws . Holdings and the Borrower have implemented and maintain in effect policies and procedures reasonably designed to ensure compliance by Holdings, the Borrower, the Subsidiaries and their respective directors, officers, and employees with Anti-Corruption Laws and applicable Sanctions in all material respects and are not knowingly engaged in any activity that would reasonably be expected to result in the Borrower being designated as a Sanctioned Person. None of Holdings, the Borrower, any Subsidiary or, to the knowledge of Holdings, the Borrower or such Subsidiary, any of their respective directors or officers is a Sanctioned Person.

SECTION 3.18. Subsidiaries . Schedule 3.18 sets forth the name and jurisdiction of organization of, and the ownership interest of Holdings, the Borrower and each Subsidiary in, each Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Spin-Off Date, provided that the Lenders agree that Holdings may rename itself from “Alcoa Upstream Corporation” to “Alcoa Corporation” before, or on or around the Initial Funding Date. The Equity Interests in the Borrower and each Restricted Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable, and such Equity Interests are owned by Holdings or the Borrower, directly or indirectly, free and clear of all Liens (other than Liens created under the Loan Documents and any Liens permitted under Section 6.02). Except as set forth in Schedule 3.18 , there is no existing option, warrant, call, right, commitment or other agreement to which Holdings, the Borrower or any Restricted Subsidiary is a party requiring, and there are no Equity Interests in any Restricted Subsidiary outstanding that upon exercise, conversion or exchange would require, the issuance by the Borrower or any Restricted Subsidiary of any additional Equity Interests or other securities exercisable for, convertible into, exchangeable for or evidencing the right to subscribe for or purchase any Equity Interests in the Borrower or any Restricted Subsidiary.

SECTION 3.19. [Reserved].

 

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SECTION 3.20. Solvency. Immediately after the consummation of the Transactions to occur on the Spin-Off Date and immediately following the making of each Loan and the application of the proceeds thereof, and giving effect to the rights of indemnification, subrogation and contribution under the Collateral Agreement, (a) the sum of the debts and liabilities (including contingent liabilities) of Holdings and its subsidiaries, on a consolidated basis, will not exceed the present fair saleable value of the present assets of Holdings and its subsidiaries, on a consolidated basis, (b) the capital of Holdings and its subsidiaries, on a consolidated basis, will not be unreasonably small for the conduct of their business as such business is conducted or proposed to be conducted at such time, (c) Holdings and its subsidiaries, on a consolidated basis, will not have incurred, and will not intend to incur, or believe that they will incur, debts and liabilities (contingent or otherwise) including current obligations, beyond their ability to pay such debts and liabilities as they become due (whether at maturity or otherwise), (d) the present fair saleable value of the assets of Holdings and its subsidiaries, on a consolidated basis, will be greater than the total amount that will be required to pay the probable debts and liabilities (including contingent liabilities), on a consolidated basis, of Holdings and its subsidiaries as they become due (whether at maturity or otherwise) and (e) Holdings and its subsidiaries, on a consolidated basis, will be “solvent” within the meaning given to that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this Section, the amount of any contingent liability at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

SECTION 3.21. Collateral Matters . (a) The Collateral Agreement, upon execution and delivery thereof by the parties thereto, will create in favor of the Administrative Agent, for the benefit of the Secured Parties, a valid and enforceable security interest in the Collateral (as defined therein) and (i) when the Collateral (as defined therein) constituting certificated securities (as defined in the Uniform Commercial Code) is delivered to the Administrative Agent, together with instruments of transfer duly endorsed in blank, the security interest created under the Collateral Agreement will constitute a fully perfected security interest in all right, title and interest of the pledgors thereunder in such Collateral, prior and superior in right to any other Person (in each case, subject to any Liens permitted under Section 6.02), (ii) when control agreements required under the Collateral Agreement have been entered into with respect to Deposit Accounts (other than Excluded Deposit Accounts) constituting Collateral, will constitute a fully perfected security interest in all right, title and interest of the applicable Loan Parties in such Deposit Accounts and (iii) when Uniform Commercial Code financing statements in appropriate form are filed in the applicable filing offices, the security interest created under the Collateral Agreement will constitute a fully perfected security interest in all right, title and interest of the Loan Parties in the Collateral (as defined therein) to the extent perfection can be obtained by filing Uniform Commercial Code financing statements, prior and superior to the rights of any other Person, except for rights secured by Liens permitted under Section 6.02.

(b) Each Mortgage, upon execution and delivery thereof by the parties thereto, will create in favor of the Administrative Agent, for the benefit of the Secured

 

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Parties, a legal, valid and enforceable first lien security interest in all the applicable mortgagor’s right, title and interest in and to the Mortgaged Properties subject thereto and the proceeds thereof, and when the Mortgages have been filed in the appropriate filing or recording office in the jurisdictions specified therein, the Mortgages will constitute a fully perfected security interest in all right, title and interest of the mortgagors in the Mortgaged Properties and the proceeds thereof, prior and superior to the rights of any other Person, except for rights secured by Liens permitted under Section 6.02.

(c) Upon the recordation of the Collateral Agreement (or a short-form security agreement in form and substance reasonably satisfactory to the Borrower and the Administrative Agent) with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, and the filing of the financing statements referred to in paragraph (a) of this Section, the security interest created under the Collateral Agreement will constitute a fully perfected security interest in all right, title and interest of the Loan Parties in the Intellectual Property (as defined in the Collateral Agreement) in which a security interest may be perfected by filing in the United States, in each case prior and superior to the rights of any other Person, except for rights secured by Liens permitted under Section 6.02 (it being understood that subsequent recordings in the United States Patent and Trademark Office or the United States Copyright Office may be necessary to perfect a security interest in such Intellectual Property acquired by the Loan Parties after the Initial Funding Date).

(d) Each Security Document, other than the Collateral Agreement, the Guarantee Agreement and the Mortgages, upon execution and delivery thereof by the parties thereto and the making of the filings and taking of the other actions provided for therein, will be effective under applicable law to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a valid and enforceable security interest in the Collateral subject thereto, and will constitute a fully perfected security interest in all right, title and interest of the Loan Parties in the Collateral subject thereto, prior and superior to the rights of any other Person, except for rights secured by Liens permitted under Section 6.02.

SECTION 3.22. Centre of Main Interest and Establishments .

(a) The centre of main interest (as that term is used in Article 3(1) of the Insolvency Regulation) of each Dutch Loan Party is situated in its jurisdiction of incorporation.

(b) The Borrower does not have an establishment (as that term is used in Article 2(h) of the Insolvency Regulation) situated outside of its jurisdiction of incorporation.

 

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ARTICLE IV

CONDITIONS OF EFFECTIVENESS, LENDING, AND LETTERS OF CREDIT

The obligations of the Lenders to make Loans and of the Issuers to issue Letters of Credit to the Borrower hereunder and are subject to the satisfaction of the conditions set forth in Sections 4.01, 4.02 and 4.03 below:

SECTION 4.01. Effective Date . This Agreement and the Commitments hereunder shall not become effective until the date on which each of the following conditions shall be satisfied (or waived in accordance with Section 9.08):

(a) The Administrative Agent shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include a fax or other electronic imaging of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

(b) The Administrative Agent shall have received a written opinion reasonably satisfactory in form and substance to the Administrative Agent of Hogan Lovells International LLP regarding the due authorization, execution and enforceability of this Agreement. The Borrower hereby requests such counsel to deliver such opinion.

(c) The Administrative Agent shall have received such customary documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization by the Borrower of the execution, delivery and any other legal matters relating to the execution and enforceability of this Agreement, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.

(d) The representations and warranties, as they relate to the Borrower only, set forth in Sections 3.01 (“ Organization ”), 3.02 (“ Authorization ”), 3.03 (“ Enforceability ”), 3.05 (“ No Conflict ”), 3.06 (“ Financial Statements ”) and 3.17 ( Sanctions; Anti-Corruption Laws ) shall be true and correct in all material respects (or if already qualified by materiality, in all respects) on and as of the Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (or in all respects, as applicable) as of such earlier date.

(e) The Administrative Agent shall have received certificates dated the Effective Date and signed by a Financial Officer confirming the satisfaction of the conditions precedent set forth in paragraph (d) of this Section 4.01 and that as of the Effective Date, no Event of Default or Default has occurred and is continuing.

(f) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced at least three Business Days prior to the Effective Date, reimbursement or

 

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payments of all reasonable and documented out-of-pocket expenses (including fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder, under any other Loan Document or under any other engagement letter or fee letter relating to this Agreement and entered into by any of the Arrangers, the Administrative Agent and the Lenders, on the one hand, and any of the Loan Parties or Alcoa, on the other hand.

(g) The Lenders shall have received the financial statements and opinions and certificates referred to in Section 3.06(a). This condition shall be deemed to have been satisfied to the extent the financial statements, certificates and opinions referred to in Section 3.06(a) are included in the Form 10.

(h) The Lenders shall have received (i) to the extent available, the financial statement referred to in Section 3.06(b), which shall not be materially inconsistent with the forecasts previously provided to the Lenders or (ii) if no such financial statement is available, a certificate of a Financial Officer stating that the financial position of Holdings, the Borrower and the Restricted Subsidiaries as of the Effective Date, after giving effect to the Transactions, is not materially inconsistent with the forecasts previously provided to the Lenders. This condition shall be deemed to have been satisfied to the extent the financial statement referred to in Section 3.06(b) is included in the Form 10.

(i) The Lenders shall have received a detailed business plan of Holdings, the Borrower and the Restricted Subsidiaries for the fiscal years 2016 through 2021, provided that this condition shall be deemed to have been satisfied in the event such plan is included in the Information Memorandum.

(j) The Administrative Agent shall have received, at least three Business Days prior to the Effective Date, all documentation and other information reasonably requested in writing at least ten days prior to the Effective Date by the Lenders that it reasonably determines is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the USA PATRIOT Act.

The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding.

SECTION 4.02. Initial Funding Date . The obligations of the Lenders to make Loans shall not become effective until the date on or following the Effective Date on which each of the following conditions shall be satisfied (or waived in accordance with Section 9.08):

(a) The Administrative Agent shall have received a written opinion (addressed to the Arrangers, the Administrative Agent, the Issuers and the Lenders) of each of (i) Cleary Gottlieb Steen & Hamilton LLP, counsel for Holdings, the Borrower and the Restricted Subsidiaries, (ii) local counsel in each jurisdiction where a Loan Party is organized, where Mortgaged Property is located or which provides the governing law

 

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for any Foreign Pledge Agreement or Foreign Security Agreement, and the laws of which are not covered by the opinion letter referred to in clause (i) of this paragraph, and (iii) a senior legal counsel of Alcoa or Holdings, in each case, (A) dated as of the Initial Funding Date and (B) in form and substance reasonably satisfactory to the Administrative Agent. Each of Holdings and the Borrower hereby requests such counsel to deliver such opinions.

(b) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing (or equivalent concepts in any applicable jurisdiction) of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.

(c) The Administrative Agent shall have received certificates dated the Initial Funding Date and signed by a Financial Officer of the Borrower confirming the satisfaction of the conditions precedent set forth in (i) paragraph (g) of this Section, and (ii) in paragraphs (b) and (c) of Section 4.03.

(d) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Initial Funding Date, to the extent invoiced at least three Business Days prior to the Initial Funding Date, including reimbursement or payments of all reasonable and documented out-of-pocket expenses (including fees, charges and disbursements of counsel) required to be reimbursed or paid by any Loan Party hereunder, under any other Loan Document or under any other engagement letter or fee letter relating to this Agreement and entered into by any of the Arrangers, the Administrative Agent and the Lenders, on the one hand, and any of the Loan Parties or Alcoa, on the other hand.

(e) Subject to the penultimate paragraph of this Section and the Guaranty and Security Principles, the Collateral and Guarantee Requirement shall have been satisfied and the Administrative Agent, on behalf of the Secured Parties, shall have a security interest in the Collateral of the type and priority described in each Security Document, including, notwithstanding anything to the contrary set forth herein or in any other Loan Document, a perfected first-priority pledge of the equity interests of each AWAC Parent. The Administrative Agent shall have received a completed Perfection Certificate relating to (i) the US Obligations Loan Parties (other than the Borrower and Aluminerie Lauralco, Sàrl) and (ii) subject to the penultimate paragraph of this Section and to the extent required by the definition of “Perfection Certificate”, the other Loan Parties, in each case of (i) and (ii), dated the Initial Funding Date and signed by a Financial Officer or legal officer of Holdings and signed by a Financial Officer of the Borrower, together with all attachments contemplated thereby. The Administrative Agent shall also have received, the results of searches of the Uniform Commercial Code (or equivalent) filings made with respect to the Loan Parties in any applicable Specified Collateral Jurisdictions and copies of the financing statements (or similar documents) disclosed by such search, together with Federal and State (or other relevant) tax lien searches and judgment lien searches in respect of the Loan Parties and their respective

 

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assets in those jurisdictions reasonably requested by the Administrative Agent, and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) and other lien search results are permitted by Section 6.02 or have been or will contemporaneously with the initial funding of Loans on the Initial Funding Date be released or terminated.

(f) Subject to the penultimate paragraph of this Section, the Administrative Agent shall have received evidence that the insurance and endorsements thereto required by Section 5.06 and the Security Documents is in effect.

(g) The Transactions and all conditions to the Spin-Off set forth in the Form 10 (other than the ability to borrow under the Facility) shall have been consummated or satisfied, or shall be consummated or satisfied substantially concurrently with the initial borrowing under the Facility, in accordance with applicable law and, in all material respects, consistent with the information set forth in the Effective Date Form 10.

(h) The Administrative Agent shall have received prior to the Spin-Off Date true and complete copies of the Effective Date Spin-Off Documents.

(i) There shall be no material payments or distributions by Holdings or any of its subsidiaries to Alcoa or any of Alcoa’s subsidiaries in connection with the Spin-Off, other than (i) as described in the Effective Date Form 10 or (ii) solely to the extent reflected in the projections provided to the Lenders prior to the date of the Engagement Letter, in respect of the Yadkin Facility.

(j) Immediately after giving effect to the Transactions and the other transactions contemplated hereby, none of Holdings, the Borrower or any Restricted Subsidiary shall have outstanding any shares of preferred stock or any Indebtedness, other than (i) Indebtedness incurred under the Loan Documents, (ii) Other Permitted Initial Funding Date Indebtedness and (iii) Indebtedness set forth on Schedule 6.01 .

(k) The Lenders shall have received either (a) a certificate from the Chief Financial Officer of Holdings, substantially in the form of Exhibit H , certifying as to the solvency of Holdings, the Borrower and the Subsidiaries, on a consolidated basis, after giving effect to the Transactions or (b) a solvency opinion, in form and substance and from an independent evaluation firm satisfactory to the Administrative Agent; provided that the solvency opinion delivered to the board of directors of Alcoa, as described in the Form 10, shall be deemed to be satisfactory, if it is acceptable to the board of directors of Alcoa.

(l) Holdings shall have received minimum corporate ratings from Moody’s and S&P of Ba3 and BB-, respectively.

(m) No action or event shall have occurred during the period from and including the Effective Date to and including the Initial Funding Date which would have constituted a non-compliance by Holdings or the Borrower with Section 6.02 as if the covenants therein had been effective from and including the Effective Date; provided that, if any such action or event shall have occurred, the condition precedent in this

 

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paragraph shall nonetheless be satisfied if such action or event has been cured with respect to such covenant such that, as of the Initial Funding Date, Holdings and the Borrower are in compliance with such covenant.

Notwithstanding the foregoing, if (a) Holdings and the Borrower shall have used commercially reasonable efforts to deliver, but shall nevertheless be unable to deliver, any of the Perfection Certificates required by clause (e)(ii) of this Section, then such delivery shall not be a condition precedent to the obligations of the Lenders and the Issuers hereunder on the Initial Funding Date, but shall be required to be delivered in accordance with the provisions of Section 5.16 (“ Post-Initial Funding Date Matters ”), (b) any security interest in any asset (other than any Excluded Asset) of any Loan Party or any guarantee by any Loan Party that is a Foreign Subsidiary is not or cannot be provided or perfected on the Initial Funding Date (other than the creation of and perfection (including by delivery of stock or other equity certificates, if any) of security interests (A) in the Equity Interests in any Restricted Subsidiary that is not a Foreign Subsidiary and in intercompany debt (in each case, except to the extent constituting Excluded Assets) and (B) in other assets with respect to which a Lien may be perfected by the filing of a financing statement under the Uniform Commercial Code) after Holdings’s and the Borrower’s use of commercially reasonable efforts to do so without undue burden or expense, then the perfection of a security interest in such assets or provision of guarantee by such Loan Party shall not constitute a condition precedent to the obligations of the Lenders and the Issuers hereunder on the Initial Funding Date, but instead shall be required to be provided or delivered in accordance with the provisions of Section 5.16 (“ Post-Initial Funding Date Matters ”) and (c) Holdings and the Borrower shall have used commercially reasonable efforts to procure and deliver, but shall nevertheless be unable to deliver, evidence that the insurance and endorsements thereto required by Section 5.06 (“ Insurance ”) and the Security Documents is in effect (other than with respect to flood insurance in respect of Mortgaged Properties located in a US Jurisdiction that is required under applicable law), then such delivery shall not be a condition precedent to the obligations of the Lenders and the Issuers hereunder on the Initial Funding Date, but shall be required to be provided and delivered in accordance with the provisions of Section 5.16 (“ Post-Initial Funding Date Matters ”).

The Administrative Agent shall notify the Borrower and the Lenders of the Initial Funding Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans shall not become effective unless each of the foregoing conditions shall have been satisfied (or waived in accordance with Section 9.08) at or prior to 5:00 p.m., New York City time, on the Outside Date (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

 

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SECTION 4.03. All Borrowings and Issuances of Letters of Credit . The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of each Issuer to Issue any Letter of Credit, is subject to the satisfaction of the following conditions:

(a) The Borrower shall have provided the notice as required by Section 2.03, and, with respect to any Letter of Credit, the Administrative Agent and the applicable Issuer shall have received a duly executed Letter of Credit Request.

(b) The representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects (or, in the case of representations and warranties qualified as to materiality, in all respects) on and as of the date of such Borrowing or such Issuance, as applicable, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (or in all respects, as applicable) as of such earlier date.

(c) At the time of and immediately after such Borrowing or such Issuance, as applicable, no Event of Default or Default shall have occurred and be continuing.

Each Borrowing ( provided that a conversion or a continuation of a Borrowing shall not constitute a “Borrowing” for purposes of this Section) and each Issuance of a Letter of Credit shall be deemed to constitute a representation and warranty by Holdings and the Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section.

ARTICLE V

AFFIRMATIVE COVENANTS

From and including the Initial Funding Date and until the Commitments shall have expired or been terminated, the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full (other than (i) contingent amounts not yet due and (ii) Cash Management Services), all Letters of Credit shall have expired or been terminated or shall have been cash collateralized or backstopped (in each case, in a manner reasonably satisfactory to the applicable Issuer) and all Reimbursement Obligations shall have been reimbursed, each of Holdings and the Borrower covenants and agrees with the Lenders that:

SECTION 5.01. Financial Statements, Reports, etc. Holdings and the Borrower shall furnish to the Administrative Agent the following, and the Administrative Agent shall make a copy thereof available to each Lender:

(a) Within 90 days after the end of each fiscal year of Holdings, its consolidated balance sheet and related statements of operations, comprehensive income, stockholders’ equity and cash flow as of the end of and for such fiscal year, and related notes thereto, setting forth in each case in comparative form the figures for the previous fiscal year, in each case audited by independent public accountants of recognized national standing, accompanied by an opinion of such accountants (which shall not be qualified as to scope of audit or include a statement or like qualification or exception in any manner

 

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calling into question the status of its business as a going concern (other than solely as a result of a maturity date in respect of any Loans or Commitments)) to the effect that such consolidated financial statements fairly present in all material respects its financial condition, results of operations and cash flows and that of its consolidated subsidiaries, taken as a whole, in accordance with GAAP consistently applied (except as otherwise disclosed in such financial statements) and accompanied by a narrative report describing the financial position, results of operations and cash flows of Holdings and its consolidated subsidiaries;

(b) Within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, its unaudited consolidated balance sheet and unaudited related statements of operations, comprehensive income, stockholders’ equity and cash flow as of the end of and for such fiscal quarter, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by a Financial Officer of Holdings as presenting fairly in all material respects the financial condition, results of operations and cash flows of Holdings and its consolidated subsidiaries, taken as a whole, in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, and accompanied by a narrative report describing the financial position, results of operations and cash flows of Holdings and its consolidated subsidiaries;

(c) No later than the respective delivery due dates of financial statements under (a) and (b) above, a certificate of a Financial Officer (i) certifying that no Event of Default or Default has occurred and is continuing or, if such an Event of Default or Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, (ii) setting forth computations in reasonable detail demonstrating compliance with the covenants contained in Sections 6.12 and 6.13, (iii) at any time when there is one or more Unrestricted Subsidiaries, of the aggregate revenue and the aggregate Consolidated EBITDA of the Unrestricted Subsidiaries for the four fiscal quarter period of the Borrower ended on the last day of the fiscal quarter covered by financial statements delivered for such period, and (iv) stating whether any change in GAAP or in the application thereof has occurred since the later of the date of Holdings’s audited financial statements referred to in Section 3.06 and the date of the prior certificate delivered pursuant to this clause (c) indicating such a change and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;

(d) No later than the delivery due date for annual financial statements under (a) above, a detailed annual consolidated budget for such fiscal year of Holdings (including projected cash, Indebtedness and, to the extent available, pension balances, and projected consolidated statements of projected operations, comprehensive income and cash flows as of the end of and for such fiscal year and setting forth the assumptions used for purposes of preparing such budget);

 

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(e) No later than five Business Days after the request by any Lender, all documentation and other information that such Lender reasonably 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;

(f) Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Holdings (other than registration statements and prospectuses related to offerings to directors, officers or employees) with the SEC or any Governmental Authority succeeding to any of or all the functions of the SEC, or with any national securities exchange, or distributed to its shareholders, as the case may be; and

(g) Promptly after any request therefor, such other information regarding the operations, business affairs, assets, liabilities (including contingent liabilities) and financial condition of Holdings, the Borrower or any Restricted Subsidiary, or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably request; provided that none of Holdings, the Borrower or any Restricted Subsidiary will be required to provide any information (i) that constitutes non-financial trade secrets or non-financial proprietary information of Holdings, the Borrower or any Restricted Subsidiary or any of their respective customers and suppliers, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or any of their respective representatives) is prohibited by applicable Requirements of Law or (iii) the revelation of which would violate any confidentiality obligations owed to any third party by Holdings, the Borrower or any Restricted Subsidiary; provided , further , that if any information is withheld pursuant to clause (i), (ii), or (iii) above, Holdings, the Borrower or any Restricted Subsidiary shall promptly notify the Administrative Agent of such withholding of information and the basis therefor.

Information required to be delivered pursuant to this Section 5.01 shall be deemed to have been delivered if such information, or one or more annual or quarterly reports containing such information, shall have been posted by the Administrative Agent on an Approved Electronic Platform to which the Lenders have been granted access or shall be available on the website of the SEC at http://www.sec.gov. Information required to be delivered pursuant to this Section 5.01 (other than the information that pursuant to the immediately preceding sentence is deemed to have been delivered if it is made available on the website of the SEC) may also be delivered by electronic communications pursuant to the procedures approved by the Administrative Agent.

In addition, the Borrower shall hold a conference call once annually for the Lenders to discuss financial information for the previous fiscal year. Each conference call shall be held at a time mutually agreed with the Administrative Agent (and communicated to the Lenders and the Issuers not less than 10 Business Days in advance of such conference call) that is promptly following delivery of the financial statements required under Section 5.01(a). The requirements of this paragraph shall be satisfied by the Borrower providing the Lenders with reasonably advance notice of, and access to, the annual earnings call with the holders of the Equity Interests of Holdings or with bondholders of the Borrower.

 

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SECTION 5.02. Notices of Material Events. Holdings and the Borrower will furnish to the Administrative Agent, which shall furnish to each Lender, prompt written notice of the following:

(a) the occurrence of any Default;

(b) to the extent permissible by Requirements of Law, the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against Holdings, the Borrower or any Restricted Subsidiary, or, to the knowledge of a Financial Officer or another executive officer of Holdings or the Borrower, affecting Holdings, the Borrower or any Restricted Subsidiary thereof, or any materially adverse development in any such pending action, suit or proceeding not previously disclosed in writing by Holdings or the Borrower to the Administrative Agent, that in each case would reasonably be expected to result in a Material Adverse Effect or that in any manner questions the validity of any Loan Document;

(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 a Material Adverse Effect; and

(d) any other development (including any notice of any Environmental Liability) that has resulted, or would reasonably be expected to result, in a Material Adverse Effect.

Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of Holdings or the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

SECTION 5.03. Information Regarding Collateral. (a) Holdings and the Borrower shall furnish to the Administrative Agent prompt written notice of any change (i) in any Loan Party’s legal name, as set forth in such Loan Party’s organizational documents, (ii) in the jurisdiction of incorporation or organization of any Loan Party (including as a result of any merger or consolidation), (iii) in the form of organization of any Loan Party, (iv) in any Loan Party’s organizational identification number, if any, or, with respect to any Loan Party organized under the laws of a jurisdiction that requires such information to be set forth on the face of a Uniform Commercial Code financing statement, the Federal Taxpayer Identification Number of such Loan Party or (v) in any other information relating to any Loan Party that would require any steps to be taken to maintain a valid, legal and perfected security interest in any Collateral.

(b) At the time of delivery of financial statements pursuant to Section 5.01(a), Holdings and the Borrower shall deliver to the Administrative Agent

 

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completed Supplemental Perfection Certificates, signed by a Financial Officer of either Holdings or the Borrower (i) setting forth the information required pursuant to the Supplemental Perfection Certificate and indicating, in a manner reasonably satisfactory to the Administrative Agent, any changes in such information from the most recent Supplemental Perfection Certificates delivered pursuant to this Section (or, prior to the first delivery of a Supplemental Perfection Certificate, from the Perfection Certificate delivered on the Initial Funding Date) or (ii) certifying that there has been no change in such information from the most recent Supplemental Perfection Certificate delivered pursuant to this Section (or, prior to the first delivery of a Supplemental Perfection Certificate, from the Perfection Certificate delivered on the Initial Funding Date). Supplemental Perfection Certificates shall be delivered relating only to the US Obligations Loan Parties (other than the Borrower and Aluminerie Lauralco, Sàrl), Loan Parties organized in Canada and any other Loan Parties for which is it customary in such Loan Parties’ respective jurisdictions to deliver Supplemental Perfection Certificates on an annual basis.

SECTION 5.04. Maintenance of Properties . Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, maintain and keep its material real properties in good working order and condition, except for ordinary wear and tear and for any damage from casualty or condemnation, or where the failure to maintain such properties would, individually or in the aggregate, not reasonably be expected to result in a Material Adverse Effect; provided , however , that nothing in this Section 5.04 shall prevent Holdings, the Borrower or any Restricted Subsidiary, as applicable, from selling, abandoning or otherwise disposing of any of its respective properties or discontinuing a part of its respective businesses from time to time if, (i) in the judgment of such Person, such sale, abandonment, disposition or discontinuance is advisable and (ii) in the case of a sale or other disposition, is a transaction permitted under Section 6.05.

SECTION 5.05. Obligations and Taxes . Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, pay its Indebtedness and other obligations that, if not paid, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, and pay and discharge all material Taxes upon or against it, or against its properties, and all material claims which could reasonably be expected, if unpaid, to become a Lien upon its property (other than a Lien permitted under Section 6.02), in each case prior to the date on which penalties attach thereto, unless and to the extent that (a) any such obligation, claim or Tax is being contested in good faith by appropriate proceedings, (b) adequate reserves with respect thereto are maintained on the applicable financial statements in accordance with GAAP, (c) such contest effectively suspends collection of the contested obligation and the enforcement of any Lien securing such obligation and (d) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect. The fiscal unity ( fiscale eenheid ) for Dutch corporate income tax purposes, if any, shall consist of Dutch Loan Parties only, unless with the prior written consent of the Administrative Agent.

 

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SECTION 5.06. Insurance . Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, insure and keep insured, in each case with reputable insurance companies, so much of its respective material properties to such an extent and against such risks, or in lieu thereof, in the case of the Borrower, maintain or cause to be maintained a system or systems of self-insurance using an adequately capitalized captive insurance subsidiary, (a) as is customary in the case of corporations engaged in the same or similar business or having similar properties similarly situated and is considered adequate by Holdings and the Borrower or (b) as may be otherwise required by applicable law or any other Loan Document. Each such policy of liability or casualty insurance maintained by or on behalf of Loan Parties will (a) in the case of each liability insurance policy (other than workers’ compensation, director and officer liability or other policies in which such endorsements are not customary), name the Administrative Agent, on behalf of the Secured Parties, as an additional insured thereunder, (b) in the case of each casualty insurance policy, contain a lender’s loss payable clause or endorsement that names the Administrative Agent, on behalf of the Secured Parties, as the lender’s loss payee thereunder and (c) to the extent available from the applicable insurance provider, provide for at least 30 days’ (or such shorter number of days as may be agreed to by the Administrative Agent) prior written notice to the Administrative Agent of any cancellation of such policy (it being understood and agreed that the replacement of any insurance policy obtained by Alcoa or its subsidiaries with an insurance policy obtained by Holdings, the Borrower or any Subsidiaries in the context of the Spin-Off shall not be deemed to be such a cancellation and no notice shall be required to be delivered by the applicable insurer with respect thereto). With respect to each Mortgaged Property located in a US Jurisdiction that is located in an area determined by the Federal Emergency Management Agency to have special flood hazards, the applicable Loan Party will obtain (in the case of each Mortgaged Property listed on Schedule 1.02 , not later than the later of (x) the date on which a Mortgage for such Mortgaged Property is executed and delivered to the Administrative Agent and (y) the Initial Funding Date, unless otherwise agreed by the Administrative Agent in its sole discretion), and will maintain, with reputable insurance companies, such flood insurance as is required under applicable law, including Regulation H of the Board (including polices of such insurance). The Borrower will furnish to the Lenders, upon request of the Administrative Agent, information in reasonable detail as to the insurance so maintained. The provisions of this Section are subject to the penultimate paragraph of Section 4.02.

SECTION 5.07. Existence; Businesses and Properties . (a) Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence in its jurisdiction of organization, except as otherwise expressly permitted under Section 6.03.

(b) Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business as its Board of Directors shall determine in its judgment (except for the abandonment of patent, copyrights and trademarks that are no longer used or useful, or economically practicable to maintain).

 

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SECTION 5.08. Maintenance of Ratings . Holdings and the Borrower will use commercially reasonable efforts to maintain continuously in effect a public corporate rating and a corporate rating from S&P and a corporate family rating from Moody’s, in each case in respect of Holdings.

SECTION 5.09. Books and Records; Inspection and Audit Rights . Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law are made of all dealings and transactions in relation to its business and activities. Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times (during normal business hours) and as often as reasonably requested; provided , however , that, excluding any such visits and inspections during the continuation of an Event of Default, (a) only the Administrative Agent, acting individually or on behalf of the Lenders, may exercise rights under this Section and (b) the Administrative Agent shall not exercise the rights under this Section more often than one time during any calendar year. Notwithstanding anything to the contrary in this Section 5.09, none of Holdings, the Borrower or any Restricted Subsidiary will be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives) is prohibited by law or any binding agreement or (iii) is subject to an attorney-client or similar privilege or constitutes attorney work product.

SECTION 5.10. Compliance with Laws . (a) Each of Holdings and the Borrower shall, and shall cause each Restricted Subsidiary to, comply with all Requirements of Law with respect to it or its property, such that no failure so to comply, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

(b) Holdings and the Borrower shall maintain in effect and enforce policies and procedures reasonably designed to promote compliance by Holdings, the Borrower, the Subsidiaries and the respective directors, officers, employees and agents (to the extent such agents are working on behalf of Holdings, the Borrower or any of the Subsidiaries) of the foregoing with Anti-Corruption Laws and applicable Sanctions.

(c) Each Borrower shall comply in all material respects with the applicable provisions of ERISA and all other related applicable laws and furnish to the Administrative Agent and each Lender (i) as soon as possible, and in any event within 30 days after such Borrower or any ERISA Affiliate either knows or has reason to know that

 

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any ERISA Event has occurred that alone or together with any other ERISA Event would reasonably be expected to result in liability of such Borrower to the PBGC in an aggregate amount exceeding $50,000,000, a statement of a Financial Officer setting forth details as to such ERISA Event and the action proposed to be taken with respect thereto, together with a copy of the notice, if any, of such ERISA Event given to the PBGC or other Governmental Authority, (ii) promptly after receipt thereof, a copy of any notice such Borrower or any ERISA Affiliate may receive from the PBGC or other Governmental Authority relating to the intention of the PBGC or other Governmental Authority to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code), or any Foreign Plan or Foreign Plans, or to appoint a trustee to administer any Plan or Plans, or any Foreign Plan or Foreign Plans, (iii) within 10 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a Plan, a statement of a Financial Officer setting forth details as to such failure and the action proposed to be taken with respect thereto, together with a copy of such notice given to the PBGC and (iv) promptly and in any event within 30 days after receipt thereof by such Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by such Borrower or ERISA Affiliate concerning (A) the imposition of Withdrawal Liability in excess of $50,000,000, or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, in each case within the meaning of Title IV of ERISA, if such termination or reorganization would reasonably be expected to result, alone or with any other such termination or reorganization, in increases in excess of $50,000,000 in the contributions required to be made to the relevant Plan or Plans.

SECTION 5.11. Use of Proceeds and Letters of Credit . (a) The proceeds of the Loans made on the Initial Funding Date will be used solely for the payment of (i)  first , Transaction Costs and (ii)  second , to the extent of the remaining proceeds thereof, working capital and other general corporate purposes of Holdings, the Borrower and the Restricted Subsidiaries. The proceeds of the Loans drawn after the Initial Funding Date will be used solely for working capital and other general corporate purposes (including Permitted Acquisitions) of Holdings, the Borrower and the Restricted Subsidiaries. No part of the proceeds of any Loan will be used in violation of the representation set forth in Section 3.16. Letters of Credit will be issued only to support obligations of Holdings, the Borrower and the Restricted Subsidiaries incurred in the ordinary course of business; provided that US Letters of Credit will be issued only to support the obligations of Holdings or any Domestic Subsidiary.

(b) The Borrower will not request any Borrowing or Letter of Credit, and neither Holdings nor the Borrower shall use, and each shall procure that the Subsidiaries shall not use, the proceeds of any Borrowing or any Letter of Credit, or make the proceeds thereof available to any other Person, (i) 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, (ii) for the purpose of funding, financing or facilitating the activities of or any transaction with any Sanctioned Person or in any Sanctioned Country except to the extent permissible for

 

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a Person required to comply with Sanctions or (iii) in any manner that would result in a violation of any Sanctions applicable to any party hereto (including any Person participating in the Borrowings or Letters of Credit, whether as underwriter, advisor, investor, or otherwise).

SECTION 5.12. Additional Subsidiaries . If any additional Subsidiary is formed or acquired after the Initial Funding Date (or any Subsidiary becomes a Designated Subsidiary), then the Borrower shall, as promptly as practicable and, in any event, within 30 days (in the case of a Domestic Subsidiary) or 60 days (in the case of a Foreign Subsidiary), or such longer period as the Administrative Agent may, in its sole discretion, agree to in writing) after such Subsidiary is formed or acquired (or any Subsidiary becomes a Designated Subsidiary), notify the Administrative Agent thereof and cause the Collateral and Guarantee Requirement to be satisfied with respect to such Subsidiary (if it is or becomes a Designated Subsidiary) and with respect to any Equity Interest in or Indebtedness of such Subsidiary owned by or on behalf of any Loan Party (consistent with the definition of “Collateral and Guarantee Requirement” and the Guaranty and Security Principles).

SECTION 5.13. Further Assurances . (a) Each of Holdings and the Borrower shall, and shall cause each other Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings with respect to Mortgaged Property, mortgages, deeds of trust and other documents), that may be required under any applicable law, or that the Administrative Agent or the Required Lenders may reasonably request, to cause the Collateral and Guarantee Requirement to be and remain satisfied, all at the expense of the Loan Parties and in each case subject to the Guaranty and Security Principles. Each of Holdings and the Borrower also agrees to provide to the Administrative Agent, from time to time upon reasonable request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents.

(b) Subject to the Guaranty and Security Principles, if any material assets (including Material Real Property, but excluding (A) any Excluded Assets and (B) any material assets owned by Alcoa on the Effective Date (other than any real property set forth on Schedule 1.02 ) that are transferred to or acquired by Holdings, the Borrower or any Restricted Subsidiary by or from Alcoa in connection with the Spin-Off on or prior to the Initial Funding Date) are acquired by Holdings, the Borrower or any Subsidiary Loan Party after the Effective Date (other than assets constituting Collateral under the Security Documents that become subject to the Lien created by such Security Document upon acquisition thereof), the Borrower shall notify the Administrative Agent and the Lenders thereof, and, if requested by the Administrative Agent or the Required Lenders, Holdings and the Borrower shall, following the Initial Funding Date, cause such assets to be subjected to a Lien securing the Global Secured Obligations or US Secured Obligations, as applicable (subject to any exceptions provided for herein or under the Security Documents and consistent with the definition of “Collateral and Guarantee Requirement” and the Guaranty and Security Principles) and will take, and cause the Subsidiary Loan Parties to take, such actions as shall be necessary or reasonably

 

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requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Loan Parties. With respect to any Material Real Property, the applicable Loan Party shall deliver to the Administrative Agent the items set forth under subclause (e) of the definition of “Collateral and Guarantee Requirement” within ninety (90) days (or such longer period as the Administrative Agent may agree in its reasonable discretion) of the acquisition of such Material Real Property.

SECTION 5.14. [Reserved].

SECTION 5.15. Designation of Subsidiaries . The Borrower may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (a) immediately before and after such designation, no Default or Event of Default shall have occurred and be continuing or would result from such designation and (b) immediately after giving effect to such designation, Holdings shall be in compliance on a Pro Forma Basis with the covenants set forth in Sections 6.12 and 6.13 recomputed as of the last day of the most recently ended fiscal quarter of Holdings. The Borrower may not designate a Restricted Subsidiary as an Unrestricted Subsidiary if, at the time of such designation (and, thereafter, any Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary automatically if) such Restricted Subsidiary or any of its subsidiaries is a “restricted subsidiary” or a “guarantor” (or any similar designation) for any Material Indebtedness. The designation of any Subsidiary as an Unrestricted Subsidiary shall constitute an investment by the parent company of such Subsidiary therein under Section 6.04 at the date of designation in an amount equal to the net book value of such parent company’s investment therein. Any Subsidiary Loan Party that is designated as an Unrestricted Subsidiary shall, upon effectiveness of such designation, cease to be a Loan Party and shall automatically be released from any guarantee and collateral obligations. The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness or Liens of such Subsidiary, and the making of an investment by such Subsidiary in any investments of such Subsidiary, in each case existing at such time. Prior to any designation made in accordance with this Section, the Borrower shall deliver to the Administrative Agent a certificate of a Financial Officer certifying that the designation satisfies the applicable conditions set forth in this Section and setting forth reasonably detailed calculations demonstrating compliance with clause (b) of the first sentence of this Section.

SECTION 5.16. Post-Initial Funding Date Matters. (a) Within one Business Day after the Initial Funding Date the Spin-Off shall be consummated.

(b) As promptly as practicable after the Initial Funding Date, Holdings and the Borrower shall, and shall cause each other Loan Party to, deliver all Loan Documents and other documents or instruments that would have been required to be delivered on the Initial Funding Date but for the penultimate paragraph of Section 4.02, in each case except to the extent otherwise agreed by the Administrative Agent pursuant to its authority as set forth in the definition of the term “Collateral and Guarantee Requirement”; provided that in any event, the foregoing requirement shall be satisfied (i)

 

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within 90 days of the Initial Funding Date, to the extent relating to (A) any Collateral in any US Jurisdiction or (B) the delivery of evidence that the insurance required by Section 5.06 or any Security Document is in effect, (ii) within 120 days of the Initial Funding Date, to the extent relating to any Collateral or guarantee in any other jurisdiction and (iii) notwithstanding the foregoing clauses (i) and (ii), within 10 Business Days following the Initial Funding Date, to the extent relating to any Equity Interests of any AWAC Parent (or, in each case of (i), (ii) and (iii), within such longer period as the Administrative Agent may reasonably agree to in writing).

ARTICLE VI

NEGATIVE COVENANTS

From and including the Initial Funding Date and until the Commitments shall have expired or been terminated, the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, all Letters of Credit shall have expired or been terminated, or shall have been cash collateralized or backstopped (in each case, in a manner satisfactory to each applicable Issuer), and all Reimbursement Obligations shall have been reimbursed, each of Holdings and the Borrower covenants and agrees with each Lender that:

SECTION 6.01. Indebtedness; Certain Equity Securities. (a) Neither Holdings nor the Borrower shall, nor shall Holdings or the Borrower permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except:

(i) Indebtedness created hereunder and under the other Loan Documents;

(ii) (A) the Senior Unsecured Debt in an aggregate principal amount not to exceed $1,500,000,000 and (B) Refinancing Indebtedness in respect of Senior Unsecured Debt issued pursuant to clause (A) above or Refinancing Indebtedness incurred pursuant to this clause (B) (it being understood and agreed that, for purposes of this Section, any Indebtedness that is incurred for the purpose of repurchasing or redeeming any Senior Unsecured Debt (or any Refinancing Indebtedness in respect thereof (or Refinancing Indebtedness in respect of any Refinancing Indebtedness) shall, if otherwise meeting the requirements set forth above and in the definition of the term “Refinancing Indebtedness”, be deemed to be Refinancing Indebtedness in respect of the Senior Unsecured Debt (or Refinancing Indebtedness), and shall be permitted to be incurred and be in existence, notwithstanding that the proceeds of such Refinancing Indebtedness shall not be applied to make such repurchase or redemption of the Senior Unsecured Debt (or Refinancing Indebtedness) immediately upon the incurrence thereof, if (1) the proceeds of such Refinancing Indebtedness are applied to make such repurchase or redemption not later than 120 days following the date of the incurrence thereof and (2) at all times pending such application all the proceeds of such Refinancing Indebtedness are held in an account with the Administrative

 

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Agent, subject to its exclusive dominion and control, including the exclusive right of withdrawal, as collateral for the payment and performance of the obligations of the Borrower under this Agreement (with the Administrative Agent hereby agreeing that it shall permit the Borrower to withdraw funds from such account upon request if (x) at the time thereof, no Event of Default shall have occurred and be continuing, (y) immediately following such withdrawal, such funds shall be applied to make any such repurchase or redemption of the Senior Unsecured Debt or to repay any such Refinancing Indebtedness and (z) the Borrower shall have delivered to the Administrative Agent a certificate of a Financial Officer of the Borrower as to the matters set forth in the preceding clauses (x) and (y)); provided that, immediately after giving effect to any incurrence of Indebtedness in accordance with this clause (ii), the aggregate principal amount of Indebtedness incurred in accordance with this clause (ii), together with the aggregate principal amount of Indebtedness incurred in accordance with clause (iv) of this Section 6.01(a), shall not exceed $1,750,000,000 at any time outstanding;

(iii) Indebtedness existing on the date hereof and set forth on Schedule 6.01 (including Indebtedness of Alcoa set forth on Schedule 6.01 that will become an obligation of Holdings, the Borrower or any Restricted Subsidiary) and any Refinancing Indebtedness in respect thereof;

(iv) Other Permitted Initial Funding Date Indebtedness incurred by one or more Loan Parties and any Refinancing Indebtedness in respect thereof; provided that, immediately after giving effect to any incurrence of Indebtedness in accordance with this clause (iv), the aggregate principal amount of Indebtedness incurred in accordance with this clause (iv), together with the aggregate principal amount of Indebtedness incurred in accordance with clause (ii) of this Section 6.01(a), shall not exceed $1,750,000,000;

(v) Indebtedness of Holdings to the Borrower or any Restricted Subsidiary, of the Borrower to Holdings or any Restricted Subsidiary and of any Restricted Subsidiary to Holdings, the Borrower or any other Restricted Subsidiary; provided that (A) Indebtedness of any Restricted Subsidiary that is not a Loan Party to Holdings, the Borrower or any Subsidiary Loan Party shall be subject to Section 6.04 and (B) Indebtedness of the Borrower or Holdings or any Subsidiary Loan Party to any Restricted Subsidiary that is not a Subsidiary Loan Party shall be unsecured and subordinated to the Secured Obligations on the terms set forth in the Global Intercompany Note;

(vi) Guarantees by Holdings of Indebtedness of the Borrower or any Restricted Subsidiary, by the Borrower of Indebtedness of Holdings or any Restricted Subsidiary and by any Restricted Subsidiary of Indebtedness of Holdings, the Borrower or any other Restricted Subsidiary; provided that (A) the Indebtedness so Guaranteed is permitted by this Section (other than clause (a)(iii), (a)(iv) or (a)(viii)), (B) Guarantees by Holdings, the Borrower or any Subsidiary Loan Party of Indebtedness of any Restricted Subsidiary that is not a Loan Party shall be subject to Section 6.04, (C) Guarantees permitted under this clause (vi)

 

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shall be subordinated to the Secured Obligations of Holdings, the Borrower or the applicable Restricted Subsidiary, as the case may be, to the same extent and on the same terms as the Indebtedness so Guaranteed is subordinated to the Secured Obligations and (D) none of the Senior Unsecured Debt shall be Guaranteed by any Subsidiary unless such Subsidiary is a Loan Party that has Guaranteed the Secured Obligations pursuant to, and with respect to the portion thereof as may be required by, the Security Documents;

(vii) (A) Indebtedness of Holdings, the Borrower or any Restricted Subsidiary incurred to finance the acquisition, construction, lease or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed by Holdings, the Borrower or any Restricted Subsidiary in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof; provided that such Indebtedness is incurred prior to or within 270 days after such acquisition or lease or the completion of such construction or improvement, and (B) Refinancing Indebtedness in respect of Indebtedness incurred or assumed pursuant to clause (A) above; provided further that, immediately after giving effect to any incurrence of Indebtedness in accordance with this clause (vii), the aggregate outstanding principal amount of Indebtedness incurred in accordance with this clause (vii) shall not exceed the greater of (x) $350,000,000 and (y) 2.0% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended;

(viii) (A) Indebtedness of any Person (other than an Unrestricted Subsidiary) that becomes a Restricted Subsidiary (or of any Person (other than an Unrestricted Subsidiary) not previously a Restricted Subsidiary that is merged or consolidated with or into Holdings, the Borrower or a Restricted Subsidiary in a transaction permitted hereunder) after the date hereof, or Indebtedness of any Person (other than an Unrestricted Subsidiary) that is assumed by Holdings, the Borrower or any Restricted Subsidiary in connection with an acquisition of assets by the Borrower or such Restricted Subsidiary in a Permitted Acquisition or any other Investments not prohibited under Section 6.04; provided that such Indebtedness exists at the time such Person becomes a Restricted Subsidiary (or is so merged or consolidated) or such assets are acquired and is not created in contemplation of or in connection with such Person becoming a Restricted Subsidiary (or such merger or consolidation) or such assets being acquired, and (B) Refinancing Indebtedness in respect of Indebtedness assumed pursuant to clause (A) above or Refinancing Indebtedness incurred pursuant to this clause (B); provided further that immediately after giving effect to any incurrence of Indebtedness in accordance with this clause (viii)(A), (I) Holdings is in compliance with the covenant contained in Section 6.12, recomputed on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness as of the last day of the most recently ended fiscal quarter of Holdings and (II) the Leverage Ratio, calculated on a Pro Forma Basis after giving effect to the incurrence of such Indebtedness as of the last day of the most recently ended fiscal quarter of Holdings, is less than 2.00 to 1.00;

 

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(ix) Indebtedness owed to any Person (including obligations in respect of letters of credit, bank guarantees and similar instruments for the benefit of such Person) providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case incurred in the ordinary course of business;

(x) Indebtedness owed to any Person (including obligations in respect of letters of credit, bank guarantees and similar instruments for the benefit of such Person) in respect of performance bonds, bid bonds, appeal bonds, surety bonds, performance and completion guarantees and similar obligations (other than in respect of other Indebtedness), in each case provided in the ordinary course of business;

(xi) Indebtedness in respect of Hedging Agreements and Commercial Agreements permitted by Section 6.07;

(xii) Indebtedness owed in respect of any (i) employee credit or purchase card programs or (ii) overdrafts and related liabilities arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfers of funds; provided that, in the case of clause (ii), such Indebtedness shall be repaid in full within ten (10) Business Days of the incurrence thereof;

(xiii) Indebtedness in respect of judgments that do not constitute an Event of Default under clause (l) of Article VII;

(xiv) other Indebtedness in an aggregate principal amount not exceeding the greater of (A) $500,000,000 and (B) 3.0% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended; provided that the aggregate principal amount of Indebtedness of the Restricted Subsidiaries that are not Loan Parties permitted by this clause (xiv) shall not exceed the greater of (1) $150,000,000 and (2) 1.0% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended;

(xv) [reserved];

(xvi) (i) the Ma’aden Indebtedness and (ii) the Ma’aden Guarantees and any extension, renewal or refinancing in respect thereof (the “ Refinancing Ma’aden Guarantees ”), provided that (A) the aggregate amount guaranteed by the Refinancing Ma’aden Guarantees (including, for the avoidance of doubt, any interest payments or other payment obligations related to the Ma’aden Indebtedness guaranteed thereby) shall not exceed 110% of the aggregate amount guaranteed by the Ma’aden Guarantees as of the Effective Date and (B) the terms and conditions (but excluding as to subordination, interest rate (including whether such interest is payable in cash or in kind), rate floors, fees, discount and redemption premium) of the Ma’aden Indebtedness by the

 

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Refinancing Ma’aden Guarantees shall not be, taken as a whole, materially less favorable to Holdings or the Borrower than the terms and conditions of the Ma’aden Indebtedness guaranteed by the Ma’aden Guarantees as of the Effective Date, provided , further , that, subject to the foregoing clauses (A) and (B), any novation of the Alcoa Ma’aden Guarantees to Holdings or the Borrower shall be permitted;

(xvii) Indebtedness in the form of purchase price adjustments, earnouts, indemnification obligations, non-competition agreements or other arrangements representing acquisition consideration or deferred payments of a similar nature incurred in connection with any Permitted Acquisition or other Investment not prohibited by Section 6.04;

(xviii) Indebtedness in the form of (x) Guarantees of loans and advances permitted by Section 6.04(g) and (y) reimbursements owed to officers, directors, consultants and employees in the ordinary course of business;

(xix) Indebtedness incurred pursuant to Permitted Receivables Facilities; provided that the Attributable Receivables Indebtedness thereunder shall not, together with the aggregate face amount of Receivables sold for the period of the most recently ended four consecutive quarters pursuant to Factoring Transactions under Section 6.05(c)(ii), exceed at any time outstanding $50,000,000;

(xx) all premiums (if any), interest (including post-petition interest), fees, expenses, charges and additional or contingent interest on obligations described in the foregoing clauses of this paragraph (a) above;

(xxi) Indebtedness representing deferred compensation payable to directors, officers or employees of Holdings, the Borrower or any Subsidiary incurred in the ordinary course of business;

(xxii) Indebtedness incurred pursuant to letters of credit issued by any Person other than an Issuer under this Agreement for the account of Holdings or the Borrower, provided that the aggregate amount of Indebtedness permitted by this clause (xxii) shall not exceed $150,000,000; and

(xxiii) Indebtedness (including guarantees) arising as a result of a fiscal unity ( fiscale eenheid ) for Dutch corporate income tax purposes.

(b) Notwithstanding anything to the contrary in paragraph (a) of this Section, neither Holdings nor the Borrower shall permit any Specified Company to create, incur, assume or permit to exist any Indebtedness owing to a Person that is not Holdings, the Borrower or any Restricted Subsidiary, except trade obligations and Indebtedness that are, in the aggregate, immaterial to each Specified Company, as applicable, and, in each case, incurred in the ordinary course of business.

 

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(c) Notwithstanding anything to the contrary in paragraph (a) of this Section, neither Holdings nor the Borrower shall permit any Icelandic Subsidiary Loan Party or Spanish Subsidiary Loan Party to create, incur, assume or permit to exist any Indebtedness owing to a Person that is not Holdings, the Borrower or any Restricted Subsidiary, except (i) trade obligations incurred in the ordinary course of business and (ii) Indebtedness existing on the date hereof as disclosed to the Administrative Agent and any Refinancing Indebtedness in respect thereof.

SECTION 6.02. Liens . (a) Neither Holdings nor the Borrower shall, nor shall Holdings or the Borrower permit any Restricted Subsidiary to, create, incur, assume or permit to exist any Lien on any asset or revenues now owned or hereafter acquired by it, except:

(i) Liens created under the Loan Documents and any Liens on cash or deposits granted in favor of any Issuer to cash collateralize any Defaulting Lender’s participation in Letters of Credit or other obligations in respect of Letters of Credit, in each case as contemplated by this Agreement;

(ii) Permitted Encumbrances;

(iii) any Lien on any asset of Holdings, the Borrower or any Restricted Subsidiary existing on the date hereof and, to the extent the outstanding principal amount of the obligations secured thereby exceeds $3,000,000, set forth in Schedule 6.02 ; provided that (A) such Lien shall not apply to any other asset of Holdings, the Borrower or any Restricted Subsidiary (other than assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business) and (B) such Lien shall secure only those obligations that it secures on the date hereof and extensions, renewals, replacements and refinancings thereof so long as the principal amount of such extensions, renewals, replacements and refinancings does not exceed the principal amount of the obligations being extended, renewed, replaced or refinanced or, in the case of any such obligations constituting Indebtedness, that are permitted under Section 6.01(a)(iii) as Refinancing Indebtedness in respect thereof;

(iv) Liens on fixed or capital assets acquired, constructed or improved (including any such assets made the subject of a Capital Lease Obligation incurred) by the Borrower or any Restricted Subsidiary; provided that (A) such Liens secure Indebtedness incurred to finance such acquisition, construction or improvement and permitted by clause (vii)(A) of Section 6.01(a) or any Refinancing Indebtedness in respect thereof permitted by clause (vii)(B) of Section 6.01(a), (B) such Liens and the Indebtedness secured thereby are incurred prior to or within 270 days after such acquisition or the completion of such construction or improvement ( provided that this clause (B) shall not apply to any Refinancing Indebtedness permitted by clause (vii)(B) of Section 6.01(a) or any Lien securing such Refinancing Indebtedness), (C) the Indebtedness secured thereby does not exceed the lesser of the cost of acquiring, constructing or improving such fixed or capital asset or, in the case of Indebtedness permitted by

 

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clause (vii)(A) of Section 6.01(a), its fair market value at the time such security interest attaches, and in any event, immediately after giving effect to the incurrence of any Lien in accordance with this clause (iv), the aggregate outstanding principal amount of such Indebtedness does not exceed the greater of (1) $350,000,000 and (2) 2.0% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended and (D) such Liens shall not apply to any other property or assets of the Borrower or any Restricted Subsidiary (except assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business);

(v) any Lien existing on any asset of any Person (other than an Unrestricted Subsidiary) prior to the acquisition of such asset by the Borrower or any Restricted Subsidiary or existing on any asset of any Person (other than an Unrestricted Subsidiary) that becomes a Restricted Subsidiary (or of any Person (other than an Unrestricted Subsidiary) not previously a Restricted Subsidiary that is merged or consolidated with or into the Borrower or any Restricted Subsidiary in a transaction permitted hereunder) after the date hereof prior to the time such Person becomes a Restricted Subsidiary (or is so merged or consolidated); provided that (A) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Restricted Subsidiary (or such merger or consolidation), (B) such Lien shall not apply to any other asset of Holdings, the Borrower or any Restricted Subsidiary (other than (x) assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business and (y) in the case of any such merger or consolidation, the assets of any special purpose merger Subsidiary that is a party thereto) and (C) such Lien shall secure only those obligations that it secures on the date of such acquisition or the date such Person becomes a Restricted Subsidiary (or is so merged or consolidated) and extensions, renewals, replacements and refinancings thereof so long as the principal amount of such extensions, renewals, replacements and refinancings does not exceed the principal amount of the obligations being extended, renewed, replaced or refinanced or, in the case of any such obligations constituting Indebtedness, that are permitted under clause (viii) of Section 6.01(a) as Refinancing Indebtedness in respect thereof;

(vi) in connection with the sale or transfer of any Equity Interests or other assets in a transaction permitted under Section 6.05, customary rights and restrictions contained in agreements relating to such sale or transfer pending the completion thereof;

(vii) in the case of (A) any Restricted Subsidiary that is not a wholly owned Subsidiary or (B) the Equity Interests in any Person other than the Borrower that is not a Restricted Subsidiary, any encumbrance or restriction, including any put and call arrangements, related to Equity Interests in such Restricted Subsidiary or such other Person set forth in the organizational documents of such Restricted Subsidiary or such other Person or any related joint venture, shareholders’ or similar agreement;

 

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(viii) Liens solely on any cash earnest money deposits, escrow arrangements or similar arrangements made by the Borrower or any Restricted Subsidiary in connection with any letter of intent or purchase agreement for a Permitted Acquisition or other transaction permitted hereunder;

(ix) Liens granted by a Restricted Subsidiary that is not a Loan Party in respect of Indebtedness permitted to be incurred by such Restricted Subsidiary under Section 6.01;

(x) Liens on any property of (A) any Loan Party in favor of any other Loan Party and (B) any Restricted Subsidiary that is not a Loan Party in favor of Holdings, the Borrower or any Restricted Subsidiary;

(xi) to the extent constituting Liens, any restrictions contemplated by the Effective Date Spin-Off Documents;

(xii) Liens not otherwise permitted by this Section to the extent that, immediately after giving effect to the incurrence thereof, the aggregate outstanding principal amount of the obligations secured thereby does not exceed $200,000,000; provided that Liens pursuant to this clause (xii) shall not be on any assets of an Icelandic Subsidiary Loan Party or Spanish Subsidiary Loan Party;

(xiii) Liens on Permitted Receivables Facility Assets securing Indebtedness arising under Permitted Receivables Facilities;

(xiv) Liens to secure letters of credit issued by any Person other than in a capacity as an Issuer under this Agreement for the account of Holdings, the Borrower or a Subsidiary; provided that (i) the aggregate amount of Indebtedness secured thereby does not exceed $150,000,000, (ii) such Person enters into a customary intercreditor agreement that is reasonably satisfactory to the Administrative Agent and (iii) Liens pursuant to this clause (xiv) shall not apply to any assets of an Icelandic Subsidiary Loan Party or Spanish Subsidiary Loan Party; and

(xv) Liens arising as a result of a fiscal unity ( fiscale eenheid ) for Dutch tax purposes.

SECTION 6.03. Fundamental Changes. (a) Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, consolidate or merge with or into any other Person, or permit any other Person to consolidate or merge with or into it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing,

(i) any Person may merge into or consolidate with Holdings or with the Borrower in a transaction in which Holdings or the Borrower is the surviving entity or the surviving entity (the “ Successor Entity ”) (A) is organized under the laws of (1) in the case of a merger or consolidation with Holdings, the United States, any State thereof or the District of Columbia and (2) in the case of a

 

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merger of consolidation with the Borrower, the Netherlands, (B) expressly assumes Holdings’s or the Borrower’s, as applicable, obligations under this Agreement and the other Loan Documents to which such Loan Party is a party pursuant to a supplement hereto or thereto, as applicable, in form and substance reasonably satisfactory to the Administrative Agent, (C) each Subsidiary Loan Party, unless it is the other party to such merger or consolidation, shall have by a supplement to the Collateral Agreement and, if reasonably requested by the Administrative Agent, each other Security Document to which such Subsidiary Loan Party is a party confirmed that its obligations thereunder shall apply to the Successor Entity’s obligations under this Agreement and (D) each mortgagor of a Mortgaged Property, unless it is the other party to such merger of consolidation, shall have by an amendment to or restatement of the applicable Mortgage confirmed that its obligations thereunder shall apply to the Successor Entity’s obligations under this Agreement (it being understood that, if the foregoing conditions in clauses (A) through (D) are satisfied, then the Successor Entity will automatically succeed to, and be substituted for, Holdings or the Borrower, as applicable, under this Agreement),

(ii) any Person (other than Holdings or the Borrower) may merge into or consolidate with any Restricted Subsidiary in a transaction in which the surviving entity is a Restricted Subsidiary and, if any party to such merger or consolidation is a Subsidiary Guarantor, is a Subsidiary Guarantor,

(iii) any Restricted Subsidiary may merge into or consolidate with any Person (other than the Borrower) in a transaction permitted under Section 6.05 in which, after giving effect to such transaction, the surviving entity is not a Restricted Subsidiary,

(iv) any Restricted Subsidiary may liquidate or dissolve (A) if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders and (B) if such Restricted Subsidiary is a Subsidiary Loan Party, if any assets or business of such Restricted Subsidiary not otherwise disposed of or transferred in accordance with this Section 6.03 or Section 6.05 or in the case of any such business, discontinued, shall be transferred to, or otherwise owned or conducted by, another Subsidiary Loan Party, after giving effect to such liquidation or dissolution; provided that any such merger or consolidation involving a Person that is not a wholly owned Restricted Subsidiary immediately prior to such merger or consolidation shall not be permitted unless it is also permitted by Section 6.04 and

(v) Holdings, the Borrower and the Restricted Subsidiaries may consummate the transactions comprising the Spin-Off in accordance with the Effective Date Spin-Off Documents.

(b) The Borrower shall not, and Holdings and the Borrower shall not permit any Restricted Subsidiary to, engage to any material extent in any business other

 

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than businesses of the type conducted by the Borrower and the Restricted Subsidiaries as described in the Effective Date Form 10 and businesses reasonably incidental, complementary or related thereto.

SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, purchase, hold or acquire (including pursuant to any merger or consolidation with any Person that was not a wholly owned Subsidiary prior to such merger or consolidation) any Equity Interests in or evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) all or substantially all the assets of any other Person or of a business unit, division, product line or line of business of any other Person, except:

(a) Permitted Investments;

(b) Permitted Acquisitions; provided that the aggregate amount of cash consideration paid in respect of any investment pursuant to this clause (b) that is an investment by a Loan Party in the Equity Interests of any Person that does not become a Subsidiary Loan Party or in assets not included in the Collateral (to the extent such assets do not constitute Excluded Assets), shall not exceed, at the time such investment is made and after giving effect thereto, the greater of (x) $250,000,000 and (y) 1.5% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended;

(c) (i) investments existing on the date hereof in Holdings, the Borrower and the Restricted Subsidiaries, and (ii) other investments existing on the date hereof and set forth on Schedule 6.04 , and, in the case of each of the foregoing clauses (i) and (ii), any modification, replacement, renewal, reinvestment or extension thereof; provided that (x) the amount of the original investment is not increased except by the terms of such investment or as otherwise permitted by this Section 6.04 and (y) the terms of any such investment are not otherwise modified from the terms that are in effect as of the date hereof in a manner that is materially adverse to the Lenders unless otherwise permitted by this Section 6.04, provided , further , that, subject to the foregoing clauses (x) and (y), any novation to Holdings or the Borrower of such investments that have been made or incurred by Alcoa as of the date hereof shall be permitted;

(d) investments by Holdings in Equity Interests of the Borrower and by the Borrower and the Restricted Subsidiaries in Equity Interests of any Restricted Subsidiary; provided that (i) any such Equity Interests held by a Loan Party shall be pledged in accordance with the requirements of the definition of the term “Collateral and Guarantee Requirement” and Section 5.13, and (ii) the aggregate amount of such investments made by Loan Parties in Restricted Subsidiaries that are not Loan Parties (together with outstanding intercompany loans permitted under subclause (ii) of the proviso to clause (e) of this Section and outstanding Guarantees permitted under the

 

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proviso to clause (f) of this Section) shall not exceed, as of the date that any such investment is made, the greater of (A) $50,000,000 and (B) 0.3% of Consolidated Total Assets determined as of the last day of the fiscal quarter of Holdings most recently ended (in each case determined without regard to any write-downs or write-offs), provided that if any such investment under this subclause (ii) is made for the purpose of making an investment, loan or advance permitted under clause (w) of this Section 6.04, the amount available under this clause (d) shall not be reduced by the amount of any such investment, loan or advance which reduces the basket under clause (w) of this Section 6.04;

(e) loans or advances made by Holdings or the Borrower to any Restricted Subsidiary and made by any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that (i) any such loans and advances made by a Loan Party shall be evidenced by a promissory note pledged pursuant to the Collateral Agreement and (ii) the amount of such loans and advances made by Loan Parties to Restricted Subsidiaries that are not Loan Parties (together with investments permitted under subclause (ii) of the proviso to clause (d) of this Section and outstanding Guarantees permitted under the proviso to clause (f) of this Section) shall not exceed, as of the date that any such loan or advance is made, the greater of (A) $50,000,000 and (B) 0.3% of Consolidated Total Assets determined as of the last day of the fiscal quarter of Holdings most recently ended (in each case determined without regard to any write-downs or write-offs), provided that any intercompany loans or advances made by Alcoa Holland B.V. (including its successors, and any entity that is a Loan Party that performs cash-pooling and cash management activities for Holdings and its subsidiaries) to any Restricted Subsidiaries that are not Loan Parties in connection with ordinary course cash management activities and having a term not exceeding 90 days shall not be taken into account in the calculation of any restriction or basket set forth in subclause (ii) of this Section 6.04(e), provided , further that provided that if any such investment under this subclause (ii) is made for the purpose of making an investment, loan or advance permitted under clause (w) of this Section 6.04, the amount available under this clause (e) shall not be reduced by the amount of any such investment, loan or advance which reduces the basket under clause (w) of this Section 6.04;

(f) Guarantees of Indebtedness that is permitted under Section 6.01 and other obligations, in each case of Holdings, the Borrower or any Restricted Subsidiary; provided that the total of the aggregate principal amount of Indebtedness and the aggregate amount of other obligations, in each case of Restricted Subsidiaries that are not Loan Parties that is Guaranteed by any Loan Party (together with investments permitted under subclause (ii) of the proviso to clause (d) of this Section and outstanding intercompany loans and advances permitted under subclause (ii) to the proviso to clause (e) of this Section) shall not exceed, as of the date that any such loan or investment is made, the greater of (A) $50,000,000 and (B) 0.3% of Consolidated Total Assets determined as of the last day of the fiscal quarter of Holdings most recently ended (in each case determined without regard to any write-downs or write-offs);

(g) loans or advances to officers, directors, consultants or employees of Holdings, the Borrower or any Restricted Subsidiary not exceeding $10,000,000 in the aggregate outstanding at any time (determined without regard to any write-downs or write-offs of such loans or advances);

 

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(h) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses of Holdings, the Borrower or any Restricted Subsidiary for accounting purposes and that are made in the ordinary course of business;

(i) investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business;

(j) investments in the form of Hedging Agreements permitted by Section 6.07;

(k) investments of any Person (other than an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or consolidates or merges with the Borrower or any Restricted Subsidiary so long as such investments were not made in contemplation of such Person becoming a Restricted Subsidiary or of such consolidation or merger;

(l) investments resulting from pledges or deposits described in clause (c), (d) or (o) of the definition of the term “Permitted Encumbrance”;

(m) investments made as a result of the receipt of noncash consideration from a sale, transfer, lease or other disposition of any asset in compliance with Section 6.05;

(n) investments that result solely from the receipt by Holdings, the Borrower or any Restricted Subsidiary from any of its subsidiaries of a dividend or other Restricted Payment in the form of Equity Interests, evidences of Indebtedness or other securities (but not any additions thereto made after the date of the receipt thereof);

(o) receivables or other trade payables owing to the Borrower or a Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided that such trade terms may include such concessionary trade terms as the Borrower or any Restricted Subsidiary deems reasonable under the circumstances;

(p) Guarantees to insurers required in connection with worker’s compensation and other insurance coverage arranged in the ordinary course of business;

(q) investments to the extent that payment for such investments is made solely with Qualified Equity Interests;

(r) investments effected in connection with the Spin-Off as contemplated by the Effective Date Spin-Off Documents;

 

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(s) other investments, loans and advances by Holdings, the Borrower or any Restricted Subsidiary (“ Specified Investments ”) in an aggregate amount, as valued at cost at the time each such Specified Investment is made and including all related commitments for future Specified Investments (and the principal amount of any Indebtedness that is assumed or otherwise incurred in connection with such investment, loan or advance), to the extent (i) such Specified Investments are funded from the proceeds of any dividends, returns on capital or returns of capital received by Holdings, the Borrower or any Subsidiary Loan Party in respect of any Restricted Subsidiary that is not a Loan Party, and (ii) such investments, loans and advances are made within 90 days of the receipt of such proceeds described in subclause (i) of this clause (s);

(t) mergers and consolidations permitted under Section 6.03 that do not involve any Person other than the Borrower and Restricted Subsidiaries that are wholly owned Restricted Subsidiaries;

(u) customary investments in connection with Permitted Receivables Facilities;

(v) investments in connection with payments under the Ma’aden Guarantees; and

(w) other investments, Guarantees, loans and advances by Holdings, the Borrower or any Restricted Subsidiary in an aggregate amount, as valued at cost at the time each such investment, guarantee, loan or advance is made and including all related commitments for future investments, loans or advances (and the principal amount of any Indebtedness that is assumed or otherwise incurred in connection with such investment, loan or advance), not exceeding, at the time such investments, loans or advances are made and immediately after giving effect thereto, the sum of (i) $250,000,000 and (ii) so long as no Event of Default has occurred and is continuing or would result therefrom, the Available Amount at such time, for all such investments made or committed to be made from and after the Initial Funding Date plus an amount equal to any returns of capital or sale proceeds actually received in cash in respect of any such investments (which amount shall not exceed the amount of such investment valued at cost at the time such investment was made); provided that no investments, loans, Guarantees or advances may be made under subclause (ii) of this clause (w) other than investments, loans and advances made by Holdings, the Borrower or any Restricted Subsidiaries in or to AWAC Entities.

For purposes of determining compliance with this Section 6.04, in the event that a loan, advance, Guarantee, acquisition or any other investment meets the criteria of more than one of the categories described in clauses (a) – (w) above, Holdings or the Borrower may, in their sole discretion, at the time of the making or taking any such actions above, divide, classify or reclassify, or at any later time, divide, classify or reclassify, such loan, advance, Guarantee, acquisition or other investment (or any portion thereof) in any manner that complies with this Section 6.04, in each case, including as between Section 6.04(w)(i) and Section 6.04(w)(ii).

 

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SECTION 6.05. Asset Sales. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor shall Holdings or the Borrower permit any Restricted Subsidiary to issue any additional Equity Interest in such Restricted Subsidiary (other than issuing directors’ qualifying shares and other than issuing Equity Interests to the Borrower or another Restricted Subsidiary in compliance with Section 6.04(d)), except:

(a) sales, transfers, leases and other dispositions of (i) inventory, (ii) used, obsolete or surplus equipment and (iii) property or other assets no longer used or useful, or economically practicable to maintain, in the conduct of the business of the Borrower or the Restricted Subsidiaries (including allowing any intellectual property that is no longer used or useful, or economically practicable to maintain, to lapse, go abandoned, or be invalidated) and (iv) cash and Permitted Investments, in each case in the ordinary course of business;

(b) sales, transfers, leases and other dispositions to Holdings, the Borrower or a Restricted Subsidiary; provided that any such sales, transfers, leases or other dispositions involving a Restricted Subsidiary that is not a Loan Party shall be made in compliance with Sections 6.04 and 6.09;

(c) (i) sales, transfers or other dispositions of accounts receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business consistent with past practice and not as part of any accounts receivables financing transaction and, (ii) dispositions of Receivables pursuant to Factoring Transactions, provided that the aggregate face amount of Receivables sold for the period of the most recently ended four consecutive quarters shall not, together with the Attributable Receivables Indebtedness incurred pursuant to Permitted Receivables Facilities under Section 6.01(a)(xix), exceed $50,000,000, and (iii) for the avoidance of doubt, notwithstanding anything in this Agreement, Holdings, the Borrower and any Restricted Subsidiary may participate in any customer supply chain financing programs in the ordinary course of business;

(d) sales, transfers, leases and other dispositions of assets to the extent that such assets constitutes an investment permitted by clause (i), (k) or (m) of Section 6.04 or another asset received as consideration for the disposition of any asset permitted by this Section (in each case, other than Equity Interests in a Restricted Subsidiary, unless all Equity Interests in such Restricted Subsidiary (other than directors’ qualifying shares) are sold);

(e) leases or subleases entered into in the ordinary course of business, to the extent that they do not materially interfere with the business of Holdings, the Borrower or any Restricted Subsidiary;

(f) licenses or sublicenses of intellectual property in the ordinary course of business, to the extent that they do not materially interfere with the business of Holdings, the Borrower or any Restricted Subsidiary;

 

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(g) 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 asset of any of Holdings, the Borrower or any Restricted Subsidiary;

(h) dispositions of assets to the extent that (i) such assets are exchanged for credit against the purchase price of similar replacement assets or (ii) the proceeds of such disposition are promptly applied to the purchase price of such replacement assets;

(i) dispositions of assets to the extent that (i) such assets are disposed of as part of the sale of the Yadkin Facility and (ii) the financial impact of such dispositions were reflected in the projections provided to the Lenders prior to the date of the Engagement Letter;

(j) dispositions of assets effected in connection with the Spin-Off contemplated by the Effective Date Spin-Off Documents;

(k) any issuance of additional Equity Interests in any Restricted Subsidiary to the holders of its Equity Interests, in connection with any capital call or equity funding arrangements in the ordinary course of business;

(l) any dispositions in connection with Permitted Receivables Facilities;

(m) any Approved Asset Dispositions; and

(n) sales, transfers, leases and other dispositions of assets (other than Equity Interests in any Restricted Subsidiary that is a Loan Party unless all Equity Interests in such Loan Party (other than directors’ qualifying shares) are sold) that are not permitted by any other clause of this Section; provided that the aggregate fair value of all assets sold, transferred, leased or otherwise disposed of in reliance upon this clause (k) shall not exceed the greater of (x) $750,000,000 and (y) 4.5% of Consolidated Total Assets as of the last day of the fiscal quarter of Holdings most recently ended;

provided that all sales, transfers, leases and other dispositions permitted hereby (other than those permitted by clause (b)) shall be made for fair value and (other than those permitted by clause (b) (unless the disposition is by a Loan Party to a Restricted Subsidiary that is not a Loan Party), (d) or (h)) for at least 75% cash consideration payable at the time of such sale, transfer or other disposition; provided further that (i) any consideration in the form of Permitted Investments 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 Holdings’s most recent balance sheet provided hereunder or in the footnotes thereto) of Holdings, the Borrower or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Secured Obligations, that are assumed by the transferee with respect to the applicable sale, transfer, lease or other disposition and for which Holdings, the Borrower and all the Restricted Subsidiaries shall have been validly

 

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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 such Restricted 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 $10,000,000 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.

SECTION 6.06. [Reserved] .

SECTION 6.07. Hedging Agreements and Commercial Agreements. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, enter into any Hedging Agreement or Commercial Agreement, other than any Hedging Agreements and Commercial Agreements entered into in the ordinary course of business and not for speculative purposes.

SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that:

(a) the Borrower and any Restricted Subsidiary may declare and pay dividends or make other distributions with respect to its Equity Interests, or make other Restricted Payments in respect of its Equity Interests, in each case ratably to the holders of such Equity Interests;

(b) Holdings may declare and pay dividends with respect to its Equity Interests payable solely in shares of Qualified Equity Interests or Disqualified Equity Interests permitted hereunder;

(c) Holdings and the Borrower may, and the Borrower may make Restricted Payments to Holdings so that Holdings may, declare and make Restricted Payments, (A) pursuant to and in accordance with stock option plans or other benefit plans approved by the board of directors of Holdings for directors, officers or employees of Holdings, the Borrower and the Restricted Subsidiaries and (B) pursuant to and in accordance with stock option plans and other benefit plans in connection with the Spin-Off as contemplated in the Effective Date Spin-Off Documents; provided , however , that in no event shall the aggregate amount of such Restricted Payments under this clause (c), exceed $25,000,000 during any fiscal year, with 50% of any unused amount of such base amount from any fiscal year available for use in the next succeeding fiscal year following the use of the base amount permitted by this clause (c) in such succeeding fiscal year;

 

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(d) Holdings may make cash payments in lieu of the issuance of fractional shares representing insignificant interests in Holdings in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests in Holdings;

(e) Holdings may repurchase Equity Interests upon the exercise of stock options if such Equity Interests represent a portion of the exercise price of such stock options;

(f) (i) any payments made or expected to be made in respect of withholding or similar taxes payable by any future, present or former directors, officers or employees of Holdings, the Borrower or any Restricted Subsidiary (ii) any non-cash repurchases or withholdings of Equity Interests in connection with the exercise of stock options, warrants or similar rights if such Equity Interests represent a portion of the exercise of, or withholding obligations with respect to, such options, warrants or similar rights (for the avoidance of doubt, it being understood that any required withholding or similar tax related thereto may be paid by Holdings, the Borrower or any Restricted Subsidiary in cash), and (iii) loans or advances to officers, directors and employees of Holdings, the Borrower or any Restricted Subsidiary in connection with such Person’s purchase of Equity Interests of Holdings, provided that no cash is actually advanced pursuant to this clause (iii) other than to pay taxes due in connection with such purchase, unless immediately repaid;

(g) Holdings may declare and make annual ordinary dividends in an aggregate amount not to exceed the following amounts for each period as set forth below:

 

Time Period

   Amount  

Initial Funding Date to Dec 31, 2017

   $ 37,500,000   

Jan 1, 2018 – Dec 31, 2018

   $ 37,500,000   

Jan 1, 2019 – Dec 31, 2019

   $ 50,000,000   

Jan 1, 2020 – Dec 31, 2020

   $ 50,000,000   

Jan 1, 2021 – Maturity Date

   $ 75,000,000   

with 50% of any unused amount of such base amount from any such time period available for use in the next succeeding time period following the use of the base amount permitted by this clause (g) in such succeeding time period;

(h) concurrently with any issuance of Qualified Equity Interests, Holdings may redeem, purchase or retire any Equity Interests of Holdings using proceeds of, or convert or exchange any Equity Interests of the Borrower for, such Qualified Equity Interests;

(i) Holdings may declare and pay the Initial Funding Date Distribution (without duplication of Restricted Payments made pursuant to clause (g) of this Section 6.08); provided that immediately after giving effect thereto no Event of Default has occurred and is continuing or would result therefrom; and

 

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(j) Holdings may make Restricted Payments described in the Effective Date Spin-Off Documents (without duplication of Restricted Payments made pursuant to clause (i) of this Section 6.08).

SECTION 6.09. Transactions with Affiliates. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, sell, lease or otherwise transfer any assets to, or purchase, lease or otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its Affiliates, in each case, involving aggregate payments or consideration in excess of $25,000,000, except:

(a) transactions that are at prices and on terms and conditions that, taken as a whole, are not materially less favorable to Holdings, the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties,

(b) transactions between or among (i) the Borrower and the Subsidiary Loan Parties not involving any other Affiliate or (ii) Subsidiaries that are not Subsidiary Loan Parties,

(c) loans or advances to employees permitted under Section 6.04(g),

(d) payroll, travel and similar advances to cover matters permitted under Section 6.04(h),

(e) the payment of reasonable fees and expenses to directors of Holdings, the Borrower or any Restricted Subsidiary who are not employees of Holdings, the Borrower or any Restricted Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of Holdings, the Borrower or any Restricted Subsidiary in the ordinary course of business,

(f) 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 (i) approved by Holdings’s board of directors or (ii) as otherwise contemplated in the Effective Date Spin-Off Documents or Section 6.08(c), or

(g) employment and severance arrangements entered into in the ordinary course of business between Holdings, the Borrower or any Restricted Subsidiary and any employee thereof and approved by Holdings’s board of directors,

(h) transactions effected as part of a Permitted Receivables Facility;

(i) (a) investments by Affiliates in securities of Holdings, the Borrower or any Restricted Subsidiary (and payment of reasonable out-of-pocket

 

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expenses incurred by such Affiliates in connection therewith) so long as the investment is being offered by Holdings, the Borrower or such Restricted Subsidiary generally to other investors capable of making such investments pursuant to a bona fide offer on the same or more favorable terms and (b) payments to Affiliates in respect of securities of Holdings, the Borrower or any Restricted Subsidiary contemplated in the foregoing subclause (a) or that were acquired from Persons other than Holdings, the Borrower and the Restricted Subsidiaries, in each case, in accordance with the terms of such securities;

(j) payments by Holdings and its Subsidiaries pursuant to tax sharing agreements among Holdings and its Subsidiaries;

(k) intellectual property licenses in the ordinary course of business or consistent with industry practice;

(l) payments to or from, and transactions, (i) with any joint venture or Unrestricted Subsidiary in the ordinary course of business (including, any cash management activities related thereto) and (ii) between Holdings and its Subsidiaries, in relation to any internal cash management activities in the ordinary course of business;

(m) transactions occurring in connection with the Spin-Off contemplated by the Effective Date Spin-Off Documents, and the payment of all fees and expenses related thereto,

(n) transactions in connection with the Ma’aden Guarantees; and

(o) any Restricted Payment permitted by Section 6.08.

SECTION 6.10. Restrictive Agreements. Neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon:

(a) the ability of Holdings, the Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien on any Collateral or

(b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to Holdings, the Borrower or any other Restricted Subsidiary or to Guarantee Indebtedness of Holdings, the Borrower or any other Restricted Subsidiary; provided that:

(i) the foregoing shall not apply to:

(A) restrictions and conditions imposed by law or by this Agreement or any other Loan Document,

(B) restrictions and conditions imposed by the Senior Unsecured Debt Documents that are customary for financing arrangements of that type or any

 

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agreement or document evidencing Refinancing Indebtedness in respect of the Senior Unsecured Debt Documents permitted under clause (ii) of Section 6.01(a); provided that the restrictions and conditions contained in any such agreement or document, taken as a whole, are not less favorable in any material respect to the Lenders than the restrictions and conditions imposed by the Senior Unsecured Debt Documents (except for covenants or other provisions to the extent applicable to periods after the Maturity Date),

(C) in the case of any Person that is not a wholly owned Subsidiary, restrictions and conditions imposed by its organizational documents or any related joint venture or similar agreements; provided that such restrictions and conditions apply only to such Person and to the Equity Interests of such Person;

(D) customary restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary or any assets of Holdings, the Borrower or any Restricted Subsidiary, in each case pending such sale; provided that such restrictions and conditions apply only to such Restricted Subsidiary or the assets that are to be sold and, in each case, such sale is permitted hereunder,

(E) any encumbrance or restriction under other Indebtedness of Holdings, the Borrower and any Restricted Subsidiaries permitted to be incurred pursuant to Section 6.01, provided that such encumbrances or restrictions will not materially affect the Borrower’s ability to make anticipated principal and interest payments hereunder, and

(F) restrictions and conditions existing on the date hereof and identified on Schedule 6.10 (or to any extension or renewal of, or any amendment, modification or replacement not expanding the scope of, any such restriction or condition);

(ii) clause (a) of the foregoing shall not apply to:

(A) restrictions and conditions imposed by any agreement relating to secured Indebtedness permitted by clause (vii) or (viii) of Section 6.01(a) if such restrictions and conditions apply only to the assets subject to liens under clause (iv) or (v) of Section 6.02(a) securing such Indebtedness; and

(B) customary provisions in leases and other agreements restricting the assignment thereof; and

(iii) clause (b) of the foregoing shall not apply to restrictions and conditions imposed by any agreement relating to Indebtedness of any Person (other than an Unrestricted Subsidiary) in existence at the time such Person became a Restricted Subsidiary and otherwise permitted by clause (viii) of Section 6.01(a) if such restrictions and conditions apply only to such Restricted Subsidiary.

 

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SECTION 6.11. Amendment of Material Documents. Neither Holdings nor the Borrower shall, nor shall they permit their Restricted Subsidiaries to, amend, modify, waive, terminate or release (a) its certificate of incorporation, bylaws or other organizational documents, (b) any Spin-Off Document, or (c) any AWAC Agreement, in each case, if such amendment, modification, waiver, termination or release would materially impair the ability of the Loan Parties, taken as a whole, to perform their payment obligations under this Agreement or any other Loan Document or, in the case of clause (c) only, if such amendment, modification, waiver, termination or release would result in the imposition of any restrictions on the transfer of Equity Interests in any subsidiary of Holdings that directly or indirectly owns Equity Interests in AWAC Entities; provided that in no event shall any proposed amendment, supplement or modification to any AWAC Agreement disclosed by Holdings to the Administrative Agent on or prior to the date hereof be deemed to be an amendment, modification, waiver, termination or release of an AWAC Agreement for purposes of this Section 6.11.

SECTION 6.12. Interest Expense Coverage Ratio. Holdings and the Borrower shall not permit the ratio of (a) Consolidated EBITDA to (b) Consolidated Cash Interest Expense, in each case for any period of four consecutive fiscal quarters of Holdings ending on or following the Initial Funding Date, to be less than 5.00 to 1.00.

SECTION 6.13. Leverage Ratio. Holdings and the Borrower shall not permit the Leverage Ratio for any period of four fiscal quarters of Holdings ending on or following the Initial Funding Date to exceed 2.25 to 1.00.

SECTION 6.14. Changes in Fiscal Periods. Holdings shall neither (a) permit its fiscal year or the fiscal year of the Borrower or any Restricted Subsidiary to end on a day other than December 31 (or, with respect to any Restricted Subsidiary, on dates consistent with practice as in effect on the Initial Funding Date), nor (b) change its method of determining fiscal quarters.

SECTION 6.15. Maintenance of Ownership in AWAC. Except as set forth in Schedule 6.15 , and notwithstanding anything to the contrary herein, neither Holdings nor the Borrower shall, nor shall they permit any Restricted Subsidiary to, take any action that would result in the Loan Parties and the Specified Companies listed in clause (a) in the definition thereof, in the aggregate, holding less than 60% of the aggregate ordinary voting power with respect to, or holding less than 60% of the aggregate equity value of, AWAC (including, in each case, with respect to the issued and outstanding Equity Interests in each AWAC Entity that is not a subsidiary of another AWAC Entity).

SECTION 6.16. Centre of Main Interest . Neither Holdings nor the Borrower shall permit any Dutch Loan Party to, without the prior written consent of the Administrative Agent, take any action that would cause any such Loan Party’s center of main interests (as that term is used in Article 3(1) of the Insolvency Regulation) to be situated outside of its jurisdiction of incorporation, or cause the Borrower to have an establishment (as that term is used in Article 2(h) of the Insolvency Regulation) situated outside of its jurisdiction of incorporation other than with the prior written consent of the Administrative Agent.

 

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ARTICLE VII

EVENTS OF DEFAULT

In case of the happening of any of the following events (“ Events of Default ”):

(a) the Borrower shall default in the payment when due of any principal of any Loan or any Reimbursement Obligation and, if such default shall result from the failure of any third party payments system used by such Borrower, such default shall continue for a period of two Business Days;

(b) the Borrower shall fail to pay when due any interest, fee or other amount payable under any Loan Document, and, in each case, such failure shall continue for a period of five Business Days;

(c) any representation or warranty made or deemed made by or on behalf of Holdings, the Borrower or any Restricted Subsidiary under or in connection with any Loan Document or any statement made by or on behalf of Holdings, the Borrower or any Restricted Subsidiary in any financial statement, certificate, written report or other information furnished by or on behalf of Holdings, the Borrower or any Restricted Subsidiary in connection with any Loan Document shall prove to have been incorrect in any material respect as of the time when made or deemed made;

(d) the Borrower shall default in the performance or observance of any covenant contained in Section 5.02 (“ Notices of Material Events ”), Section 5.07(a) (“ Existence ”) (with respect to the existence of Loan Parties), Section 5.11 (“ Use of Proceeds and Letters of Credit ”) or Article VI;

(e) any Loan Party shall default in the performance or observance of any covenant or agreement under any Loan Document (other than those specified in paragraphs (a), (b) and (d) above) and such default shall continue for a period of 30 days after written notice from the Administrative Agent;

(f) Holdings, the Borrower or any Restricted Subsidiary shall fail to make any payment (whether of principal, interest, premium, termination payment or other payment obligation and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (after giving effect to any applicable grace period in respect of such failure under the documentation representing such Material Indebtedness);

(g) any event or condition occurs that results in any Material Indebtedness becoming due or being terminated or required to be prepaid, repurchased, redeemed or defeased prior to its scheduled maturity or that enables or permits (with all applicable grace periods in respect of such event or condition under the documentation

 

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representing such Material Indebtedness having expired) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf, or, in the case of any Hedging Agreement, the applicable counterparty, to cause such Material Indebtedness to become due, or to terminate such Material Indebtedness or require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to (i) any secured Indebtedness that becomes due as a result of the voluntary sale, transfer or other disposition of the assets securing such Indebtedness (to the extent such sale, transfer or other disposition is not prohibited under this Agreement) or (ii) any Indebtedness that becomes due as a result of a voluntary refinancing thereof permitted under Section 6.01;

(h) a proceeding shall have been instituted or a petition filed in respect of Holdings, the Borrower or any Material Subsidiary:

(i) seeking to have an order for relief entered in respect of such Person, or seeking a declaration or entailing a finding that such Person is insolvent or a similar declaration or finding, or seeking dissolution, winding-up, revocation or forfeiture of charter or Memorandum and Articles of Association, liquidation, reorganization, arrangement, adjustment, composition or other relief or protection with respect to such Person, its assets or its debts under any law relating to bankruptcy, insolvency, receivership, relief of debtors or protection of creditors, termination of legal entities or any other similar law now or hereafter in effect (including, with respect to any Dutch Loan Party, any bankruptcy ( faillissement ), suspension of payments ( surseance van betaling ), administration ( onderbewindstelling ), dissolution ( ontbinding ) and any other event whereby the relevant Loan Party is limited in the right to dispose of its assets), or

(ii) seeking appointment of a receiver, trustee, custodian, liquidator, assignee, sequestrator, administrator or other similar official for such Person or for all or any substantial part of its property,

and such proceeding or petition shall remain undismissed for a period of 60 consecutive days or an order or decree approving any of the foregoing shall be entered;

(i) Holdings, the Borrower or any Material Subsidiary shall voluntarily suspend transaction of its business generally or as a whole, shall make a general assignment for the benefit of creditors, shall institute a proceeding described in clause (h)(i) above (other than in respect of any liquidation permitted under Section 6.03(a)(iv)) or shall consent to or fail to contest in a timely and appropriate manner any order or decree described therein, shall institute a proceeding described in clause (h)(ii) above or shall consent to any such appointment or to the taking of possession by any such official of all or any substantial part of its property, shall file an answer admitting the material allegations of a petition filed against it in any proceeding described in clause (h) above, shall dissolve, wind-up or liquidate itself or any substantial part of its property or shall take any action in furtherance of any of the foregoing;

 

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(j) any of the following shall have occurred: (i) prior to the consummation of the Spin-Off, any Person other than Alcoa or any of its wholly owned Subsidiaries shall have acquired ownership, directly or indirectly, beneficially or of record, of any Equity Interests in Holdings or the Borrower or (ii) after the consummation of the Spin-Off, (A) any Person other than Holdings (other than any Permitted Holdings Successor) shall have acquired ownership, directly or indirectly, beneficially or of record, of any Equity Interests in the Borrower, (B) any Person or group of persons shall have acquired ownership, directly or indirectly, beneficially or of record, of more than 35% of the outstanding Voting Stock of Holdings (within the meaning of Section 13(d) or 14(d) of the Exchange Act and the applicable rules and regulations thereunder), provided , however , that this subclause (ii)(B) shall not include any transaction where (x) Holdings becomes a direct or indirect wholly owned subsidiary of a holding company, and (y) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of Holding’s Voting Stock immediately prior to that transaction, (C) during any period of 25 consecutive months commencing after the Spin-Off Date, individuals who at the beginning of such 25 month period were directors of Holdings (together with any replacement or additional directors whose election was recommended by, approved by or who were elected by a majority of directors then in office) cease to constitute a majority of the Board of Directors of Holdings or (D) the occurrence of any “change in control” (or similar event, however denominated) with respect to Holdings or the Borrower under and as defined in any indenture or other agreement or instrument evidencing, governing the rights of the holders of, or otherwise relating to, any Material Indebtedness of Holdings, the Borrower or any Restricted Subsidiary or any certificate of designations (or other provision of the organizational documents of Holdings) relating to, or any other agreement governing the rights of the holders of, any preferred Equity Interests;

(k) an ERISA Event or ERISA Events shall have occurred that, when taken together with all other ERISA Events that have occurred, would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect;

(l) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against Holdings, the Borrower or any Restricted Subsidiary or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor or creditors holding judgments which in the aggregate exceed $100,000,000 to attach or levy upon assets or properties of Holdings, the Borrower or any Restricted Subsidiary to enforce any such judgment;

(m) any Lien purported to be created under any Security Document shall fail or cease to be a valid and perfected Lien on any material portion of the Collateral (or asset purported to be Collateral under the Security Documents), with the priority required by the applicable Security Document, or any Loan Party shall so state in writing, except as a result of (i) a sale, transfer or disposition of the applicable Collateral or asset in a transaction permitted under the Loan Documents, (ii) the release thereof as provided in the applicable Security Document or Section 9.19 or (iii) the Administrative

 

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Agent’s failure to (A) maintain possession of any stock certificate, promissory note or other instrument delivered to it under the Collateral Agreement or (B) file Uniform Commercial Code continuation statements;

(n) any material Guarantee purported to be created under any Loan Document shall for any reason fail or cease to be in full force and effect, or any Loan Party shall so state in writing, except as a result of the release thereof as provided in the applicable Loan Document or Section 9.19; or

(o) any provision of any Loan Document (other than any Guarantee or Lien purported to be created under any Loan Document in favor of the Secured Parties) after delivery thereof shall for any reason fail or cease to be valid and binding on, or enforceable against, any Loan Party, or any Loan Party shall so state in writing, but only if such events or circumstances, individually or in the aggregate, result in a Material Adverse Effect;

then, and in every such event (other than an event described in paragraph (h) or (i) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by written notice to Holdings and the Borrower, take any or all of the following actions, at the same or different times and in any order the Administrative Agent elects consistent with the other provisions of this Agreement including Section 9.26 : (i) terminate the Commitments, whereupon the obligation of each Lender to make any Loan shall immediately terminate, (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued fees and all other liabilities accrued hereunder by the Borrower, shall become forthwith due and payable, and (iii) require the deposit of cash collateral in respect of Letter of Credit Obligations as provided in the last paragraph of this Section, in each case without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by each of Holdings and the Borrower, anything contained herein to the contrary notwithstanding; and in any event described in paragraph (h) or (i) above, (x) the Commitment of each Lender to make Loans and the commitments of each Lender and Issuer to participate in Letters of Credit shall each automatically be terminated and (y) the Loans, all such interest and all such fees and other liabilities shall automatically become and be due and payable and the deposit of such cash collateral in respect of Letter of Credit Obligations shall immediately and automatically become due, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by each of Holdings and the Borrower, anything contained herein to the contrary notwithstanding.

In addition to any other rights and remedies granted to the Administrative Agent, the Issuers and the Lenders in the Loan Documents, the Administrative Agent, on behalf of the Issuers, the Lenders and the other Secured Parties, may exercise all rights and remedies of a secured party under the New York Uniform Commercial Code or any other applicable law and enforce all rights and remedies as it may elect under the Security Documents. Without limiting the generality of the foregoing, the Administrative Agent,

 

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without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Loan Party or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, or consent to the use by any Loan Party of any cash collateral arising in respect of the Collateral on such terms as the Administrative Agent deems reasonable, and/or may forthwith sell, lease, assign, give an option or options to purchase or otherwise dispose of and deliver, or acquire by credit bid on behalf of the Issuers, the Lenders and the other Secured Parties, the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent, any Issuer, any Lender or elsewhere, upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery, all without assumption of any credit risk. The Administrative Agent, any Issuer, any Lender and any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Loan Party, which right or equity is hereby waived and released. Each Loan Party further agrees, at the Administrative Agent’s request, to assemble the Collateral, to the extent practical and feasible, and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Loan Party’s premises or elsewhere. Subject in all cases to Section 9.26, the Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Article VII, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any other way relating to the Collateral or the rights of the Administrative Agent, the Issuers and the Lenders hereunder, including reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the obligations of the Loan Parties under the Loan Documents, in such order as the Administrative Agent may elect, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including Section 9-615(a)(3) of the New York Uniform Commercial Code, need the Administrative Agent account for the surplus, if any, to any Loan Party. To the extent permitted by applicable law, each Loan Party waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

At any time and from time to time (i) upon and after the Latest Maturity Date, (ii) as may be required by Section 2.11(b), Section 2.11(d), Section 2.21(d) or Section 2.23(a) (“ Reallocation of Defaulting Lender Commitment ”) or (iii) if an Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this paragraph, the relevant Applicant shall pay to the Administrative Agent in immediately available funds, for deposit in a cash collateral account maintained with the Administrative Agent, the amount required so that, after

 

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such payment, the aggregate funds on deposit in such cash collateral accounts at any time equals or exceeds 103% of the Dollar Equivalent of all outstanding Letter of Credit Obligations, including any accrued and unpaid interest thereon (or, with respect to the foregoing clause (ii), such other amount as may be expressly provided for in the applicable Section); provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the relevant Applicant described in clause (h) or (i) of Article VII. Each such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the relevant Applicant under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the relevant Applicant’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Notwithstanding the terms of any Security Document, subject to Section 9.26, moneys in such account shall be applied by the Administrative Agent to the payment of any amounts as shall have become or shall become due and payable by an Applicant to any Issuer or Lender in respect of its respective Letter of Credit Obligations or, if the maturity of the Loans has been accelerated (but subject to (i) the consent of the Required Lenders and (ii) in the case of any such application at a time when any Lender is a Defaulting Lender (but only if, after giving effect thereto, the remaining cash collateral shall be less than the aggregate Letter of Credit Obligations of all the Defaulting Lenders), the consent of each Issuer), be applied to satisfy other obligations of the Borrower under this Agreement. The Administrative Agent shall promptly give written notice of any such application to the relevant Applicant and the Borrower; provided , however , that the failure to give such written notice shall not invalidate any such application. If an Applicant is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Applicant within three Business Days after all Events of Default have been cured or waived. If an Applicant is required to provide an amount of cash collateral hereunder pursuant to Section 2.11(b), Section 2.11(d) or Section 2.21(d), such amount (to the extent not applied as aforesaid) shall be returned to such Applicant to the extent that, after giving effect to such return, the Revolving Credit Outstandings would not exceed the Total Commitment and no Event of Default shall have occurred and be continuing. If an Applicant is required to provide an amount of cash collateral hereunder pursuant to Section 2.23(a) , such amount (to the extent not applied as aforesaid) shall be returned to such Applicant as promptly as practicable to the extent that, after giving effect to such return, no Issuer shall have any exposure in respect of any outstanding Letter of Credit that is not fully covered by the Commitments of the Non-Defaulting Lenders and/or the remaining cash collateral and no Event of Default shall have occurred and be continuing.

 

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ARTICLE VIII

THE ADMINISTRATIVE AGENT

SECTION 8.01. Authorization and Action . (a) Each Lender and each Issuer hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors to serve as the administrative agent and collateral agent under the Loan Documents and each Lender and each Issuer authorizes the Administrative Agent to take such actions as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than the United States, each of the Lenders and the Issuers hereby grants to the Administrative Agent any required powers of attorney to execute and enforce any Security Document governed by the laws of such jurisdiction on such Lender’s or such Issuer’s behalf. Without limiting the foregoing, each Lender and each Issuer hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents.

(b) As to any matters not expressly provided for by this Agreement and the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, pursuant to the terms in the Loan Documents), and such instructions shall be binding upon all Lenders and each Issuer; provided , however , that the Administrative Agent shall not be required to take any action that (i) the Administrative Agent in good faith believes exposes it to liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders and the Issuers with respect to such action or (ii) is contrary to this Agreement or any other Loan Document or applicable law including any action that may be in violation of the automatic stay under any requirement of law relating to bankruptcy, insolvency or reorganization or relief of debtors or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any requirement of law relating to bankruptcy, insolvency or reorganization or relief of debtors. Except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to Holdings, the Borrower, any Subsidiary or any other Affiliate of any of the foregoing that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity.

(c) In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders and the Issuers (except in limited circumstances expressly provided for herein relating to the maintenance of the Register), and its duties are entirely administrative in

 

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nature. The Administrative Agent does not assume and shall not be deemed to have assumed any obligation other than as expressly set forth herein and in the other Loan Documents or any other relationship as the agent, fiduciary or trustee of or for any Lender, Issuer or holder of any other Secured Obligation, regardless of whether a Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or other implied (or express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties).

(d) The Administrative Agent may perform any of and all 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 of and all their respective duties and exercise their respective rights and powers through their respective Related Parties. The exculpatory provisions of this Article 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. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.

(e) None of the Syndication Agent, any Co-Documentation Agent or any Arranger shall have obligations or duties whatsoever in such capacity under this Agreement or any other Loan Document and shall incur no liability hereunder or thereunder in such capacity, but all such persons shall have the benefit of the indemnities provided for hereunder.

(f) In case of the pendency of any proceeding with respect to any Loan Party under any Federal, State or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent (irrespective of whether the principal of any Loan or any Reimbursement 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 (but not obligated) by intervention in such proceeding or otherwise:

(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, Letter of Credit Obligations and all other Secured Obligations 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 Issuers and the Administrative Agent (including any claim under Sections 2.06 (“ Fees ”), 2.07 (“ Interest on Loans ”), 2.08 (“ Default Interest ”), 2.12 (“ Reserve Requirements; Change in Circumstances ”), 2.18 (“ Taxes ”) and 9.05 (“ Expenses; Indemnity ”)) allowed in such judicial proceeding; and

 

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(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Lender, each Issuer and each other Secured Party to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, the Issuers or the other Secured Parties, to pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including under Section 9.05 (“ Expenses; Indemnity ”)).

(g) The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuers, and, except solely to the extent of the Borrower’s rights to consent pursuant to and subject to the conditions set forth in this Article, none of Holdings, the Borrower or any Subsidiary shall have any rights as a third party beneficiary of any such provisions. 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 Secured Obligations provided under the Loan Documents, to have agreed to the provisions of this Article.

SECTION 8.02. Administrative Agent’s Reliance, Etc. (a) The Administrative Agent shall not be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or the other Loan Documents with the consent of 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 to be necessary, under the circumstances as provided in the Loan Documents) or in the absence of its own gross negligence or willful misconduct (such absence to be presumed unless otherwise determined by a court of competent jurisdiction by a final and nonappealable judgment). The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof (stating that it is a “notice of default”) is given to the Administrative Agent by Holdings, the Borrower, a Lender or an Issuer, and the Administrative Agent 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 any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document or the occurrence of any Default, (iv) the sufficiency, validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or satisfaction of any condition that expressly refers to the matters described therein being acceptable or satisfactory to the Administrative Agent. Notwithstanding anything herein to the contrary, the Administrative Agent shall not be liable for, or be responsible for any loss, cost or expense suffered by Holdings, the Borrower, any Subsidiary, any Lender or any Issuer as a result of, any determination of the Revolving Credit Outstandings, any of the component amounts thereof or any portion thereof attributable to each Lender or Issuer, or any Exchange Rate or Dollar Equivalent.

 

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(b) Without limiting the foregoing, the Administrative Agent (i) may treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 9.04, (ii) may rely on the Register to the extent set forth in Section 2.05 and Section 9.04(b), (iii) may consult with legal counsel (including counsel to Holdings and the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (iv) makes no warranty or representation to any Lender or Issuer and shall not be responsible to any Lender or Issuer for any statements, warranties or representations made by or on behalf of any Loan Party in or in connection with this Agreement or any other Loan Document, (v) 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 Issuer, may presume that such condition is satisfactory to such Lender or Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or Issuer sufficiently in advance of the making of such Loan or the Issuance of such Letter of Credit and (vi) shall be entitled to rely on and shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which writing may be a fax, any electronic message, Internet or intranet website posting or other distribution) or any statement made to it orally or by telephone and believed by it to be genuine and signed or sent or otherwise authenticated by the proper party or parties (whether or not such Person in fact meets the requirements set forth in the Loan Documents for being the maker thereof).

SECTION 8.03. Posting of Communications . (a) Each of Holdings and the Borrower agrees that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders and the Issuers by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or a substantially similar electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “ Approved Electronic Platform ”).

(b) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, each of the Issuers and each of Holdings and the Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. Each of the Lenders, each of the Issuers and each of Holdings and the Borrower hereby approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.

 

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(c) THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, 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 THE APPLICABLE PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, ANY ARRANGER, ANY CO-DOCUMENTATION AGENT, THE SYNDICATION AGENT OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY, “ APPLICABLE PARTIES ”) HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER, ANY ISSUER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.

(d) Each Lender and each Issuer agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender and Issuer agrees (i) to notify the Administrative Agent in writing (including by electronic communication) from time to time of such Lender’s or Issuer’s (as applicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.

(e) Each of the Lenders, each of the Issuers and each of Holdings and the Borrower agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.

(f) Nothing herein shall prejudice the right of the Administrative Agent, any Lender or any Issuer to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.

SECTION 8.04. The Administrative Agent Individually . With respect to its Ratable Portion, the Person serving as the Administrative Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender or Issuer. The terms

 

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Issuers ”, “ Lenders ”, “ Required Lenders ” and any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity as a Lender, Issuer or as one of the Required Lenders. The Person serving as the Administrative Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust or other business with, Holdings, the Borrower or any Subsidiary or any other Affiliate of any of the foregoing as if such Person were not acting as the Administrative Agent and without any duty to account therefor to the Lenders or the Issuers.

SECTION 8.05. [Reserved].

SECTION 8.06. Successor Administrative Agent . (a) The Administrative Agent may resign at any time by giving 30 days’ prior written notice thereof to the Lenders, the Issuers and the Borrower, whether or not a successor Administrative Agent has been appointed. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuers, appoint a successor Administrative Agent, which shall be a bank with an office in New York, New York or an Affiliate of any such bank selected from among the Lenders. In either case, such appointment shall be subject to the prior written approval of the Borrower (which approval may not be unreasonably withheld and shall not be required while an Event of Default has occurred and is continuing). Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Administrative Agent. Upon the acceptance of appointment as Administrative Agent by a successor Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. Prior to any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring Administrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents.

(b) Notwithstanding paragraph (a) of this Section, in the event no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its resignation to the Lenders, the Issuers and the Borrower, whereupon, on the date of effectiveness of such resignation stated in such notice, (i) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents; provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under any Security Document for the benefit of the Secured Parties, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Secured Parties, remain a party

 

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to each Security Document and any other Loan Document creating a parallel debt as referred to in Section 8.07, and continue to be entitled to the rights and bound to the obligations set forth in such Security Document and Loan Document, and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this Section (it being understood and agreed that the retiring Administrative Agent shall have no duty or obligation to take any further action under any Security Document, including any action required to maintain the perfection of any such security interest other than is necessary to give effect to the parallel debt undertaking included in any Loan Document), and (ii) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided that (A) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (B) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall also directly be given or made to each Lender and each Issuer. Following the effectiveness of the Administrative Agent’s resignation from its capacity as such, the provisions of this Article and Section 9.05 (“ Expenses; Indemnity ”), as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, 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 resigned Administrative Agent was acting as Administrative Agent and in respect of the matters referred to in the proviso under clause (i) above.

(c) For purposes of any Security Document governed by the laws of the Netherlands or any other right of pledge governed by the laws of the Netherlands, any resignation by the Administrative Agent shall not be effective with respect to its rights under the Parallel Debts (as defined in the Guarantee Agreement) until all rights and obligations under the Parallel Debts have been assigned to and assumed by the successor Administrative Agent.

SECTION 8.07. Parallel Debt . The Administrative Agent is hereby authorized to execute and deliver any documents necessary or appropriate to create and perfect any Security Document governed by the laws of the Netherlands or any other right of pledge governed by the laws of the Netherlands for the benefit of the Secured Parties (a “ Dutch Security Document ”). Without prejudice to the provisions of this Agreement and the other Loan Documents, the parties hereto acknowledge and agree to the creation of parallel debt obligations with respect to any Loan Party which agrees to provide security pursuant to a Dutch Security Document.

SECTION 8.08. Acknowledgements of Lenders and Issuers . (a) Each Lender and each Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent, any Arranger or any other Lender or Issuer, or any of the Related Parties of any of the foregoing, 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 Issuer also acknowledges that it will, independently

 

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and without reliance upon the Administrative Agent, any Arranger or any other Lender or Issuer, or any of the Related Parties of any of the foregoing, 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.

(b) Each Lender, by delivering its signature page to this Agreement on the Effective Date and by funding its Loans on the Initial Funding Date, or delivering its signature page to an Assignment and Assumption or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders on the Effective Date or the Initial Funding Date.

SECTION 8.09. Collateral Matters . (a) Except with respect to the exercise of setoff rights in accordance with Section 9.06 (“ Right of Setoff ) or with respect to a Secured Party’s right to file a proof of claim in an insolvency proceeding, no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Secured Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Administrative Agent on behalf of the Secured Parties in accordance with the terms thereof.

(b) In furtherance of the foregoing and not in limitation thereof, no arrangements in respect of Cash Management Services the obligations under which constitute Secured Cash Management Obligations and no Hedging Agreement the obligations under which constitute Secured Hedging Obligations, will create (or be deemed to create) in favor of any Secured Party that is a party thereto any rights in connection with the management or release of any Collateral or of the obligations of any Loan Party under any Loan Document. By accepting the benefits of the Collateral, each Secured Party that is a party to any such arrangement in respect of Cash Management Services or Hedging Agreement, as applicable, shall be deemed to have appointed the Administrative Agent to serve as administrative agent and collateral agent under the Loan Documents and agreed to be bound by the Loan Documents as a Secured Party thereunder, subject to the limitations set forth in this paragraph.

(c) The Secured Parties irrevocably authorize the Administrative Agent, at its option and in its discretion, 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 6.02(a)(iv). The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders or any other Secured Party for any failure to monitor or maintain any portion of the Collateral.

 

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SECTION 8.10. Credit Bidding . The Secured Parties hereby irrevocably authorize the Administrative Agent, at the direction of the Required Lenders, to credit bid all or any portion of the Secured Obligations (including by accepting some or all of the Collateral in satisfaction of some or all of the Secured Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (a) at any sale thereof conducted under the provisions of the Bankruptcy Code, including under Sections 363, 1123 or 1129 of the Bankruptcy Code, or any similar laws in any other jurisdictions to which a Loan Party is subject, or (b) at any other sale, foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with any applicable law. In connection with any such credit bid and purchase, the Secured Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid by the Administrative Agent at the direction of the Required Lenders on a ratable basis (with Secured Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that shall vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) for the asset or assets so purchased (or for the equity interests or debt instruments of the acquisition vehicle or vehicles that are issued in connection with such purchase). In connection with any such bid, (i) the Administrative Agent shall be authorized to form one or more acquisition vehicles and to assign any successful credit bid to such acquisition vehicle or vehicles, (ii) each of the Secured Parties’ ratable interests in the Secured Obligations which were credit bid shall be deemed without any further action under this Agreement to be assigned to such vehicle or vehicles for the purpose of closing such sale, (iii) the Administrative Agent shall be authorized to adopt documents providing for the governance of the acquisition vehicle or vehicles ( provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or equity interests thereof, shall be governed, directly or indirectly, by, and the governing documents shall provide for, control by the vote of the Required Lenders or their permitted assignees under the terms of this Agreement or the governing documents of the applicable acquisition vehicle or vehicles, as the case may be, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Required Lenders contained in Section 9.08 of this Agreement), (iv) the Administrative Agent on behalf of such acquisition vehicle or vehicles shall be authorized to issue to each of the Secured Parties, ratably on account of the relevant Secured Obligations which were credit bid, interests, whether as equity, partnership, limited partnership interests or membership interests, in any such acquisition vehicle and/or debt instruments issued by such acquisition vehicle, all without the need for any Secured Party or acquisition vehicle to take any further action, and (v) to the extent that Secured Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Secured Obligations assigned to the acquisition vehicle exceeds the amount of Secured Obligations credit bid by the acquisition vehicle or otherwise), such Secured Obligations shall automatically be reassigned to the Secured Parties pro rata with their original interest in such Secured Obligations and the equity interests and/or debt

 

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instruments issued by any acquisition vehicle on account of such Secured Obligations shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action. Notwithstanding that the ratable portion of the Secured Obligations of each Secured Party are deemed assigned to the acquisition vehicle or vehicles as set forth in clause (ii) above, each Secured Party shall execute such documents and provide such information regarding the Secured Party (and/or any designee of the Secured Party which will receive interests in or debt instruments issued by such acquisition vehicle) as the Administrative Agent may reasonably request in connection with the formation of any acquisition vehicle, the formulation or submission of any credit bid or the consummation of the transactions contemplated by such credit bid.

ARTICLE IX

MISCELLANEOUS

SECTION 9.01. Notices . (a)  General. Except as provided in paragraph (b) of this Section, notices and other communications provided for herein shall (unless deemed to have been delivered in accordance with Section 5.01 or unless expressly permitted to be given by telephone) be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by fax as follows:

(i) if to Holdings or the Borrower, to it at 390 Park Avenue, New York, New York 10022-4608, Attention of Vice President & Treasurer (Fax No.: 212-836-2807; email: [omitted]);

(ii) if to JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent, to it at 500 Stanton Christiana Road, Ops Building 2, 3rd Floor, Newark, DE 19713-2107, Attention: Rea Seth (Fax No.: 302-634-4250; email: rea.n.seth@jpmorgan.com), with a copy to JPMorgan Chase Bank, N.A., 383 Madison Avenue, New York, New York 10179, Attention: James Shender (Fax No.: 212-270-5100);

(iii) if to J.P. Morgan Europe Limited, in its capacity as Administrative Agent, to J.P. Morgan Europe Limited, Loans Agency 6th Floor, 25 Bank Street, Canary Wharf, London E14 5JP, United Kingdom, Attention: Loans Agency (Fax No.: +44 20 7777 2360; email: loan_and_agency_london@jpmorgan.com );

(iv) if to JPMorgan Chase Bank, N.A. in its capacity as an Issuer, to it at 10420 Highland Manor Dr., 4th Floor, Tampa, Florida 33610-9120, Attention: Global Trade Services (Fax No.: (813) 432-5161); and

(v) if to any other Issuer, to it at its address (or fax number) most recently specified by it in a notice delivered to the Administrative Agent, Holdings and the Borrower (or, in the absence of any such notice, to the address (or fax number) set forth in the Administrative Questionnaire of the Lender that is serving as such Issuer or is an Affiliate thereof);

 

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(vi) if to any other Lender, to it at its address (or fax number) set forth in the applicable Administrative Questionnaire.

Any party may subsequently change its notice address or fax number by written notice to the other parties as herein provided.

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 fax shall be deemed to have been given when sent (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); and notices and other communications delivered through electronic communications, to the extent provided in paragraph (b) of this Section, shall be effective as provided in such paragraph. Any notice given to Holdings or the Borrower shall be deemed to have been duly given to both at the same time and in the same manner.

(b) Electronic Communications . Notices and other communications to the Lenders and Issuers hereunder may be delivered or furnished by electronic communications (including email and Internet and intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II to any Lender or Issuer if such Lender or Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication and the Administrative Agent has informed Holdings and the Borrower thereof. The Administrative Agent, Holdings 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 or rescinded by any such Person by notice to each other such Person.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an email address shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return email or other written acknowledgment) and (ii) notices and other communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its email address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefore; provided that, for both clauses (i) and (ii) above, 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.

SECTION 9.02. Survival of Agreement . All covenants, agreements, representations and warranties made by the Loan Parties herein and in the other Loan Documents 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

 

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considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the other Loan Documents and the making by the Lenders of the Loans and the Issuers’ Issuance of Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Arranger, the Syndication Agent, any Co-Documentation Agent, any Issuer, any Lender or any Affiliate of any of the foregoing may have had notice or knowledge of any Default or incorrect representation or warranty at the time this Agreement or any other Loan Document is executed and delivered or any credit is extended hereunder, and shall continue in full force and effect as long as any Loan Document Obligation remains outstanding and unpaid and so long as the Commitments have not been terminated. Notwithstanding anything else to the contrary set forth in this Agreement or any other Loan Document, in the event that, in connection with the refinancing or repayment in full of the credit facilities provided for herein, an Issuer shall have provided to the Administrative Agent a written consent to the release of the Lenders from their obligations hereunder with respect to any Letter of Credit issued by such Issuer (whether as a result of the obligations of the Borrower (and any other account party) in respect of such Letter of Credit having been collateralized in full by a deposit of cash with such Issuer, or being supported by a letter of credit that names such Issuer as the beneficiary thereunder, or otherwise), then from and after such time such Letter of Credit shall cease to be a “Letter of Credit” outstanding hereunder for all purposes of this Agreement and the other Loan Documents, and the Lenders shall be deemed to have no participations in such Letter of Credit, and no obligations with respect thereto, under Section 2.22(g) ( Participations) or Section 2.22(h) ( Reimbursements) . Each Issuer agrees to provide such written consent with respect to any Letter of Credit that, in connection with the refinancing or repayment in full of the credit facilities provided for herein, has been collateralized in full by a deposit of cash with such Issuer. The provisions of Section 2.12 ( Reserve Requirements; Change in Circumstances) , Section 2.14 ( Indemnity) , Section 2.18 ( Taxes) , clause (iii) of Section 2.23(a) (“ Reallocation of Defaulting Lender Commitment ”), Section 9.05 ( Expenses; Indemnity ) and Article VIII ( The Administrative Agent ) shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment or prepayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

SECTION 9.03. Binding Effect . (a) Except as provided in Section 4.01 and Section 4.02, 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 which, when taken together, bear the signatures of all the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by fax, emailed pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement.

(b) The words “execution”, “signed”, “signature”, “delivery” and words of like import in or relating to any document to be signed in connection with this Agreement or any other Loan Document and the transactions contemplated hereby shall

 

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be deemed to include Electronic Signatures, deliveries 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, physical delivery thereof 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.

SECTION 9.04. Successors and Assigns . (a)  General. 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 (i) neither Holdings nor the Borrower may assign, delegate or otherwise transfer any of their rights or obligations hereunder without the prior written consent of the Administrative Agent, each Lender and each Issuer (and any attempted assignment, delegation or transfer by Holdings or the Borrower without such consent shall be null and void) and (ii) no Lender or Issuer may assign, delegate or otherwise transfer its rights or obligations hereunder except in accordance with this Section. 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 paragraph (c) of this Section), the Arrangers, the Syndication Agent, the Co-Documentation Agents and, to the extent expressly contemplated hereby, the sub-agents of the Administrative Agent and the Related Parties of each of the Administrative Agent, the Lenders and the Issuers) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign and delegate to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its rights and obligations with respect to its Commitment, the Loans and the Letters of Credit) with the prior written consent (such consent not to be unreasonably withheld, conditioned or delayed) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender that is an Approved Bank, an Approved Fund (as defined below) or, if an Event of Default under clause (a), (b), (h) or (i) of Article VII has occurred and is continuing, for any other assignment or delegation; provided , further , that the Borrower shall be deemed to have consented to any such assignment and delegation unless it shall object thereto by written notice to the Administrative Agent within ten Business Days after having received written notice thereof; and

(B) the Administrative Agent and, to the extent such assignment would increase the assignee’s obligation under Section 2.22(g) to participate in Letters of Credit, each Issuer.

 

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(ii) Assignments and delegations shall be subject to the following conditions:

(A) except in the case of an assignment and delegation to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment and delegation of the entire remaining amount of the assigning Lender’s Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment and delegation (determined as of the trade date specified in the Assignment and Assumption with respect to such assignment and delegation or, if not trade date is so specified, as of the date the Assignment and Assumption with respect to such assignment and delegation is delivered to the Administrative Agent) shall not be less than $5,000,000 or an integral multiple thereof, unless each of the Borrower and the Administrative Agent otherwise consents (such consent not to be unreasonably withheld, conditioned or delayed), provided that no such consent of the Borrower shall be required if an Event of Default under clause (a), (b), (h) or (i) of Article VII has occurred and is continuing;

(B) each partial assignment and delegation shall be made as an assignment and delegation of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided , that (1) the Administrative Agent may, in its sole discretion, elect to waive such fee in the case of any assignment and (2) with respect to any assignment and delegation pursuant to Section 2.19 (“ Assignment of Loans and Commitments Under Certain Circumstances ”), Section 2.21(c) (“ Extensions of Maturity Date ”) or Section 9.08(c), the parties hereto agree that such assignment and delegation may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and that the Lender required to make such assignment and delegation need not be a party thereto;

(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent any tax forms required by Section 2.18(g) and an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain MNPI) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable law, including Federal, State and foreign securities laws;

(E) such assignee shall not be entitled to receive any greater payment under Section 2.12 ( Reserve Requirements; Change in Circumstances) or 2.14 ( Indemnity) than the applicable assignor would have been entitled to receive, unless the assignment to such assignee is made with the Borrower’s prior written consent or unless the right to a greater payment results from a Change in Law after the assignee becomes a Lender with respect to such assignment; and

(F) such assignee shall be a Person who is a Professional Lender.

 

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(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto with respect to the interests assumed and, to the extent of the interest assigned and delegated under such Assignment and Assumption, have the rights and obligations of a Lender and if such Lender is an Issuer, as Issuer under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned and delegated 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 Lender’s 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 2.12 (“ Reserve Requirements; Change in Circumstances ”), 2.14 (“ Indemnity ) , 2.18 (“ Taxes ) and 9.05 (“ Expenses; Indemnity ”)) and to any fees payable hereunder that have accrued for such Lender’s account but have not yet been paid); provided that, except to the extent otherwise agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender having been a Defaulting Lender. Any assignment, delegation or other transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 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 9.04(c) (“ Participations ) .

(iv) The Administrative Agent shall maintain at its address referred to in Section 9.01 a copy of each Assignment and Assumption delivered to and accepted by it and shall record in the Register the names and addresses of the Lenders and Issuers and the principal amount of the Loans and Reimbursement Obligations owing to each Lender from time to time and the Commitments of each Lender. Any assignment pursuant to this Section 9.04 shall not be effective until such assignment is recorded in the Register.

(v) Upon its receipt of a duly completed Assignment and Assumption (or an agreement incorporating by reference a form of Assignment and Assumption posted on an Approved Electronic Platform) executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder) and any tax forms required by Section 2.18(g), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment to the extent required by paragraph (b) of this Section, the Administrative Agent shall promptly (i) accept such Assignment and Assumption, (ii) record the information contained therein in the Register and (iii) give notice thereof to the Borrower; provided that the Administrative Agent shall not be required to accept such Assignment and Assumption or so record the information contained therein if the Administrative Agent has not received any written consent required by this Section or reasonably believes that such Assignment and Assumption is otherwise not in proper form, it being acknowledged that the Administrative Agent shall have no duty or obligation (and shall incur no liability) with respect to obtaining

 

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(or confirming the receipt) of any such written consent or with respect to the form of (or any defect in) such Assignment and Assumption, any such duty and obligation being solely with the assigning Lender and the assignee. No assignment shall be effective for purposes of this Agreement until it has been recorded in the Register as provided in this paragraph and, following such recording, unless otherwise determined by the Administrative Agent (such determination to be made in the sole discretion of the Administrative Agent, which determination may be conditioned on the consent of the assigning Lender and the assignee), shall be effective notwithstanding any defect in the Assignment and Assumption relating thereto. Each assigning Lender and the assignee, by its execution and delivery of an Assignment and Assumption, shall be deemed to have represented to the Administrative Agent that such Assignment and Assumption is otherwise duly completed and in proper form, and each assignee, by its execution and delivery of an Assignment and Assumption, shall be deemed to have represented to the assigning Lender and the Administrative Agent that such assignee is an Eligible Assignee.

(vi) 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 above, 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 the Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable 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, the Issuer and each other Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full Ratable Portion of all Loans and participations in Letters of Credit. Notwithstanding the foregoing, in the event that any assignment of rights of any Defaulting Lender hereunder becomes effective under applicable law without compliance with the provisions of this clause (vi), then the assignee of such interest will be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

(c) Participations. (i) Any Lender may, without the consent of the Borrower, the Administrative Agent or any Issuer, sell participations to one or more Eligible Assignees (a “ Participant ”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its rights and obligations with respect to its Commitment, the Loans and Letters of Credit); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) Holdings, the Borrower, the Administrative Agent, the other Lenders and the Issuers shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement or any other Loan

 

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Document. 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 and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the proviso to Section 9.08(b) that directly and adversely affects such Participant or requires the approval of all the Lenders. Subject to paragraph (c)(ii) of this Section, Holdings and the Borrower agree that each Participant shall be entitled to the benefits of Sections 2.12 ( Reserve Requirements; Change in Circumstances) , 2.14 ( Indemnity) and 2.18 ( Taxes) (subject to the requirements and the limitations therein, including the requirements under Section 2.18(g) (it being understood and agreed that the documentation required under Section 2.18(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment and delegation pursuant to paragraph (b) of this Section, provided that such Participant agrees to be subject to the provisions of Sections 2.15 (“ Pro Rata Treatment ”) and 2.20 (“ Mitigation ”). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.06 (“ Right of Setoff ”) as though it were a Lender, provided such Participant agrees to be subject to Section 2.16 (“ Sharing of Setoffs ”) as though it were a Lender. 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 amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement or any other Loan Document (the “ Participant Register ”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under this Agreement or any other Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. 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. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.12 ( Reserve Requirements; Change in Circumstances) , 2.14 ( Indemnity) or 2.18 ( Taxes) than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent or unless the right to a greater payment results from a Change in Law after the Participant becomes a Participant with respect to such participation.

(d) 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 to secure obligations of such Lender, including any pledge or assignment to secure obligations to a

 

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Federal Reserve Bank or other central banking authority, and the other provisions of this Section 9.04 shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.05. Expenses; Indemnity . (a) Holdings and the Borrower shall upon demand pay or reimburse (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, any Arranger, the Syndication Agent, any Co-Documentation Agent and their respective Affiliates, including the reasonable and documented fees, charges and disbursements of counsel for any of the foregoing (limited to one single firm of local counsel in each relevant jurisdiction), in connection with the structuring, arrangement and syndication of the credit facilities provided for herein, as well as the preparation, negotiation, execution, delivery and administration of this Agreement, the other Loan Documents or any waiver, amendments or modifications of the provisions hereof or thereof, (ii) all reasonable and documented out-of-pocket expenses incurred by any Issuer in connection with the Issuance of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, the Arranger, any Issuer or any Lender, including the reasonable and documented fees, charges and disbursements of any counsel (limited to one single firm of local counsel in each relevant jurisdiction), for any of the foregoing, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit Issued hereunder, including all such reasonable and documented out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) Holdings and the Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, each Issuer, the Syndication Agent, each Co-Documentation Agent and each Arranger and each Related Party of any of the foregoing (each, an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all claims, damages, losses, liabilities, penalties and related expenses, including the reasonable and documented fees, charges and disbursements of one firm of counsel for all such Indemnitees, taken as a whole, and, if necessary, of a single firm of local counsel in each appropriate jurisdiction (which may include a single firm of special counsel acting in multiple jurisdictions) for all such Indemnitees, taken as a whole (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, of another firm of counsel for such affected Indemnitee and, if necessary, of a single firm of local counsel in each appropriate jurisdiction (which may include a single firm of special counsel acting in multiple jurisdictions) for such affected Indemnitee)) of any such Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with or as a result of (i) the structuring, arrangement and syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement, the other Loan Documents or any other agreement or instrument contemplated hereby or thereby, the performance by the parties to this Agreement or the other Loan Documents of their respective obligations hereunder or

 

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thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by any 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 or Release of Hazardous Materials on, at, to or from any Mortgaged Property or any other property currently or formerly owned or operated by Holdings, the Borrower or any Subsidiary, or any other Environmental Liability related in any way to Holdings, the Borrower or any Subsidiary 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 and whether initiated against or by any party to this Agreement or any other Loan Document, any Affiliate of any of the foregoing or any third party (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 (A) are found in a final and non-appealable judgment of a court of competent jurisdiction to have resulted from the willful misconduct or gross negligence of such Indemnitee, (B) result from a claim brought by Holdings, the Borrower or any Subsidiary against such Indemnitee for material breach of such Indemnitee’s obligations under this Agreement or any other Loan Document if Holdings, the Borrower or such Subsidiary has obtained a final and non-appealable judgment in its favor on such claim as determined by a court of competent jurisdiction or (C) result from a proceeding that does not involve an act or omission by Holdings, the Borrower or any of their respective Affiliates and that is brought by an Indemnitee against any other Indemnitee (other than a proceeding that is brought against the Administrative Agent or any Arranger in its capacity or in fulfilling its roles as an agent or arranger hereunder or any similar role with respect to the Indebtedness incurred or to be incurred hereunder). This paragraph shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.

(c) To the extent that Holdings and the Borrower fail to indefeasibly pay any amount required to be paid by them under paragraph (a) or (b) of this Section to the Administrative Agent (or any sub-agent thereof), any Issuer or any Related Party of any of the foregoing (and without limiting their obligation to do so), each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), such Issuer or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood and agreed that the Borrower’s failure to pay any such amount shall not relieve the Borrower of any default in the payment thereof); 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 such sub-agent) or such 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 any Issuer in connection with such capacity. For purposes of this Section, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the aggregate Revolving Credit Outstandings and unused Commitments, in each case at that time (or most recently outstanding and in effect). The obligations of the Lenders under this paragraph are subject to the first sentence of Section 2.02(a) (which shall apply mutatis mutandis to the Lenders’ obligations under this paragraph).

 

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(d) To the fullest extent permitted by applicable law, neither Holdings nor the Borrower shall assert, or permit any of their respective Affiliates or Related Parties to assert, and each hereby waives, any claim against any Indemnitee (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet), except to the extent such damages are found in a final and non-appealable judgment of a court of competent jurisdiction to have resulted from bad faith, willful misconduct or gross negligence of such Indemnitee or (ii) 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 or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.

(e) The provisions of this Section 9.05 and any other indemnification or other protection provided to any Indemnitee pursuant to this Agreement shall (i) remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment in full of the Secured Obligations, the invalidity or unenforceability of any term or provision of this Agreement, or any investigation made by or on behalf of the Administrative Agent or any Lender or Issuer, and (ii) inure to the benefit of any Person that was at the time such claim arose an Indemnitee under this Agreement or any other Loan Document. The Administrative Agent, each Lender and each Issuer agrees to use commercially reasonable efforts to promptly notify the Borrower of any claims for indemnification or other protection under this Section 9.05; provided , however , that any failure by such Person to deliver any such notice shall not relieve Holdings or the Borrower from its obligations under this Section 9.05. All amounts due under this Section 9.05 shall be payable on written demand therefor, but shall be subject to the requirements of reasonableness and documentation, if applicable, as set forth herein.

SECTION 9.06. Right of Setoff . Subject in all cases to Section 9.26, if an Event of Default shall have occurred and be continuing, each Lender and each Issuer, and each Affiliate of any of the foregoing, 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) or other amounts at any time held and other obligations (in whatever currency) at any time owing by such Lender or such Issuer or their respective Affiliates to or for the credit or the account of Holdings or the Borrower against any of and all the obligations of Holdings or the Borrower now or hereafter existing under this Agreement held by such Lender or such Issuer, irrespective of whether or not such Lender or such Issuer shall have made any demand under this Agreement or otherwise and although such obligations are owed to a branch, office or Affiliate of such Lender or Issuer different from the branch, office or Affiliate holding such deposit or obligated on such Indebtedness. The rights of each Lender, each Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender,

 

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such Issuer and any such Affiliate may have; provided , however , that in the event that any Defaulting Lender exercises any such right of setoff (i) all amounts so set off will be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.23, and, pending such payment, will be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuers and the Lenders and (ii) the Defaulting Lender will provide promptly to the Administrative Agent a statement describing in reasonable detail the Secured Obligations owing to such Defaulting Lender as to which it exercised such rights of setoff. Each Lender and each Issuer agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender or such Issuer, as applicable, or its Affiliates; provided , however , that the failure to give or any delay in giving such notice shall not affect the validity of such setoff and application.

SECTION 9.07. Applicable Law . (a) THIS AGREEMENT AND ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION.

(b) Notwithstanding paragraph (a) of this Section, if any Dutch Loan Party is represented by an attorney in connection with the signing and/or execution of this Agreement (including by way of accession to this Agreement), any other Loan Document, or any other agreement, deed or document referred to in, or made pursuant to, any Loan Document, it is hereby expressly acknowledged and accepted by the other parties to this Agreement that the existence and extent of the attorney’s authority and the effects of the attorney’s exercise or purported exercise of his or her authority shall be governed by the laws of the Netherlands.

SECTION 9.08. Waivers; Amendment . (a) No failure or delay of the Administrative Agent, any Lender or any Issuer in exercising any power or right hereunder or under any Loan Document 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, the Lenders and the Issuers hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party 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 specific purpose for which given. Without limiting the generality of the foregoing, the execution and delivery of any Loan Document, the making of a Loan or the Issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuer may have had notice or knowledge of such Default at the

 

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time. No notice or demand on Holdings or the Borrower in any case shall entitle Holdings or the Borrower to any further notice or shall entitle Holdings or the Borrower to notice or demand in similar or other circumstances.

(b) Except as provided in Sections 2.21 and 9.08(c), none of this Agreement, any other Loan Document or any provision hereof or thereof may be waived, amended or modified except, in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by Holdings, the Borrower, the Administrative Agent and the Required Lenders and, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Loan Party or Loan Parties that are parties thereto, in each case with the consent of the Required Lenders; provided , however , that no such agreement shall:

(i) decrease the principal amount of any Loan or Reimbursement Obligation, reduce the rate of interest thereon (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.08 (“ Default Interest ”), which shall only require the consent of the Required Lenders) or reduce any fees payable hereunder (in each case, other than as a result of any change in the definition of the term “Leverage Ratio” or in any component thereof), extend the maturity of any principal payment date, any required date for the reimbursement of any Reimbursement Obligation or any date for the payment of any interest or any fees payable hereunder, or waive or excuse any such payment or any part thereof, or postpone the scheduled date of expiration of any Commitment or Letter of Credit Commitment, without the prior written consent of each Lender affected thereby,

(ii) increase or reduce (in a non-pro rata manner) the Commitment of any Lender without the prior written consent of such Lender,

(iii) release the Borrower from its obligations to repay the principal amount of any Loan or Reimbursement Obligation owing to such Lender (other than by the payment or prepayment thereof) without the prior written consent of such Lender,

(iv) amend or modify (A) the provisions of Section 2.10(c), Section 2.15 (“ Pro Rata Treatment ”) or Section 2.16 (“ Sharing of Setoffs ”) in a manner that would alter the pro rata sharing of payments required thereby, without the prior written consent of each Lender adversely affected thereby or (B) the provisions of this Section or the definitions of “Required Lenders” or “Ratable Portion” (or any other provision of any Loan Document specifying the number or percentage of Lenders required to waive, amend or otherwise modify any rights thereunder or make any determination or grant any consent thereunder), without the prior written consent of each Lender,

(v) amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent,

 

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(vi) amend, modify or otherwise affect the rights or duties of an Issuer under Section 2.22 (including an Issuer’s Letter of Credit Commitment), or otherwise amend, modify or waive any provisions of Section 2.19 or 9.04(b)(i) affecting such Issuer’s right to consent to any allocations or assignments thereof without the prior written consent of such Issuer,

(vii) other than as permitted under the Loan Documents (including any release by the Administrative Agent in connection with any sale or other disposition of any Subsidiary upon the exercise of remedies under the Security Documents), release the Guarantee of Holdings or all or substantially all of the value of the Guarantees provided by the Subsidiary Loan Parties (including, in each case, by limiting liability in respect thereof) created under the Security Documents, in each case without the written consent of each Lender, it being understood and agreed that an amendment or other modification of the type of obligations guaranteed under the Collateral Agreement or any other Security Document shall not be deemed to be a release or limitation of any Guarantee) or

(viii) other than as permitted under the Loan Documents (including any release by the Administrative Agent in connection with any sale or other disposition of the Collateral upon the exercise of remedies under the Security Documents), release all or substantially all the Collateral from the Liens of or under the Security Documents without the written consent of each Lender , it being understood and agreed that an amendment or other modification of the type of obligations secured by the Security Documents shall not be deemed to be a release of the Collateral from the Liens of or under the Security Documents).

Notwithstanding the foregoing,

(i) no consent with respect to any waiver, amendment or other modification of this Agreement or any other Loan Document of the type referred to in the first proviso of this paragraph shall be required of any Lender that receives payment in full of the principal of and interest accrued on each Loan made by, and all other amounts owing to, such Lender or accrued for the account of such Lender under this Agreement and the other Loan Documents at the time such waiver, amendment or other modification becomes effective and whose Commitments terminate by the terms and upon the effectiveness of such waiver, amendment or other modification,

(ii) if the Administrative Agent and the Borrower, acting together, identify any ambiguity, omission, mistake, typographical error or other defect in any provision of this Agreement or any other Loan Document, then the Administrative Agent and the Borrower shall be permitted to amend, modify, or supplement such provision to cure such ambiguity, omission, mistake, typographical error or other defect, and such amendment shall become effective without any further action or consent of any other party to this Agreement or such other Loan Document, as the case may be, so long as, in each case, the Lenders shall have received at least five Business Days prior written notice thereof and the

 

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Administrative Agent shall not have received, within five Business Days of the date of such notice to the Lenders, a written notice from (x) the Required Lenders stating that the Required Lenders object to such amendment or (y) if affected by such amendment, any Issuer stating that it objects to such amendment;

(iii) the Borrower and the Administrative Agent may, without the input or consent of the other Lenders effect changes to any Mortgage as may be necessary or appropriate in the opinion of the Administrative Agent, so long as, in each case, the Lenders shall have received at least five Business Days prior written notice thereof and the Administrative Agent shall not have received, within five Business Days of the date of such notice to the Lenders, a written notice from (x) the Required Lenders stating that the Required Lenders object to such amendment or (y) if affected by such amendment, any Issuer stating that it objects to such amendment;

(iv) the Security Documents executed by Holdings, the Borrower or any Restricted Subsidiaries in connection with this Agreement and the other Loan Documents may be in a form reasonably determined by the Administrative Agent and may be, together with this Agreement, amended and waived with the consent of the Administrative Agent at the request of the Borrower without the need to obtain the consent of any other Lender if such amendment or waiver is delivered in order (i) to comply with local Law or advice of local counsel, (ii) to cure ambiguities or defects, or (iii) to cause the Security Documents to be consistent with this Agreement and the other Loan Documents (including by adding additional parties as contemplated herein or therein), so long as, in each case, the Lenders shall have received at least five Business Days prior written notice thereof and the Administrative Agent shall not have received, within five Business Days of the date of such notice to the Lenders, a written notice from (x) the Required Lenders stating that the Required Lenders object to such amendment or (y) if affected by such amendment, any Issuer stating that it objects to such amendment;

(v) the Borrower and the Administrative Agent may, without the input or consent of the other Lenders, add any Restricted Subsidiary as a Loan Party under the Loan Documents; and

(vi) this Agreement may be amended to provide for the extension of the Maturity Date as provided in Section 2.21, without any additional consents.

(c) In connection with any proposed amendment, modification, waiver or termination (a “ Proposed Change ”) requiring the consent of all Lenders or all affected Lenders, if the consent of the Required Lenders to such Proposed Change is obtained, but the consent to such Proposed Change of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described in paragraph (b) of this Section being referred to as a “ Non-Consenting Lender ”), then, so long as the Lender that is acting as Administrative Agent is not a Non-Consenting Lender, the Borrower may, at its sole expense and effort, upon notice to such Non-Consenting Lender and the

 

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Administrative Agent, require such Non-Consenting Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent and each Issuer, which consent shall not unreasonably be withheld, conditioned or delayed, (ii) such Non-Consenting Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the assignee (in the case of such principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) the Borrower or such assignee shall have paid to the Administrative Agent the processing and recordation fee specified in Section 9.04(b), (iv) such assignment does not conflict with applicable law and (v) the assignee shall have given its consent to such Proposed Change and, as a result of such assignment and delegation and any contemporaneous assignments and delegations and consents, such Proposed Change can be effected.

(d) Notwithstanding anything herein to the contrary, the Administrative Agent may, without the consent of any Secured Party, consent to a departure by any Loan Party from any covenant of such Loan Party set forth in this Agreement, the Collateral Agreement or any other Security Document to the extent such departure is consistent with the authority of the Administrative Agent set forth in the definition of the term “Collateral and Guarantee Requirement”.

(e) The Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute waivers, amendments or other modifications on behalf of such Lender. Any waiver, consent, amendment or modification authorized by this Section, shall be binding upon each Person that is at the time thereof a Lender or Issuer and each Person that subsequently becomes a Lender or Issuer.

(f) Anything herein to the contrary notwithstanding, during such period as a Lender is a Defaulting Lender, to the fullest extent permitted by applicable law, such Lender will not be entitled to vote in respect of amendments and waivers hereunder and the Commitment and the outstanding Loans or other extensions of credit of such Lender hereunder will not be taken into account in determining whether the Required Lenders or all of the Lenders, as required, have approved any such amendment or waiver (and the definition of “ Required Lenders ” will automatically be deemed modified accordingly for the duration of such period); provided , that any such amendment or waiver that would increase or extend the term of the Commitment of such Defaulting Lender, extend the date fixed for the payment of principal or interest owing to such Defaulting Lender hereunder, reduce the principal amount of any obligation owing to such Defaulting Lender, reduce the amount of or the rate or amount of interest on any amount owing to such Defaulting Lender or of any fee payable to such Defaulting Lender hereunder, or alter the terms of this proviso, will require the consent of such Defaulting Lender.

 

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SECTION 9.09. Interest Rate Limitation . Notwithstanding anything herein to the contrary, and subject in all cases to Section 9.26, if at any time the applicable interest rate applicable to any Loan or any participation in any Reimbursement Obligation, together with all fees, charges and other amounts which are treated as interest under applicable law (collectively, the “ Charges ”), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by the Lender or Issuer holding such Loan or Reimbursement Obligation or participation therein, shall exceed the maximum lawful rate (the “ Maximum Rate ”) which may be contracted for, charged, taken, received or reserved by such Lender or Issuer in accordance with applicable law, the rate of interest payable in respect of such Loan, Reimbursement Obligation or participation therein, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or Reimbursement Obligation or participation therein but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender or Issuer in respect of other Loans or Reimbursement Obligations or participations therein or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the NYFRB Rate to the date of repayment, shall have been received by such Lender or Issuer; provided that in no event will such increases resulting from a Maximum Rate limitation in respect of US Loan Document Obligations apply to Loans or Reimbursement Obligations or participations therein for the account of the Borrower.

SECTION 9.10. Entire Agreement . This Agreement, the other Loan Documents and any separate letter agreements with respect to fee arrangements related hereto or the syndication of the Commitments constitute the entire contract between the parties relative to the subject matter hereof, and supersede any previous agreements or understandings, oral or written, with respect to the subject matter hereof (but do not supersede any provisions of any engagement letter or any related fee letters that expressly do not, by the terms of such documents, terminate upon the effectiveness of this Agreement, all of which provisions shall remain in full force and effect).

SECTION 9.11. 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 respect of any litigation directly or indirectly arising out of, under or in connection with 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 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.

SECTION 9.12. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect in any jurisdiction, (i) the validity, legality and enforceability of the

 

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remaining provisions contained herein shall not in any way be affected or impaired thereby, and (ii) the invalidity of such provision in such jurisdiction shall not invalidate 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 reasonably possible to that of the invalid, illegal or unenforceable provisions.

SECTION 9.13. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 9.03.

SECTION 9.14. Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 9.15. 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, in each case, sitting in the Borough of Manhattan 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 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 fullest extent permitted by 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 law. Nothing in this Agreement shall affect any right that the Administrative Agent, any Lender or any Issuer may otherwise have to bring any action or proceeding relating to this Agreement against any Loan Party or any of its properties in the courts of any jurisdiction.

(b) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which 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 any other Loan Document in any court referred to in paragraph (a) above. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by 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 9.01. Nothing in this Agreement or in any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

 

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(d) To the extent that any party hereto has, or hereafter may be entitled to claim, any immunity (whether sovereign or otherwise) from suit, jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or otherwise) with respect to itself, such party hereby waives such immunity in respect of its obligations hereunder and any other Loan Document to the fullest extent permitted by applicable law and, without limiting the generality of the foregoing, agrees that the waivers set forth in this Section 9.15(d) shall be effective to the fullest extent now or hereafter permitted under the Foreign Sovereign Immunities Act of 1976 (as amended, and together with any successor legislation) and are, and are intended to be, irrevocable for purposes thereof.

SECTION 9.16. Conversion of Currencies . (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum due hereunder in one currency into another currency, the parties hereto agree, to the fullest extent that they may legally and effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency in the City of New York, on the Business Day immediately preceding the day on which final judgment is given.

(b) The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent, any Lender or any Issuer hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “ Agreement Currency ”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender or Issuer, as the case may be, of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender or such Issuer, as the case may be, may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent or any Lender or Issuer from the Borrower in the Agreement Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender or such Issuer, as the case may be, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent or any Lender or Issuer in such currency the Administrative Agent or such Lender or Issuer, as the case may be, agrees to return the amount of any excess to such Borrower (or to any other Person who may be entitled thereto under applicable law).

SECTION 9.17. National Security Laws . (a) Each Lender, each Issuer and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies each Loan Party that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies such Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender, such Issuer or the Administrative Agent, as applicable, to identify such Loan Party in accordance with the USA PATRIOT Act, and each Loan Party agrees to provide such information from time to time to such Lender, such Issuer and the

 

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Administrative Agent, as applicable. This notice is given in accordance with the requirements of the USA PATRIOT Act and is effective for each Lender, each Issuer and the Administrative Agent.

SECTION 9.18. Confidentiality . Each Lender, each Issuer, the Administrative Agent, the Syndication Agent, each Co-Documentation Agent, and each Arranger agree to use all reasonable efforts to keep the Information (as defined below) confidential, except that Information may be disclosed (a) to such Person’s Related Parties that are or are expected to be involved in the evaluation of such information in connection with the Transactions contemplated by this Agreement, it being understood and agreed 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, (b) to the extent such Information presently is or hereafter becomes available (i) publicly other than as a result of a breach of this Section or (ii) to the Administrative Agent, any Lender or any Issuer or any Affiliate of any of the foregoing on a non-confidential basis from a source other than Holdings or the Borrower or any advisor, agent, employee or other representative thereof in each case that identified itself as such, (c) to the extent disclosure is required by law, regulation or judicial order or requested or required by bank regulators or auditors, (d) to current or prospective assignees, participants and Approved Funds, grantees described in Section 9.04, any actual or prospective direct or indirect contractual counterparties to any Hedging Agreement relating to Holdings, the Borrower or any Subsidiary and its Secured Obligations, and to their respective Related Parties, in each case subject to such assignees, participants, Approved Funds, grantees or counterparties having entered into an agreement containing confidentiality undertakings at least as restrictive as the provisions of this Section, (e) on a confidential basis to (i) any rating agency in connection with rating Holdings, the Borrower or the Subsidiaries or the credit facilities provided for herein or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the credit facilities provided for herein, (f) disclosures in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (g) disclosures required or requested by any Governmental Authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners) or pursuant to legal or judicial process, (h) to any other party to this Agreement and (i) with the prior written consent of the Borrower. For purposes of this Section, “ Information ” means all information received from Holdings or the Borrower relating to Holdings, the Borrower or any Subsidiary or their businesses, other than (i) any such information that is available to the Administrative Agent, any Lender or any Issuer on a non-confidential basis prior to disclosure by Holdings or the Borrower and (ii) information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry; provided that, in the case of information received from Holdings or the Borrower after the date hereof, 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

 

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same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. It is agreed that, notwithstanding the restrictions of any prior confidentiality agreement binding on any Arranger or the Administrative Agent, such parties may disclose Information as provided in this Section.

SECTION 9.19. Release of Liens and Guarantees. Subject to the reinstatement provisions set forth in any Security Document, a Subsidiary Loan Party shall automatically be released from its obligations under the Loan Documents, and all security interests created by the Security Documents in Collateral owned by such Subsidiary Loan Party shall be automatically released, upon the consummation of any transaction permitted by this Agreement or other external event that does not result in a breach or default of any Loan Document as a result of which such Subsidiary Loan Party ceases to be a Designated Subsidiary; provided that, if so required by this Agreement, the Required Lenders (or such greater number of Lenders as shall be required hereunder) shall have consented to such transaction and the terms of such consent shall not have provided otherwise. Upon any sale or other transfer by any Loan Party (other than to Holdings, the Borrower or any other Loan Party, or to any Subsidiary that, upon the consummation of such sale or other transfer would be required to become a Loan Party) of any Collateral in a transaction permitted under this Agreement, or upon the effectiveness of any written consent to the release of the security interest created under any Security Document in any Collateral pursuant to Section 9.08, the security interests in such Collateral created by the Security Documents shall be automatically released. In connection with any termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to the applicable Loan Party, at such Loan Party’s expense, all documents, and take all such actions, in each case that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent. Each of the Secured Parties irrevocably authorize the Administrative Agent, at its option and in its discretion, to effect the releases set forth in this Section.

SECTION 9.20. No Fiduciary Relationship. Each of Holdings and the Borrower, on behalf of itself and its subsidiaries, agrees that in connection with all aspects of the transactions contemplated hereby and any communications in connection therewith, Holdings, the Borrower, the Subsidiaries and their respective Affiliates, on the one hand, and the Administrative Agent, the Arrangers, the Lenders, the Issuers and their respective Affiliates, on the other hand, will have a business relationship that does not create, by implication or otherwise, any fiduciary duty on the part of the Administrative Agent, the Lenders, the Issuers or their Affiliates, and no such duty will be deemed to have arisen in connection with any such transactions or communications. The Administrative Agent, the Arrangers, the Lenders, the Issuers and their respective Affiliates may be engaged, for their own accounts or the accounts of customers, in a broad range of transactions that involve interests that differ from those of Holdings, the Borrower, the Subsidiaries and their respective Affiliates, and none of the Administrative Agent, the Arrangers, the Lenders, the Issuers or any of their respective Affiliates has any obligation to disclose any of such interests to Holdings, the Borrower, the Subsidiaries or any of their respective Affiliates.

 

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SECTION 9.21. Non-Public Information. (a) Each Lender acknowledges that all information, including requests for waivers and amendments, furnished by Holdings, the Borrower or the Administrative Agent pursuant to or in connection with, or in the course of administering, this Agreement or any other Loan Document will be syndicate-level information, which may contain MNPI. Each Lender represents to Holdings, the Borrower and the Administrative Agent that (i) it has developed compliance procedures regarding the use of MNPI and that it will handle MNPI in accordance with such procedures and applicable law, including Federal, State and foreign securities laws, and (ii) it has identified in its Administrative Questionnaire a credit contact who may receive information that may contain MNPI in accordance with its compliance procedures and applicable law, including Federal, State and foreign securities laws.

(b) Each of Holdings, the Borrower and each Lender acknowledges that, if information furnished by Holdings or the Borrower pursuant to or in connection with this Agreement is being distributed by the Administrative Agent through the Approved Electronic Platform, (i) the Administrative Agent may post any information that Holdings or the Borrower has indicated as containing MNPI solely on that portion of the Approved Electronic Platform designated for Private Side Lender Representatives and (ii) if Holdings or the Borrower has not indicated whether any information furnished by it pursuant to or in connection with this Agreement contains MNPI, the Administrative Agent reserves the right to post such information solely on that portion of the Approved Electronic Platform as is designated for Private Side Lender Representatives. Each of Holdings and the Borrower agrees to clearly designate all information provided to the Administrative Agent by or on behalf of Holdings or the Borrower that is suitable to be made available to Public Side Lender Representatives, and the Administrative Agent shall be entitled to rely on any such designation by Holdings and the Borrower without liability or responsibility for the independent verification thereof.

SECTION 9.22. [ Reserved].

SECTION 9.23. Excluded Swap Obligations. (a) Notwithstanding any provision of this Agreement or any other Loan Document, no Guarantee by any Subsidiary Loan Party under any Loan Document shall include a Guarantee of any Secured Obligation that, as to such Subsidiary Loan Party, is an Excluded Swap Obligation, and no Collateral provided by any Subsidiary Loan Party shall secure any Secured Obligation that, as to such Subsidiary Loan Party, is an Excluded Swap Obligation. In the event that any payment is made pursuant to any Guarantee by, or any amount is realized from Collateral of, any Subsidiary Loan Party as to which any Secured Obligations are Excluded Swap Obligations, such payment or amount shall be applied to pay the Secured Obligations of such Subsidiary Loan Party as otherwise provided herein and in the other Loan Documents without giving effect to such Excluded Swap Obligations, and each reference in this Agreement or any other Loan Document to the ratable application of such amounts as among the Secured Obligations or any specified portion of the Secured Obligations that would otherwise include such Excluded Swap Obligations shall be deemed to so provide.

 

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(b) Each Qualified ECP Guarantor 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 that would not otherwise be a Qualified ECP Guarantor but for the effectiveness of this Section, to the maximum extent permitted by applicable law, to enable each such other Loan Party to honor all of its obligations under the Loan Documents in respect of Swap Obligations (subject to the limitations on its Guarantee under the Collateral Agreement, and provided that only Qualified ECP Guarantors that are US Obligations Loan Parties shall make such undertaking in respect of US Secured Obligations). The obligations of each Qualified ECP Guarantor under this Section shall remain in full force and effect until its Guarantee under the Collateral Agreement is released. Each Qualified ECP Guarantor intends that this Section shall 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.

SECTION 9.24. Acknowledgement 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 the parties hereto, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document 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 entity, 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.

SECTION 9.25. Dutch CIT Fiscal Unity . If, at any time, a Loan Party resident for tax purposes in the Netherlands or carrying on a business through a permanent establishment or deemed permanent establishment in the Netherlands is part of a Dutch CIT Fiscal Unity with any of its group entities resident for tax purposes in the

 

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Netherlands or carrying on a business through a permanent establishment or deemed permanent establishment in the Netherlands (“ Dutch CIT Fiscal Unity Member ”), and such Dutch CIT Fiscal Unity is, in respect of such Dutch CIT Fiscal Unity Member, terminated or disrupted within the meaning of Article 15(6) of the Dutch CITA (or any other provision which facilitates the termination of a Dutch CIT Fiscal Unity) pursuant to or in connection with the Administrative Agent enforcing its rights under a Loan Document with respect to any Dutch Security Document or the execution of any Dutch Security Document, the relevant member of such Dutch CIT Fiscal Unity shall, for no consideration, as soon as possible at the request of and together with the Dutch CIT Fiscal Unity Member leaving the Dutch CIT Fiscal Unity, lodge a request with the Dutch tax authorities to allocate and surrender any tax losses as referred to in Article 20 of the Dutch CITA to the Dutch CIT Fiscal Unity Member leaving the Dutch CIT Fiscal Unity in connection with Article 15af of the Dutch CITA (or any other provision which facilitates such allocation of tax losses upon termination of the Dutch CIT Fiscal Unity), to the extent such tax losses are attributable to the Dutch CIT Fiscal Unity Member leaving the Dutch CIT Fiscal Unity.

SECTION 9.26. Collateral and Guarantee Principles Relating to US Secured Obligations . Notwithstanding anything herein or in any other Loan Document to the contrary, any payments by or setoffs against Excluded US Obligations Payors under the Loan Documents, and any realizations on Non-US Collateral (including amounts addressed under Section 2.06 ( Fees ), Section 2.16 ( Sharing of Setoffs ), Section 2.22 ( Letters of Credit ), Section 2.23 ( Defaulting Lender ), Article VII ( Events of Default ), Section 8.07 ( Parallel Debt ), Section 8.10 ( Credit Bidding ), Section 9.05 ( Expenses ; Indemnity ), Section 9.06 ( Right of Setoff )) and Section 9.09 ( Interest Rate Limitation ), in each case, shall satisfy only Global Secured Obligations, and shall not be applied to satisfy any US Secured Obligations.

SECTION 9.27. Acknowledgement of Certain Restrictions . The Secured Parties acknowledge and agree that if any transfer restrictions for the benefit of Alumina Limited or its subsidiaries shall apply to the transfer by Holdings or its subsidiaries of any Equity Interests in any entities that indirectly own Equity Interests in AWAC Entities, then such transfer restrictions shall likewise apply to the transfers of such Equity Interests by the Secured Parties to a third party.

[Signature pages follow]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective authorized officers as of the day and year first written above.

 

ALCOA UPSTREAM CORPORATION
by  

/s/ Renato Bacchi

  Name:   Renato Bacchi
  Title:   Treasurer
ALCOA NEDERLAND HOLDING B.V.
by  

/s/ Renato Bacchi

  Name:   Renato Bacchi
  Title:   Managing Director

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]


JPMORGAN CHASE BANK, N.A.,

    individually as a Lender and as

    Administrative Agent and an Issuer

by  

/s/ Peter S. Predun

  Name:   Peter S. Predun
  Title:   Executive Director

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]


SIGNATURE PAGE TO THE

REVOLVING CREDIT AGREEMENT

OF ALCOA NEDERLAND HOLDING B.V.

 

Name of Institution:    The Bank of Nova Scotia ,
   as a Lender
   By:   

/s/ Ian Stephenson

      Name:    Ian Stephenson
      Title:    Director
   By:   

/s/ Stephen MacNeil

      Name:    Stephen MacNeil
      Title:    Associate Director
Name of Institution:    Sun Trust Bank ,
   as a Lender and as an Issuer
   By:   

/s/ Eric Saxon

      Name:    Eric Saxon
      Title:    Vice President
Name of Institution:    BANCO BILBAO VIZCAYA ARGENTARIA, S.A. NEW YORK BRANCH, as a Lender and as an Issuer
   By:   

/s/ Brian Crowley

      Name:    Brian Crowley
      Title:    Managing Director
   By:   

/s/ Cara Younger

      Name:    Cara Younger
      Title:    Director
Name of Institution:    Westpac Banking Corporation,
   as a Lender
   By:   

/s/ Stuart Brown

      Name:    Stuart Brown
      Title:    Director


Name of Institution:    ABN AMRO Capital USA LLC ,
   as a Lender and as an Issuer
   By:   

/s/ Robert Doyle

      Name:    Robert Doyle
      Title:    Vice President
   By:   

/s/ Vincent E. Lisanti

      Name:    Vincent E. Lisanti
      Title:    Managing Director
Name of Institution:    Bank of America, N.A.
   as a Lender and as an Issuer
   By:   

/s/ Lindsay Kim

      Name:    Lindsay Kim
      Title:    Vice President
Name of Institution:    BNP PARIBAS,
   as a Lender and as an Issuer
   By:   

/s/ Brendan Heneghan

      Name:    Brendan Heneghan
      Title:    Director
   By:   

/s/ Gregoire Poussard

      Name:    Gregoire Poussard
      Title:    Vice President
Name of Institution:    THE BANK OF NEW YORK MELLON,
   as a Lender
   By:   

/s/ William M. Feathers

      Name:    William M. Feathers
      Title:    Vice President

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]


Name of Institution:

 

Banco Bradesco, S.A. – New York Branch,

as a Lender and as an Issuer

  By:   

/s/ Amir da Silva

     Name:    Amir da Silva
     Title:    Authorized Signatory
  By:   

/s/ Sheico A. Pimenta

     Name:    Sheico A. Pimenta
     Title:    Authorized Signatory
Name of Institution:   CHINA MERCHANTS BANK CO., LTD NEW YORK BRANCH, as a Lender and as an Issuer
  By:   

/s/ Xin Wang

     Name:    Xin Wang
     Title:    Department Head of Corporate Banking U.S. Group
  By:   

/s/ Xuejin (Andrew) Mao

     Name:    Xuejin (Andrew) Mao
     Title:    Deputy General Manager
Name of Institution:  

Credit Suisse AG, Cayman Islands Branch,

as a Lender and as an Issuer

  By:   

/s/ Robert Hetu

     Name:    Robert Hetu
     Title:    Authorized Signatory
  By:   

/s/ Warren Van Heyst

     Name:    Warren Van Heyst
     Title:    Authorized Signatory

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]


Name of Institution:  

Deutsche Bank AG New York Branch,

as a Lender and as an Issuer

  By:   

/s/ Peter Cucchiara

     Name:    Peter Cucchiara
     Title:    Vice President
  By:   

/s/ Marcus M. Tarkington

     Name:    Marcus M. Tarkington
     Title:    Director
Name of Institution:  

GOLDMAN SACHS BANK USA,

as a Lender and as an Issuer

  By:   

/s/ Josh Rosenthal

     Name:    Josh Rosenthal
     Title:    Authorized Signatory
Name of Institution:  

Morgan Stanley Senior Funding, Inc.,

as a Lender and as an Issuer

  By:   

/s/ Michael King

     Name:    Michael King
     Title:    Vice President
Name of Institution:  

The Bank of Tokyo-Mitsubishi UFJ, Ltd. ,

as a Lender and as an Issuer

  By:   

/s/ Raveet Mumick

     Name:    Raveet Mumick
     Title:    Director
Name of Institution:  

PNC BANK, NATIONAL ASSOCIATION,

as a Lender

  By:   

/s/ Joseph McElhinny

     Name:    Joseph McElhinny
     Title:    Vice President

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]


Name of Institution:  

Riyad Bank, Houston Agency,

as a Lender

  By:   

/s/ Michael Meiss

     Name:    Michael Meiss
     Title:    General Manager
  By:   

/s/ Paul N. Travis

     Name:    Paul N. Travis
     Title:    Vice President & Head of Corporate Finance
Name of Institution:  

Citibank N.A.,

as a Lender and as an Issuer

  By:   

/s/ John Tucker

     Name:    John Tucker
     Title:    Vice President
Name of Institution:  

Royal Bank of Canada ,

as a Lender

  By:   

/s/ Thomas Paton

     Name:    Thomas Paton
     Title:    Authorized Signatory
Name of Institution:  

Sumitomo Mitsui Banking Corporation ,

as a Lender and as an Issuer

  By:   

/s/ James D Weinstein

     Name:    James D Weinstein
     Title:    Managing Director
Name of Institution:  

Australia and New Zealand Banking Group Limited,

as a Lender

  By:   

/s/ Robert Grillo

     Name:    Robert Grillo
     Title:    Director

 

[S IGNATURE P AGE TO C REDIT A GREEMENT ]

Exhibit 10.19

EXECUTION VERSION

INDENTURE

among

ALCOA NEDERLAND HOLDING B.V.,

ALCOA UPSTREAM CORPORATION,

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee,

dated as of September 27, 2016


Table of Contents

 

          Page  
ARTICLE 1.   
DEFINITIONS AND INCORPORATION BY REFERENCE   

SECTION 1.1

  

Definitions

     1   

SECTION 1.2

  

Other Definitions

     40   

SECTION 1.3

  

Rules of Construction

     41   

SECTION 1.4

  

Acts of Holders

     42   
ARTICLE 2.   
THE NOTES   

SECTION 2.1

  

Form and Dating

     44   

SECTION 2.2

  

Execution and Authentication

     45   

SECTION 2.3

  

Registrar and Paying Agent

     46   

SECTION 2.4

  

Paying Agent To Hold Money in Trust

     46   

SECTION 2.5

  

Holder Lists

     47   

SECTION 2.6

  

Transfer and Exchange

     47   

SECTION 2.7

  

Definitive Registered Notes

     51   

SECTION 2.8

  

Replacement Notes

     52   

SECTION 2.9

  

Outstanding Notes

     52   

SECTION 2.10

  

Temporary Notes

     53   

SECTION 2.11

  

Defaulted Interest

     53   

SECTION 2.12

  

Cancellation

     53   

SECTION 2.13

  

Additional Amounts

     53   

SECTION 2.14

  

CUSIP Numbers

     55   

SECTION 2.15

  

Issuance of Additional Notes

     55   

SECTION 2.16

  

Computation of Interest

     56   
ARTICLE 3.   
REDEMPTION   

SECTION 3.1

  

Notices to the Trustee

     56   

SECTION 3.2

  

Selection of Notes To Be Redeemed

     57   

SECTION 3.3

  

Effect of Notice of Redemption

     57   

SECTION 3.4

  

Notice of Redemption

     57   

SECTION 3.5

  

Tax Redemption

     58   

SECTION 3.6

  

Deposit of Redemption Price

     59   

SECTION 3.7

  

Notes Redeemed in Part

     59   

SECTION 3.8

  

Special Mandatory Redemption

     59   

SECTION 3.9

  

Change of Control Repurchase Event Stub Redemption

     60   

 

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          Page  
ARTICLE 4.   
COVENANTS   

SECTION 4.1

  

Payment of Notes

     61   

SECTION 4.2

  

SEC Reports

     61   

SECTION 4.3

  

Compliance Certificate

     62   

SECTION 4.4

  

Limitation on Indebtedness

     62   

SECTION 4.5

  

Limitation on Restricted Payments

     69   

SECTION 4.6

  

Limitation on Restrictions on Distributions from Restricted Subsidiaries

     75   

SECTION 4.7

  

Limitation on Sales of Assets and Subsidiary Stock

     77   

SECTION 4.8

  

Limitation on Affiliate Transactions

     81   

SECTION 4.9

  

Limitation on Liens

     83   

SECTION 4.10

  

Maintenance of Ownership in AWAC

     85   

SECTION 4.11

  

Change of Control Repurchase Event

     85   

SECTION 4.12

  

Designation of Unrestricted and Restricted Subsidiaries

     86   

SECTION 4.13

  

Effectiveness of Covenants

     87   
ARTICLE 5.   
SUCCESSORS   

SECTION 5.1

  

Consolidation, Merger and Sale of Assets

     89   
ARTICLE 6.   
DEFAULTS AND REMEDIES   

SECTION 6.1

  

Events of Default

     92   

SECTION 6.2

  

Acceleration

     95   

SECTION 6.3

  

Other Remedies

     95   

SECTION 6.4

  

Waiver of Past Defaults

     95   

SECTION 6.5

  

Control by Majority

     95   

SECTION 6.6

  

Limitation on Suits

     95   

SECTION 6.7

  

Rights of Holders to Receive Payment

     97   

SECTION 6.8

  

Collection Suit by Trustee

     97   

SECTION 6.9

  

Trustee May File Proofs of Claim

     97   

SECTION 6.10

  

Priorities

     97   

SECTION 6.11

  

Undertaking for Costs

     98   

SECTION 6.12

  

Waiver of Stay or Extension Laws

     98   
ARTICLE 7.   
TRUSTEE   

SECTION 7.1

  

Duties of Trustee

     98   

SECTION 7.2

  

Rights of Trustee

     99   

SECTION 7.3

  

Individual Rights of the Trustee

     101   

SECTION 7.4

  

Trustee’s Disclaimer

     101   

SECTION 7.5

  

Notice of Defaults

     101   

SECTION 7.6

  

[Reserved]

     101   

 

-ii-


          Page  

SECTION 7.7

  

Compensation and Indemnity

     101   

SECTION 7.8

  

Replacement of Trustee

     102   

SECTION 7.9

  

Successor Trustee by Merger

     103   

SECTION 7.10

  

Eligibility; Disqualification

     103   

SECTION 7.11

  

Multiple Trustees

     103   

SECTION 7.12

  

Limitation on Trustee’s Liability

     104   
ARTICLE 8.   
DISCHARGE OF INDENTURE; DEFEASANCE   

SECTION 8.1

  

Discharge of Liability On Notes; Defeasance

     104   

SECTION 8.2

  

Conditions to Defeasance

     106   

SECTION 8.3

  

Application of Trust Money

     107   

SECTION 8.4

  

Repayment to the Issuer

     107   

SECTION 8.5

  

Reinstatement

     107   
ARTICLE 9.   
AMENDMENTS   

SECTION 9.1

  

Without Consent of Holders

     107   

SECTION 9.2

  

With Consent of Holders; Waiver

     108   

SECTION 9.3

  

Revocation and Effect of Consents and Waivers

     109   

SECTION 9.4

  

Notation on or Exchange of Notes

     110   

SECTION 9.5

  

Trustee To Sign Amendments, etc.

     110   
ARTICLE 10.   
GUARANTEES   

SECTION 10.1

  

Guarantees

     110   

SECTION 10.2

  

Limitation on Liability

     113   

SECTION 10.3

  

Successors and Assigns

     113   

SECTION 10.4

  

No Waiver

     113   

SECTION 10.5

  

Modification

     113   

SECTION 10.6

  

Release of Subsidiary Guarantor

     113   

SECTION 10.7

  

Execution of Guarantee Agreement for Future Subsidiary Guarantors

     115   

SECTION 10.8

  

Non-Impairment

     115   

SECTION 10.9

  

Contribution

     115   
ARTICLE 11.   
MISCELLANEOUS   

SECTION 11.1

  

[Reserved]

     115   

SECTION 11.2

  

Notices

     115   

SECTION 11.3

  

Trustee Instructions

     116   

SECTION 11.4

  

Certificate and Opinion as to Conditions Precedent

     117   

SECTION 11.5

  

Statements Required in Certificate or Opinion

     117   

SECTION 11.6

  

When Notes Disregarded

     118   

 

-iii-


          Page  

SECTION 11.7

  

Rules by Trustee, Paying Agent and Registrar

     118   

SECTION 11.8

  

Business Days

     118   

SECTION 11.9

  

Governing Law

     118   

SECTION 11.10

  

No Recourse Against Others

     118   

SECTION 11.11

  

Successors

     118   

SECTION 11.12

  

Multiple Originals

     118   

SECTION 11.13

  

Table of Contents; Headings

     118   

SECTION 11.14

  

WAIVER OF TRIAL BY JURY

     118   

SECTION 11.15

  

Force Majeure

     119   

SECTION 11.16

  

USA Patriot Act Compliance

     119   

SECTION 11.17

  

Submission to Jurisdiction

     119   

SECTION 11.18

  

Waiver of Immunity

     119   

SECTION 11.19

  

Conversion of Currency

     120   

SECTION 11.20

  

FATCA

     120   

Exhibit A — Form of Note

Exhibit B — Form of Supplemental Indenture

 

-iv-


INDENTURE dated as of September 27, 2016, among ALCOA NEDERLAND HOLDING B.V., a besloten vennootschap met beperkte aansprakelijkheid incorporated under the laws of the Netherlands (the “ Issuer ”), ALCOA UPSTREAM CORPORATION (the “ Company ”), a Delaware corporation, each SUBSIDIARY GUARANTOR from time to time party hereto and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as the Trustee.

Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the holders of (a) the Issuer’s 6.75% Senior Unsecured Notes due 2024 (the “ 2024 Notes ”) and 7.00% Senior Unsecured Notes due 2026 (the “ 2026 Notes ” and, together with the 2024 Notes, the “ Original Notes ”), and (b) any Additional Notes (as defined herein) that may be issued (all such Notes in clauses (a) and (b) being referred to collectively as the “ Notes ”).

ARTICLE 1.

DEFINITIONS AND INCORPORATION BY REFERENCE

SECTION 1.1 Definitions .

Acquired Indebtedness ” means, with respect to any specified Person, (1) Indebtedness of any Person or any of its subsidiaries existing at the time such Person becomes a Restricted Subsidiary or (2) Indebtedness assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition, and Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (1) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (2) of the preceding sentence, on the date of consummation of such acquisition of assets.

Additional Assets ” means:

 

  (1) any property, plant, equipment or other asset (excluding working capital or current assets) to be used by the Company, the Issuer or a Restricted Subsidiary in the Alcoa Corporation Business;

 

  (2) the Equity Interests of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Equity Interests by the Company, the Issuer or a Restricted Subsidiary; or

 

  (3) Equity Interests constituting a minority interest in any Person that at such time is a Restricted Subsidiary;

provided , however , that, in the case of clauses (2) and (3), such Restricted Subsidiary is primarily engaged in the Alcoa Corporation Business.

Additional Notes ” means 2024 Notes or 2026 Notes, as applicable, issued under the terms of this Indenture after the Issue Date and in compliance with Section 2.15.

Affiliate ” means, when used with respect to a specified 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.


Alcoa Corporation Business ” means, collectively, Parent’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, the Rolled Products business consisting of Parent’s rolling mill operations in Warrick, Indiana, Parent’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia, and such other businesses of the Company described in the Offering Memorandum, or any business that is similar, reasonably related, incidental, ancillary or complementary thereto or a reasonable extension, development or expansion thereof.

Applicable Premium ” means with respect to a Note at any redemption date, the greater of (1) 1% of the principal amount of such Note and (2) the excess of (if any) (A) the present value at such redemption date of (i) the redemption price of such Note on September 30, 2019, in the case of the 2024 Notes, or September 30, 2021, in the case of the 2026 Notes (such redemption price being set forth in Section 5 of the 2024 Notes and Section 5 of the 2026 Notes) plus (ii) all required remaining scheduled interest payments due on such Note through September 30, 2019, in the case of the 2024 Notes, or September 30, 2021, in the case of the 2026 Notes (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate plus 0.50%, over (B) the principal amount of such note on such redemption date. The Trustee shall have no obligation to calculate or verify the calculation of the Applicable Premium.

Applicable Procedures ” means, with respect to any payment, tender, redemption, transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream, in each case to the extent applicable to such transaction and as in effect from time to time.

Approved Asset Disposition ” means the asset dispositions set forth on Schedule 1.01(a) to the Revolving Credit Agreement.

Asset Disposition ” means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers or dispositions) by the Company, the Issuer or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction, (each referred to for the purposes of this definition as a “ disposition ”) of:

 

  (1) any shares of Equity Interests of the Issuer or a Restricted Subsidiary (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Company, the Issuer or a Restricted Subsidiary); or

 

  (2) any assets of the Company, the Issuer or any Restricted Subsidiary.

Notwithstanding the preceding, the following items shall not be deemed to be Asset Dispositions:

 

  (1) sales, transfers, leases and other dispositions of (A) inventory in the ordinary course of business, (B) used, obsolete or surplus equipment, (C) property or other assets no longer used or useful, or economically practicable to maintain, in the conduct of the business of the Company (including allowing any intellectual property that is no longer used or useful, or economically practicable to maintain, to lapse, go abandoned, or be invalidated), in each case, in the good faith judgment of the Board of Directors or an executive officer of the Company or the Issuer, and (D) cash and Cash Equivalents;

 

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  (2) sales, transfers, leases and other dispositions to the Company, the Issuer or a Restricted Subsidiary so long as such sale, transfer, lease or other disposition complies with Section 4.5;

 

  (3) sales, transfers or other dispositions of accounts receivable in connection with the compromise, settlement or collection thereof in the ordinary course of business consistent with past practice and not as part of any accounts receivables financing transaction;

 

  (4) sales, transfers, leases and other dispositions of assets to the extent that such assets constitute an investment permitted by clause (8), (9), (10) or (12) of the definition of “Permitted Investment” or another asset received as consideration for the disposition of any asset permitted by Section 4.7 (in each case, other than Equity Interests in a Restricted Subsidiary, unless all Equity Interests in such Restricted Subsidiary (other than directors’ qualifying shares) are sold);

 

  (5) leases or subleases entered into in the ordinary course of business;

 

  (6) licenses or sublicenses of intellectual property or other general intangibles in the ordinary course of business;

 

  (7) 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 asset of the Company, the Issuer or any Restricted Subsidiary;

 

  (8) dispositions of assets to the extent that (i) such assets are exchanged for credit against the purchase price of similar replacement assets or (ii) the proceeds of such disposition are promptly applied to the purchase price of such replacement assets;

 

  (9) dispositions of assets to the extent that such assets are disposed of as part of the sale of the Yadkin Facility as described in the Offering Memorandum;

 

  (10) dispositions of assets effected in connection with the separation and distribution contemplated by the Form 10 and the Offering Memorandum;

 

  (11) transactions permitted under Article 5;

 

  (12) an issuance of Equity Interests by the Issuer or a Restricted Subsidiary to the Company, the Issuer or to a Restricted Subsidiary;

 

  (13) any Permitted Investment or Restricted Payment in compliance with Section 4.5;

 

  (14) the creation of a Lien permitted under this Indenture and dispositions in connection with such Lien;

 

  (15) the issuance by the Issuer or a Restricted Subsidiary of Preferred Stock that is permitted by Section 4.4;

 

  (16) foreclosure on, or condemnation of, assets;

 

-3-


  (17) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;

 

  (18) the unwinding of any Obligations under a Hedging Agreement;

 

  (19) 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;

 

  (20) sales, transfers and other dispositions of Investments in joint ventures to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture parties set forth in joint venture arrangements and similar binding arrangements;

 

  (21) (i) a sale or transfer of accounts receivable, or participations therein, and related assets of the type specified in the definition of “Receivables Financing” to a Receivables Subsidiary in a Qualified Receivables Financing or in factoring or similar transactions and (ii) any dispositions in connection with a receivables facility (it being understood that for the avoidance of doubt, notwithstanding anything in this Indenture, the Company, the Issuer and any Restricted Subsidiary may participate in any customer supply chain financing programs in the ordinary course of business and any sale or transfer of assets in connection therewith shall not constitute an Asset Disposition);

 

  (22) a transfer of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Financing;

 

  (23) any Approved Asset Disposition;

 

  (24) any issuance of additional Equity Interests in any Restricted Subsidiary to the holders of its Equity Interests, in connection with any capital call or equity funding arrangements in the ordinary course of business;

 

  (25) (i) sales, transfers or other dispositions of accounts receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business consistent with past practice and not as part of any accounts receivables financing transaction, and (ii) dispositions of receivables pursuant to factoring transactions; and

 

  (26) sales, transfers, leases and other dispositions of assets in a single transaction or a series of related transactions with an aggregate Fair Market Value of less than $100 million.

AWAC ” means the joint venture known as Alcoa World Alumina and Chemicals among Parent and its Affiliates (or, following the separation and distribution, the Company and its Affiliates), on the one hand, and Alumina Limited and its Affiliates, on the other hand, that is operated pursuant to the AWAC Agreements.

AWAC Agreements ” means, collectively, all agreements, understandings, side letters or other arrangements governing AWAC and the respective rights and obligations of the joint venture partners thereof, including (a) each charter, articles or certificate of organization or incorporation and bylaws

 

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or other organizational or governing documents of each AWAC Entity, (b) the Formation Agreement, dated December 21, 1994, (c) the Charter of the Strategic Council, dated December 21, 1994, (d) the Letter of Understanding, dated May 16, 1995, and (e) the Amended Enterprise Funding Agreement, dated June 10, 2010, in each case, as such documents may be amended, modified, or otherwise supplemented from time to time.

AWAC Entities ” means, collectively, each of the existing or subsequently acquired or organized entities through which the AWAC joint venture is operated.

BNDES Loans ” means the loan agreements between a subsidiary of the Company and Brazil’s National Bank for Economic and Social Development.

Board of Directors ” means:

 

  (1) with respect to a corporation, the Board of Directors of the corporation or a committee of the Board of Directors;

 

  (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and

 

  (3) with respect to any other Person, the board or committee of such Person serving a similar function.

Business Day ” means each day that is not a Saturday or Sunday or other day of the year on which banks are not required or authorized to close in New York City.

Capital Lease Obligation ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty; provided that, notwithstanding the foregoing, in no event will any lease that would have been categorized as an operating lease as determined under GAAP as of the Issue Date be considered a capital lease (whether or not such lease was in effect on such date), regardless of any change in GAAP following the Issue Date that would otherwise require such obligations to be recharacterized (on a prospective or retroactive basis or otherwise) as a capital lease. For purposes of Section 4.9, a Capital Lease Obligation will be deemed to be secured by a Lien on the property being leased.

Cash Contribution Amount ” means the aggregate amount of cash contributions made to the capital of the Company, the Issuer or any Subsidiary Guarantor and designated as a “Cash Contribution Amount” as described in the definition of “Contribution Indebtedness.”

Cash Equivalents ” means:

 

  (1) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof;

 

-5-


  (2) investments in commercial paper maturing within one year from the date of acquisition thereof and having, at such date of acquisition a credit rating of “A” or better from either S&P or Moody’s, or carrying an equivalent rating by a nationally recognized Rating Agency, if both of the two named Rating Agencies above cease publishing ratings of investments;

 

  (3) investments in certificates of deposit, banker’s acceptances and demand or time deposits, in each case maturing within one year from the date of acquisition thereof, issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any State thereof, and such bank has a long-term debt of which is rated at the time of acquisition thereof at least “A-” or the equivalent thereof by S&P, or “A3” or the equivalent thereof by Moody’s, or carrying an equivalent rating by a nationally recognized Rating Agency, if both of the two named Rating Agencies above cease publishing ratings of investments, and has a combined capital and surplus and undivided profits of not less than $500 million;

 

  (4) fully collateralized repurchase agreements described in clause (3) above and entered into with a financial institution satisfying the criteria described in clause (3) above;

 

  (5) “money market funds” that invest 90% or more of their assets in instruments of the type specified in clauses (1) through (4) above or that are rated AAA by S&P or Aaa by Moody’s or carrying an equivalent rating by a nationally recognized Rating Agency, if both of the two named Rating Agencies above cease publishing ratings of such investments; and

 

  (6) in the case of the Issuer (so long as the Issuer is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia), any Foreign Subsidiary or investments made in a country outside the United States of America, investments that are (i) analogous to the foregoing and customarily used by companies in such jurisdictions for cash management purposes or (ii) are of comparable credit quality.

Capital Stock ” of any Person means any and all shares, interests (including partnership, membership, beneficial, limited liability or other ownership interests), rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.

Change of Control ” means:

 

  (1)

the Company becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the consummation of any transaction (including, without limitation, any merger or consolidation) that results in any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) 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, or any successor provision), becoming the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of

 

-6-


  the total voting power of the Voting Stock of the Company, measured by voting power rather than by number of shares; provided, however , that a transaction will not be deemed to involve a Change of Control under this clause (1) if (a) the Company becomes a direct or indirect wholly owned subsidiary of a holding company, and (b)(i) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of the Company’s Voting Stock immediately prior to that transaction or (ii) immediately following that transaction no “person” or “group” (other than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of such holding company;

 

  (2) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company, the Issuer and the Restricted Subsidiaries, taken as a whole, to any Person other than the Company, the Issuer or any Restricted Subsidiary;

 

  (3) the adoption of a plan relating to the liquidation or dissolution of the Company; or

 

  (4) any Person other than the Company or one of its subsidiaries shall have acquired ownership, directly or indirectly, beneficially or of record, of any Equity Interests in the Issuer.

For the avoidance of doubt, the consummation of the Transactions will not constitute a Change of Control and a person or group will not be deemed to have beneficial ownership of securities to be acquired under a subscription agreement, stock purchase agreement, merger agreement, option agreement, convertible debt agreement or similar agreement until the acquisition of such securities under the relevant agreement.

Change of Control Repurchase Event ” means, with respect to any series of the Notes, (1) the rating on the Notes of such series is lowered by one of the Rating Agencies and (2) the Notes of such series are rated below Investment Grade by one of the Rating Agencies, in each case on any date during the Trigger Period. Notwithstanding the foregoing, no Change of Control Repurchase Event will be deemed to have occurred in connection with any particular Change of Control unless and until such Change of Control has actually been consummated.

Clearstream ” means Clearstream Banking, société anonyme, or any successor securities clearing agency.

Code ” means the U.S. Internal Revenue Code of 1986, as amended.

Commercial Agreement ” means any commodity prepayment contract, contract with payment or performance delays or any other equivalent agreement, in each case, relating to a commodity transaction that is not a Hedging Agreement, resulting in a performance risk or credit exposure, as applicable.

Company ” means the party named as such in the Preamble hereto until a successor replaces it and, thereafter, means the successor.

 

-7-


Consolidated Coverage Ratio ” means as of any date of determination, the ratio of (x) the aggregate amount of Consolidated EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements are internally available to (y) Consolidated Interest Expense for such four fiscal quarters; provided , however , that:

 

  (1) if the Company, the Issuer or any Restricted Subsidiary:

 

  (A) has Incurred any Indebtedness (other than Indebtedness that constitutes ordinary working capital borrowings) since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio includes an Incurrence of Indebtedness (other than Indebtedness that constitutes ordinary working capital borrowings), Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving Credit Facility outstanding on the date of such calculation will be deemed to be (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (ii) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation), and the discharge of any other Indebtedness repaid, repurchased, redeemed, retired, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such repayment, redemption, retirement, defeasance or other discharge had occurred on the first day of such period provided , however , that the pro forma calculation of Consolidated Interest Expense will not give effect to any Permitted Indebtedness Incurred or discharged with the proceeds thereof on the date of determination; or

 

  (B) has repaid, repurchased, redeemed, retired, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio includes a repayment, redemption, retirement, defeasance or other discharge of Indebtedness (in each case, other than Indebtedness Incurred under any revolving Credit Facility unless such Indebtedness has been permanently repaid and the related commitment terminated and not replaced), Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such repayment, redemption, retirement, defeasance or other discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such repayment, redemption, retirement, defeasance or other discharge had occurred on the first day of such period and as if the Company, the Issuer or such Restricted Subsidiary had not earned the interest income actually earned during such period in respect of cash or Cash Equivalents used to repay, repurchase, defease or otherwise discharge such Indebtedness;

 

-8-


  (2) if since the beginning of such period, the Company, the Issuer or any Restricted Subsidiary will have made any Asset Disposition or disposed of or discontinued (as defined under GAAP) any company, division, operating unit, segment, business, group of related assets or line of business or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is such an Asset Disposition:

 

  (A) the Consolidated EBITDA for such period will be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets that are the subject of such disposition or discontinuation for such period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such period; and

 

  (B) Consolidated Interest Expense for such period will be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company, the Issuer or any Restricted Subsidiary repaid, repurchased, redeemed, retired, defeased or otherwise discharged (to the extent the related commitment is permanently reduced) with respect to the Company, the Issuer and the continuing Restricted Subsidiaries in connection with such transaction for such period (or, if the Equity Interests of any Restricted Subsidiary is sold or in the case of discontinued operations, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary or discontinued operations to the extent the Company, the Issuer and the continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);

 

  (3) if since the beginning of such period the Company, the Issuer or any Restricted Subsidiary (by merger, consolidation, amalgamation, arrangement or otherwise) will have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary or is merged with or into the Company, the Issuer or any Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of a company, division, operating unit, segment, business, group of related assets or line of business, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and

 

  (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company, the Issuer or any Restricted Subsidiary since the beginning of such period) will have Incurred any Indebtedness or repaid, redeemed, retired, defeased or discharged any Indebtedness, made any disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (1), (2) or (3) above if made by the Company, the Issuer or any Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such transaction occurred on the first day of such period.

 

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For purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined in good faith by an executive officer of the Company (including expected cost savings, operating expense reductions and synergies without duplication of actual cost savings, operating expense reductions and synergies, if calculated in good faith by an executive officer of the Company; provided that such expected cost savings, operating expense reductions and synergies are reasonably expected to be realized within 18 months of the relevant transaction; and provided further   that such expected cost savings, operating expense reductions and synergies need not be calculated on a basis consistent with Regulation S-X under the Securities Act). 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 date of determination had been the applicable rate for the entire period (taking into account any Hedging Agreement applicable to such Indebtedness if such Hedging Agreement has a remaining term in excess of 18 months). If any Indebtedness that is being given pro forma effect bears an interest rate at the option of the Company, the interest rate shall be calculated by applying such optional rate chosen by the Company.

Consolidated EBITDA ” means, with respect to the Company, the Issuer and the Restricted Subsidiaries on a consolidated basis for any period, the Consolidated Net Income of the Company, the Issuer and the Restricted Subsidiaries for such period:

 

  (1) increased, in each case to the extent deducted and not added back in calculating such Consolidated Net Income (and without duplication), by:

 

  (A) provision for taxes based on income, profits or capital, including federal, state, franchise, excise, property and similar taxes and foreign withholding taxes paid or accrued, including giving effect to any penalties and interest with respect thereto, and state taxes in lieu of business fees (including business license fees) and payroll tax credits, income tax credits and similar tax credits and including an amount equal to the amount of tax distributions actually made to the holders of Equity Interests of the Company, the Issuer or the Restricted Subsidiaries or any direct or indirect parent of the Company, the Issuer or the Restricted Subsidiaries in respect of such period (in each case, to the extent attributable to the operations of the Company, the Issuer and the Restricted Subsidiaries), which shall be included as though such amounts had been paid as income taxes directly by the Company, the Issuer or the Restricted Subsidiaries; plus

 

  (B) Consolidated Interest Expense; plus

 

  (C) all depreciation and amortization charges and expenses, including amortization or expense recorded for upfront payments related to any contract signing and signing bonus and incentive payments; plus

 

  (D) the amount of any minority interest expense consisting of subsidiary income attributable to minority equity interests of third parties in any Restricted Subsidiary of the Company that is not a wholly owned Restricted Subsidiary of such Person; plus

 

  (E) earn-out obligations incurred in connection with any acquisition or other Investment and paid or accrued during the applicable period; plus

 

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  (F) all charges, costs, expenses, accruals or reserves in connection with the rollover, acceleration or payout of equity interests held by management and all losses, charges and expenses related to payments made to holders of options or other derivative equity interests in the common equity of such Person or any direct or indirect parent of such Person in connection with, or as a result of, any distribution being made to equityholders of such Person or any of its direct or indirect parents, which payments are being made to compensate such optionholders as though they were equityholders at the time of, and entitled to share in, such distribution; plus

 

  (G) all non-cash losses, charges and expenses, including any write-offs or write-downs; provided that if any such non-cash charge represents an accrual or reserve for potential cash items in any future four-fiscal quarter period, (i) such Person may determine not to add back such non-cash charge in the period for which Consolidated EBITDA is being calculated and (ii) to the extent such Person does decide to add back such non-cash charge, the cash payment in respect thereof in such future four-fiscal quarter period will be subtracted from Consolidated EBITDA for such future four-fiscal quarter period; plus

 

  (H) all costs and expenses in connection with pre-opening and opening and closure and/or consolidation of facilities that were not already excluded in calculating such Consolidated Net Income; plus

 

  (I) Pro Forma Cost Savings; plus

 

  (J) all adjustments of the nature used in connection with the calculation of “Adjusted EBITDA” and “Pro Forma Adjusted EBITDA” (or similar pro forma non-GAAP measures) as set forth in the “Summary” section in the Offering Memorandum relating to the offering of the Notes that contains a reconciliation of net income to such measure to the extent such adjustments continue to be applicable during the period in which Consolidated EBITDA is being calculated; plus

 

  (K) the amount of loss or discount on sale of receivables and related assets to the Receivables Subsidiary in connection with a Receivables Financing; plus

 

  (L) with respect to any joint venture that is not a Restricted Subsidiary, an amount equal to the proportion of those items described in clauses (A), (B) and (C) above relating to such joint venture corresponding to the Company, the Issuer and the Restricted Subsidiaries’ proportionate share of such joint venture’s Consolidated Net Income (determined as if such joint venture were a Restricted Subsidiary) solely to the extent Consolidated Net Income was reduced thereby;

 

  (2)

decreased (without duplication and to the extent increasing such Consolidated Net Income for such period) by (i) non-cash gains or income, excluding any non-cash gains that represent the reversal of any accrual of, or cash reserve for, anticipated cash charges that were deducted (and not added back) in the calculation of

 

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  Consolidated EBITDA for any prior period ending after the Issue Date and (ii) the amount of any minority interest income consisting of a subsidiary loss attributable to minority equity interest of third parties in any non-wholly owned subsidiary (to the extent not deducted from Consolidated Net Income for such period);

 

  (3) increased (with respect to losses) or decreased (with respect to gains) by, without duplication, any net realized gains and losses relating to (i) amounts denominated in foreign currencies resulting from the application of FASB ASC 830 (including net realized gains and losses from exchange rate fluctuations on intercompany balances and balance sheet items, net of realized gains or losses from related Hedging Agreements (entered into in the ordinary course of business or consistent with past practice)) or (ii) any other amounts denominated in or otherwise trued-up to provide similar accounting as if it were denominated in foreign currencies; and

 

  (4) increased (with respect to losses) or decreased (with respect to gains) by, without duplication, any gain or loss relating to Hedging Agreements (excluding Hedging Agreements entered into in the ordinary course of business or consistent with past practice);

provided that the Company may, in its sole discretion, elect to not make any adjustment for any item pursuant to the foregoing clauses (1) through (4) above if any such item individually is less than $1.0 million in any fiscal quarter.

Consolidated Interest Expense ” means, with respect to the Company for any period, the sum, without duplication, of:

 

  (1) the aggregate interest expense of the Company, the Issuer and the Restricted Subsidiaries for such period, calculated on a consolidated basis in accordance with GAAP, to the extent such expense was deducted (and not added back) in computing Consolidated Net Income, including pay in kind interest payments, amortization of original issue discount, the interest component of Capital Lease Obligations and net payments and receipts (if any) pursuant to interest rate Hedging Agreements (other than in connection with the early termination thereof); provided that this clause (1) shall exclude: (i) any non-cash interest expense attributable to the movement in the mark-to-market valuation of Indebtedness, Hedging Agreements or other derivative instruments, (ii) all amortization and write-offs of deferred financing fees, debt issuance costs, commissions, discounts, fees and expenses, (iii) expensing of any bridge, commitment or other financing fees, (iv) costs of surety bonds, (v) charges owed with respect to letters of credit, bankers’ acceptances or similar facilities, and (vi) all discounts, commissions, fees and other charges associated with any Receivables Financing); plus

 

  (2) consolidated capitalized interest of the Company, the Issuer and the Restricted Subsidiaries for such period, whether paid or accrued; plus

 

  (3) all dividends paid or payable, in cash, Cash Equivalents or Indebtedness or accrued during such period on any series of Disqualified Equity Interests of the Company or on Preferred Stock of the Issuer and the Restricted Subsidiaries payable to a party other than the Company, the Issuer or a Restricted Subsidiary; minus

 

  (4) interest income of the Company, the Issuer and the Restricted Subsidiaries for such period;

 

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provided that in the case of any Person that became a Restricted Subsidiary after the commencement of such four-quarter period, the interest expense of such Person paid in cash prior to the date on which it became a Restricted Subsidiary will be disregarded. For purposes of this definition, interest on Capital Lease Obligations will be deemed to accrue at the interest rate reasonably determined by such Person to be the rate of interest implicit in such Capital Lease Obligations in accordance with GAAP.

Consolidated Net Income ” means, with respect to any Person for any period, the aggregate of the net income (or loss) of the Company, the Issuer and the Restricted Subsidiaries for such period, calculated on a consolidated basis in accordance with GAAP and before any reduction in respect of Preferred Stock dividends ; provided that (without duplication):

 

  (1) all net after-tax extraordinary, nonrecurring, infrequent, exceptional or unusual gains, losses, income, expenses and charges, in each case as determined in good faith by such Person, and in any event including, without limitation, all restructuring, severance, relocation, retention and completion payments, consolidation, integration or other similar charges and expenses, contract termination costs, system establishment charges, conversion costs, start-up or closure or transition costs, expenses related to any reconstruction, decommissioning, recommissioning or reconfiguration of fixed assets for alternative uses, fees, expenses or charges relating to curtailments, settlements or modifications to pension and post- retirement employee benefit plans, expenses associated with strategic initiatives, facilities shutdown and opening costs, and any fees, expenses, charges or change in control payments related to any acquisition or Permitted Investment (including any transition-related expenses (including retention or transaction-related bonuses or payments) incurred before, on or after the Issue Date), will be excluded;

 

  (2) (i) transaction fees, costs and expenses incurred in connection with the consummation of any equity issuances, investments, acquisition transactions, dispositions, recapitalizations, mergers, option buyouts and the Incurrence, modification or repayment of Indebtedness permitted to be Incurred under this Indenture (including any Refinancing Indebtedness in respect thereof) or any amendments, waivers or other modifications under the agreements relating to such Indebtedness or similar transactions and (ii) without duplication of any of the foregoing, non-operating or non-recurring professional fees, costs and expenses for such period will be excluded;

 

  (3) all net after-tax gain, loss, expense or charge attributable to business dispositions and asset dispositions, including the sale or other disposition of any Equity Interests of any Person, other than in the ordinary course of business (as determined in good faith by such Person) will be excluded;

 

  (4) all net after-tax income, loss, expense or charge attributable to the early extinguishment or cancellation of Indebtedness, Hedging Agreements or other derivative instruments (including deferred financing costs written off and premiums paid) will be excluded;

 

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  (5) all non-cash gains, losses, expenses or charges attributable to the movement in the mark-to-market valuation of Indebtedness, Hedging Agreements or other derivative instruments will be excluded;

 

  (6) any non-cash or unrealized currency translation gains and losses related to changes in currency exchange rates (including remeasurements of Indebtedness and any net loss or gain resulting from Hedging Agreements for currency exchange risk), will be excluded;

 

  (7) (i) the net income for such period of any Person that is not a Restricted Subsidiary of the Company or that is accounted for by the equity method of accounting, will be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or converted into cash) with respect to such equity ownership to the Company, the Issuer or a Restricted Subsidiary thereof in respect of such period and (ii) the net income for such period will include any ordinary course dividends or distributions or other payments paid in cash (or converted into cash) with respect to such equity ownership received from any such Person during such period in excess of the amounts included in subclause (i) above;

 

  (8) the cumulative effect of a change in accounting principles and changes as a result of the adoption or modification of accounting policies will be excluded;

 

  (9) the effects of purchase accounting, fair value accounting or recapitalization accounting adjustments (including the effects of such adjustments pushed down to the Company, the Issuer and the Restricted Subsidiaries) resulting from the application of purchase accounting, fair value accounting or recapitalization accounting in relation to any acquisition consummated on or after the Issue Date, and the amortization, write-down or write-off of any amounts thereof, net of taxes, will be excluded;

 

  (10) all non-cash impairment charges and asset write-ups, write-downs and write-offs, in each case pursuant to GAAP, and the amortization of intangibles arising from the application of GAAP, will be excluded;

 

  (11) all non-cash expenses realized in connection with or resulting from equity or equity-linked compensation plans, employee benefit plans or agreements or post-employment benefit plans or agreements, or grants or sales of stock, stock appreciation or similar rights, stock options, restricted stock, preferred stock or other similar rights will be excluded;

 

  (12) any costs or expenses incurred in connection with the payment of dividend equivalent rights to option holders pursuant to any management equity plan, stock option plan or any other management or employee benefit plan or agreement or post-employment benefit plan or agreement will be excluded;

 

  (13) all amortization and write-offs of deferred financing fees, debt issuance costs, commissions, fees and expenses, costs of surety bonds, charges owed with respect to letters of credit, bankers’ acceptances or similar facilities, and expensing of any bridge, commitment or other financing fees (including in connection with a transaction undertaken but not completed), will be excluded;

 

-14-


  (14) all discounts, commissions, fees and other charges (including interest expense) associated with any Receivables Financing will be excluded;

 

  (15) (i) the non-cash portion of “straight-line” rent expense will be excluded and (ii) the cash portion of “straight-line” rent expense that exceeds the amount expensed in respect of such rent expense will be included;

 

  (16) any expenses, charges or losses to the extent covered by insurance or indemnity and actually reimbursed, or, so long as such Person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer or indemnifying party and only to the extent that such amount is in fact reimbursed within 365 days of the date of the insurable or indemnifiable event (net of any amount so added back in any prior period to the extent not so reimbursed within the applicable 365-day period), shall be excluded;

 

  (17) cash dividends or returns of capital from Investments (such return of capital not reducing the ownership interest in the underlying Investment), in each case received during such period, to the extent not otherwise included in Consolidated Net Income for that period or any prior period subsequent to the Issue Date, will be included;

 

  (18) solely for the purpose of determining the amount available for Restricted Payments under Section 4.5(a)(3) and without duplication of provisions under Section 4.5(a)(3) with respect to cash dividends or returns on Investments, the net income (or loss) for such period of any Restricted Subsidiary (other than a Subsidiary Guarantor) will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or similar distributions has been legally waived; provided that Consolidated Net Income of such Person will be increased by the amount of dividends or other distributions or other payments actually paid in cash (or to the extent converted into cash) to the Company, the Issuer or any of the Restricted Subsidiaries in respect of such period, to the extent not already included therein (subject, in the case of a dividend to another Restricted Subsidiary (other than a Subsidiary Guarantor), to the limitation contained in this clause (18)); and

 

  (19) any non-cash interest expense and non-cash interest income, in each case to the extent there is no associated cash disbursement or receipt, as the case may be, before the earlier of the maturity date of the Notes and the date on which all the Notes cease to be outstanding, shall be excluded;

provided that the Company may, in its sole discretion, elect to not make any adjustment for any item pursuant to clauses (1) through (19) above if any such item individually is less than $1.0 million in any fiscal quarter.

 

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For the purpose of Section 4.5 only, there shall be excluded from Consolidated Net Income any income arising from the sale or other disposition of Restricted Investments, from repurchases or redemptions of Restricted Investments, from repayments of loans or advances which constituted Restricted Investments or from any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries, in each case to the extent such amounts increase the amount of Restricted Payments permitted under Section 4.5(a)(3)(D).

Consolidated Net Secured Leverage Ratio ” means, as of any date of determination, the ratio of (1) Consolidated Total Indebtedness that is secured by Liens as of such date, less the aggregate amount of cash and Cash Equivalents as of such date to (2) Consolidated EBITDA for the most recently ended four full fiscal quarters for which financial statements are available; provided that for purposes of determining the Consolidated Net Secured Leverage Ratio, the aggregate amount of cash and Cash Equivalents as of such date of determination shall exclude any proceeds of Indebtedness Incurred on such date or the Incurrence of which is being tested on such date.

Consolidated Net Total Leverage Ratio ” means, as of any date of determination, the ratio of (1) Consolidated Total Indebtedness as of such date, less the aggregate amount of cash and Cash Equivalents as of such date to (2) Consolidated EBITDA for the most recently ended four full fiscal quarters for which financial statements are available; provided that for purposes of determining the Consolidated Net Total Leverage Ratio, the aggregate amount of cash and Cash Equivalents as of such date of determination shall exclude any proceeds of Indebtedness Incurred on such date or the Incurrence of which is being tested on such date.

Consolidated Total Assets ” means, as of any date, the total consolidated assets of the Company, the Issuer and the Restricted Subsidiaries as of the last day of the fiscal quarter of the Company most recently ended for which internal financial statements are available, determined on a consolidated basis in accordance with GAAP (and, in the case of any determination relating to any incurrence of Indebtedness or any Investment or other acquisition, on a pro forma basis including any property or assets being acquired in connection therewith).

Consolidated Total Indebtedness ” means, as of any date of determination, the aggregate principal amount of Indebtedness of the Company, the Issuer and the Restricted Subsidiaries outstanding as of such date of the type set forth clauses (1), (2), (3) and (6) of the definition of “Indebtedness” and other funded Indebtedness that would appear on a balance sheet prepared as of such date on a consolidated basis in accordance with GAAP.

Contribution Indebtedness ” means Indebtedness of the Company, the Issuer or any Restricted Subsidiary in an aggregate principal amount not greater than the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of the Company, the Issuer or any Restricted Subsidiary (other than, in the case of such Restricted Subsidiary, contributions by the Company, the Issuer or any other Restricted Subsidiary to its capital) after the Distribution Date and designated as a Cash Contribution Amount; provided that such Contribution Indebtedness (a) is Incurred within 210 days after the making of such cash contributions and (b) is so designated as Contribution Indebtedness pursuant to an Officer’s Certificate on the Incurrence date thereof.

Control ”, when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise.

 

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Corporate Trust Office ” means with respect to the Trustee, the office of the Trustee at which the corporate trust business of the Trustee is principally administered, which at the date of this Indenture is located at 500 Ross Street, Pittsburgh, PA 15262 (Attention: Corporate Trust).

Credit Facilities ” means one or more debt facilities (including the Revolving Credit Agreement and the BNDES Loans) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit or issuances of debt securities evidenced by notes, debentures, bonds, indentures or similar instruments, in each case as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time (and whether or not with the original administrative agent, lenders or trustee or another administrative agent or agents, other lenders or trustees and whether provided under any credit or other agreement or indenture).

Custodian ” means The Bank of New York Mellon Trust Company, N.A., as custodian with respect to the Global Notes, or any successor entity.

Default ” means any event which is, or after notice or passage of time or both would be, an Event of Default.

Definitive Registered Note ” means a certificated Note registered in the name of the Holder thereof and issued or exchanged in accordance with Section 2.7 (bearing the Restricted Notes Legend if the transfer of such Note is restricted by applicable law) that does not include the Global Notes Legend.

Depositary ” or “ DTC ” means The Depository Trust Company, its nominees and their respective successors.

Designated Non-Cash Consideration ” means the Fair Market Value of non-cash consideration received by the Company, the Issuer or a Restricted Subsidiary in connection with an Asset Disposition that is designated as “Designated Non-Cash Consideration” pursuant to an Officer’s Certificate, 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 or Cash Equivalents within 180 days following the consummation of such Asset Disposition).

Disqualified Equity Interest ” means any Equity Interest that:

 

  (1)

matures or is mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase at the option of the holders thereof, in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise, prior to the date that is 91 days after the Stated Maturity of the Notes (determined as of the date of issuance thereof or, in the case of any such Equity Interests outstanding on the Issue Date, as of the Issue Date), other than (i) upon the full satisfaction and discharge of the Notes or (ii) upon the occurrence of a Change of Control or an Asset Disposition (each defined in a substantially identical manner to the corresponding definitions in this Indenture) if the terms of such Equity Interest (and all such securities into which it is convertible or exchangeable or for which it is redeemable) provide that the Company, the Issuer or any Restricted Subsidiary, as applicable, is not required to repurchase or redeem any such Equity Interest (and all such securities into

 

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  which it is convertible or exchangeable or for which it is redeemable) pursuant to such provision prior to compliance with Section 4.11 and Section 4.7 and such repurchase or redemption complies with Section 4.5; or

 

  (2) is convertible or exchangeable, automatically or at the option of any holder thereof, into (A) any Indebtedness or (B) any Equity Interests or other assets other than Qualified Equity Interests, in each case at any time prior to the date that is 91 days after the Stated Maturity of the Notes (determined as of the date of issuance thereof or, in the case of any such Equity Interests outstanding on the date hereof, as of the date hereof);

provided that an Equity Interest in any Person that is issued to any employee or to any plan for the benefit of employees or by any such plan to such employees shall not constitute a Disqualified Equity Interest solely because it may be required to be repurchased by such Person or any of its subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.

Distribution Date ” means the date that the shares of the Company’s common stock are distributed to the Parent’s stockholders pursuant to the separation and distribution.

Distribution Date Distribution ” means the payment, on or after the Issue Date (but no later than the Distribution Date), of a cash distribution or other cash transfer in an aggregate amount not to exceed $1.25 billion, to Parent with all or a portion of the net proceeds of the Notes.

Equity Interests ” of any Person mean shares of Capital Stock, partnership interests, membership interests including any Preferred Stock in a limited liability company, beneficial interests in a trust or other equity ownership interests (whether voting or non-voting) in, or interests in the income or profits of, such Person (excluding for the avoidance of doubt, phantom stock), and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing (other than, prior to the date of such conversion, Indebtedness that is convertible into Equity Interests).

ERISA ” means the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time.

Escrow Agent ” means SunTrust Bank, a Georgia banking corporation.

Escrow Agreements ” means the Escrow Agreements, dated September 27, 2016, among the Issuer, the Trustee and the Escrow Agent.

Euroclear ” means Euroclear Bank S.A./N.V., as operator of the Euroclear System, or any successor securities clearing agency.

Exchange Act ” means the U.S. Securities Exchange Act of 1934, as amended.

Excluded Contributions ” means the Net Available Cash and Cash Equivalents, or the Fair Market Value of other assets, received by the Company after the Distribution Date from:

 

  (1) contributions to its common equity capital;

 

  (2) the sale of Equity Interests (other than Excluded Equity) of the Company;

 

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in each case designated as Excluded Contributions pursuant to an Officer’s Certificate. Excluded Contributions will be excluded from the calculation set forth in Section 4.5(a)(3). For the avoidance of doubt, in no event shall any cash contributions constituting Excluded Contributions increase the amount of Indebtedness permitted to be Incurred pursuant to clause (22) of the definition of “Permitted Indebtedness”.

Excluded Equity ” means (i) Disqualified Equity Interests, (ii) any Equity Interests issued or sold to a Restricted Subsidiary or any employee stock ownership plan or trust established by the Company or any of its subsidiaries (to the extent such employee stock ownership plan or trust has been funded by the Company or any subsidiary) and (iii) any Equity Interest that has already been used or designated (x) as (or the proceeds of which have been used or designated as) a Cash Contribution Amount or an Excluded Contribution, or (y) to increase the amount available under Section 4.5(a)(3).

Excluded Subsidiary ” means (i) each subsidiary of the Company that, by the terms of the Revolving Credit Agreement as in effect on the Issue Date, is not required to provide a guarantee under the Revolving Credit Agreement, assuming that amounts are drawn thereunder and (ii) any other Subsidiary of the Company that is a Foreign Subsidiary if (A) providing a guarantee of the Notes would conflict with the fiduciary duties of the directors (or other officers) of such Foreign Subsidiary or contravene any legal requirement or prohibition or regulatory condition or would reasonably be likely to result in (or in a material risk of) civil or criminal liability on the part of any director (or other officer) of such Foreign Subsidiary or any Affiliate of such Foreign Subsidiary or (B) in the reasonable judgment of the Company, the cost or other consequences (including any adverse tax consequences) of providing the Guarantee shall be excessive in view of the benefits to be obtained by the Holders therefrom.

Fair Market Value ” means, with respect to any asset or liability, the fair market value of such asset or liability as determined by an executive officer of the Company in good faith.

Foreign Subsidiary ” means any Restricted Subsidiary that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia.

Form   10 ” means the registration statement on Form 10, originally filed by the Company with the SEC on June 29, 2016, as amended as of September 13, 2016.

GAAP ” means generally accepted accounting principles in the United States of America as in effect from time to time. Notwithstanding the foregoing, the Company shall be permitted to treat any agreement or arrangement, which would be accounted for on the Issue Date as an operating lease under GAAP, whether existing on the Issue Date or entered into thereafter, under the standards applicable to operating leases under GAAP as in effect on the Issue Date.

Global Notes Legend ” means the legends set forth under that caption in Exhibit A to this Indenture.

Guarantee ” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any monetary obligation that is payable by another person, direct or indirect, contingent or otherwise, of such Person:

 

  (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or

 

  (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);

 

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provided , however , that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Issue Date or entered into in connection with any acquisition or disposition of assets (other than such obligations with respect to Indebtedness). The term “Guarantee” used as a verb has a corresponding meaning.

Guarantee Agreement ” means a supplemental indenture to this Indenture, entered into on or following the Distribution Date, pursuant to which a Subsidiary Guarantor guarantees the Issuer’s obligations with respect to the Notes on the terms provided for in this Indenture, substantially in the form of Exhibit B hereto, as such form may be modified (i) to account for changes as may be required under applicable law to reflect limitations under applicable law with respect to maintenance of share capital, corporate benefit and other legal restrictions applicable to the Subsidiary Guarantors and their shareholders, directors and general partners, if the Board of Directors or an executive officer, in consultation with legal counsel, makes a reasonable determination that such limitations are required due to legal requirements within the applicable jurisdiction, or (ii) in the case of a Guarantee provided pursuant to Section 3.8(c)(3) or Section 10.7(i), otherwise to be consistent with the guarantee of such Subsidiary Guarantor given pursuant to the Revolving Credit Agreement.

Guarantors ” means, collectively, the Company and the Subsidiary Guarantors.

Hedging Agreement ” means any agreement with respect to any swap, forward, future or derivative transaction, or any option or similar agreement, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of the foregoing transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Company, the Issuer or any Restricted Subsidiary shall be a Hedging Agreement.

Holder ,” “ holder ” or “ Noteholder ” means the Person in whose name a Note is registered on the Registrar’s books.

Incur ” means issue, create, assume, Guarantee, incur or otherwise become liable for; provided , however , that any Indebtedness or Equity Interests of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, amalgamation or arrangement, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to the foregoing.

Indebtedness ” means, with respect to any Person on any date of determination (without duplication):

 

  (1) the principal and premium (to the extent any premium has become due and payable) in respect of all obligations of such Person for borrowed money;

 

  (2) the principal and premium (to the extent any premium has become due and payable) in respect of all obligations of such Person evidenced by bonds, debentures, notes or similar instruments;

 

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  (3) the principal component of all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person and for the deferred purchase price of property or services (other than (A) trade accounts payable and other accrued obligations, in each case Incurred in the ordinary course of business, (B) deferred compensation payable to directors, officers or employees of the Company, the Issuer or any other subsidiary of the Company and (C) any purchase price adjustment or earnout incurred in connection with an acquisition, except to the extent that the amount payable pursuant to such purchase price adjustment or earnout is, or becomes, a liability on the balance sheet of such Person in accordance with GAAP and is not paid within 60 days after becoming due and payable);

 

  (4) the principal component of all Indebtedness of other Persons secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed by such Person;

 

  (5) the principal component of all Indebtedness of other Persons to the extent Guaranteed by such Person;

 

  (6) all Capital Lease Obligations of such Person;

 

  (7) the principal component of all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the twentieth Business Day following payment on the letter of credit); and

 

  (8) the principal component of all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances.

The amount of Indebtedness of any Person for purposes of clause (4) above shall (unless such Indebtedness has been assumed by such Person or such Person has otherwise become liable for the payment thereof) be deemed to be equal to the lesser of (x) the aggregate unpaid amount of such Indebtedness and (y) the fair market value of the property encumbered thereby as determined by such Person in good faith. Notwithstanding the foregoing, in connection with the purchase by the Company, the Issuer or any Restricted Subsidiary of any business, the term “Indebtedness” will exclude post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided , however , that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 60 days of the due date therefor.

The term “Indebtedness” shall not include any lease, concession or license of property (or Guarantee thereof) which would be considered an operating lease under GAAP as in effect on the Issue Date, any prepayments of deposits received from clients or customers in the ordinary course of business or consistent with past practices, or obligations under any license, permit or other approval (or Guarantees given in respect of such obligations) Incurred prior to the Issue Date or in the ordinary course of business or consistent with past practice.

 

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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 Board of Directors of the Company, qualified to perform the task for which it has been engaged and is not an Affiliate of the Company.

Initial Subsidiary Guarantor ” means each of the Company’s Restricted Subsidiaries that are guarantors under the Revolving Credit Agreement on the Distribution Date.

Interest Payment Date ” means each March 31 and September 30, beginning on March 31, 2017 and until September 30, 2024, in the case of the 2024 Notes, and September 30, 2026, in the case of the 2026 Notes.

Investment ” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan or other extensions of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit (other than a time deposit)) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition (including by way of merger or consolidation) of Equity Interests, Indebtedness or other similar instruments issued by, such Person; provided that none of the following will be deemed to be an Investment:

 

  (1) Hedging Agreements entered into in the ordinary course of business and in compliance with this Indenture;

 

  (2) endorsements of negotiable instruments and documents in the ordinary course of business;

 

  (3) an acquisition of assets, Equity Interests or other securities by the Company, the Issuer or another subsidiary of the Company for consideration to the extent such consideration consists of Qualified Equity Interests; and

 

  (4) accounts receivable, credit card and debit card receivables, trade credit, advances to customers, commission, travel and similar advances to employees, directors, officers, members of management, manufacturers and consultants, in each case occurring in the ordinary course of business.

For purposes of Section 4.5,

 

  (1)

Investment ” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary that is to be designated an Unrestricted Subsidiary) of the Fair Market Value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided , however , that upon a redesignation of such subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to (A) the Company’s aggregate “Investment” in such subsidiary as of the time of

 

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  such redesignation less (B) the portion (proportionate to the Company’s equity interest in such subsidiary) of the Fair Market Value of the net assets of such subsidiary at the time that such subsidiary is so redesignated as a Restricted Subsidiary; and

 

  (2) any property transferred to or from an Unrestricted Subsidiary will be valued at its Fair Market Value at the time of such transfer.

Investment Grade ” means a rating equal to or higher than Baa3 (or the equivalent), in the case of Moody’s or BBB- (or the equivalent), in the case of S&P, or an equivalent rating, in the case of any other applicable Rating Agency.

Issue Date ” means September 27, 2016.

Issuer Order ” means a written request in the name of the Issuer delivered to the Trustee and signed by an Officer of the Issuer.

Lien ” means, with respect to any asset, (1) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in or on such asset, and (2) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset.

Ma’aden Entities ” means Ma’aden Aluminium Company, Ma’aden Rolling Company, Saudi Auto Rolling JV, and Ma’aden Bauxite & Alumina Company.

Ma’aden Guarantees ” means (i) the guarantees by the Company or the Issuer of the Ma’aden Indebtedness or (ii) any back-to-back guarantees by the Company or the Issuer to the Parent, in respect to any guarantees of Ma’aden Indebtedness by the Parent.

Ma’aden Indebtedness ” means any Indebtedness Incurred in connection to the Ma’aden Operations.

Ma’aden Operations ” means the operations, business and assets (including any refineries, smelters or rolling assets) owned or operated by the Ma’aden Entities.

Moody’s ” means Moody’s Investors Service, Inc. and any successor to its rating agency business.

Net Available Cash ” from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and net cash proceeds from the sale or other disposition of any securities or other assets received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or other disposition or issuance or received in any other non-cash form) therefrom, in each case net of:

 

  (1) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a consequence of such Asset Disposition;

 

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  (2) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition;

 

  (3) all distributions and other payments required to be made to minority interest holders in subsidiaries or joint ventures or similar arrangements as a result of such Asset Disposition or made in connection with such Asset Disposition as determined by the Board of Directors of such subsidiary, joint venture or similar arrangement; and

 

  (4) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company, the Issuer or any Restricted Subsidiary after such Asset Disposition.

Net Cash Proceeds ,” with respect to any issuance or sale of Equity Interests, means the cash proceeds of such issuance or sale, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).

Non-U.S. Subsidiary Guarantor ” means a Subsidiary Guarantor that is incorporated in a jurisdiction other than the United States, any state thereof or the District of Columbia.

Note Guarantee ” means a Guarantee by the Company or a Subsidiary Guarantor of the Issuer’s obligations with respect to the Notes.

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 law), other monetary obligations, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and banker’s 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 dated September 22, 2016 related to the offer and sale of the Notes.

Officer ” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer or the Secretary of the Company or, in the event that the Company is a partnership or a limited liability company that has no such officers, a person duly authorized under applicable law by the general partner, managers, members or a similar body to act on behalf of the Company. Officer of any other Person has a correlative meaning.

Officer’s Certificate ” means a certificate signed by an Officer of the Company or the Issuer, as applicable.

 

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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.

Parent ” means Alcoa Inc.

Pari Passu Indebtedness ” means Indebtedness that ranks equally in right of payment to the Notes, in the case of the Issuer, or the Note Guarantees, in the case of the Company and any Subsidiary Guarantor (in each case, without giving effect to collateral arrangements).

Permitted Investment ” means an Investment by the Company, the Issuer or any Restricted Subsidiary in:

 

  (1) cash and Cash Equivalents;

 

  (2) a Person that is engaged in the Alcoa Corporation Business if as a result of such Investment (A) such Person becomes a Restricted Subsidiary or (B) such Person, in one transaction or a series of related transactions, is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company, the Issuer or any Restricted Subsidiary;

 

  (3) Investments in existence on (A) the Issue Date and (B) the Distribution Date as described in the Offering Memorandum, and, in the case of each of the foregoing clauses (A) and (B), any modification, replacement, renewal, reinvestment or extension thereof; provided that (x) the amount of the original investment is not increased except by the terms of such investment or as otherwise permitted under this Indenture and (y) the terms of any such investment are not otherwise modified from the terms that are in effect as of the Issue Date or as described in the Offering Memorandum in a manner that is materially adverse to the Holders unless otherwise permitted under this Indenture;

 

  (4) the Company, the Issuer or a Restricted Subsidiary;

 

  (5) Guarantees issued in accordance with Section 4.4;

 

  (6) loans or advances to officers, directors, consultants or employees of the Company, the Issuer or any Restricted Subsidiary not exceeding $20 million in the aggregate outstanding at any time (determined without regard to any write-downs or write-offs of such loans or advances);

 

  (7) payroll, travel, entertainment, relocation and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses of the Company, the Issuer or any Restricted Subsidiary for accounting purposes and that are made in the ordinary course of business;

 

  (8) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business, and Investments as a result of a foreclosure by the Company, the Issuer or any Restricted Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;

 

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  (9) Investments in the form of Hedging Agreements Incurred in compliance with Section 4.4;

 

  (10) Investments of any Person (other than an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary, consolidates or merges with the Company, the Issuer or any Restricted Subsidiary, transfers or conveys substantially all of its assets to, or is liquidated into, the Company, the Issuer or any Restricted Subsidiary, so long as, in each case, such Investments were not made in contemplation of such Person becoming a Restricted Subsidiary or of such consolidation or merger, transfer, conveyance or liquidation;

 

  (11) Investments resulting from pledges or deposits described in clause (2)(C) or (2)(D) of the definition of the term “Permitted Lien”;

 

  (12) investments made as a result of the receipt of noncash consideration from an Asset Disposition in compliance with Section 4.7 or from any other disposition of assets not constituting an Asset Disposition;

 

  (13) investments that result solely from the receipt by the Company, the Issuer or any Restricted Subsidiary from any of its subsidiaries of a dividend or other Restricted Payment in the form of Equity Interests, evidences of Indebtedness or other securities (but not any additions thereto made after the date of the receipt thereof);

 

  (14) receivables or other trade payables (including any advances or extensions of credit to customers, suppliers or vendors) owing to the Company, the Issuer or a Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided that such trade terms may include such concessionary trade terms as the Company, the Issuer or such Restricted Subsidiary deems reasonable under the circumstances;

 

  (15) Guarantees to insurers required in connection with workers’ compensation and other insurance coverage arranged in the ordinary course of business;

 

  (16) Investments effected in connection with the separation and distribution as contemplated by the Separation Documents (as described in the Form 10 and the Offering Memorandum);

 

  (17) other Investments by the Company, the Issuer or any Restricted Subsidiary in an aggregate amount (as valued at Fair Market Value at the time each such Investment is made and including all related commitments for future Investment (and the principal amount of any Indebtedness that is assumed or otherwise Incurred in connection with such Investment)), not exceeding, at the time such Investments are made and immediately after giving effect thereto, the greater of (i) $750 million and (ii) 4.5% of Consolidated Total Assets, for all such Investments made or committed to be made from and after the Issue Date plus an amount equal to any returns of capital or sale proceeds actually received in cash in respect of any such Investments (which amount shall not exceed the amount of such Investment valued at cost at the time such Investment was made); provided that no part of such amount for returns of capital and sale proceeds will increase the Restricted Payments able to be made pursuant to Section 4.5(a), including as part of the definition of “Consolidated Net Income”;

 

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  (18) (i) any Investment in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Receivables Financing or any related Indebtedness and (ii) customary investments in connection with receivables facilities;

 

  (19) any Investment in connection with payments under the Ma’aden Guarantees and any Refinancing Ma’aden Guarantees; and

 

  (20) any other Investment or the prepayment, purchase, repurchase, redemption, defeasement or other acquisition or retirement for value of any Subordinated Obligations of the Company, the Issuer or any Restricted Subsidiary, if, immediately after giving effect to such transaction as if it had occurred on the last day of the fiscal quarter of the Company most recently ended for which internal financial statements are available, the Consolidated Net Total Leverage Ratio would not be greater than 1.75 to 1.00.

Permitted Liens ” means, with respect to any Person:

 

  (1) Liens securing Indebtedness and other obligations permitted to be Incurred (including Liens on cash or deposits granted in favor of any issuer to cash collateralize any defaulting lender’s participation in letters of credit or other obligations in respect of letters of credit (including such Liens as contemplated by the Revolving Credit Agreement)) under Section 4.4(b)(1), and Liens on assets of the Company, the Issuer and any Restricted Subsidiary securing Guarantees of such Indebtedness and such other obligations of the Company, the Issuer and the Restricted Subsidiaries (including, each case, Liens securing Hedging Agreements, Commercial Agreements and banking services or cash management and credit card obligations and Guarantees thereof to the extent the terms of such Indebtedness and other obligations permitted to be Incurred under Section 4.4(b)(1) permit such Hedging Agreements, Commercial Agreements and banking services or cash management and credit card obligations and Guarantees thereof to be so secured);

 

  (2) any of the following Liens:

 

  (A) Liens imposed by law for Taxes or other similar governmental charges that are not yet overdue for more than 30 days or are being contested in good faith by appropriate proceedings;

 

  (B) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlords’ and other like Liens imposed by law (other than any Lien imposed pursuant to Section 430(k) of the Code or Section 303(k) of ERISA or a violation of Section 436 of the Code), arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in good faith by appropriate proceedings;

 

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  (C) pledges and deposits made (i) in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of the Company, the Issuer or any Restricted Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (i) above;

 

  (D) pledges and deposits made (i) to secure the performance of bids, trade contracts (other than for payment of Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business and (ii) in respect of letters of credit, bank guarantees or similar instruments issued for the account of Company, the Issuer or any Restricted Subsidiary in the ordinary course of business supporting obligations of the type set forth in clause (i) above;

 

  (E) judgment liens in respect of judgments that do not constitute an Event of Default;

 

  (F) easements, zoning and similar restrictions, encroachments, restrictions on use of real property, rights-of-way, title defects or other irregularities and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any obligations for borrowed money and do not materially detract from the value of the affected property or interfere with the ordinary conduct of the Alcoa Corporation Business;

 

  (G) bankers’ liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with depository institutions and securities accounts and other financial assets maintained with a securities intermediary; provided that such deposit accounts or funds and securities accounts or other financial assets are not established or deposited for the purpose of providing collateral for any Indebtedness and are not subject to restrictions on access by Company, the Issuer or any Restricted Subsidiary in excess of those required by applicable banking regulations;

 

  (H) (i) Liens arising by virtue of Uniform Commercial Code financing statement filings (or similar filings under applicable law) regarding operating leases entered into by the Company, the Issuer and the Restricted Subsidiaries in the ordinary course of business and (ii) Liens regarding goods consigned or entrusted to or bailed to a Person in connection with the processing, reprocessing, recycling or tolling of such goods;

 

  (I) 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;

 

  (J) Liens representing any interest or title of a licensor, lessor or sublicensor or sublessor, or a licensee, lessee or sublicensee or sublessee, in the property subject to any lease, license or sublicense or concession agreement permitted by this Indenture;

 

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  (K) Liens representing non-exclusive licenses of intellectual property granted in the ordinary course of business;

 

  (L) ground leases in respect of real property on which facilities owned or leased by the Company, the Issuer or any Restricted Subsidiary are located and other Liens affecting the interest of any landlord (and any underlying landlord) of any real property leased by the Company, the Issuer or any Restricted Subsidiary, so long as such ground lease or other Lien, as applicable, does not interfere with the ordinary conduct of business of the Company, the Issuer or any Restricted Subsidiary;

 

  (M) leases, licenses, subleases or sublicenses granted to others that do not (A) interfere in any material respect with the Alcoa Corporation Business, or (B) secure any Indebtedness;

 

  (N) Liens securing insurance premium financing arrangements; provided that such Liens are limited to the applicable unearned insurance premiums;

 

  (O) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

 

  (P) right of set-off relating to purchase orders and other similar arrangements entered into with customers or any subsidiary in the ordinary course of business;

 

  (Q) 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;

 

  (R) Liens arising under the Dutch General Banking Terms and Conditions ( Algemene bankvoorwaarden );

 

  (S) Liens that are contractual rights of set-off;

 

  (T) (i) Liens on equipment or vehicles of the Company, the Issuer or any Restricted Subsidiary granted in the ordinary course of business or consistent with industry practice and (ii) any provision for the retention of title to an asset by the vendor or transferor of such asset (including any lessor) which asset is acquired by the Company, the Issuer or a Restricted Subsidiary in a transaction entered into the ordinary course of business; and

 

  (U)

Liens arising from fully collateralized repurchase agreements with a term of not more than 30 days for direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the

 

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  United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof and entered into with a financial institution;

provided that such Liens shall not include any Lien securing Indebtedness, other than Liens referred to in clauses (C) and (D) above securing letters of credit, bank guarantees or similar instruments;

 

  (3) any Lien on any asset of the Company, the Issuer or any Restricted Subsidiary existing on the Issue Date (other than Liens permitted under clause (1));

 

  (4) Liens on fixed or capital assets acquired, constructed or improved (including any such assets made the subject of a Capital Lease Obligation incurred) by the Company, the Issuer or any Restricted Subsidiary; provided that (A) such Liens secure Indebtedness Incurred to finance such acquisition, construction or improvement and permitted by Section 4.4(b)(7)(A) or any Refinancing Indebtedness in respect thereof permitted by Section 4.4(b)(7)(B) and (B) such Liens shall not apply to any other property or assets of the Company, the Issuer or any Restricted Subsidiary (other than assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business, any replacements, additions, accessions thereto and any income or profits thereof);

 

  (5) any Lien existing on any asset of any Person prior to the acquisition of such asset by the Company, the Issuer or any Restricted Subsidiary or existing on any asset of any Person that becomes a Restricted Subsidiary (or of any Person not previously a Restricted Subsidiary that is merged or consolidated with or into the Company, the Issuer or any Restricted Subsidiary in a transaction permitted under this Indenture) after the Issue Date prior to the time such Person becomes a Restricted Subsidiary (or is so merged or consolidated); provided that (A) such Lien shall not apply to any other asset of the Company, the Issuer or any Restricted Subsidiary (other than (i) assets financed by the same financing source pursuant to the same financing scheme in the ordinary course of business, (ii) any improvements on such assets and (iii) in the case of any such merger or consolidation, the assets of any special purpose merger subsidiary that is a party thereto) and (B) such Lien was not created or Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary;

 

  (6) in connection with the sale or transfer of any Equity Interests or other assets in a transaction permitted under this Indenture, customary rights and restrictions contained in agreements relating to such sale or transfer pending the completion thereof;

 

  (7) in the case of (A) any Restricted Subsidiary that is not a wholly owned subsidiary of the Company or (B) the Equity Interests in any Person other than the Issuer that is not a Restricted Subsidiary, any encumbrance or restriction, including any put and call arrangements, related to Equity Interests in such Restricted Subsidiary or such other Person set forth in the organizational documents of such Restricted Subsidiary or such other Person or any related joint venture, shareholders’ or similar agreement;

 

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  (8) Liens solely on any cash earnest money deposits, escrow arrangements or similar arrangements made by the Company, the Issuer or any Restricted Subsidiary in connection with any letter of intent or purchase agreement for an acquisition or other transaction permitted under this Indenture;

 

  (9) Liens granted by a Restricted Subsidiary that is not a guarantor in respect of Indebtedness permitted to be Incurred by such Restricted Subsidiary under Section 4.4;

 

  (10) Liens in favor of the Company or any subsidiary;

 

  (11) to the extent constituting Liens, any restrictions contemplated by the Separation Documents (as described in the Offering Memorandum);

 

  (12) Liens on the Capital Stock or Indebtedness of an Unrestricted Subsidiary;

 

  (13) Liens securing the Notes and the Note Guarantees;

 

  (14) Liens securing Indebtedness (other than Subordinated Obligations) not otherwise permitted by this Indenture to the extent that, immediately after giving effect to the Incurrence thereof, the aggregate outstanding principal amount of the obligations secured thereby does not exceed the greater of (i) $300 million and (ii) 1.75% of Consolidated Total Assets;

 

  (15) Liens arising as a result of a fiscal unity ( fiscale eenheid ) for Dutch tax purposes;

 

  (16) Liens on receivables of, or loans to, the Company, the Issuer and the Restricted Subsidiaries, securing Indebtedness arising under any receivables facilities;

 

  (17) Liens to secure letters of credit issued by any person for the account of the Company or the Issuer, provided that the aggregate amount of Indebtedness secured thereby does not exceed the greater of (i) $250 million and (ii) 1.5% of Consolidated Total Assets;

 

  (18) Liens encumbering customary initial deposits and margin deposits and similar Liens attached to commodity trading accounts or other brokerage accounts incurred in connection with Hedging Agreements; and

 

  (19) Liens on accounts receivable and related assets of the type specified in the definition of “Receivables Financing” Incurred in connection with a Qualified Receivables Financing.

In the event that a Lien meets the criteria of more than one of the clauses above (other than clause (3)), the Company, in its sole discretion, will be permitted to classify such Lien (or portion thereof) at the time of its Incurrence in any manner that complies with Section 4.9. In addition, any Lien (or portion thereof) originally classified as Incurred pursuant any of the clauses above (other than clauses (1) and (3)) may later be reclassified by the Company, in its sole discretion, such that it (or any portion thereof) will be deemed to be Incurred pursuant to any other of such clauses to the extent that such reclassified Lien (or portion thereof) could be Incurred pursuant to such clause at the time of such reclassification.

 

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Person ” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

Preferred Stock ”, as applied to the Equity Interests of any Person, means Equity Interests of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Equity Interests of any other class of such Person.

principal ” of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time.

Pro Forma Cost Savings ” means an amount equal to the amount of cost savings, operating expense reductions, operating improvements (including the entry into any material contract or arrangement) and acquisition synergies, in each case, projected in good faith to be realized (calculated on a pro forma basis as though such items had been realized on the first day of such period) as a result of actions taken or to be taken by the Company (or any successor thereto), the Issuer (or any successor thereto) or any Restricted Subsidiary, net of the amount of actual benefits realized or expected to be realized during such period that are otherwise included in the calculation of Consolidated EBITDA from such actions; provided that such cost savings, operating expense reductions, operating improvements and synergies are factually supportable and reasonably identifiable (as determined in good faith by a responsible financial or accounting officer, in his or her capacity as such and not in his or her personal capacity, of the Company (or any successor thereto) or of any direct or indirect parent of the Issuer and are reasonably anticipated to be realized within 18 months after the consummation of any change that is expected to result in such cost savings, expense reductions, operating improvements or synergies; provided that no cost savings, operating expense reductions, operating improvements and synergies shall be added pursuant to this definition to the extent duplicative of any expenses or charges otherwise added to Consolidated Net Income or Consolidated EBITDA, whether through a pro forma adjustment, add back exclusion or otherwise, for such period.

Purchase Agreement ” means (a) with respect to the Original Notes issued on the Issue Date, the Purchase Agreement dated September 22, 2016, among the Issuer, the Company and Morgan Stanley & Co. LLC, as representative of the several initial purchasers listed in Schedule I thereto and (b) with respect to each issuance of Additional Notes, the purchase agreement or underwriting agreement among the Issuer and the Persons purchasing such Additional Notes.

QIB ” means a “ qualified institutional buyer ” as defined in Rule 144A.

Qualified Equity Interests ” means Equity Interests of the Company other than Disqualified Equity Interests.

Qualified Equity Offering ” means any private or public issuance and sale of the Company’s common stock by the Company for cash. Notwithstanding the foregoing, the term “Qualified Equity Offering” shall not include:

 

  (1) any issuance pursuant to employee benefit plans or otherwise to compensate officers, directors or employees;

 

  (2) any issuance and sale to the Issuer or any other subsidiary of the Company;

 

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  (3) any issuance in connection with a transaction that constitutes a Change of Control; or

 

  (4) any issuance in connection with the separation and distribution.

Qualified Receivables Financing ” means any Receivables Financing of a Receivables Subsidiary that meets the following conditions:

 

  (1) the Board of Directors of the Company shall have determined in good faith that such Qualified Receivables Financing (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to the Company, the Issuer and the Restricted Subsidiaries;

 

  (2) all sales of accounts receivable and related assets by the Company, the Issuer or any Restricted Subsidiary to the Receivables Subsidiary are made at Fair Market Value (as determined in good faith by the Issuer or any direct or indirect parent of the Issuer); and

 

  (3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the Issuer or the Company) and may include Standard Securitization Undertakings. The grant of a security interest in any accounts receivable of the Company, the Issuer or any of the Restricted Subsidiaries (other than a Receivables Subsidiary) to secure any Credit Facility shall not be deemed a Qualified Receivables Financing.

Rating Agency ” means each of Moody’s and S&P; provided, that if Moody’s or S&P ceases to rate the Notes or fails to make a rating of the Notes publicly available for reasons outside of the Company or Issuer’s control, the Company or the Issuer may select (as certified by a resolution of its Board of Directors) a “nationally recognized statistical rating organization” within the meaning of Section 3(a)(62) under the Exchange Act, as a replacement agency for Moody’s or S&P or both of them, as the case may be.

Receivable ” means a right to receive payment arising from a sale or lease of goods or the performance of services by a Person pursuant to an arrangement with another Person pursuant to which such other Person is obligated to pay for goods or services under terms that permit the purchase of such goods and services on credit and shall include, in any event, any items of property that would be classified as an “account,” “chattel paper,” “payment intangible” or “instrument” under the Uniform Commercial Code as in effect in the State of New York and any “supporting obligations” as so defined.

Receivables Fees ” means any fees or interest paid to purchasers or lenders providing the financing in connection with a Receivables Financing, securitization transaction, factoring agreement or other similar agreement, including any such amounts paid by discounting the face amount of Receivables or participations therein transferred in connection with a securitization transaction, factoring agreement or other similar arrangement, regardless of whether any such transaction is structured as on-balance sheet or off-balance sheet or through a Restricted Subsidiary or an Unrestricted Subsidiary.

Receivables Financing ” means any transaction or series of transactions that may be entered into by the Company or any of its subsidiaries pursuant to which the Company or any of its subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by the Company or any of its Subsidiaries), and (b) any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any accounts receivable (whether now existing or

 

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arising in the future) of the Company or any of its subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and any Hedging Agreement entered into by the Company or any such subsidiary in connection with such accounts receivable.

Receivables Repurchase Obligation ” means any obligation of a seller of receivables in a Qualified Receivables Financing to repurchase receivables arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.

Receivables Subsidiary ” means a wholly owned subsidiary of the Company that is a Restricted Subsidiary (or another Person formed for the purposes of engaging in a Qualified Receivables Financing with the Company in which the Company or any subsidiary of the Company makes an Investment and to which the Company or any subsidiary of the Company transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of the Company and its subsidiaries and all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business, and which is designated by the Board of Directors of the Company as a Receivables Subsidiary and:

 

  (1) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any other subsidiary of the Company (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any other subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of the Company or any other subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings;

 

  (2) with which neither the Company nor any other subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms which the Company reasonably believes to be no less favorable to the Company or such subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company; and

 

  (3) to which neither the Company nor any other subsidiary of the Company has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.

Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the foregoing conditions.

 

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Refinancing Indebtedness ” means, in respect of any Indebtedness (the “ Original Indebtedness ”), any Indebtedness that extends, renews or refinances such Original Indebtedness (or any Refinancing Indebtedness in respect thereof); provided that:

 

  (1) the principal amount of such Refinancing Indebtedness (or if issued with original issue discount, an aggregate issue price) shall not exceed the principal amount of such Original Indebtedness except by an amount no greater than accrued and unpaid interest with respect to such Original Indebtedness and any fees and expenses, including the aggregate amount of premiums (including tender premiums), and underwriting discounts, defeasance costs and fees and expenses in connection therewith relating to such extension, renewal or refinancing (it being understood that the aggregate principal amount (or accreted value, if applicable) of the Indebtedness being Incurred may be in excess of the amount permitted under this clause (1) to the extent such excess does not constitute Refinancing Indebtedness and is otherwise permitted under Section 4.4);

 

  (2) the stated final maturity of such Refinancing Indebtedness shall not be earlier than the earlier of (i) the stated final maturity of such Original Indebtedness and (ii) the date that is 91 days after the Stated Maturity of the Notes (except for any such Indebtedness in the form of a bridge or other interim credit facility intended to be refinanced or replaced with long-term Indebtedness, which such Indebtedness, upon the maturity thereof, automatically converts into Indebtedness that satisfies the requirement set forth in this definition);

 

  (3) 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, Disqualified Equity Interests or Preferred Stock being refunded, refinanced, replaced, redeemed, repurchased or retired; and

 

  (4) if such Original Indebtedness shall have been subordinated to the Notes or to the Note Guarantees, such Refinancing Indebtedness shall also be subordinated to the Notes or the Note Guarantees on terms not less favorable in any material respect to the Holders;

 

  (5) such Refinancing Indebtedness shall not include (i) Indebtedness of a Subsidiary that is not a Subsidiary Guarantor that refinances Indebtedness of the Company, the Issuer or a Subsidiary Guarantor or (ii) Indebtedness of the Company, the Issuer or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary;

 

  (6) in the event Liens securing such Original Indebtedness shall have been contractually subordinated to any Lien securing the Notes or the Note Guarantees, such Refinancing Indebtedness shall not be secured by any Lien that shall not have been contractually subordinated to at least the same extent.

provided that subclauses (2) and (3) will not apply to any refunding or refinancing of any Secured Indebtedness.

Restricted Investment ” means any Investment other than a Permitted Investment.

 

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Restricted Payment ” with respect to any Person means:

 

  (1) the declaration or payment of any dividends or any other distributions (whether in cash, securities or other property) with respect to any Equity Interests in the Company, the Issuer or any Restricted Subsidiary (including any payment in connection with any merger or consolidation involving such Person) or any other payment that has a substantially similar effect;

 

  (2) the purchase, redemption, retirement, acquisition, exchange, conversion, cancelation or termination of any defeasance or other acquisition or retirement for value of any Equity Interests of the Company, the Issuer or any Restricted Subsidiary held by any Person (other than by the Company, the Issuer or a Restricted Subsidiary) or any other action that has a substantially similar effect;

 

  (3) the prepayment, or purchase, repurchase, redemption, defeasement or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligations, other than:

 

  (A) Indebtedness permitted under Section 4.4(b)(5); or

 

  (B) the prepayment, purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of prepayment, purchase, repurchase, redemption, defeasance or other acquisition or retirement; and

 

  (4) the making of any Restricted Investment in any Person.

Restricted Subsidiary ” means any subsidiary of the Company (including a subsidiary that is an AWAC Entity but excluding the Issuer) that is not an Unrestricted Subsidiary.

Revolving Credit Agreement ” means the Revolving Credit Agreement, dated as of September 16, 2016, among the Company, the Issuer, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the other parties thereto from time to time, as the same may be amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time (including replacing the borrowers or increasing the amount loaned thereunder; provided that such additional Indebtedness is Incurred in accordance with Section 4.4).

Regulation S ” means Regulation S under the Securities Act.

Regulation S Notes ” means all Notes offered and sold outside the United States in reliance on Regulation S.

Restricted Period ”, with respect to any Regulation S Notes, means the period of 40 consecutive days beginning on and including the later of (a) the day on which such Regulation S Notes are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S, notice of which day shall be promptly given by the Issuer to the Trustee, and (b) the Issue Date with respect to such Regulation S Notes.

 

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Rule 144A ” means Rule 144A under the Securities Act.

S&P ” means S&P Global Ratings, and any successor to its rating agency business.

SEC ” means the Securities and Exchange Commission.

Secured Indebtedness ” means any Indebtedness for borrowed money secured by a Lien on assets, excluding Equity Interests or Indebtedness of an Unrestricted Subsidiary or any right, title or interests relating thereto, including any rights under any relevant shareholder, voting trust, joint venture or other agreement or instrument.

Securities Act ” means the U.S. Securities Act of 1933, as amended.

Senior Indebtedness ” means any Indebtedness of the Issuer that ranks pari passu in right of payment with the Notes and any Indebtedness of the Company or any Subsidiary Guarantor that ranks pari passu in right of payment with its Note Guarantee. For the avoidance of doubt, any Indebtedness of the Company, the Issuer or any Subsidiary Guarantor that is permitted to be Incurred under the terms of this Indenture shall constitute Senior Indebtedness unless the instrument under which such Indebtedness is Incurred expressly provides that it is subordinate in right of payment to the Notes or any Note Guarantee.

separation and distribution ” means the spin-off of the Company from the Parent, as described in the Offering Memorandum, including (1) the internal reorganization among the Parent and its subsidiaries (including the Company and its subsidiaries) pursuant to which the Alcoa Corporation Business is separated from the Parent and its other subsidiaries and (2) the Parent’s distribution of the shares of the Company’s common stock to the Parent’s stockholders.

Separation Documents ” means the separation agreement, the transition services agreement, the tax matters agreement, the employee matters agreement, the stockholder and registration rights agreement, the intellectual property license agreements, the metal supply agreement, the real estate arrangements, the North American packaging business agreement and the spare parts loan agreement, each as described in the Offering Memorandum in “Certain Relationships and Related Party Transactions”.

Series ” means each of the series consisting of the 2024 Notes and the series consisting of the 2026 Notes.

Significant Subsidiary ” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.

Specified Cash Equivalents ” means: (a) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having repricings or maturities of not more than one year from the date of acquisition; (b) certificates of deposit and time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any United States commercial bank having capital and surplus in excess of $500 million; (c) repurchase obligations with a term of not more than 14 days for underlying securities of the types described in clauses (a) and (b) above entered into with any financial institution meeting the qualifications specified in clause (b) above; and (d) money market funds that invest solely in Specified Cash Equivalents of the kinds described in clauses (a) through (c) above.

 

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Standard Securitization Undertakings ” means representations, warranties, covenants, indemnities and guarantees of performance entered into by the Company or any subsidiary of the Company which the Company has determined in good faith to be customary in a Receivables Financing including, without limitation, those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchase Obligation shall be deemed to be a Standard Securitization Undertaking.

Stated Maturity ” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency).

Subordinated Obligation ” means, with respect to a Person, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes or a Note Guarantee of such Person, as the case may be, pursuant to a written agreement to that effect.

subsidiary ” means, with respect to any Person (herein referred to as the “parent”) at any date, any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the Voting Stock or, in the case of a partnership, more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held or (b) the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP.

Subsidiary Guarantee ” means a Guarantee by a Subsidiary Guarantor of the Issuer’s obligations with respect to the Notes.

Subsidiary Guarantor ” means each subsidiary of the Company (other than the Issuer) that becomes a party to this Indenture as a guarantor on the Distribution Date and each other subsidiary of the Company (other than the Issuer) that thereafter guarantees the Notes pursuant to the terms of this Indenture until such time as its Guarantee is released in accordance with this Indenture.

Taxes ” means any and all present or future taxes, duties, assessments or governmental charges of whatever nature.

Transactions ” means, collectively, (1) the execution and delivery of the Revolving Credit Agreement, (2) the consummation of the separation and distribution and the other transactions contemplated by the Separation Documents (including the payment of the Distribution Date Distribution) and (3) the issuance of the Notes and the use of the proceeds thereof.

Transfer Restricted Notes ” means Definitive Registered Notes and any other Notes that bear or are required to bear the Restricted Notes Legend.

Treasury Rate ” means, with respect to any redemption date, the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated “H.15(519)” or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System which has become publicly available at least two Business Days prior to the date fixed for redemption and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities”, for the maturity most nearly equal to the period from the redemption date to September 30,

 

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2019, in the case of the 2024 Notes, and September 30, 2021, in the case of the 2026 Notes (if no maturity is within three months of the period from the redemption date to September 30, 2019, in the case of the 2024 Notes, or September 30, 2021, in the case of the 2026 Notes, yields for the two published maturities most closely corresponding to the period from the redemption date to September 30, 2019, in the case of the 2024 Notes, or September 30, 2021, in the case of the 2026 Notes, shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month); provided , however , that if the period from the redemption date to September 30, 2019, in the case of the 2024 Notes, or September 30, 2021, in the case of the 2026 Notes, is less than one year, the weekly average yield on actively traded United States Treasury securities adjusted to a constant maturity of one year will be used.

Trigger Period ” means, with respect to any Change of Control, the 30-day period (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for a possible downgrade by any of the Rating Agencies) after the earlier of (1) the occurrence of a Change of Control; or (2) public notice of the occurrence of a Change of Control or the intention by the Company to effect a Change of Control.

Trustee ” means The Bank of New York Mellon Trust Company, N.A. until a successor replaces it and, thereafter, means the successor.

Trust Indenture Act ” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the Issue Date.

Trust Officer ” means any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

Unrestricted Subsidiary ” means:

 

  (1) any subsidiary of the Company (including any existing subsidiary and any newly formed or newly acquired subsidiary but excluding the Issuer) designated as an Unrestricted Subsidiary by the Board of Directors of the Company in the manner described in Section 4.12; and

 

  (2) any subsidiary of an Unrestricted Subsidiary.

U.S. Government Obligations ” means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer’s option.

Voting Stock ” with respect to the Equity Interests of any Person means Equity Interests of any class or classes (however designated) having ordinary voting power for the election of the directors or other governing body of such Person (other than as a limited partner of such Person), other than Equity Interests having such power only by reason of the occurrence of a contingency.

Weighted Average Life to Maturity ” means, when applied to any Indebtedness or Disqualified Equity Interests or Preferred Stock, as the case may be, at any date, the number of years (and/or

 

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portion thereof) obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of such Indebtedness or redemption or similar payment, in respect of such Disqualified Equity Interest or Preferred Stock, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (b) the then outstanding principal amount of such Indebtedness.

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.

Yadkin Facility ” means the Yadkin Hydro power plant located in Stanly County, NC, USA.

SECTION 1.2 Other Definitions .

 

Term

  

Defined in Section

“2024 Notes”    Recitals
“2026 Notes”    Recitals
“Acceptable Commitment”    4.7(b)
“Additional Amounts”    2.13(b)
“Affiliate Transaction”    4.8(a)
“Agent Members”    2.1(c)
“Applicable Premium Deficit”    8.2(b)
“Asset Disposition Offer”    4.7(e)
“Asset Disposition Offer Amount”    4.7(f)
“Asset Disposition Offer Period”    4.7(f)
“Asset Disposition Purchase Date”    4.7(f)
“Authorized Officer”    11.3
“Bankruptcy Custodian”    6.1(a)
“Bankruptcy Law”    6.1(a)
“bankruptcy provisions”    6.1(a)(7)
“Change of Control Offer”    4.11(b)
“Change of Control Payment”    4.11(a)
“Change of Control Payment Date”    4.11(b)(1)
“Company”    Preamble
“covenant defeasance option”    8.1(b)
“Coverage Indebtedness”    4.4(a)
“Credit Facility Indebtedness”    4.4(b)(1)
“cross acceleration provision”    6.1(a)(5)(B)
“defeasance trust”    8.2(a)(i)
“Electronic Means”    11.3
“Escrow Release Conditions”    3.8(c)
“Escrowed Property”    3.8(a)
“Event of Default”    6.1(a)
“Excess Proceeds”    4.7(e)
“FATCA”    2.13(b)(8)
“Global Notes”    2.1(b)

 

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Term

  

Defined in Section

“Guaranteed Obligations”    10.1(a)
“Instructions”    11.3
“Issuer”    Preamble
“Judgment Currency”    11.19
“judgment default provision”    6.1(a)(6)
“legal defeasance option”    8.1(b)
“Notes”    Recitals
“Original Notes”    Recitals
“Outside Date”    3.8(a)
“Paying Agent”    2.3(a)
“payment default”    6.1(a)(5)(A)
“Permanent Regulation S Global Notes”    2.1(b)
“Permitted Indebtedness”    4.4(b)
“Refinancing Ma’aden Guarantees”    4.4(b)(24)
“Register”    2.3(a)
“Registrar”    2.3(a)
“Regulation S Global Notes”    2.1(b)
“Release”    3.8(c)
“Relevant Taxing Jurisdiction”    2.13(a)
“Restricted Notes Legend”    2.6(e)(i)
“Reversion Date”    4.13(c)
“Rule 144A Global Notes”    2.1(b)
“Second Commitment”    4.7(b)
“Special Mandatory Redemption”    3.8(a)
“Special Mandatory Redemption Date”    3.8(a)
“Special Mandatory Redemption Event”    3.8(a)
“Special Mandatory Redemption Notice Date”    3.8(b)
“Special Mandatory Redemption Price”    3.8(a)
“Successor Company”    5.1(a)(1)
“Successor Issuer”    5.1(b)(1)
“Successor Subsidiary Guarantor”    5.1(c)(1)
“Suspended Covenants”    4.13(b)
“Suspension Date”    4.13(b)
“Suspension Period”    4.13(c)
“Temporary Regulation S Global Notes”    2.1(b)

SECTION 1.3 Rules of Construction .

(a) Unless the context otherwise requires:

(i) a term has the meaning assigned to it;

(ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(iii) “or” is not exclusive;

(iv) “including” means including without limitation;

 

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(v) words in the singular include the plural and words in the plural include the singular;

(vi) provisions apply to successive events and transactions;

(vii) references to sections of, or rules under, the Securities Act or the Exchange Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time;

(viii) any reference to an “Article”, “Section” or “clause” refers to an Article, Section or clause, as the case may be, of this Indenture;

(ix) unsecured Indebtedness shall not be deemed to be subordinate or junior to Indebtedness secured by a Lien on any property or asset of a Person merely by virtue of its nature as unsecured Indebtedness; and

(x) all references to the date the Notes were originally issued shall refer to the Issue Date.

(b) For the avoidance of doubt, the existence of any exception to any covenant of the Company, the Issuer or any subsidiary shall not imply that the matter covered by such exception is restricted or prohibited by such covenant.

SECTION 1.4 Acts of Holders .

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Issuer and the Guarantors. Proof of execution of any such instrument or writing appointing any such agent, or the holding by any Person of a Note, shall be sufficient for any purpose of this Indenture and (subject to Section 7.1) conclusive in favor of the Trustee, the Issuer and the Guarantors, if made in the manner provided in this Section 1.4.

(b) The ownership of Notes shall be proved by the Register.

(c) The Issuer may set a record date for purposes of determining the identity of Holders entitled to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, or to vote on any action authorized or permitted to be taken by Holders; provided that the Issuer may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in clause (d) below. If any record date is set pursuant to this clause (c), the Holders on such record date, and only such Holders, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action (including revocation of any action), whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless made, given or taken on or prior to the applicable expiration date by Holders of the requisite principal amount of Notes, or each affected Holder, as applicable, on such record date. Promptly after any record date is set pursuant to this paragraph, the Issuer, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable expiration date to be given to the Trustee in writing and to each Holder in the manner set forth in Section 11.2. No act taken will be valid or effective if such act is taken more than 90 days after the record date.

 

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(d) The Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in the giving or making of (1) any notice of default under Section 6.1, (2) any declaration of acceleration referred to in Section 6.2, (3) any direction referred to in Section 6.5 or (4) any request to pursue a remedy referred to in Section 6.6(a)(2). If any record date is set pursuant to this paragraph, the Holders on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless made, given or taken on or prior to the applicable expiration date by Holders of the requisite principal amount of Notes or each affected Holder, as applicable, on such record date. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Issuer’s expense, shall cause notice of such record date, the proposed action by Holders and the applicable expiration date to be given to the Issuer and to each Holder in the manner set forth in Section 11.2. No act taken will be valid or effective if such act is taken more than 90 days after the record date.

(e) Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Any notice given or action taken by a Holder or its agents with regard to different parts of such principal amount pursuant to this paragraph shall have the same effect as if given or taken by separate Holders of each such different part.

(f) Without limiting the generality of the foregoing, a Holder, including a Depositary that is the Holder of a Global Note, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action under this Indenture to be made, given or taken by Holders, and a Depositary that is the Holder of a Global Note may provide its proxy or proxies to the beneficial owners of interests in any such Global Note through such Depositary’s standing instructions and customary practices.

(g) The Issuer may fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any Global Note held by a Depositary entitled under the procedures of such Depositary, if any, to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action under this Indenture to be made, given or taken by Holders; provided that if such a record date is fixed, only the beneficial owners of interests in such Global Note on such record date or their duly appointed proxy or proxies shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such beneficial owners remain beneficial owners of interests in such Global Note after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be effective hereunder unless made, given or taken on or prior to the applicable expiration date. No act taken will be valid or effective if taken more than 90 days after the record date.

(h) With respect to any record date set pursuant to this Section 1.4, the party hereto that sets such record date may designate any day as the “expiration date” and from time to time may change the expiration date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new expiration date is given to the other party hereto in writing, and to each Holder of Notes in the manner set forth in Section 11.2, on or prior to both the existing and the new expiration date. If an expiration date is not designated with respect to any record date set pursuant to this Section 1.4, the party hereto which set such record date shall be deemed to have initially designated the 30th day after such record date as the expiration date with respect thereto, subject to its right to change the expiration date as provided in this clause (h). No changed expiration date shall be more than 90 days from the initial expiration date.

 

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(i) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of any action taken, suffered or omitted by the Trustee, the Issuer or the Guarantors in reliance thereon, whether or not notation of such action is made upon such Note.

ARTICLE 2.

THE NOTES

SECTION 2.1 Form and Dating .

(a) The (i) Original Notes and the Trustee’s certificate of authentication and (ii) any Additional Notes (if issued as Transfer Restricted Notes) and the Trustee’s certificate of authentication shall be substantially in the form of Exhibit A hereto, as applicable, which is hereby incorporated in and expressly made a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Issuer or any Guarantor is subject, if any, or usage ( provided that any such notation, legend or endorsement is in a form acceptable to the Issuer but which notation, legend or endorsement does not affect the rights, duties or obligations of the Trustee). Each Note shall be dated the date of its authentication. The Notes shall be issuable only in registered form without interest coupons and only in denominations of $200,000 and whole multiples of $1,000 in excess thereof. The terms of the Notes set forth in the Exhibits hereto are part of the terms of this Indenture. 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. The Notes issued on the Issue Date shall be (A) offered and sold by the Issuer pursuant to the Purchase Agreement and (B) resold, initially only to (1) QIBs in reliance on Rule 144A and (2) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Notes may thereafter be transferred to, among others, QIBs and purchasers in reliance on Regulation S. Additional Notes offered after the Issue Date may be offered and sold by the Issuer from time to time in accordance with the provisions of this Indenture and applicable law.

(b) Global Notes . Notes offered and sold in their initial distribution in reliance on Rule 144A shall be issued in the form of one or more global notes in registered form, bearing the applicable legends set forth in Exhibit A, without interest coupons attached (“ Rule 144A Global Notes ”) deposited with the Trustee as custodian for the Depositary and registered in the name of Cede & Co., as nominee for the Depositary, duly executed by the Issuer and authenticated by the Trustee as herein provided, for credit by the Depositary to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct). Notes offered and sold in their initial distribution in reliance on Regulation S shall be issued initially in the form of one or more temporary global securities in fully registered form, bearing the applicable legends set forth in Exhibit A, without interest coupons attached (“ Temporary Regulation S Global Notes ”), deposited with the Trustee as custodian for the Depositary and registered in the name of Cede & Co., as nominee for the Depositary, duly executed by the Issuer and authenticated by the Trustee as herein provided, for credit by the Depositary to the respective accounts of beneficial owners of the Notes represented thereby (or such other accounts as they may direct). Except as set forth in this Indenture, beneficial ownership interests in Temporary Regulation S Global Notes will not be exchangeable for interests in Rule 144A Global Notes, permanent global securities (the “ Permanent Regulation S Global Notes ”, and together with the Temporary Regulation S Global Notes, the “ Regulation S Global Notes ”) or any other security prior to the expiration of the Restricted Period and then, after the expiration of the Restricted Period, may be exchanged for interests in Rule 144A Global Notes,

 

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Permanent Regulation S Global Notes or a definitive security in registered certificated form only (i) upon certification that beneficial ownership interests in such Temporary Regulation S Global Notes are owned by or being transferred to either non-U.S. persons or U.S. persons who purchased such interests in a transaction that did not require registration under the Securities Act, and (ii) in the case of an exchange for a certificated security, in compliance with the requirements to exchange Global Notes with certificated securities provided herein. Rule 144A Global Notes and Regulation S Global Notes are referred to herein collectively as “ Global Notes ”. Beneficial interests in Temporary Regulation S Global Notes may be exchanged for interests in Rule 144A Global Notes if (1) such exchange occurs in connection with a transfer of securities in compliance with Rule 144A and (2) the transferor of the beneficial interest in the Temporary Regulation S Global Note first delivers to the Trustee a written certificate to the effect that the beneficial interest in the Temporary Regulation S Global Note is being transferred to a Person (a) who the transferor reasonably believes to be a QIB, (b) purchasing for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A, and (c) in accordance with all applicable securities laws of the United States, the states thereof, and any other applicable jurisdiction. Beneficial interests in a Rule 144A Global Note may be transferred to a Person who takes delivery in the form of an interest in a Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if applicable). The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Custodian and the Depositary or its nominee and on the schedules thereto as hereinafter provided.

(c) Book Entry Provisions . This Section 2.1(c) shall apply only to Global Notes deposited with or on behalf of the Depositary.

The Issuer shall execute and the Trustee shall, in accordance with this Section 2.1(c), authenticate and deliver initially one or more Global Notes that (i) shall be registered in the name of the Depositary for such Global Note or Global Notes or the nominee of such Depositary and (ii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary’s instructions or held by the Trustee as Custodian.

Members of, or participants in, the Depositary (“ Agent Members ”) shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as the Custodian or under such Global Note, and the Depositary may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuer, the Trustee or any agent of the Issuer 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 Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a Holder of a beneficial interest in any Global Note.

(d) Definitive Registered Notes . Except as otherwise provided herein, owners of beneficial interests in Global Notes will not be entitled to receive physical delivery of Definitive Registered Notes.

SECTION 2.2 Execution and Authentication . One Officer shall sign the Notes for the Issuer by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless.

A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture.

 

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On the Issue Date, the Trustee shall authenticate and deliver $750 million of 2024 Notes and $500 million of 2026 Notes and, at any time and from time to time thereafter, the Trustee shall authenticate and deliver Additional Notes in an aggregate principal amount specified in an Issuer Order. Such Issuer Order shall specify the amount of the Additional Notes to be authenticated and the date on which the issue of Additional Notes is to be authenticated. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is unlimited.

The Trustee may appoint an authenticating agent reasonably acceptable to the Issuer to authenticate the Notes. Any such appointment shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Issuer. Unless limited by the terms of 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 has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.

SECTION 2.3 Registrar and Paying Agent .

(a) The Issuer 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 and of their transfer and exchange (the “ Register ”). The Issuer may have one or more co-registrars and one or more additional paying agents. The term “ Paying Agent ” includes any additional paying agent, and the term “ Registrar ” includes any co-registrars. The Issuer initially appoints the Trustee as Registrar and Paying Agent for the Global Notes, for which the Trustee shall be Custodian.

(b) The Issuer shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuer shall notify the Trustee in writing of the name and address of any such agent. If the Issuer fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation and indemnification therefor pursuant to Section 7.7. The Issuer or any of its wholly owned subsidiaries organized under the laws of the United States or any state thereof may act as Paying Agent (prior to an Event of Default), Registrar, co-registrar or transfer agent.

(c) The Issuer may remove any Registrar or Paying Agent 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 an appointment by a successor as evidenced by an appropriate agreement entered into by the Issuer 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 the procedures of the Depositary 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) above. The Registrar or Paying Agent may resign at any time upon 30 days’ written notice to the Issuer and the Trustee.

SECTION 2.4 Paying Agent To Hold Money in Trust . No later than the Business Day prior to each due date of the principal, premium, if any, and interest on any Note, the Issuer shall deposit with the Paying Agent (or if the Issuer or a wholly owned subsidiary is acting as Paying Agent, segregate and hold in trust for the benefit of the Persons entitled thereto) a sum sufficient to pay such principal, premium, if any, and interest when so becoming due. The Issuer 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 by the Paying Agent for the payment of principal of or premium, if any, or interest on the Notes and shall notify the Trustee in writing of any default by the Issuer in making any such payment. If the Issuer or a subsidiary acts as Paying Agent, it shall segregate the money held by

 

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it as Paying Agent and hold it as a separate trust fund. The Issuer at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section 2.4, the Paying Agent shall have no further liability for the money delivered to the Trustee.

SECTION 2.5 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 Holders. If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee, in writing at least five 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 Holders.

SECTION 2.6 Transfer and Exchange .

(a) Transfer and Exchange of Definitive Registered Notes . When Definitive Registered Notes are presented to the Registrar or a co-registrar with a request:

(x) to register the transfer of such Definitive Registered Notes; or

(y) to exchange such Definitive Registered Notes for an equal principal amount of Definitive Registered Notes of other authorized denominations,

the Registrar or co-registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided , however , that the Definitive Registered Notes surrendered for transfer or exchange:

(i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Issuer and the Registrar or co-registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and

(ii) in the case of Transfer Restricted Notes that are Definitive Registered Notes, are being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (A), (B) or (C) below, and are accompanied by the following additional information and documents, as applicable:

(A) if such Transfer Restricted Notes are being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form set forth on the reverse side of the Note); or

(B) if such Transfer Restricted Notes are being transferred to the Issuer, a certification to that effect (in substantially the form set forth on the reverse side of the Note); or

(C) if such Transfer Restricted Notes are being transferred pursuant to an exemption from registration in reliance upon an exemption from the registration requirements of the Securities Act, (1) a certification to that effect (in the form set forth on the reverse side of the Note) and (2) if the Issuer so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.6(e)(i).

 

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(b) Restrictions on Transfer of a Definitive Registered Note for a Beneficial Interest in a Global Note . A Definitive Registered Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Registered Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with:

(i) certification (in the form set forth on the reverse side of the Note) that such Definitive Registered Note is being transferred (A) to the Issuer, (B) to the Registrar for registration in the name of a Holder, without transfer, (C) pursuant to an effective registration statement under the Securities Act, (D) to a QIB in accordance with Rule 144A, or (E) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act (other than as provided by Rule 144) under the Securities Act; and

(ii) written instructions directing the Trustee to make, or to direct the Custodian to make, an adjustment on its books and records with respect to such Global Note to reflect an increase in the aggregate principal amount of the Notes represented by the Global Note, such instructions to contain information regarding the Depositary account to be credited with such increase,

then the Trustee shall cancel such Definitive Registered Note and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Notes are then outstanding, the Issuer shall issue and the Trustee shall authenticate, upon written order of the Issuer in the form of an Officer’s Certificate, a new Global Note in the appropriate principal amount.

(c) Transfer and Exchange of Global Notes . The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Note shall deliver a written order given in accordance with the Depositary’s procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Note or another Global Note and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Note and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Note being transferred. Transfers by an owner of a beneficial interest in the Rule 144A Global Note to a transferee who takes delivery of such interest through the Regulation S Global Note, whether before or after the expiration of the Restricted Period, shall be made only upon receipt by the Trustee of (1) a certification in the form provided on the reverse side of the Notes from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and (2) if the Issuer so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.6(e)(i).

(i) If the proposed transfer is a transfer of a beneficial interest in one Global Note to a beneficial interest in another Global Note, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of the Global Note from which such interest is being transferred.

 

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(ii) Notwithstanding any other provisions of this Indenture (other than the provisions set forth in Section 2.7), a Global Note may not be transferred as a whole except 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.

(d) Restrictions on Transfer of Regulation S Global Notes .

(i) Prior to the expiration of the Restricted Period, interests in the Regulation S Global Note may only be held through Euroclear or Clearstream. During the Restricted Period, beneficial ownership interests in the Regulation S Global Note may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the Applicable Procedures and only (A) to the Issuer, (B) so long as such security is eligible for resale pursuant to Rule 144A, to a person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) in an offshore transaction in accordance with Regulation S, or (D) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of the United States and any state thereof. Prior to the expiration of the Restricted Period, transfers by an owner of a beneficial interest in the Regulation S Global Note to a transferee who takes delivery of such interest through the Rule 144A Global Note shall be made only in accordance with Applicable Procedures and upon receipt by the Trustee of a written certification from the transferor of the beneficial interest in the form provided on the reverse side of the Note to the effect that such transfer is being made to a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A. Such written certification shall no longer be required after the expiration of the Restricted Period.

(ii) Upon the expiration of the Restricted Period, beneficial ownership interests in the Regulation S Global Note shall be transferable in accordance with applicable law and the other terms of this Indenture.

(e) Legend .

(i) Each Note certificate evidencing the Global Notes and the Definitive Registered Notes (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form (the “ Restricted Notes Legend ”):

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) 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 RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY

 

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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 ISSUER 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.

In the case of Regulation S Notes, the Notes shall be the following additional legend:

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.

(ii) Upon any sale or transfer of a Transfer Restricted Note that is a Definitive Registered Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Note for a Definitive Registered Note that does not bear the Restricted Notes Legend and rescind any restriction on the transfer of such Transfer Restricted Note if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse side of the Notes) and, if the Issuer so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.6(e)(i).

(iii) Any Additional Notes sold in a registered offering shall not be required to bear the Restricted Notes Legend.

(iv) Cancellation and/or Adjustment of Global Note . At such time as all beneficial interests in a Global Note have either been exchanged for Definitive Registered Notes, redeemed, repurchased or canceled, such Global Note shall be returned to the Depositary for cancellation or retained and canceled by the Trustee in accordance with its customary procedures. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for Definitive Registered Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Custodian for such Global Note) with respect to such Global Note, by the Trustee or the Custodian, to reflect such reduction.

(f) Obligations with Respect to Transfers and Exchanges of Notes .

(i) To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Definitive Registered Notes and Global Notes at the Registrar’s or co-registrar’s request.

(ii) No service charge shall be made for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 3.7, 4.11 and 9.4 of this Indenture).

(iii) The Issuer need not transfer or exchange any Note selected for redemption or tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Disposition

 

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Offer, need not issue, register the transfer of or exchange any Note during the period of 15 days before the mailing of a notice of redemption of Notes to be redeemed and need not register the transfer or exchange of any Note during the period of 15 days prior to an interest payment date.

(iv) Prior to the due presentation for registration of transfer of any Note, the Issuer, the Trustee, the Paying Agent, the Registrar or any co-registrar shall deem and treat the person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Note and for all other purposes whatsoever (whether or not such Note is overdue) and none of the Issuer, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary.

(v) All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange.

(g) No Obligation of the Trustee .

(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Notes or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Note). The rights of beneficial owners in any Global Note in global form shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may conclusively rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners.

(ii) 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 without limitation any transfers between or among Depositary participants, members or beneficial owners 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.

(h) Transfer .

Any purported transfer of such Note, or any interest therein to a purchaser or transferee that does not comply with the requirements specified in this Section 2.6 will be of no force and effect and shall be null and void ab initio.

SECTION 2.7 Definitive Registered Notes .

(a) The Trustee shall promptly exchange a Global Note deposited with the Depositary or with The Bank of New York Mellon Trust Company, N.A., as Custodian pursuant to Section 2.1 of this Indenture for Definitive Registered Notes to be transferred to the beneficial owners thereof in an aggregate principal amount equal to the principal amount of such Global Note, in exchange for such Global Note, if (i) the Depositary notifies the Issuer that it is unwilling or unable to continue as a Depositary

 

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for such Global Note or if at any time the Depositary ceases to be a “clearing agency” registered under the Exchange Act and, in each case, a successor depositary is not appointed by the Issuer within 90 days of such notice or after such cessation, or (ii) the Issuer, in its sole discretion and subject to the procedures of the Depositary, notifies the Trustee in writing that it elects to cause the issuance of Definitive Registered Notes under this Indenture.

(b) Any Global Note that is transferable to the beneficial owners thereof pursuant to this Section 2.7 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Note, an equal aggregate principal amount of Definitive Registered Notes of authorized denominations. Any portion of a Global Note transferred pursuant to this Section 2.7 shall be executed, authenticated and delivered only in denominations of $200,000 and integral multiples of $1,000 in excess thereof and registered in such names as the Depositary shall direct. Any certificated Note in the form of a Definitive Registered Note delivered in exchange for an interest in the Global Note shall, except as otherwise provided by Section 2.6(e), bear the Restricted Notes Legend.

(c) Subject to the provisions of Section 2.7(b) above, the registered Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes.

(d) In the event of the occurrence of any of the events specified in Section 2.7(a)(i) or (ii), the Issuer shall promptly make available to the Trustee a reasonable supply of Definitive Registered Notes in fully registered form without interest coupons.

SECTION 2.8 Replacement Notes . If a mutilated Note is surrendered to the Registrar or if a Holder claims that the Note has been lost, destroyed or wrongfully taken, the Issuer shall issue and the Trustee shall authenticate a replacement Note if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i) notifies the Issuer and the Trustee of such loss, destruction or wrongful taking within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (ii) requests a replacement Note from the Issuer and the Trustee prior to the Note being acquired by a protected purchaser and (iii) satisfies any other reasonable requirements of the Issuer and the Trustee. If required by the Trustee or the Issuer, such Holder shall furnish an indemnity bond sufficient in the judgment of the Issuer and the Trustee to protect the Issuer, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss that any of them may suffer if a Note is replaced. The Issuer and the Trustee may charge the Holder for their expenses in replacing a Note.

SECTION 2.9 Outstanding Notes . Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.9 as not outstanding. A Note does not cease to be outstanding because the Issuer or an Affiliate of the Issuer holds the Note.

If a Note is replaced pursuant to Section 2.8, it ceases to be outstanding unless the Trustee and the Issuer receive proof satisfactory to them that the replaced Note is held by a bona fide purchaser.

If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Notes (or portions thereon) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Holders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue.

 

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SECTION 2.10 Temporary Notes . In the event that Definitive Registered Notes are to be issued under the terms of this Indenture, until such Definitive Registered Notes are ready for delivery, the Issuer may prepare and the Trustee, upon receipt of an Issuer Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of Definitive Registered Notes but may have variations that the Issuer considers appropriate for temporary Notes. Without unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate Definitive Registered Notes and deliver them in exchange for temporary Notes upon surrender of such temporary Notes at the office or agency of the Issuer, without charge to the Holder.

SECTION 2.11 Defaulted Interest . If the Issuer defaults in payment of interest on the Notes, the Issuer will pay the defaulted interest (plus interest on such defaulted interest to the extent lawful) in any lawful manner. The Issuer may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Issuer will fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee and shall promptly mail or cause to be mailed to each Holder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid.

SECTION 2.12 Cancellation . The Issuer at any time may deliver Notes to the Trustee for cancellation and the Trustee shall cancel such Notes in accordance with its customary procedures. The Registrar and the 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 and destroy (subject to the record retention requirements of the Exchange Act) all Notes surrendered for registration of transfer, exchange, payment or cancellation unless the Issuer directs the Trustee to deliver canceled Notes to the Issuer. The Issuer may not issue new Notes to replace Notes it has redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall not authenticate Notes in place of canceled Notes other than pursuant to the terms of this Indenture.

SECTION 2.13 Additional Amounts .

(a) The Issuer and the Guarantors are required to make all payments under this Indenture or on the Notes free and clear of and without withholding or deduction for or on account of any Taxes imposed or levied by or on behalf of the government of the Netherlands, the United States or, in each case, any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which the Issuer (or its successor), the Company (or its successor) or any Subsidiary Guarantor is organized or is otherwise resident for tax purposes or any jurisdiction from or through which payment is made (each a “ Relevant Taxing Jurisdiction ”), unless the Issuer, the Company or such Subsidiary Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof.

(b) If the Issuer, the Company or any Subsidiary Guarantor is so required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the Notes, the Issuer, the Company or such Guarantor will be required to pay such additional amounts (“ Additional Amounts ”) as may be necessary so that the net amount received by any Holder or beneficial owner (including Additional Amounts) after such withholding or deduction will not be less than the amount such Holder or beneficial owner would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts does not apply to:

 

  (1) any Taxes that would not have been so imposed but for the existence of any present or former connection between the relevant Holder or beneficial owner (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power over, the relevant Holder, if the relevant Holder or beneficial owner is an estate, nominee, trust or corporation) and the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or the ownership or holding outside of the Relevant Taxing Jurisdiction of such Note);

 

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  (2) any Taxes that would not have been imposed, withheld or deducted but for the failure by the Holder or the beneficial owner of the Note to comply with a written request of the Issuer, the Company or any Subsidiary Guarantor addressed to the Holder or the beneficial owner, after reasonable notice at least 30 days before any such Taxes would be imposed, withheld or deducted, to provide certification, information, documents or other evidence concerning the nationality, residence, identity or connection with the Relevant Taxing Jurisdiction of the Holder or such beneficial owners or to make any declaration or similar claim or satisfy any certification, identification, information or other reporting requirement relating to such matters, required by applicable law, regulation, treaty, any (multilateral) exchange of information regime, or administrative practice of, or entered into by, the Relevant Taxing Jurisdiction as a precondition to exemption from all or part of such Tax;

 

  (3) any Taxes that are payable otherwise than by deduction or withholding from a payment under or with respect to the Notes or any Notes Guarantee;

 

  (4) any estate, inheritance, gift, value added, sales, transfer, personal property or similar Taxes;

 

  (5) any Taxes imposed in connection with a Note presented for payment (where presentation is permitted or required for payment) by or on behalf of a Holder or beneficial owner who would have been able to avoid such Tax by presenting the relevant Note to, or otherwise accepting payment from, another paying agent;

 

  (6) any Taxes which would not have been imposed if the Holder had presented the Note for payment (where presentation is permitted or required for payment) within 30 days after the relevant payment was first made available for payment to the Holder (except for Additional Amounts with respect to Taxes that would have been imposed had the Holder presented the Note for payment within such 30-day period);

 

  (7) any Taxes imposed on or with respect to a payment to a Holder that is a fiduciary or partnership or any Person other than the sole beneficial owner of such payment or Note, to the extent that a beneficiary or settlor with respect to such fiduciary, a member of such partnership or the beneficial owner of such payment or Note would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual Holder of such Note;

 

  (8)

any Taxes imposed pursuant to Sections 1471 to 1474 of the Code (or any regulations or agreements thereunder or official interpretations thereof) also referred to as “FATCA,” any intergovernmental agreement facilitating the implementation thereof (or any law implementing such intergovernmental agreement), any successor

 

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  law or regulation implementing or complying with, or introduced in order to conform to, such sections of the Code, or any agreement entered into pursuant to Section 1471(b)(1) of the Code; or

 

  (9) any combination of the above.

(c) At least 30 calendar days prior to each date on which any payment under or with respect to the Notes is due and payable (unless such obligation to pay Additional Amounts arises shortly before or after the 30th day prior to such date, in which case it shall be promptly thereafter), if the Issuer or any Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Issuer will deliver to the Trustee and paying agent for the affected Notes notice stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the Trustee or paying agent, as the case may be, to pay such Additional Amounts to Holders and beneficial owners of such Notes on the payment date.

(d) Upon request, the Issuer will provide the Trustee with official receipts or other documentation evidencing the payment of the Taxes with respect to which Additional Amounts are paid. The Issuer or the applicable Guarantor will also (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law.

(e) Whenever reference is made in this Indenture, in any context, to (i) the payment of principal or premium, (ii) redemption prices or purchase prices in connection with a redemption or purchase of Notes, (iii) interest or (iv) any other amount payable on or with respect to the Notes, such reference will be deemed to include payment of Additional Amounts as described under this heading to the extent that, in such context, Additional Amounts are or would be payable in respect thereof.

(f) The obligations described under this Section 2.13 will survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer or any Guarantor is organized or any political subdivision or taxing authority or agency thereof or therein.

(g) The Issuer and the Guarantors shall indemnify and hold harmless the Trustee for the amount of any Taxes in respect of which the Issuer, or any Guarantor, is required to pay Additional Amounts pursuant to Section 2.13(b) that are levied or imposed and paid by the Trustee as a result of payments made under or with respect to the Notes or any Guarantee, including any reimbursements under this Section 2.13(g).

SECTION 2.14 CUSIP Numbers . The Issuer in issuing the Notes may use “CUSIP” numbers, ISINs and “Common Code” numbers (in each case if then generally in use) and, if so, the Trustee shall use “CUSIP” numbers, ISINs and “Common Code” numbers in notices of redemption as a convenience to Holders; provided , however , 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 of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will advise the Trustee in writing of any change in any “CUSIP” numbers, ISINs or “Common Code” numbers applicable to the Notes.

SECTION 2.15 Issuance of Additional Notes . After the Issue Date, the Issuer will be entitled to issue Additional Notes of a Series under this Indenture, which Notes shall have identical terms as the Notes of such Series issued on the Issue Date, other than with respect to the date of issuance, issue price, original interest accrual date and original interest payment date. All the Notes of a Series issued

 

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under this Indenture shall be treated as a single class for all purposes of this Indenture including waivers, amendments, redemptions and offers to purchase; provided , however , that unless such Additional Notes are issued under a separate CUSIP, either such Additional Notes shall be part of the same “issue” for U.S. Federal income tax purposes or shall be issued pursuant to a “qualified reopening” for U.S. Federal income tax purposes.

With respect to any Additional Notes of a Series, the Issuer will set forth in a resolution of the Board of Directors and an Officer’s Certificate, a copy of each which shall be delivered to the Trustee along with an Opinion of Counsel pursuant to Section 11.4, the following information:

(a) the aggregate principal amount of such Additional Notes of such Series to be authenticated and delivered pursuant to this Indenture; and

(b) the issue price, the issue date and the CUSIP number of such Additional Notes.

SECTION 2.16 Computation of Interest .

(a) Interest shall be computed on the basis of a 360-day year comprised of twelve 30-day months.

(b) Notwithstanding anything to the contrary herein, the Trustee shall not have any duty or obligation to calculate any interest, defaulted interest or premium on or with respect to the Notes.

ARTICLE 3.

REDEMPTION

SECTION 3.1 Notices to the Trustee . If the Issuer elects to redeem Notes pursuant to Section 5 of any Series of the Notes or otherwise in accordance with this Indenture, it shall notify the Trustee in writing of the redemption date and the principal amount of Notes to be redeemed.

The Issuer shall give each notice to the Trustee provided for in this Section 3.1 at least 60 days before the redemption date (or, in the case of a Special Mandatory Redemption, no later than one Business Day after a Special Mandatory Redemption Event) unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officer’s Certificate and an Opinion of Counsel from the Issuer to the effect that such redemption shall comply with the conditions herein. Any such notice may be canceled by written notice of the Issuer to the Trustee at any time prior to notice of such redemption being mailed to any Holder pursuant to Section 3.4 and shall thereby be void and of no effect.

 

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SECTION 3.2 Selection of Notes To Be Redeemed . If fewer than all the Notes of a Series are to be redeemed, selection of the Notes of such Series for redemption will be made by lot or otherwise in accordance with DTC procedures. The Issuer will redeem Notes of a Series of $200,000 or less in whole and not in part. Notes of a Series and portions of them selected for redemption shall be in principal amounts of $200,000 or a whole multiple of $1,000 in excess thereof, to the extent practicable. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. If the Notes are being redeemed other than on a pro rata basis, the Trustee shall notify the Issuer promptly of the Notes or portions of Notes to be redeemed.

SECTION 3.3 Effect of Notice of Redemption . Once a notice of redemption has been mailed or otherwise delivered under Section 3.4, Notes that are to be redeemed in accordance with such notice and the terms of this Article 3 shall become due and payable on the redemption date; subject to the satisfaction of any conditions in connection with the redemption. With respect to registered Notes of a Series issued in global form, the principal amount of such Note or Notes will be adjusted in accordance with the Applicable Procedures. With respect to any Notes of a Series represented by certificated notes, the Issuer will issue a new Note of such Series in a principal amount equal to the unredeemed portion of the original Note of such Series in the name of the holder upon cancelation of the original Note. Upon surrender to the Paying Agent, such Notes shall be paid under the terms stated in Section 3.4; provided that if the redemption date is after a record date for the payment of interest and on or prior to the related Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Notes registered on the relevant record date. On and after the redemption date, interest shall cease to accrue on Notes or portions thereof called for redemption.

SECTION 3.4 Notice of Redemption .

(a) At least 30 days but not more than 60 days before a date for redemption of Notes of a Series, the Issuer will mail a notice of redemption by first-class mail (or otherwise deliver in accordance with the applicable procedures of the Depositary) to each Holder of Notes of such Series to be redeemed at such Holder’s registered address, except that (i) redemption notices may be mailed (or otherwise delivered in accordance with the applicable procedures of the Depositary) more than 60 days prior to the redemption date if the notice is issued in connection with a defeasance of the Notes of such Series or a satisfaction and discharge of this Indenture and (ii) notices in connection with a Special Mandatory Redemption shall be delivered in the time period set forth in Section 3.8. Any inadvertent defect in the notice of redemption, including an inadvertent failure to give notice, to any Holder selected for redemption shall not impair or affect the validity of the redemption of any other Note redeemed in accordance with the provisions of this Indenture.

The notice shall identify the Notes of the applicable Series to be redeemed and shall state:

(i) the redemption date;

(ii) the redemption price and the amount of accrued interest to the redemption date;

(iii) the name and address of the Paying Agent;

(iv) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;

 

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(v) if fewer than all the outstanding Notes of such Series are to be redeemed (and if other than on a pro rata basis), the identification numbers and principal amounts (which amounts may be stated as a ratio of the amount to be redeemed per $1,000 principal amount outstanding) of the particular Notes of such Series to be redeemed;

(vi) that, unless the Issuer defaults in making such redemption payment, interest on Notes (or portion thereof) of such Series called for redemption ceases to accrue on and after the redemption date;

(vii) the “CUSIP” number, ISIN or “Common Code” number, if any, printed on the Notes of such Series being redeemed;

(viii) that no representation is made as to the correctness or accuracy of the “CUSIP” number, ISIN or “Common Code” number, if any, listed in such notice or printed on the Notes of such Series; and

(ix) the conditions precedent, if any, applicable to such redemption. If such redemption or notice is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuer’s discretion, the redemption date may be delayed until such time as any or all of such conditions shall be satisfied (or waived by the Issuer in its sole discretion), or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied (or waived by the Issuer in its sole discretion) by the redemption date, or by the redemption date so delayed.

(b) At the Issuer’s request, upon written notice provided to the Trustee at least 15 days (unless a shorter period is satisfactory to the Trustee) prior to the date the redemption notice must be given to the Holders, the Trustee shall give the notice of redemption in the Issuer’s name and at the Issuer’s expense. In such event, the Issuer will provide the Trustee with the information required by this Section 3.4 and a copy of the proposed notice of redemption to be mailed to the Holders.

(c) Any redemption notice may, at the Issuer’s discretion, be subject to one or more conditions precedent, including completion of a Qualified Equity Offering, refinancing transaction or other corporate transaction. If any condition precedent has not been satisfied, the Issuer will provide written notice to the Trustee prior to the close of business on the Business Day prior to the redemption date. Upon receipt of such notice, the notice of redemption shall be rescinded and the redemption of the Notes shall not occur or, if specified in such notice, the date of such redemption shall be extended to the specified date, which shall not be later than the latest date upon which such redemption is permitted to occur under this Article 3. Upon receipt, the Trustee shall provide such notice to each Holder of the Notes in the same manner in which the notice of redemption was given.

SECTION 3.5 Tax Redemption . The Notes of a Series may be redeemed, at the option of the Issuer, in whole but not in part, at any time upon giving not less than 30 nor more than 60 days’ written notice to the Holders of such Series (which notice shall be irrevocable) in accordance with Section 3.4 hereof, at a redemption price equal to 100% of the principal amount thereof on the date of redemption, plus accrued and unpaid interest, if any, to but not including the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) in the event the Issuer, the Company or any Subsidiary Guarantor has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Notes of such Series, any Additional Amounts as a result of (1) a change in or an amendment to the laws (including any regulations promulgated thereunder) of a Relevant Taxing Jurisdiction (or any political subdivision or taxing authority thereof or therein); or (2) any change in or amendment to any official position

 

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regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after the Issue Date (or, if the Relevant Taxing Jurisdiction has changed since the Issue Date, the date on which such jurisdiction became a Relevant Taxing Jurisdiction) and it cannot avoid such obligation by taking reasonable measures available to it. Before the Issuer publishes or mails notice of redemption of the Notes of the applicable Series as described above, it will deliver to the Trustee an Officer’s Certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it. The Issuer will also deliver an opinion of independent legal counsel of recognized standing stating that it would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations. The provisions described under this Section 3.5 will survive any termination, defeasance or discharge of this Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Issuer is organized or any political subdivision or taxing authority or agency thereof or therein. Any Notes that are redeemed pursuant to this Section 3.5 shall be cancelled.

SECTION 3.6 Deposit of Redemption Price . On or prior to 10:00 a.m. New York City time on the relevant redemption date, the Issuer will deposit with the Paying Agent (or, if the Issuer or a wholly owned subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest, and Applicable Premium, if any, on all Notes of the applicable Series or portions thereof to be redeemed on that date other than Notes of such Series or portions of such Notes called for redemption that have been delivered by the Issuer to the Trustee for cancelation; provided , however ¸ that in the case of a Special Mandatory Redemption, such redemption shall be effected with the Escrowed Property in accordance with the terms of the Escrow Agreements. On and after the redemption date, interest shall cease to accrue on Notes of the applicable Series or portions thereof called for redemption so long as the Issuer has deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest, and Applicable Premium, if any, on, the Notes of such Series to be redeemed, unless the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture.

SECTION 3.7 Notes Redeemed in Part . Upon surrender of a Note that is redeemed in part, if such Note is in certificated form, the Issuer shall execute and the Trustee shall authenticate for the Holder (at the Issuer’s expense) a new Note equal in principal amount to the unredeemed portion of the Note surrendered.

SECTION 3.8 Special Mandatory Redemption .

(a) If (i) the Escrow Agent and the Trustee have not received an Officer’s Certificate and release notice on or prior to 11:59 p.m. Eastern Standard Time on April 3, 2017 (the “ Outside Date ”) certifying that, substantially concurrently with the Release (as defined below), the Escrow Release Conditions (as defined below) will be satisfied, or (ii) the Company shall have notified the Escrow Agent and the Trustee in writing in the form of an Officer’s Certificate stating that (x) Parent has abandoned the separation and distribution or (y) that the Escrow Release Conditions will not be satisfied (each of the events described in the foregoing clauses (i) and (ii), a “ Special Mandatory Redemption Event ”), then the Issuer will, on the Special Mandatory Redemption Date, 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 of 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 not including, the Special Mandatory Redemption Date (subject to the right of Holders of record of Notes on the relevant record date to receive interest due on the relevant interest payment date). “ Special Mandatory Redemption Date ” means the date that is five Business Days after the Special Mandatory Redemption Notice Date. “ Escrowed Property ” means an amount of cash equal to the net proceeds of the offering of the Notes sold on the Issue Date, plus an additional amount in cash sufficient to make

 

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all interest payments due and payable on the Notes to but not including the latest possible Special Mandatory Redemption Date and to pay the maximum possible Special Mandatory Redemption Price, together with any other property from time to time held by the Escrow Agent for the benefit of the Holders of the Notes.

(b) Notice of the Special Mandatory Redemption will be mailed by first-class mail (or otherwise delivered in accordance with the applicable procedures of DTC) by the Issuer no later than three Business Days following a Special Mandatory Redemption Event to each Holder of Notes at its registered address and the Trustee and the Escrow Agent (such date of mailing, the “ Special Mandatory Redemption Notice Date ”).

(c) The Escrowed Property will be released to or at the direction of the Issuer (the “ Release ”) only upon receipt prior to the Outside Date by the Trustee and the Escrow Agent of an Officer’s Certificate (in form and substance required pursuant to the terms of the Escrow Agreements) to the effect that (collectively, the “ Escrow Release Conditions ”):

 

  (1) substantially concurrently with the Release, the separation and distribution will be consummated, in each case in all material respects consistent with the information set forth in the Offering Memorandum, other than modifications that are not material and adverse to the rights of holders of the Notes (as conclusively determined by the Board of Directors of the Company);

 

  (2) immediately before the Release, each of the Company and the Issuer is a wholly owned subsidiary of the Parent, and immediately after the Release, the Issuer will be a wholly owned subsidiary of the Company;

 

  (3) each Initial Subsidiary Guarantor has executed and delivered to the Trustee a supplemental indenture to this Indenture to provide a Note Guarantee and such Note Guarantees will be effective and enforceable under this Indenture on the Distribution Date, except as otherwise disclosed in the Offering Memorandum (other than any Non-U.S. Subsidiary Guarantor that cannot Guarantee the Notes on the Distribution Date due to the requisite corporate or governmental approvals under the applicable laws of the jurisdiction of incorporation of such Non-U.S. Subsidiary Guarantor for such Note Guarantee not having been received, which such Non-U.S. Subsidiary Guarantors shall execute and deliver to the Trustee supplemental indentures to provide Note Guarantees within 90 days after the Distribution Date); and

 

  (4) at the time of the Release, on a pro forma basis after giving effect to the separation and distribution and the Release, no Default or Event of Default has occurred and is continuing under this Indenture.

(d) Failure to make the Special Mandatory Redemption, if required, in accordance with the terms described above will constitute an Event of Default with respect to the Notes.

SECTION 3.9 Change of Control Repurchase Event Stub Redemption . If Holders of not less than 90% in aggregate principal amount of the outstanding Notes of the applicable Series validly tender and do not withdraw such Notes in a Change of Control Offer and the Issuer, or any third party making a Change of Control Offer in lieu of the Issuer as described in Section 4.11, purchases all of the Notes of such Series validly tendered and not withdrawn by such Holders, the Issuer or such third party will have the right, upon not less than 30 days’ nor more than 60 days’ prior notice ( provided that such

 

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notice is given not more than 30 days following such purchase pursuant to the Change of Control Offer described in Section 4.11) to redeem all Notes of such Series that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount thereof on the redemption date plus accrued and unpaid interest (if any) to but not including the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

ARTICLE 4.

COVENANTS

SECTION 4.1 Payment of Notes . The Issuer shall promptly pay the principal of and interest, and Applicable Premium, if any, on the Notes on the dates and in the manner provided in the Notes and in this Indenture. Principal, interest, and Applicable Premium, if any, shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest 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.

The Issuer shall pay interest on overdue principal at the rate specified in the Notes to the extent lawful, and it shall pay interest on overdue installments of interest and overdue Applicable Premium, if any, at the same rate to the extent lawful.

SECTION 4.2 SEC Reports .

(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 (subject to the next sentence), and provide to the Trustee and Holders of the Notes, within the time periods applicable to non-accelerated filers:

 

  (1) all quarterly and annual reports required to be filed with the SEC on Forms 10-Q and 10-K; and

 

  (2) all current reports required to be filed with the SEC on Form 8-K.

(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 may, in lieu of filing with the SEC, post the substance of the reports specified in paragraph (a) above on its website or on a password protected site maintained by the Company or a third party (which may be password protected to which access will be given to securities analysts, Holders and prospective purchasers of the Notes (which prospective purchasers may be limited to “qualified institutional buyers” (as defined in Rule 144A under the Securities Act) or non-U.S. persons (as defined in Regulation S under the Securities Act) that certify their status as such to the reasonable satisfaction of the Company and who acknowledge the confidentiality of the information posted), and provide such information to the Trustee, in each case within the time periods for non-accelerated filers that would apply if the Company were required to file those reports with the SEC; provided that, if the separation and distribution have not occurred on or prior to the date 90 days after the end of the relevant fiscal quarter or 120 days after the end of the relevant fiscal year, the Company may provide the information required above with respect to such fiscal quarter or fiscal year by means of an amendment to the Form 10.

(c) Notwithstanding anything to the contrary in this Section 4.2, the Company shall not be required to file, post, or provide to the Trustee, the separate financial statements or condensed consolidating financial information required by Rule 3-09, 3-10 or 3-16 of Regulation S-X.

 

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(d) For the avoidance of doubt, prior to the Distribution Date (and for all periods prior to the Distribution Date), any report delivered pursuant to the requirements of this Section 4.2 shall include only the financial results of the Company included in the Form 10.

(e) For purposes of this Section 4.2, the Company will be deemed to have provided a required report to the Trustee and the Holders if it has filed such report with the SEC via the EDGAR filing system (or any successor system).

(f) In addition, at any time when the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will furnish to the Holders of the Notes and to prospective investors, upon the requests of such holders, any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as the Notes are not freely transferable under the Securities Act.

(g) Notwithstanding the foregoing provisions of this Section 4.2, in the event that any direct or indirect parent company of the Company becomes a guarantor of the Notes, the Company shall be permitted to satisfy its obligations pursuant to this Section 4.2 with respect to financial information relating to the Company by furnishing or filing the required financial information relating to such direct or indirect parent company.

(h) Notwithstanding anything herein to the contrary, the Company will not be deemed to have failed to comply with any of its obligations under this Section 4.2 for purposes of Section 6.1(a)(4) until 120 days after the date any report hereunder is due.

SECTION 4.3 Compliance Certificate . The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officer’s Certificate to the effect that a review of its activities and the activities of its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each Officer signing such certificate, whether or not the signer knows of any failure by the Company or any Subsidiary of the Company to comply with any conditions or covenants in this Indenture, and, if such signer does know of such a failure to comply, the certificate shall describe such failure with particularity and describe what actions, if any, the Company proposes to take with respect to such failure.

SECTION 4.4 Limitation on Indebtedness .

(a) Neither the Company nor the Issuer will, nor will the Company or the Issuer permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness (including Acquired Indebtedness), none of the Company, the Issuer or any Restricted Subsidiary will issue any Disqualified Equity Interests, and no Restricted Subsidiary that is not a Subsidiary Guarantor will issue any Preferred Stock; provided , however , that (1) the Company, the Issuer and the Restricted Subsidiaries will be entitled to Incur Indebtedness or issue Disqualified Equity Interests or Preferred Stock if, on the date of such Incurrence or issuance and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio exceeds 2.00 to 1.00 (provided that the aggregate amount of Indebtedness, Disqualified Equity Interests and Preferred Stock that may be Incurred or issued, as applicable, pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed the greater of (i) $1.0 billion and (ii) 6.0% of Consolidated Total Assets at any one time outstanding (together with all Refinancing Indebtedness Incurred by Restricted Subsidiaries that are not Subsidiary Guarantors then outstanding and Incurred to refinance any of the foregoing pursuant to Section 4.4(a)(2)) and (2) Refinancing Indebtedness in respect of Indebtedness Incurred or assumed pursuant to Section 4.4(a)(1) (any such Indebtedness Incurred pursuant to Section 4.4(a)(1) being herein referred to as “ Coverage Indebtedness ”).

 

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(b) Notwithstanding Section 4.4(a), the Company, the Issuer and the Restricted Subsidiaries will be entitled to Incur any or all of the following Indebtedness (any such Indebtedness Incurred pursuant to this Section 4.4(b) being herein referred to as “ Permitted Indebtedness ”):

 

  (1) Indebtedness of the Company, the Issuer or any Subsidiary Guarantor Incurred pursuant to any Credit Facility and the issuance and creation of letters of credit and bankers’ acceptances thereunder (with undrawn trade letters of credit and reimbursement obligations relating to trade letters of credit satisfied within 30 days being excluded, and bankers’ acceptances being deemed to have a principal amount equal to the face amount thereof); provided , however , that, after giving effect to any such Incurrence, the aggregate principal amount of all Indebtedness Incurred under this Section 4.4(b)(1) and then outstanding does not exceed (i) the greater of (A) $1.75 billion and (B) 10.5% of Consolidated Total Assets as of the last day of the fiscal quarter of the Company most recently ended for which internal financial statements are available, plus (ii) an additional amount of such Indebtedness, if any, secured by Liens to the extent that the Consolidated Net Secured Leverage Ratio, calculated on a pro forma basis after giving effect to the Incurrence of such Indebtedness and the application of the proceeds therefrom, would not be greater than 2.0 to 1.0 (any such Indebtedness Incurred pursuant to this Section 4.4(b)(1) being herein referred to as “ Credit Facility Indebtedness ”);

 

  (2) the Notes (including any Note Guarantee) (other than any Additional Notes) and any Refinancing Indebtedness in respect thereof;

 

  (3) Indebtedness outstanding on the Issue Date (including any such Indebtedness of Parent or a subsidiary of Parent as of the Issue Date that is Indebtedness of the Company, the Issuer or a Restricted Subsidiary as of the Distribution Date) (other than Indebtedness described in Sections 4.4(b)(1), (2) or (5)) and any Refinancing Indebtedness in respect thereof;

 

  (4) Indebtedness outstanding on the Distribution Date (other than Indebtedness described in Sections 4.4(b)(1), (2), (3) or (5)) and any Refinancing Indebtedness in respect thereof; provided that the aggregate principal amount of Indebtedness permitted under this Section 4.4(b)(4) on the Distribution Date, together with the aggregate principal amount of Indebtedness outstanding on the Distribution Date under Section 4.4(b)(2), does not exceed $1.75 billion;

 

  (5) Indebtedness of the Company owed to and held by the Issuer or any Restricted Subsidiary, of the Issuer owed to and held by the Company or any Restricted Subsidiary, and of any Restricted Subsidiary owed to and held by the Company, the Issuer or any other Restricted Subsidiary; provided that (A) any subsequent issuance or transfer of any Equity Interests or any other event that results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than, subject to clause (B), to the Issuer, the Company or a Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the obligor thereon and (B) Indebtedness of the Company, the Issuer or a Subsidiary Guarantor owed to and held by a Restricted Subsidiary other than the Issuer or a Subsidiary Guarantor shall be unsecured and expressly subordinated to all obligations with respect to the Notes;

 

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  (6) Guarantees by the Company of Indebtedness of the Issuer or any Restricted Subsidiary, by the Issuer of Indebtedness of the Company or any Restricted Subsidiary, and by any Restricted Subsidiary of Indebtedness of the Company, the Issuer or any other Restricted Subsidiary; provided that (A) the Indebtedness so Guaranteed is permitted by another provision of this Section 4.4 (other than Sections 4.4(b)(3), (4) or (8)) and (B) Guarantees permitted under this Section 4.4(b)(6) shall be expressly subordinated to the Notes or the Note Guarantee of the Company, the Issuer or any Subsidiary Guarantor, as the case may be, to the same extent and on the same terms as the Indebtedness so Guaranteed is subordinated to the Notes or Note Guarantees;

 

  (7) (A) Indebtedness of the Company, the Issuer or any Restricted Subsidiary Incurred to finance the acquisition, construction, lease or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed by the Company, the Issuer or any Restricted Subsidiary in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof; provided that such Indebtedness is Incurred prior to or within 360 days after such acquisition or lease or the completion of such construction or improvement, and (B) Refinancing Indebtedness in respect of Indebtedness Incurred or assumed pursuant to clause (A) above; provided further , that, immediately after giving effect to any Incurrence of Indebtedness in accordance with this Section 4.4(b)(7), the aggregate principal amount of Indebtedness Incurred in accordance with this Section 4.4(b)(7) shall not exceed the greater of (x) $500 million and (y) 3.0% of Consolidated Total Assets as of the last day of the fiscal quarter of the Company most recently ended for which internal financial statements are available;

 

  (8)

(A) Indebtedness of any Person Incurred and outstanding on the date that such Person becomes a Restricted Subsidiary (including an Unrestricted Subsidiary being designated a Restricted Subsidiary) or that such Person is merged or consolidated with or into the Company, the Issuer or any Restricted Subsidiary, or Indebtedness of any Person that is assumed by the Company, the Issuer or any Restricted Subsidiary in connection with an acquisition of all or substantially all of the assets of, or one or more units, divisions or lines of business or product lines of, such Person by the Company, the Issuer or such Restricted Subsidiary, (B) Indebtedness of any Person that becomes a Restricted Subsidiary or of the Company, the Issuer or any Restricted Subsidiary Incurred (i) to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary (including being designated as a Restricted Subsidiary) or that such Person is merged or consolidated with or into the Company, the Issuer or any Restricted Subsidiary or the acquisition of all or substantially all of the assets of, or one or more units, divisions or lines of business or product lines of, such Person by the Company, the Issuer or any Restricted Subsidiary; provided that, in the case of clause (A) or (B), immediately after giving effect to such Person becoming a Restricted Subsidiary, or such merger or consolidation, or such acquisition of assets and Incurrence of Indebtedness in accordance with clause (A) or (B), either: (i) the Company would have been able to Incur $1.00 of additional Coverage Indebtedness or (ii) the Consolidated Coverage Ratio would have been equal to or higher than such ratio immediately prior to such Person becoming a Restricted Subsidiary, or such merger or consolidation, or such acquisition of assets

 

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  and Incurrence of Indebtedness in accordance with clause (A) or (B), and (C) Refinancing Indebtedness in respect of Indebtedness assumed pursuant to clause (A) or (B) above;

 

  (9) Indebtedness owed to any Person (including obligations in respect of letters of credit, bank guarantees and similar instruments for the benefit of such Person) providing workers’ compensation, health, disability or other employee benefits or property, casualty or liability insurance, pursuant to reimbursement or indemnification obligations to such Person, in each case Incurred in the ordinary course of business;

 

  (10) Indebtedness owed to any Person (including obligations in respect of letters of credit, bank guarantees and similar instruments for the benefit of such Person) in respect of performance bonds, bid bonds, appeal bonds, surety bonds, performance and completion guarantees and similar obligations (other than in respect of other Indebtedness), in each case provided in the ordinary course of business;

 

  (11) Indebtedness under Hedging Agreements or Commercial Agreements (excluding Hedging Agreements or Commercial Agreements entered into for speculative purposes);

 

  (12) Indebtedness owed in respect of any (i) employee credit or purchase card programs or (ii) overdrafts and related liabilities arising from treasury, depositary and cash management services or in connection with any automated clearinghouse transfers of funds; provided that, in the case of clause (ii), such Indebtedness shall be repaid in full within ten Business Days of the Incurrence thereof;

 

  (13) Indebtedness in respect of judgments that do not constitute an Event of Default;

 

  (14) Indebtedness arising as a result of a fiscal unity ( fiscale eenheid ) for Dutch corporate income tax purposes;

 

  (15) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided , however , that such Indebtedness is extinguished within five Business Days of Incurrence;

 

  (16) Indebtedness in the form of letters of credit and reimbursement obligations relating to letters of credit that are satisfied within 30 days of being drawn;

 

  (17) Indebtedness of the Company, the Issuer or any Restricted Subsidiary consisting of the financing of insurance premiums Incurred in the ordinary course of business;

 

  (18) Indebtedness of the Company, the Issuer or any Restricted Subsidiary consisting of take-or-pay obligations contained in supply arrangements Incurred in the ordinary course of business;

 

  (19) Indebtedness of the Company, the Issuer or any Subsidiary Guarantor, to the extent the net proceeds thereof are promptly (A) used to purchase the Notes tendered in connection with a Change of Control Offer or (B) deposited to defease or discharge the Notes in accordance with Article 8;

 

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  (20) Indebtedness of a Receivables Subsidiary in a Qualified Receivables Financing that is not recourse to the Company, the Issuer or any Restricted Subsidiary other than a Receivables Subsidiary (except for Standard Securitization Undertakings);

 

  (21) Indebtedness or Disqualified Equity Interests of the Company and the Issuer and Indebtedness, Disqualified Equity Interests or Preferred Stock of the Company, the Issuer or any Restricted Subsidiary in an aggregate principal amount outstanding at any one time under this Section 4.4(b)(21) not to exceed the greater of (x) $500 million and (y) 3.0% of Consolidated Total Assets;

 

  (22) Contribution Indebtedness;

 

  (23) Indebtedness, Disqualified Equity Interests or Preferred Stock of Restricted Subsidiaries that are not Subsidiary Guarantors in an aggregate principal amount outstanding at any one time under this Section 4.4(b)(23) not to exceed the greater of (x) $250 million and (y) 1.5% of Consolidated Total Assets, plus , in the case of any refinancing of any Indebtedness, Disqualified Equity Interests or Preferred Stock permitted under this Section 4.4(b)(23) or any portion thereof, the aggregate amount of fees, underwriting discounts, accrued and unpaid interest, premiums and other costs and expenses Incurred in connection with such refinancing, outstanding at any one time;

 

  (24) the Ma’aden Guarantees and any extension, renewal or refinancing in respect thereof (the “ Refinancing Ma’aden Guarantees ”); provided that the aggregate amount of Indebtedness and other obligations guaranteed by the Refinancing Ma’aden Guarantees (including, for the avoidance of doubt, any interest payments or other payment obligations related to the Ma’aden Indebtedness guaranteed thereby) shall not exceed 125% of the aggregate amount guaranteed by the Ma’aden Guarantees as of the Issue Date (it being understood that the aggregate principal amount of the Indebtedness being Incurred may be in excess of such amount to the extent the guarantee of such excess is otherwise permitted by another provision of this Section 4.4); provided , further , that, subject to the foregoing, any novation of the Ma’aden Guarantees or Refinancing Ma’aden Guarantees to the Company or the Issuer shall be permitted;

 

  (25) Indebtedness in the form of purchase price adjustments, earnouts, indemnification obligations, non-competition agreements or other arrangements representing acquisition consideration or deferred payments of a similar nature Incurred in connection with any acquisition;

 

  (26) Indebtedness in the form of Guarantees of loans and advances and reimbursements owed to officers, directors, consultants and employees, in the ordinary course of business;

 

  (27) Indebtedness representing deferred compensation payable to directors, officers or employees of the Company, the Issuer or any subsidiary Incurred in the ordinary course of business;

 

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  (28) Indebtedness of any Excluded Subsidiary under clause (ii) of the definition thereof in the form of Guarantees of Indebtedness of the Company, the Issuer or any Subsidiary Guarantor Incurred pursuant to Section 4.4(b)(1) (other than capital markets Indebtedness); and

 

  (29) Liens granted in reliance on clause (12) of the definition of “Permitted Liens”.

(c) For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness and Disqualified Equity Interests and Preferred Stock of Restricted Subsidiaries that are not Subsidiary Guarantors:

 

  (1) (A) any Indebtedness outstanding after the separation and distribution on the Distribution Date under the Revolving Credit Agreement will be treated as Incurred as Credit Facility Indebtedness under Section 4.4(b)(1) and not pursuant to Section 4.4(a) or Section 4.4(b)(4) and (B) the Issuer will, in its sole discretion, classify all other items of Indebtedness Incurred on or prior to, and outstanding on, the Distribution Date to the Permitted Indebtedness clauses in Section 4.4(b) (and not as Coverage Indebtedness) to the extent such Indebtedness meets the criteria thereof; provided that, to the extent the Issuer is unable to classify any such item of Indebtedness Incurred, a Default will be deemed to have occurred under this Section 4.4;

 

  (2) except as provided in Section 4.4(c)(1), in the event that an item of Indebtedness (or any portion thereof) meets the criteria of more than one of the types of Indebtedness described in Section 4.4, the Issuer, in its sole discretion, will classify such item of Indebtedness (or any portion thereof) at the time of Incurrence and will only be required to include the amount and type of such Indebtedness in one of the above clauses;

 

  (3) except as provided in Section 4.4(c)(1), the Issuer will be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described above and, in that connection, the Issuer will be entitled to treat a portion of such Indebtedness as Coverage Indebtedness and the balance of such Indebtedness as an item or items of Permitted Indebtedness;

 

  (4) the Issuer may later reclassify any Permitted Indebtedness originally classified as Incurred pursuant to one of the clauses in Section 4.4(b) above (other than Section 4.4(b)(1)) such that it will be deemed as having been Incurred as Coverage Indebtedness pursuant to Section 4.4(a) above or as Permitted Indebtedness pursuant to another clause in Section 4.4(b) above, as applicable, to the extent that such reclassified Indebtedness could be Incurred pursuant thereto at the time of such reclassification;

 

  (5) Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness that is otherwise included in the determination of a particular amount of Indebtedness shall not be included;

 

  (6) if obligations in respect of letters of credit are Incurred pursuant to a credit agreement and are being treated as Incurred as Credit Facility Indebtedness and the letters of credit relate to other Indebtedness, then such other Indebtedness shall not be included;

 

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  (7) the principal amount of any Disqualified Equity Interests or Preferred Stock will be equal to the greater of the maximum mandatory redemption or repurchase price (not including, in either case, any redemption or repurchase premium) or the liquidation preference thereof; and

 

  (8) the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP.

(d) Accrual of interest, accrual of dividends, the accretion of accreted value, the amortization of debt discount, the payment of interest in the form of additional Indebtedness and the payment of dividends in the form of additional shares of Preferred Stock or Disqualified Equity Interests will not be deemed to be an Incurrence of Indebtedness. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof in the case of any Indebtedness issued with original issue discount or the aggregate principal amount outstanding in the case of Indebtedness issued with interest payable in kind and (ii) the principal amount or liquidation preference thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

(e) If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under this Section 4.4, the Company and the Issuer will be in Default of this Section 4.4).

(f) For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness and Liens securing 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 Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this Section 4.4, the maximum amount of Indebtedness that the Company, the Issuer and any Restricted Subsidiary may Incur or secure shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such refinancing indebtedness is denominated that is in effect on the date of such refinancing.

(g) The Issuer may elect, at any time, with respect to any revolving Indebtedness, to calculate the Consolidated Net Secured Leverage Ratio by either (A) giving pro forma effect to the Incurrence of the entire committed amount of such Indebtedness at such time, in which case, if the Incurrence of such entire amount would be permitted under Section 4.4(b)(1)(ii) at such time after giving such pro forma effect, such committed amount may thereafter be borrowed or reborrowed, in whole or in part, from time to time, without further compliance with the Consolidated Net Secured Leverage Ratio component of any provision in this Section 4.4, or (B) giving pro forma effect to the Incurrence of the amount drawn at such time under such revolving Indebtedness in which case, if the Incurrence of such drawn amount would permitted under Section 4.4(b)(1)(ii) at such time after giving such pro forma effect, such drawn amount may thereafter be borrowed or reborrowed, in whole or in part, from time to time, without further compliance with the Consolidated Net Secured Leverage Ratio component of any provision of this

 

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Section 4.4; provided that, at any time, the lesser of (i) such entire committed amount, in the case of clause (A), or such drawn amount, in the case of clause (B), and (ii) the entire committed amount of such revolving Indebtedness at such time, if any, will be deemed to be outstanding under Section 4.4(b)(1)(ii) for all purposes. The Issuer may revoke an election pursuant to this paragraph at any time, at which time the entire drawn outstanding amount of such revolving Indebtedness will be deemed to be Incurred at such time.

(h) In the case of any refinancing of any Indebtedness, Disqualified Equity Interests or Preferred Stock permitted under Sections 4.4(b)(1), (7), (21) or (23) or any portion thereof, the amount of Indebtedness, Disqualified Equity Interests or Preferred Stock being Incurred to finance the aggregate amount of fees (including upfront, commitment and ticking fees and original issue discount), underwriting discounts, penalties or premiums (including reasonable tender premiums), defeasance and satisfaction and discharge costs, accrued interest and other costs and expenses incurred in connection with such refinancing will not be deemed to be an Incurrence or issuance of Indebtedness, Disqualified Equity Interests or Preferred Stock for purposes of this Section 4.4.

(i) Notwithstanding anything in this Section 4.4 to the contrary, in the case of any Indebtedness, Disqualified Equity Interests or Preferred Stock Incurred to refinance Indebtedness, Disqualified Equity Interests or Preferred Stock initially Incurred in reliance on Sections 4.4(b)(1), (7), (21) or (23), measured by reference to a percentage of Consolidated Total Assets at the time of Incurrence, and such refinancing would cause the percentage of Consolidated Total Assets restriction to be exceeded if calculated based on the percentage of Consolidated Total Assets on the date of such refinancing, such percentage of Consolidated Total Assets restriction shall not be deemed to be exceeded so long as the principal amount of such refinancing Indebtedness, Disqualified Equity Interests or Preferred Stock does not exceed the principal amount of such Indebtedness being refinanced, plus the aggregate amount of fees (including upfront, commitment and ticking fees and original issue discount), underwriting discounts, penalties or premiums (including reasonable tender premiums), defeasance and satisfaction and discharge costs and other costs and expenses incurred in connection with such refinancing.

SECTION 4.5 Limitation on Restricted Payments .

(a) Neither the Company nor the Issuer will, nor will they permit any Restricted Subsidiary to, make any Restricted Payment if at the time the Company, the Issuer or such Restricted Subsidiary makes such Restricted Payment:

 

  (1) a Default has occurred and is continuing (or would result therefrom);

 

  (2) immediately after giving effect to such transaction on a pro forma basis, the Company could not Incur $1.00 of additional Coverage Indebtedness; or

 

  (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared, made, agreed to pay or make or for which an obligation has been incurred subsequent to the Issue Date (without duplication and excluding Restricted Payments made pursuant to Sections 4.5(b)(1), (2), (3), (5), (6) (7), (8), (9), (10), (13), (15), (17) and (18)) would exceed the sum of (without duplication):

 

  (A)

50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter of the Company immediately following the fiscal quarter during which the Issue Date occurs to the end of the most recent fiscal quarter of the Company

 

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  for which internal financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus

 

  (B) 100% of the aggregate Net Cash Proceeds, or Fair Market Value of assets, received by the Company from the issue or sale of its Equity Interests (other than Disqualified Equity Interests) or other capital contributions subsequent to the Issue Date (other than in connection with the Transactions), other than:

 

  (i) Net Cash Proceeds, or the Fair Market Value of assets, received by the Company from an issuance or sale of such Equity Interests to the Issuer or another subsidiary of the Company or the Issuer or to an employee stock ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from or Guaranteed by the Company, the Issuer or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination; and

 

  (ii) Excluded Contributions; plus

 

  (C) the amount by which Indebtedness of the Company, the Issuer or any Restricted Subsidiary is reduced on the Company’s consolidated balance sheet upon the conversion or exchange (other than by the Issuer or another subsidiary of the Company) subsequent to the Issue Date (other than in connection with the Transactions) of any Indebtedness of the Company, the Issuer or any Restricted Subsidiary converted or exchanged for Qualified Equity Interests (less the amount of any cash, or the Fair Market Value of any other property (excluding such Equity Interests), distributed by the Company upon such conversion or exchange); plus

 

  (D) an amount equal to:

 

  (i) 100% of the aggregate amount received in cash and the Fair Market Value of marketable securities or other property received by means of repurchases or redemptions of Restricted Investments by such Person, proceeds realized upon the sale or other disposition of such Restricted Investment (other than to the Company, the Issuer or a Restricted Subsidiary), repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Company, the Issuer or any Restricted Subsidiary, including dividends received from Unrestricted Subsidiaries, which amount in each case under this clause (i) was included in the calculation of the amount of Restricted Payments made; or

 

  (ii)

the Fair Market Value of the Investment in an Unrestricted Subsidiary that is being redesignated as a Restricted Subsidiary of the Company or the merger, amalgamation, arrangement or consolidation

 

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  of an Unrestricted Subsidiary with and into, or the transfer or conveyance of all or substantially all of its assets to, the Company, the Issuer or any of the Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) other than in each case to the extent that the designation of such subsidiary as an Unrestricted Subsidiary was made pursuant to Section 4.5(b)(16) or constituted a Permitted Investment.

(b) Section 4.5(a) will not prohibit:

 

  (1) the Issuer and any Restricted Subsidiary declaring and paying dividends or making other distributions with respect to its Equity Interests, or making other Restricted Payments described in clause (1) of the definition thereof in respect of its Equity Interests, in each case, so long as, in respect of any Equity Interests of the Issuer or such Restricted Subsidiary if it is not a wholly owned subsidiary of the Company, such payment, distribution or Restricted Payment is made at least ratably to the Company, the Issuer or Restricted Subsidiary that holds such Equity Interests of such series;

 

  (2) the Company declaring and paying dividends or distributions with respect to its Equity Interests payable solely in shares of Qualified Equity Interests;

 

  (3) Restricted Payments:

 

  (A) pursuant to and in accordance with stock option plans, other benefit plans or employment agreements approved by the Board of Directors of the Company for existing or former directors, officers, employees or consultants of the Company, the Issuer and the Restricted Subsidiaries; and

 

  (B) pursuant to and in accordance with stock option plans and other benefit plans in connection with the separation and distribution as contemplated in the Separation Documents (as described in the Offering Memorandum);

provided, however, that in no event shall the aggregate amount of such Restricted Payments under this Section 4.5(b)(3) exceed $25 million during any fiscal year (with any unused amount of such base amount from any fiscal year available for use in the next two succeeding fiscal years following the use of the base amount permitted by this Section 4.5(b) (3) in such succeeding fiscal years; provided , further , that such amount in any calendar year may be increased by an amount not to exceed:

 

  (i) the cash proceeds from the sale of Equity Interests (other than Disqualified Equity Interest) of the Company and, to the extent contributed to the Company, the cash proceeds from the sale of Equity Interests of any direct or indirect parent company of the Company, in each case to any future, present or former employees, directors, officers, members of management or consultants of the Company, any of its subsidiaries or any of its direct or indirect parent companies that occurs on or after the Distribution 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 4.5(a)(3); plus

 

  (ii) the cash proceeds of key man life insurance policies received by the Company, the Issuer or any of the Restricted Subsidiaries (or by any direct or indirect parent company to the extent contributed to the Company) after the Distribution Date;

 

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  (4) cash payments in lieu of the issuance of fractional shares of Equity Interests in connection with any transaction otherwise permitted under this Section 4.5;

 

  (5) repurchases of Equity Interests upon the exercise of stock options, warrants, other rights to purchase Equity Interests or other convertible securities or similar securities if such Equity Interests represent a portion of the exercise price thereof or withholding of Equity Interests to pay related withholding taxes with regard to the exercise of such stock options or the vesting of any such restricted stock, restricted stock units, deferred stock units or any similar securities;

 

  (6) declaration and payment of the Distribution Date Distribution (without duplication of Restricted Payments made pursuant to Section 4.5(b)(7));

 

  (7) Restricted Payments (a) under the Separation Documents as described in the Offering Memorandum (without duplication of Restricted Payments made pursuant to Section 4.5(b)(6)) or (b) with the net proceeds from the sale of the Yadkin Facility as such sale is described in the Offering Memorandum;

 

  (8) the purchase, redemption, retirement, acquisition, exchange, conversion, cancelation or termination of any defeasance or other acquisition or retirement for value of any Equity Interests, Disqualified Equity Interests or Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Qualified Equity Interests; provided , however , that the Net Cash Proceeds from such sale of Qualified Equity Interests will be excluded from Section 4.5(a)(3)(B);

 

  (9) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of the Company, the Issuer or any Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company, the Issuer or any Restricted Subsidiary so long as such refinancing Subordinated Obligations are permitted to be Incurred pursuant to Section 4.4 and constitute Refinancing Indebtedness;

 

  (10) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Equity Interests of the Company, the Issuer or any Restricted Subsidiary at the stated maturity thereof or made by exchange for or out of the proceeds of the substantially concurrent sale of Disqualified Equity Interests of the Company, the Issuer or such Restricted Subsidiary, as the case may be, so long as such refinancing Disqualified Equity Interests are permitted to be Incurred pursuant to Section 4.4 and constitute Refinancing Indebtedness;

 

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  (11) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Obligation (A) at a purchase price not greater than 101% of the principal amount of such Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to Section 4.11 or (B) at a purchase price not greater than 100% of the principal amount thereof in accordance with provisions similar to Section 4.7; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, a Change of Control Offer or Asset Disposition Offer, as applicable, has been made as provided in Sections 4.11 or 4.7, as applicable, with respect to the Notes and the repurchase or redemption of all Notes validly tendered for payment in connection with such Change of Control Offer or Asset Disposition Offer has been completed;

 

  (12) (A) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this Section 4.5 and (B) the redemption of Subordinated Obligations within 60 days after the date on which notice of such redemption was given, if at the date of the giving of such notice of redemption, such redemption would have complied with this Section 4.5;

 

  (13) the declaration and payment of dividends to holders of any class or series of Disqualified Equity Interests of the Company, the Issuer or a Restricted Subsidiary or Preferred Stock of the Issuer or a Restricted Subsidiary issued in accordance with the terms of this Indenture to the extent such dividends are included in the definition of “Consolidated Interest Expense”;

 

  (14) payments or distributions to holders of the Equity Interests of the Company, the Issuer or any Restricted Subsidiary pursuant to appraisal or dissenter rights required under applicable law or pursuant to a court order in connection with any merger, amalgamation, arrangement, consolidation or sale, assignment, conveyance, transfer, lease or other disposition of assets;

 

  (15) the Company declaring and making annual ordinary dividends in an aggregate amount not to exceed the following amounts for each period set forth below:

 

Time Period

   Amount  

Distribution Date to Dec 31, 2017

   $ 37,500,000   

Jan 1, 2018 to Dec 31, 2018

   $ 37,500,000   

Jan 1, 2019 to Dec 31, 2019

   $ 50,000,000   

Jan 1, 2020 to Dec 31, 2020

   $ 50,000,000   

Jan 1, 2021 to Dec 31, 2021

   $ 75,000,000   

Jan 1, 2022 to Dec 31, 2022

   $ 75,000,000   

Jan 1, 2023 to Dec 31, 2023

   $ 75,000,000   

Jan 1, 2024 to Dec 31, 2024

   $ 75,000,000   

Jan 1, 2025 to Dec 31, 2025

   $ 75,000,000   

Jan 1, 2026 to the Maturity Date of the 2026 Notes

   $ 75,000,000   

with 50% of any unused amount of such base amount from any such time period available for use in the next succeeding time period following the use of the base amount permitted by this Section 4.5(b)(15) in such succeeding time period;

 

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  (16) other Restricted Payments in an aggregate amount, when taken together with all other Restricted Payments made pursuant to this Section 4.5(b)(16), not to exceed the greater of (x) $250 million and (y) 1.5% of Consolidated Total Assets;

 

  (17) any other Restricted Payment if, immediately after giving effect to such Restricted Payment as if it had occurred on the last day of the fiscal quarter of the Company most recently ended for which internal financial statements are available, the Consolidated Net Total Leverage Ratio would not be greater than 1.5 to 1.00;

 

  (18) Restricted Payments in an aggregate amount equal to the aggregate amount of Excluded Contributions;

 

  (19) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Financing and the payment or distribution of Receivables Fees; and

 

  (20) (i) any payments made or expected to be made in respect of withholding or similar taxes payable by any future, present or former directors, officers or employees of the Company, the Issuer or any Restricted Subsidiary, (ii) any non-cash repurchases or withholdings of Equity Interests in connection with the exercise of stock options, warrants or similar rights if such Equity Interests represent a portion of the exercise of, or withholding obligations with respect to, such options, warrants or similar rights (for the avoidance of doubt, it being understood that any required withholding or similar tax related thereto may be paid by the Company, the Issuer or any Restricted Subsidiary in cash), and (iii) loans or advances to officers, directors and employees of the Company, the Issuer or any Restricted Subsidiary in connection with such Person’s purchase of Equity Interests of the Company, provided that no cash is actually advanced pursuant to this subclause (iii) other than to pay taxes due in connection with such purchase, unless immediately repaid;

provided, however , that at the time of and after giving effect to, any Restricted Payment permitted under Sections 4.5(b)(16) and (17), no Event of Default shall have occurred and be continuing or would occur as a consequence thereof.

(c) The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of such Restricted Payment of the assets or securities proposed to be transferred or issued by the Company, the Issuer or any Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment.

(d) For purposes of determining compliance with this Section 4.5, in the event that a Restricted Payment or Investment (or a portion thereof) meets the criteria of one or more of Sections 4.5(b)(1) through (19) above or the definition of “Permitted Investments”, or is entitled to be made pursuant to Section 4.5(a), the Issuer, in its sole discretion, will classify, and may later reclassify (based on circumstances existing on the date of such reclassification), such Restricted Payment or Investment (or portion thereof) between one or more of such Sections 4.5(b) (1) through (19), such clauses of the definition of “Permitted Investments and/or Section 4.5(a) in a manner that complies with this Section 4.5.

(e) The amount of all Restricted Payments paid in cash shall be its face amount. For purposes of determining compliance with any U.S. dollar-denominated restriction on Restricted Payments, the U.S. dollar-equivalent of a Restricted Payment denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date the Company, the Issuer or the Restricted Subsidiary, as the case may be, first commits to such Restricted Payment.

 

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SECTION 4.6 Limitation on Restrictions on Distributions from Restricted Subsidiaries .

(a) Neither the Company nor the Issuer shall, nor shall they permit any Restricted Subsidiary to, directly or indirectly, enter into, incur or permit to exist or become effective any agreement or other consensual arrangement that prohibits, restricts or imposes any condition upon the ability of any Restricted Subsidiary to:

 

  (1) pay dividends or other distributions with respect to any of its Equity Interests to the Company, the Issuer or any Restricted Subsidiary or repay Indebtedness or other obligations owed to the Company, the Issuer or any Restricted Subsidiary (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock shall not be deemed a restriction on the ability to make distributions on Equity Interests);

 

  (2) make loans or advances to the Company, the Issuer or any Restricted Subsidiary (it being understood that the subordination of loans or advances made to the Company, the Issuer or any of the Restricted Subsidiaries to other Indebtedness Incurred by the Company, the Issuer or any Restricted Subsidiary shall not be deemed a restriction on the ability to pay any Indebtedness or other Obligations); or

 

  (3) sell, lease or transfer any of its property or assets to the Company, the Issuer or any Restricted Subsidiary;

(b) The foregoing provision will not apply:

 

  (1) in the case of Sections 4.6(a)(1), (2) and (3), to:

 

  (A) restrictions and conditions imposed by law, rule, regulation or order or by the Notes, the Note Guarantees or this Indenture or any agreement or document evidencing Refinancing Indebtedness in respect of the Notes; provided that the restrictions and conditions contained in any such agreement or document, taken as a whole, are not less favorable in any material respect to the Holders than the restrictions and conditions imposed by this Indenture;

 

  (B) restrictions and conditions, including those imposed by the Revolving Credit Agreement and related documentation, the BNDES Loans and related documentation and other agreements or instruments, as in effect on the Issue Date;

 

  (C) in the case of any Person that is not a wholly owned subsidiary, restrictions and conditions imposed by its organizational documents or any related joint venture or similar agreements; provided that such restrictions and conditions apply only to such Person and its subsidiaries and to the Equity Interests of such Person and its subsidiaries;

 

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  (D) customary restrictions and conditions contained in agreements relating to the sale of all or a portion of the Equity Interests of a Restricted Subsidiary or any assets of the Company, the Issuer or any Restricted Subsidiary, in each case pending such sale; provided that such restrictions and conditions apply only to such Restricted Subsidiary and its subsidiaries or the assets that are to be sold and, in each case, such sale is permitted under this Indenture;

 

  (E) restrictions and conditions existing on the Issue Date (or any extension or renewal of, or any amendment, modification or replacement, not expanding the scope of, any such restriction or condition);

 

  (F) any amendment, restatement, modification, renewal, supplement, refunding, replacement or refinancing of an agreement or instrument referred to in Sections 4.6(b)(1)(A), (B) or (E); provided , however , that such amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are, in the good faith judgment of an executive officer of the Company, not materially more restrictive, when taken as a whole, than the encumbrances and restrictions contained in the agreements referred to in Sections 4.6(b)(1)(A), (B) or (E);

 

  (G) (i) other Indebtedness Incurred, or Preferred Stock or Disqualified Equity Interests issued, in each case, in accordance with Section 4.4 that, in the good faith judgment of an executive officer of the Company, are not materially more restrictive, taken as a whole, than those applicable to the Company in this Indenture on the Distribution Date (which results in encumbrances or restrictions at a Restricted Subsidiary level or at the Issuer comparable to those applicable to the Company) or (ii) other Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to Section 4.4; provided that with respect to clause (ii), such encumbrances or restrictions will not materially affect the Company’s ability to make anticipated principal and interest payments on the Notes (in the good faith judgment of an executive officer of the Company at the time such encumbrances or restrictions are entered into);

 

  (H) restrictions on cash or other deposits or net worth imposed by customers, suppliers or landlords under contracts entered into in the ordinary course of business;

 

  (I) any encumbrance or restriction effected in connection with a Qualified Receivables Financing that, in the good faith determination of the Issuer, is necessary or advisable to effect such Qualified Receivables Financing; and

 

  (J) restrictions and conditions imposed by any agreement relating to Indebtedness of any Person (other than an Unrestricted Subsidiary) in existence at the time such Person became a Restricted Subsidiary and otherwise permitted under Section 4.4(b)(7), if such restrictions and conditions apply only to such Restricted Subsidiary;

 

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  (2) in the case of Section 4.6(a)(3), to:

 

  (A) customary provisions in leases, licenses and similar agreements restricting the subletting, assignment or transfer of the property subject to such lease, license or similar agreement; and

 

  (B) security agreements or mortgages securing Indebtedness of a Restricted Subsidiary of the Company to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages.

SECTION 4.7 Limitation on Sales of Assets and Subsidiary Stock .

(a) Neither the Company nor the Issuer will, nor will they permit any Restricted Subsidiary, directly or indirectly, to consummate any Asset Disposition unless:

 

  (1) the Company, the Issuer or such Restricted Subsidiary, as the case may be, receives consideration at least equal to the Fair Market Value (such Fair Market Value to be determined on the date of contractually agreeing to such Asset Disposition) of the Equity Interests and assets subject to such Asset Disposition; and

 

  (2) at least 75% of the consideration from such Asset Disposition received by the Company, the Issuer or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents.

(b) Within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, the Company, the Issuer or any Restricted Subsidiary may apply, at its option, an amount equal to 100% of the Net Available Cash from such Asset Disposition:

 

  (1) to repay Obligations under the Revolving Credit Agreement and to correspondingly reduce commitments with respect thereto;

 

  (2) to repay (and, in the case of a revolving credit facility, correspondingly reduce commitments with respect thereto) Obligations under other Secured Indebtedness of the Company, the Issuer or any Restricted Subsidiary(other than any Disqualified Equity Interests or Subordinated Obligations) other than Indebtedness owed to the Company, the Issuer or a Restricted Subsidiary;

 

  (3) to repay (and, in the case of a revolving credit facility, correspondingly reduce commitments with respect thereto) Obligations under other Indebtedness of the Company, the Issuer or any Restricted Subsidiary (other than any Disqualified Equity Interests or Subordinated Obligations) other than Indebtedness owed to the Company, the Issuer or a Restricted Subsidiary; provided that the Company shall equally and ratably reduce Obligations under the Notes as provided in Section 5 of the Notes and Sections 3.3 and 3.4 through open market purchases (to the extent such purchases are at or above 100% of the principal amount thereof) or by making an Asset Disposition Offer (as defined below) to all Holders to purchase their Notes at 100% of the principal amount thereof, plus the amount of accrued but unpaid interest on the amount of Notes that would otherwise be prepaid;

 

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  (4) to invest in Additional Assets or make capital expenditures in or that are used or useful in the Alcoa Corporation Business;

 

  (5) to pay (and, in the case of a revolving credit facility, correspondingly reduce commitments with respect thereto) Obligations under Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor, other than Indebtedness owed to the Company, the Issuer or another Restricted Subsidiary; or

 

  (6) in any combination of applications described in Sections 4.7(b)(1), (2), (3), (4) or (5) above;

provided that pending the final application of any such Net Available Cash in accordance with Sections 4.7(b)(1), (2), (3), (4), (5) or (6) above and 4.7(e) below, the Company, the Issuer and Restricted Subsidiaries may temporarily reduce Indebtedness or otherwise use such Net Available Cash in any manner not prohibited by this Indenture; provided, further , that in the case of Section 4.7(b)(4), a binding commitment to invest in Additional Assets or to make such capital expenditures shall be treated as a permitted application of an amount of Net Available Cash from the date of such commitment so long as the Company, the Issuer or such other Restricted Subsidiary enters into such commitment with the good faith expectation that such amount of Net Available Cash will be applied to satisfy such commitment within 180 days of such commitment (an “ Acceptable Commitment ”) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before such amount of Net Available Cash is applied in connection therewith, the Company, the Issuer or such Restricted Subsidiary enters into another Acceptable Commitment (a “ Second Commitment ”) within 180 days of such cancellation or termination, it being understood that if a Second Commitment is later cancelled or terminated for any reason before such amount of Net Available Cash is applied, then such amount of Net Available Cash shall constitute Excess Proceeds.

(c) Notwithstanding the foregoing, to the extent that any of or all the Net Available Cash of any Asset Dispositions by a subsidiary (x) are prohibited or delayed by applicable local law from being repatriated to the Issuer or (y) would have a material adverse Tax consequence (taking into account any foreign tax credit or other net benefit actually realized in connection with such repatriation that would not otherwise be realized), as determined by the Company in its sole discretion, the portion of such Net Available Cash so affected will not be required to be applied in compliance with this Section 4.7, and such amounts may be retained by the applicable subsidiary; provided that clause (x) of this Section 4.7(c) shall apply to such amounts so long, but only so long, as the applicable local law will not permit repatriation to the Issuer (the Company hereby agreeing to use reasonable efforts to cause the applicable subsidiary to take all actions reasonably required by the applicable local law, applicable organizational impediments or other impediment to permit such repatriation), and if such repatriation of any of such affected Net Available Cash is permitted under the applicable local law and is not subject to clause (y) of this Section 4.7(c) then such repatriation will be promptly effected and such repatriated Net Available Cash will be applied (whether or not repatriation actually occurs) in compliance with this Section 4.7; provided , further , that the aggregate amount of Net Available Cash retained pursuant to clause (y) of this Section 4.7(c) shall not exceed $250 million at any one time outstanding. The time periods set forth in this Section 4.7 shall not start until such time as the Net Available Cash may be repatriated (whether or not such repatriation actually occurs).

(d) For the purposes of Section 4.7(a)(2) and for no other purpose, the following will be deemed to be cash:

 

  (1)

any liabilities (as shown on the Company’s, the Issuer’s or such Restricted Subsidiary’s most recent balance sheet) of the Company, the Issuer or any Restricted

 

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  Subsidiary (other than liabilities that are by their terms subordinated to the Notes or the Note Guarantees, (y) Preferred Stock and (z) Disqualified Equity Interests) that are assumed by the transferee of any such assets and from which the Company, the Issuer and all such Restricted Subsidiaries or that are otherwise cancelled or terminated in connection with the transaction with such transferee, in each case for which have been validly released by all creditors in writing;

 

  (2) the principal amount of any Indebtedness of any Restricted Subsidiary that ceases to be a Restricted Subsidiary as a result of such Asset Disposition (other than intercompany debt owed to the Company, the Issuer or the Restricted Subsidiaries), to the extent that the Company, the Issuer and each other Restricted Subsidiary are released from any guarantee of payment of the principal amount of such Indebtedness in connection with such Asset Disposition;

 

  (3) any Designated Non-Cash Consideration received by the Company, the Issuer or such Restricted 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 Section 4.7(d)(3) that is at that time outstanding, not in excess of the greater of (i) $200 million and (ii) 1.0% of Consolidated 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

 

  (4) any securities, notes or other obligations received by the Company, the Issuer or any Restricted Subsidiary from the transferee that are converted by the Company, the Issuer or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) within 180 days following the closing of such Asset Disposition.

(e) Any amount of Net Available Cash from Asset Dispositions that is not applied or invested as provided in Section 4.7(b) will be deemed to constitute “ Excess Proceeds .” On the 366th day after an Asset Disposition, or earlier at the Company’s option, if the aggregate amount of Excess Proceeds exceeds $100 million, the Company, the Issuer or a Restricted Subsidiary will make an offer (“ Asset Di s position Offer ”) to all Holders and, at the Issuer’s election, to the holders of any Pari Passu Indebtedness, to purchase the maximum aggregate principal amount of Notes and any such Pari Passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to but not including the date of purchase (subject to the right of Holders of record on a record date to receive interest due on the relevant interest payment date), in accordance with the procedures set forth in this Indenture or the agreements governing the relevant Pari Passu Indebtedness, as applicable, in each case in denominations of $200,000 and larger integral multiples of $1,000 in excess thereof. The Company, the Issuer or such Restricted Subsidiary will commence an Asset Disposition Offer with respect to Excess Proceeds by mailing by first-class mail (or otherwise delivered in accordance with the applicable procedures of DTC) the notice required pursuant to the terms of this Indenture to the Holders at each Holder’s registered address, with a copy to the Trustee. To the extent that the aggregate amount of Notes and the relevant Pari Passu Indebtedness validly tendered and not validly withdrawn pursuant to an Asset Disposition Offer is less than the Excess Proceeds, the Company, the Issuer or a Restricted Subsidiary may use any remaining Excess Proceeds for general corporate purposes, subject to the other covenants contained in this Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof and other Pari Passu Indebtedness surrendered by holders or lenders, collectively, exceeds the amount of Excess Proceeds, the Notes and Pari Passu Indebtedness

 

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to be repurchased shall be selected on a pro rata basis on the basis of the aggregate principal amount of tendered Notes and tendered Pari Passu Indebtedness. Upon completion of such Asset Disposition Offer, regardless of the amount of Excess Proceeds used to purchase Notes or other Pari Passu Indebtedness pursuant to such Asset Disposition Offer, the amount of Excess Proceeds shall be reset at zero.

(f) The Asset Disposition Offer will remain open for a period of 20 Business Days following its commencement, except to the extent that a longer period is required by applicable law (the “ Asset Disposition Offer Period ”). No later than five Business Days after the termination of the Asset Disposition Offer Period (the “ Asset Disposition Purchase Date ”), the Company, the Issuer or the applicable Restricted Subsidiary will apply all Excess Proceeds to the purchase of the aggregate principal amount of Notes and, if applicable, Pari Passu Indebtedness required to be purchased pursuant to this Section 4.7 (the “ Asset Disposition Offer Amount ”) or, if less than the Asset Disposition Offer Amount of Notes (and, if applicable, Pari Passu Indebtedness) has been so validly tendered and not validly withdrawn, all Notes and Pari Passu Indebtedness validly tendered and not validly withdrawn in response to the Asset Disposition Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made under this Indenture.

(g) On or before the Asset Disposition Purchase Date, the Company, the Issuer or the Restricted Subsidiary will, to the extent lawful, accept for payment, the Asset Disposition Offer Amount of Notes and Pari Passu Indebtedness or portions thereof validly tendered and not validly withdrawn pursuant to the Asset Disposition Offer, or if less than the Asset Disposition Offer Amount has been validly tendered and not validly withdrawn, all Notes and Pari Passu Indebtedness so tendered and not withdrawn, in the case of the Notes in integral multiples of $1,000; provided that if, following the repurchase of a portion of a Note, the remaining principal amount of such Note outstanding immediately after such repurchase would be less than $200,000, then the portion of such Note so repurchased shall be reduced so that the remaining principal amount of such Note outstanding immediately after such repurchase is $200,000. The Company, the Issuer or such Restricted Subsidiary will deliver, or cause to be delivered, to the Trustee the Notes so accepted and an Officer’s Certificate stating the aggregate principal amount of Notes or portions thereof so accepted and that such Notes or portions thereof were accepted for payment by the Company, the Issuer or such Restricted Subsidiary in accordance with the terms of this Section 4.7. The Company, the Issuer or such Restricted Subsidiary will promptly, but in no event later than five Business Days after termination of the Asset Disposition Offer Period, mail or deliver to a paying agent on or before noon New York City time one Business Day prior to the Asset Disposition Purchase Date to remit to each tendering Holder an amount equal to the purchase price of the Notes so validly tendered and not properly withdrawn by such Holder and accepted by the Company, the Issuer or such Restricted Subsidiary for purchase, and, if less than all of the Notes tendered are purchased pursuant to the Asset Disposition Offer, the Issuer will promptly issue a new Note, and the Trustee, upon delivery of an authentication order from the Issuer, will authenticate and mail or deliver (or cause to be transferred by book-entry) such new Note to such Holder (it being understood that, notwithstanding anything in this Indenture to the contrary, no Opinion of Counsel or Officer’s Certificate will be required for the Trustee to authenticate and mail or deliver such new Note) in a principal amount equal to any unpurchased portion of the Note surrendered (or, in the case of a registered Note, cause the principal amount of such Note to be adjusted in accordance with the applicable procedures of DTC); provided that each such new Note will be in a principal amount of $200,000 or an integral multiple of $1,000 in excess thereof. Any Note not so accepted will be promptly mailed or delivered by the Company, the Issuer or such Restricted Subsidiary to the Holder thereof. The Company, the Issuer or such Restricted Subsidiary will publicly announce the results of the Asset Disposition Offer on the Asset Disposition Purchase Date.

(h) The Company, the Issuer and any Restricted Subsidiary will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this Section 4.7. To the extent that

 

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the provisions of any securities laws or regulations conflict with provisions of this Section 4.7, the Company, the Issuer and such Restricted Subsidiary will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.7 by virtue of its compliance with such securities laws or regulations.

SECTION 4.8 Limitation on Affiliate Transactions .

(a) Neither the Company nor the Issuer shall, nor shall they permit any Restricted Subsidiary to, sell, lease or otherwise transfer any assets to, or purchase, lease or otherwise acquire any assets from, or otherwise engage in any other transactions with, any of its Affiliates involving aggregate consideration in excess of $25 million (an “ Affiliate Transaction ”) unless:

 

  (1) such Affiliate Transaction is on terms that, taken as a whole, are not materially less favorable to the Company, the Issuer or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties; and

 

  (2) in the event such Affiliate Transaction involves an aggregate consideration in excess of $50 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board of Directors having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in Section 4.8(a)(1)).

(b) The provisions of Section 4.8(a) will not prohibit:

 

  (1) any transaction between the Company and the Issuer, the Company and/or the Issuer and any Restricted Subsidiary or between any Restricted Subsidiaries and any Guarantees issued by the Company, the Issuer or a Restricted Subsidiary for the benefit of the Company, the Issuer or any Restricted Subsidiary, as the case may be, in accordance with Section 4.4;

 

  (2) any Restricted Payment permitted to be made pursuant to Section 4.5 and any Permitted Investments;

 

  (3) the payment of reasonable fees to, and expenses of, directors of the Company, the Issuer or any Restricted Subsidiary who are not employees of Company, the Issuer or any Restricted Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of Company, the Issuer or any Restricted Subsidiary in the ordinary course of business;

 

  (4) 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 Company’s Board of Directors;

 

  (5) employment and severance arrangements entered into in the ordinary course of business between the Company, the Issuer or any Restricted Subsidiary and any employee thereof and approved by the Company’s Board of Directors;

 

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  (6) transactions occurring in connection with the separation and distribution pursuant to the Separation Documents (as described in the Form 10 and the Offering Memorandum);

 

  (7) any agreement as in effect as of the Issue Date, as such agreements may be amended, modified, supplemented, extended or renewed from time to time, so long as any such amendment, modification, supplement, extension or renewal is not materially less favorable to the Company, the Issuer or such Restricted Subsidiary in any material respect in the good faith judgment of by an executive officer of the Company or the Board of Directors of the Company, when taken as a whole, than the terms of the agreements in effect on the Issue Date;

 

  (8) any agreement between any Person and an Affiliate of such Person existing at the time such Person is acquired by, merged into or amalgamated, arranged or consolidated with the Company, the Issuer or any Restricted Subsidiary; provided that such agreement was not entered into in contemplation of such acquisition, merger, amalgamation, arrangement or consolidation, and any amendment thereto (so long as any such amendment is not more materially less favorable to the Company, the Issuer or such Restricted Subsidiary in the good faith judgment of an executive officer or the Board of Directors of the Company, when taken as a whole, as compared to the applicable agreement as in effect on the date of such acquisition, merger, amalgamation, arrangement or consolidation);

 

  (9) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services or any management services or support agreements, in each case in the ordinary course of the business of the Company, the Issuer and the Restricted Subsidiaries and otherwise in compliance with the terms of this Indenture; provided that in the reasonable determination of the Board of Directors of the Company or an executive officer of the Company, such transactions or agreements are on terms that are not materially less favorable, when taken as a whole, to the Company, the Issuer or the relevant Restricted Subsidiary than those that could have been obtained at the time of such transactions or agreements in a comparable transaction or agreement by the Company, the Issuer or such Restricted Subsidiary with an unrelated Person;

 

  (10) any issuance or sale of Equity Interests (other than Disqualified Equity Interests) of the Company to Affiliates of the Company and any agreement that grants registration and other customary rights in connection therewith or otherwise to the direct or indirect securityholders of the Company (and the performance of such agreements);

 

  (11) any transaction with a Person that is an Affiliate of the Company solely because the Company, the Issuer or any Restricted Subsidiary owns, directly or indirectly, any equity interest in or otherwise controls such Person; provided that no Affiliate of the Company, other than the Company, the Issuer or any Restricted Subsidiary, shall have a beneficial interest or otherwise participate in such Person other than through such ownership of such Person;

 

  (12)

transactions between the Company, the Issuer or any Restricted Subsidiary and any Person that is an Affiliate solely because one or more of its directors is also a director of the Company, the Issuer or any Restricted Subsidiary; provided that

 

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  such director abstains from voting as a director of the Company, the Issuer or such Restricted Subsidiary, as the case may be, on any matter involving such other Person;

 

  (13) any merger, amalgamation, arrangement, consolidation or other reorganization of the Company with an Affiliate solely for the purpose and with the sole effect of forming a holding company or reincorporating the Company in a new jurisdiction;

 

  (14) the entering into of a tax sharing agreement, or payments pursuant thereto, between the Company and one or more subsidiaries, on the one hand, and any other Person with which the Company and such subsidiaries are required or permitted to file a consolidated tax return or with which the Company and such subsidiaries are part of a consolidated group for tax purposes, on the other hand;

 

  (15) pledges of Equity Interests or Indebtedness of Unrestricted Subsidiaries;

 

  (16) any transaction effected as part of a Qualified Receivables Financing; provided , that such transactions are not otherwise prohibited by terms of this Indenture;

 

  (17) transactions in connection with the Ma’aden Guarantees and any Refinancing Ma’aden Guarantees;

 

  (18) (a) investments by Affiliates in securities of the Company, the Issuer or any Restricted Subsidiary (and payment of reasonable out-of-pocket expenses incurred by such Affiliates in connection therewith) so long as the investment is being offered by the Company, the Issuer or such Restricted Subsidiary generally to other investors capable of making such investments pursuant to a bona fide offer on the same or more favorable terms to the Company, the Issuer or such Restricted Subsidiary and (b) payments to Affiliates in respect of securities of the Company, the Issuer or any Restricted Subsidiary contemplated in the foregoing clause (a) or that were acquired from Persons other than the Company, the Issuer and the Restricted Subsidiaries, in each case, in accordance with the terms of such securities;

 

  (19) intellectual property licenses in the ordinary course of business or consistent with industry practice; and

 

  (20) transactions in which the Company, the Issuer or any of its Restricted Subsidiaries delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Company, the Issuer or such Restricted Subsidiary from a financial point of view or stating that the terms are not materially less favorable, when taken as a whole, than those that might reasonably have been obtained by the Company, the Issuer or such Restricted Subsidiary in a comparable transaction at such time on an arms’ length basis from a Person that is not an Affiliate.

SECTION 4.9 Limitation on Liens .

(a) Neither the Company nor the Issuer shall, nor shall the Company or the Issuer permit any Restricted Subsidiary to Incur any Lien (other than Permitted Liens) on any asset (including

 

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Equity Interests of the Issuer and the other subsidiaries of the Company) now owned or hereafter acquired by it, to secure any Indebtedness of the Company, the Issuer or any Restricted Subsidiary, unless contemporaneously with the Incurrence of such Liens:

 

  (1) in the case of Liens securing Subordinated Obligations, the Notes and related Note Guarantees are secured by a Lien on such property or assets that is senior in priority to such Liens; or

 

  (2) in all other cases, the Notes and related Note Guarantees are equally and ratably secured or are secured by a Lien on such property or assets that is senior in priority to such Liens.

(b) Any Lien created for the benefit of Holders pursuant to this Section 4.9 shall be automatically and unconditionally released and discharged upon the release and discharge of each of the Liens that gave rise to the obligation to secure the Notes and related Note Guarantees pursuant to Sections 4.9(a)(1) and (2).

(c) For the purpose of this Section 4.9:

 

  (1) accrual of interest, accrual of dividends, the accretion of accreted value or original issue discount, the amortization of debt discount and the payment of interest in the form of additional indebtedness will not be deemed to be an Incurrence of the Indebtedness secured by the relevant Lien;

 

  (2) in determining compliance with any U.S. dollar-denominated restriction on the securing of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based upon the relevant currency exchange rate in effect on the date such Indebtedness was Incurred;

 

  (3) the maximum amount of Indebtedness that the Company, the Issuer and the Restricted Subsidiaries may secure shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies; and

 

  (4) (A) any Liens outstanding after the separation and distribution on the Distribution Date under the Revolving Credit Agreement will be treated as Incurred under clause (1) of the definition of Permitted Liens and (B) the Company will, in its sole discretion, classify all other Liens Incurred on or prior to, and outstanding on, the Distribution Date to the clauses of the Permitted Liens definition to the extent such Liens meet the criteria thereof; provided that, to the extent the Company is unable to classify any such Liens and does not secure the Notes pursuant Section 4.9(a)(1) or (2), a Default will be deemed to have occurred under this Section 4.9.

 

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SECTION 4.10 Maintenance of Ownership in AWAC . Notwithstanding anything to the contrary in this Indenture, neither the Company nor the Issuer will, nor will they permit any Restricted Subsidiary to, take any action that would result in the Company, directly or indirectly, holding, in the aggregate, less than 51% of the aggregate ordinary voting power with respect to, or less than 51% of the aggregate equity value of, AWAC.

SECTION 4.11 Change of Control Repurchase Event .

(a) If a Change of Control Repurchase Event occurs after the Distribution Date, unless the Issuer has given notice to redeem all of the outstanding Notes of the applicable Series as described under Article 3, each Holder of such Notes will have the right to require that the Issuer repurchase such Holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest, if any, to but not including the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) (the “ Change of Control Payment ”).

(b) Within 30 days following any Change of Control Repurchase Event, unless the Issuer has previously or concurrently mailed (or otherwise delivered in accordance with the applicable procedures of DTC) a redemption notice with respect to all outstanding Notes of the applicable Series as described under Article 3, the Issuer will mail a notice by first-class mail (or otherwise delivered in accordance with the applicable procedures of DTC) to each Holder of the Notes of such Series with a copy to the Trustee (the “ Change of Control Offer ”) stating:

 

  (1) that a Change of Control Repurchase Event has occurred and that such Holder has the right to require the Issuer to purchase such Holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date) (the “ Change of Control Payment Date ”);

 

  (2) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and

 

  (3) the instructions, as determined by the Issuer, consistent with this Section 4.11, that a Holder must follow in order to have its Notes purchased.

The notice shall, if delivered (or otherwise delivered in accordance with the applicable procedures of DTC) prior to the date of consummation of the Change of Control, state that the offer to purchase is conditioned on a Change of Control Repurchase Event occurring on or prior to the payment date specified in the notice.

(c) On the Change of Control Payment Date, the Issuer will, to the extent lawful:

 

  (1) accept for payment all Notes of the applicable Series or portions of such Notes (of $200,000 or larger integral multiples of $1,000 in excess thereof) validly tendered and not validly withdrawn pursuant to the Change of Control Offer;

 

  (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes of such Series or portions of such Notes so accepted for payment; and

 

  (3) deliver or cause to be delivered to the Trustee for cancellation the Notes of such Series so accepted for payment together with an Officer’s Certificate stating the aggregate principal amount of such Notes or portions of such Notes being purchased by the Issuer in accordance with the terms of this Section 4.11.

 

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(d) The Paying Agent will promptly mail to each Holder of Notes so accepted for payment the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each such Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided , however , that each such new Note will be in a principal amount of $200,000 or integral multiples of $1,000 in excess thereof. On and after the purchase date, interest will cease to accrue on the Notes or portions thereof purchased.

(e) The Issuer will not be required to make a Change of Control Offer following a Change of Control Repurchase Event if (1) 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 Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes of the applicable Series validly tendered and not withdrawn under such Change of Control Offer or (2) a notice of redemption in respect of all of the outstanding Notes of such Series that is or has become unconditional has been given as described under Article 3.

(f) A Change of Control Offer may be made in advance of a Change of Control, conditional upon a Change of Control Repurchase Event, if a definitive agreement is in place for the Change of Control at the time of making of the Change of Control Offer. In the event that the Change of Control has not occurred as of the purchase date for the Change of Control Offer specified in the notice therefor (or amendment thereto), the Issuer (or third party offeror) may, in its discretion, rescind such notice or amend it to specify another purchase date.

(g) The Issuer will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control Repurchase Event. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.11, the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.11 by virtue of its compliance with such securities laws or regulations.

SECTION 4.12 Designation of Unrestricted and Restricted Subsidiaries .

(a) The Board of Directors of the Company may designate any subsidiary of the Company (including any existing subsidiary and any newly formed or newly acquired subsidiary but excluding the Issuer) to be an Unrestricted Subsidiary only if:

 

  (1) immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing;

 

  (2) such subsidiary or any of its subsidiaries does not own any Equity Interests or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other subsidiary of the Company that is not a subsidiary of the subsidiary to be so designated or otherwise an Unrestricted Subsidiary;

 

  (3) such designation and the Investment of the Company in such subsidiary complies with Section 4.5 (unless the subsidiary to be so designated has total consolidated assets of $1,000 or less);

 

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  (4) on the date such subsidiary is designated an Unrestricted Subsidiary, such subsidiary and its subsidiaries do not at the time of designation have any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company, the Issuer or any of its Restricted Subsidiaries; and

 

  (5) on the date such subsidiary is designated an Unrestricted Subsidiary, no Suspended Covenants are suspended pursuant to Section 4.13 unless such designation would have complied with Section 4.5 as if such Section were in effect during such period.

(b) Any designation by the Board of Directors of the Company in accordance with Section 4.12(a) shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officer’s Certificate certifying that such designation complies with the foregoing conditions described in Section 4.12(a). If, at any time, any Unrestricted Subsidiary would fail to meet any of the requirements specified in Section 4.12(a)(4) above, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture, and any Indebtedness of such subsidiary shall be deemed to be Incurred as of such date.

(c) The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and on a pro forma basis taking into account such designation, either (x) at least $1.00 of additional Coverage Indebtedness could be incurred or (y) the Consolidated Coverage Ratio would be equal to or higher than such ratio immediately prior to such Person being designated an Unrestricted Subsidiary.

(d) As of the Distribution Date, there shall be no Unrestricted Subsidiaries.

(e) For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company, the Issuer and any Restricted Subsidiary (except to the extent repaid) in the subsidiary so designated will be deemed to be Investments in an amount determined as set forth in the definition of “Investment.” Such designation will be permitted only if a Restricted Payment in such amount would be permitted at such time, whether pursuant to Section 4.5 or pursuant to the definition of “Permitted Investment”, and if the other requirements set forth in Section 4.12(a) are satisfied.

(f) Any designation of a Person as an Unrestricted Subsidiary or a Restricted Subsidiary in violation of this Section 4.12 shall be null and void.

SECTION 4.13 Effectiveness of Covenants .

(a) The covenants contained in Sections 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 5.1(c) and 10.7 shall become effective only upon the Distribution Date.

(b) Following the first day after the Distribution Date (the “ Suspension Date ”) that:

 

  (1) the Notes have an Investment Grade rating from one of the Rating Agencies (or both Rating Agencies);

 

  (2) no Default or Event of Default has occurred and is continuing under this Indenture; and

 

  (3) the Trustee has received an Officer’s Certificate from the Company confirming the satisfaction of the conditions specified in Sections 4.13(b)(1) and (2),

 

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the Company, the Issuer and the Restricted Subsidiaries will not be subject to Sections 4.4, 4.5, 4.6, 4.7, 4.8 or Section 5.1(a)(4) or 5.1(b)(4) (collectively, the “ Suspended Covenants ”).

(c) In the event that the Company, the Issuer and the Restricted Subsidiaries are not subject to the Suspended Covenants for any period of time as a result of Section 4.13(b), and on any subsequent date (the “ Reversion Date ”) one or both of the Rating Agencies withdraws its Investment Grade rating or downgrades the rating assigned to the Notes below an Investment Grade rating and, as a result, the Notes do not have an Investment Grade rating from at least one Rating Agency, then the Suspended Covenants will be automatically reinstated and be applicable pursuant to the terms of this Indenture (including in connection with performing any calculation or assessment to determine compliance with the terms of this Indenture), unless and until (i) the Notes subsequently attain an Investment Grade rating from one of the Rating Agencies, (ii) no Default or Event of Default is in existence and (iii) the Trustee has received an Officer’s Certificate from the Company confirming the satisfaction of the conditions specified in the foregoing clauses (i) and (ii) (in which event the Suspended Covenants shall no longer be in effect for such time that the Notes maintain an Investment Grade rating from at least one (or both) of the Rating Agencies and no Default or Event of Default is in existence). The period of time between the Suspension Date of the covenants and the Reversion Date is referred to as the “ Suspension Period .”

(d) During any period when the Suspended Covenants are suspended, the Company, the Issuer and the Restricted Subsidiaries will be entitled to incur Liens to the extent provided for under Section 4.9 (including, without limitation, 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 applicable during the period when the Suspended Covenants were suspended (but solely for purposes of Section 4.9 and for no other covenant).

(e) No Default, Event of Default or breach of any kind shall be deemed to exist under this Indenture, the Notes or the Note Guarantees with respect to the Suspended Covenants based on, and none of the Company, the Issuer or any Restricted Subsidiaries shall bear any liability for, any actions taken or events occurring during the Suspension Period, regardless of whether such actions or events would have been permitted if the applicable Suspended Covenants remained in effect during such period; provided , however , that: (i) on the Reversion Date, all Indebtedness Incurred during the Suspension Period will be classified to have been Incurred pursuant to Section 4.4(b)(4) (disregarding the proviso therein); (ii) calculations made after the Reversion Date of the amount available to be made as Restricted Payments under Section 4.5 will be made as though Section 4.5 had been in effect since the Distribution Date and prior to, but not during, the Suspension Period (accordingly, during the Suspension Period, the items specified in Sections 4.5(a)(3)(A) through (3)(D) will not increase or decrease the amount available to be made under Section 4.5(a)); (iii) for purposes of determining compliance with Section 4.7(b), the amount of Net Available Cash from all Asset Dispositions not applied in accordance with Section 4.7 will be deemed to be reset to zero; (iv) any encumbrance or restriction on the ability of any Restricted Subsidiary to take any action described in Sections 4.6(a)(1) through (3) that becomes effective during any Suspension Period shall be deemed to be permitted pursuant to Section 4.6(b)(1)(E); and (v) any Affiliate Transaction entered into after the Reversion Date pursuant to an agreement entered into during any Suspension Period shall be deemed to be permitted pursuant to Section 4.8(b)(7).

(f) On and after each Reversion Date, the Issuer and its subsidiaries will be permitted to consummate the transactions contemplated by any agreement or commitment entered into during the relevant Suspension Period, so long as such agreement or commitment and such consummation would have been permitted during such Suspension Period.

 

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(g) The Company will provide the Trustee and the Holders with prompt written notice of any suspension of the Suspended Covenants or the subsequent reinstatement of such Suspended Covenants. The Trustee shall have no obligation to independently verify the statements of the Company regarding the ratings of the Notes or the existence of any Default or Event of Default in any such notice.

(h) (i) The Trustee shall not be deemed to have constructive notice of any information contained, or determinable from information contained, in any reports referred to above, including the Issuer’s compliance with any of its covenants in this Indenture (as to which the Trustee is entitled to rely exclusively on Officer’s Certificates); and (ii) the Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Issuer’s, any Guarantor’s or any other Person’s compliance with the covenants described herein or with respect to any reports or, subject to Section 7.1(b)(ii), other documents filed under this Indenture.

ARTICLE 5.

SUCCESSORS

SECTION 5.1 Consolidation, Merger and Sale of Assets .

(a) The Company will not consolidate or merge with or into any other Person, or permit any other Person to consolidate or merge with or into it, or liquidate or dissolve into it or, directly or indirectly, sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as determined on a consolidated basis, in one or a series of related transactions, to any Person unless:

 

  (1) the continuing, resulting, surviving or transferee Person (the “ Successor Company ”) is a Person (other than an individual) organized and existing under the laws of the Netherlands, a member state of the European Union (on the date of the Offering Memorandum or at the time of the applicable transaction), the United States, any state thereof or the District of Columbia;

 

  (2) the Successor Company (if other than the Company) expressly assumes all of the Note Guarantee obligations of the Company and other obligations of the Company in respect of the Notes and this Indenture pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;

 

  (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;

 

  (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 fiscal quarter period of the Company for which internal financial statements are available,

(A) the Successor Company would have been able to Incur $1.00 of additional Coverage Indebtedness; or

(B) the Consolidated Coverage Ratio would have been equal to or higher than such ratio immediately prior to such transactions;

 

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  (5) if the Successor Company is not the Company, each Subsidiary Guarantor confirms (by supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee) that its Note Guarantee shall continue to apply in respect of the Notes and this Indenture; and

 

  (6) if other than the Company, the Successor Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture, if any, comply with this Indenture.

Notwithstanding Section 5.1(a)(4), (i) any Restricted Subsidiary may consolidate with, merge with or into or transfer all or part of its properties and assets to the Company so long as no Equity Interests of the Restricted Subsidiary are distributed to any Person other than the Company; and (ii) the Company may consolidate or merge with or into an Affiliate of the Company solely for the purpose of reincorporating the Company in any state of the United States or the District of Columbia.

(b) The Issuer will not consolidate or merge with or into any other Person, or permit any other Person to consolidate or merge with or into it, or liquidate or dissolve into it or, directly or indirectly, sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as determined on a consolidated basis, in one or a series of related transactions, to any Person unless:

 

  (1) the continuing, resulting, surviving or transferee Person (the “ Successor Issuer ”) is a Person (other than an individual) organized and existing under the laws of the Netherlands, a member state of the European Union (on the date of the Offering Memorandum or at the time of the applicable transaction), the United States, any state thereof or the District of Columbia;

 

  (2) the Successor Issuer (if other than the Issuer) expressly assumes all of the obligations of the Notes and other obligations of the Issuer in respect of this Indenture pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;

 

  (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;

 

  (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 fiscal quarter period of the Company for which internal financial statements are available,

(A) the Company would have been able to Incur $1.00 of additional Coverage Indebtedness; or

(B) the Consolidated Coverage Ratio would have been equal to or higher than such ratio immediately prior to such transactions; or

 

  (5) if the Successor Issuer is not the Issuer, each Subsidiary Guarantor confirms (by supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee) that its Note Guarantee shall continue to apply in respect of the Notes and this Indenture;

 

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  (6) if other than the Issuer, the Successor Issuer shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture, if any, comply with this Indenture; and

 

  (7) the transaction does not violate Section 4.7.

Notwithstanding the foregoing Section 5.1(b)(4), (i) any Restricted Subsidiary may consolidate with, merge with or into or transfer all or part of its properties and assets to the Issuer so long as no Equity Interests of the Restricted Subsidiary are distributed to any Person other than the Issuer; and (ii) the Issuer may consolidate or merge with or into an Affiliate of the Issuer solely for the purpose of reincorporating the Issuer in any state of the United States or the District of Columbia.

(c) A Subsidiary Guarantor will not consolidate or merge with or into any other Person, or permit any other Person to consolidate or merge with or into it, or liquidate or dissolve into it or, directly or indirectly, sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as determined on a consolidated basis, in one or a series of related transactions, to any Person unless (in circumstances where the Subsidiary Guarantee will not be automatically released and discharged from its obligations thereunder as permitted under this Indenture):

 

  (1) the continuing, resulting, surviving or transferee Person (the “ Successor Subsidiary Guarantor ”) is a Person organized and existing under the laws of the jurisdiction under which any Subsidiary Guarantor is organized or under the laws of the Netherlands, the United States, any state thereof or the District of Columbia or a member state of the European Union (on the date of the Offering Memorandum or at the time of the applicable transaction) or the Organisation for Economic Co-Operation and Development;

 

  (2) the Successor Subsidiary Guarantor (if other than a Subsidiary Guarantor) expressly assumes all of the Note Guarantee obligations of the Subsidiary Guarantor and other obligations of the Subsidiary Guarantor in respect of the Notes and this Indenture pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;

 

  (3) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing;

 

  (4) the Issuer shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and such supplemental indenture, if any, comply with this Indenture; and

 

  (5) the transaction does not violate Section 4.7.

(d) For purposes of this Section 5.1, the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of one or more subsidiaries of the Company, which properties and assets, if held by the Company instead of such subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, will be deemed to be the disposition of all or substantially all of the properties and assets of the Company.

 

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(e) Upon any consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the assets of the Company, the Issuer or a Subsidiary Guarantor in accordance with this Section 5.1, each of the Company, the Issuer and Subsidiary Guarantors, as the case may be, will be released from its obligations, under this Indenture, the Notes and the Note Guarantees, as applicable, and the Successor Company, Successor Issuer and the Successor Subsidiary Guarantor, as the case may be, will succeed to, and be substituted for, and may exercise every right and power of, the Company, the Issuer or the Subsidiary Guarantors, as applicable, under this Indenture, the Notes and the Note Guarantees; provided that, in the case of a lease of all or substantially all its assets, the Issuer will not be released from the obligation to pay the principal of and interest on the Notes, and the Company or a Subsidiary Guarantor, as the case may be, will not be released from its obligations under its Note Guarantee. Nothing in this Section 5.1 restricts the Company, the Issuer or a Subsidiary Guarantor from converting into a corporation, partnership, limited partnership, limited liability company or similar entity form.

ARTICLE 6.

DEFAULTS AND REMEDIES

SECTION 6.1 Events of Default . (a) Each of the following shall be an “ Event of Default ” with respect to each series of Notes:

 

  (1) a default in the payment of interest on the Notes of such series when due, continued for 30 days;

 

  (2) a default in the payment of principal of any Note of such series when due at its Stated Maturity, upon redemption, upon required purchase, upon declaration of acceleration or otherwise;

 

  (3) the failure by the Company, the Issuer or any Subsidiary Guarantor to comply with its obligations under Section 5.1;

 

  (4) the failure by the Company, the Issuer or any Subsidiary Guarantor to comply for 60 days after notice with any of its obligations, covenants or other agreements under this Indenture or the Notes of such series (other than a default referred to in Sections 6.1(a)(1), (2) or (3) above);

 

  (5) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company, the Issuer or any Restricted Subsidiary (or the payment of which is Guaranteed by the Company, the Issuer or any Restricted Subsidiary), whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, which default:

 

  (A) is caused by a failure to pay principal on such Indebtedness at its Stated Maturity (after giving effect to any applicable grace period provided in such Indebtedness) (“ payment default ”); or

 

  (B) results in the acceleration of such Indebtedness prior to its maturity (the “ cross acceleration provision ”);

 

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and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated and remains unpaid, aggregates $100 million or more (or its foreign currency equivalent);

 

  (6) failure by the Company, the Issuer or any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $100 million (or its foreign currency equivalent) (net of any amounts covered by a reputable and creditworthy insurance company), which judgments are not paid, discharged or stayed for a period of 90 days or more after such judgment becomes final and non-appealable (the “ judgment default provision ”);

 

  (7) (A) the Company, the Issuer or a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:

(i) commences a voluntary case;

(ii) consents to the entry of an order for relief against it in an involuntary case or the filing by it of a petition or answer or consent seeking an arrangement of debt, reorganization, dissolution, winding up or relief under applicable Bankruptcy Law;

(iii) consents to the appointment of a Bankruptcy Custodian of it or for any substantial part of its property;

(iv) makes a general assignment for the benefit of its creditors; or

(v) admits in writing its inability to pay its debts as they become due;

or takes any comparable action under any foreign laws relating to insolvency; or

(B) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(i) is for relief against the Company, the Issuer or a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, in an involuntary case;

(ii) appoints a Bankruptcy Custodian of the Company, the Issuer or a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, or for any substantial part of the property of any of the foregoing; or

(iii) orders the winding up or liquidation of the Company, the Issuer or a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary;

 

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or any similar relief is granted under any foreign laws and the order or decree remains     unstayed and in effect for 90 days (the provisions of this Section 6.1(a)(7) being the “ bankruptcy provisions ”);

 

  (8) the failure by the Company or the Issuer to comply with, or the breach of, any material provision of the Escrow Agreements prior to the Distribution Date; or

 

  (9) the Note Guarantee of the Company, or any Note Guarantee of a Significant Subsidiary (other than a Norwegian Guarantor (as defined in the Offering Memorandum)) or any group of Subsidiary Guarantors (other than any Norwegian Guarantor (as defined in the Offering Memorandum)) that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, ceases to be in full force and effect (except as contemplated by the terms of this Indenture) or is declared null and void in a final and non-appealable judicial proceeding or a responsible officer of the Company or any Subsidiary Guarantor that is a Significant Subsidiary or the responsible officers of any group of Subsidiary Guarantors that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, denies or disaffirms in writing its obligations under this Indenture or its Note Guarantee, other than by reason of the termination of this Indenture or release of any such Note Guarantee in accordance with this Indenture.

The foregoing clauses shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

However, a default under Section 6.1(a)(4) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the Notes of the applicable Series then outstanding notify the Company and the Issuer of the default and the Company and the Issuer do not cure such default within the time specified after receipt of such notice. Any default for the failure to deliver any report within the time periods prescribed in Section 4.2 or to deliver any notice or certificate pursuant to any other provision of this Indenture shall be deemed to be cured upon the subsequent delivery of any such report, notice or certificate, even though such delivery is not within the prescribed period specified.

The term “ Bankruptcy Law ” means any law relating to bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or relief of debtors or any amendment to, succession to or change in any such law, including, without limitation, the United States Bankruptcy Code, 11 United States Code §§ 101 et seq . The term “ Bankruptcy Custodian ” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

The Company shall deliver to the Trustee, within 30 days after obtaining knowledge of the occurrence thereof, written notice in the form of an Officer’s Certificate of any Default, its status and what action the Company is taking or proposes to take with respect thereto.

 

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SECTION 6.2 Acceleration . If an Event of Default occurs and is continuing with respect to a Series of Notes, the Trustee (by written notice to the Company) or the holders of at least 25% in principal amount of the Notes of such Series then outstanding (by written notice to the Company and the Trustee) may declare the principal of and accrued but unpaid interest on all the Notes of such Series to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified under Section 6.1(a)(7) occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. At any time after a declaration of acceleration has been made, but before a judgment or decree for payment of the money due has been obtained, the Holders of not less than a majority in aggregate principal amount of the Notes of the applicable Series by notice to the Trustee may rescind and annul that declaration of acceleration and its consequences if the rescission and annulment would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto.

SECTION 6.3 Other Remedies . If an Event of Default occurs and is continuing with respect to a Series of Notes, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Notes of such Series or to enforce the performance of any provision of the Notes of such Series or this Indenture.

The Trustee may maintain a 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 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.

SECTION 6.4 Waiver of Past Defaults . The Holders of a majority in principal amount of the Notes of a Series by notice to the Trustee may waive an existing Default and its consequences except (a) a Default in the payment of the principal of or interest on a Note of such Series, (b) a Default arising from the failure to redeem or purchase any Note of such Series when required pursuant to the terms of this Indenture or (c) a Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Holder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

SECTION 6.5 Control by Majority . The Holders of a majority in aggregate principal amount of outstanding Notes of a Series 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. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.1, that the Trustee determines is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability; provided , however , that the Trustee may take any other action deemed proper by such Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification or security reasonably satisfactory to it against any loss, liability or expense caused by taking or not taking such action.

SECTION 6.6 Limitation on Suits .

(a) Except to enforce the right to receive payment of principal, premium (if any) or interest when due, a Holder may not pursue any remedy with respect to this Indenture or the Notes of a Series unless:

 

  (1) such Holder has previously given the Trustee notice that an Event of Default is continuing;

 

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  (2) Holders of at least 25% in principal amount of the Notes of such Series then outstanding have requested the Trustee to pursue the remedy;

 

  (3) such Holders have offered the Trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense;

 

  (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and

 

  (5) Holders of a majority in principal amount of the Notes of such Series then outstanding have not given the Trustee a direction inconsistent with such request within such 60-day period.

(b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder, it being understood that the Trustee has no affirmative duty to ascertain whether or not any actions or forbearances by a Holder are unduly prejudicial to other Holders. In the event that the Definitive Registered Notes are not issued to any beneficial owner promptly after the Registrar has received a request from the Holder of a Global Note to issue such Definitive Registered Notes to such beneficial owner of its nominee, the Issuer expressly agrees and acknowledges, with respect to the right of any Holder to pursue a remedy pursuant to this Indenture, the right of such beneficial holder of Notes to pursue such remedy with respect to the portion of the Global Note that represents such beneficial holder’s Notes as if such Definitive Registered Notes had been issued.

 

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SECTION 6.7 Rights of Holders to Receive Payment . Notwithstanding any other provision of this Indenture, the contractual right of a Holder to bring suit for the payment of principal, interest or premium (if any) on the Notes held by such Holder, on or after the respective due dates, shall not be modified without the consent of such Holder.

SECTION 6.8 Collection Suit by Trustee . If an Event of Default specified in Section 6.1(a)(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuer or any other obligor on the Notes for the whole amount then due and owing (together with interest on overdue principal and (to the extent lawful) on any unpaid interest at the rate provided for in the Notes) and the amounts provided for in Section 7.7.

SECTION 6.9 Trustee May File Proofs of Claim . The Trustee may file such proofs of claim and other papers or documents and take such other actions, including participating as members, voting or otherwise, of any committee of creditors appointed in the matter, 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, and its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company, the Issuer or any Subsidiary Guarantor, their creditors or their property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any custodian 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 first pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7.

SECTION 6.10 Priorities . If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order:

FIRST: to the Trustee for amounts due under Section 7.7;

SECOND: Holders for amounts due and unpaid on the Notes for principal and interest, ratably, and Applicable Premium (if any), ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest and Applicable Premium (if any), respectively; and

THIRD: to the Issuer or to such party as a court of competent jurisdiction shall direct, including a Guarantor, if applicable.

The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. At least 15 days before such record date, the Trustee shall mail to each Holder and the Issuer a notice that states the record date, the payment date and amount to be paid.

 

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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 Issuer, a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10.0% in aggregate principal amount of the then outstanding Notes.

SECTION 6.12 Waiver of Stay or Extension Laws . The Issuer and each Guarantor agrees (to the extent it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer and each Guarantor (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 7.

TRUSTEE

SECTION 7.1 Duties of Trustee .

(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person’s own affairs.

(b) Except during the continuance of an Event of Default:

(i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and the Trustee shall not be liable except for the performance of such duties, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii) in the absence of bad faith or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon resolutions, statements, instruments, notices, directions, certificates and/or opinions furnished to the Trustee and conforming on their face 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 be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). The Trustee may (but shall in no way be obligated to) make further inquiry or investigation into such facts or materials as it sees fit.

(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or bad faith or its own willful misconduct, except that:

(i) this subsection (c) shall not be construed to limit the effect of subsection (b) of this Section 7.1;

 

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(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and

(iii) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of at least 25% in the principal amount of the outstanding Notes of a Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture or believed by it to be authorized or permitted by this Indenture.

(d) Subject to this Article 7, if an Event of Default with respect to a Series of Notes occurs and is continuing, the Trustee shall be under no obligation to exercise any of its rights or powers under this Indenture, the Notes of such Series or the Note Guarantees at the request or direction of any of the Holders unless the Holders of Notes of such Series have offered to the Trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense.

(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 Issuer.

(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8.

(g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur 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.

(h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of Article 7.

SECTION 7.2 Rights of Trustee .

(a) In the absence of bad faith or willful misconduct on its part, the Trustee may conclusively rely on any document, resolution, statement, notice, direction, certificate and/or opinion believed by it to be genuine and to have been signed or presented by the proper Person.

(b) Before the Trustee acts or refrains from acting, it may require an Officer’s Certificate or an Opinion of Counsel or both conforming to Section 11.4. The Trustee shall not be liable for any action it takes or omits to take in good faith in conclusive reliance on the Officer’s Certificate or Opinion of Counsel.

(c) The Trustee may act through attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

(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 Trustee’s conduct does not constitute bad faith, willful misconduct or negligence.

 

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(e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Notes, including any Opinion of Counsel, shall be full and complete authorization and protection from liability in respect to any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with the advice or opinion of such counsel, including any Opinion of Counsel.

(f) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

(g) The Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions, or agreements on the part of the Issuer, but the Trustee may require of the Issuer full information and advice as to the performance of the covenants, conditions and agreements contained herein.

(h) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

(i) The Trustee shall not be deemed to have notice or be charged with knowledge of any Default or Event of Default unless a Trust Officer of the Trustee has received from the Issuer or the Holders of not less than 25% in aggregate principal amount of the Notes of the affected Series then outstanding written notice thereof at the Corporate Trust Office of the Trustee, and such notice references the Notes of such Series and this Indenture.

(j) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee and each other agent, custodian and Person employed to act hereunder.

(k) [Reserved].

(l) In no event shall the Trustee be responsible or liable for special, indirect, punitive, incidental or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

(m) Any request or direction of the Issuer or other Person mentioned herein shall be sufficiently evidenced by an Officer’s Certificate or certificate of an Officer of such other Person and any resolution of the Board of Directors of the Issuer or of such other Person may be sufficiently evidenced by a board resolution certified by the secretary or assistant secretary (or similar officer) of such Person.

(n) The Trustee may request that the Issuer deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which certificate may be updated and delivered to the Trustee at any time by the Issuer in its discretion.

(o) The Trustee will 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 of the Notes unless such Holders have offered to the Trustee indemnity or security reasonably satisfactory to it against any loss, liability or expense that might be incurred by it in compliance with such request or direction.

(p) [Reserved].

(q) No provision of this Indenture shall be deemed to impose any duty or obligation on the Trustee to take or omit to take any action, or suffer any action to be taken or omitted, in the performance of its duties or obligations under this Indenture, or to exercise any right or power thereunder, to the extent that taking or omitting to take such action or suffering such action to be taken or omitted would violate applicable law binding upon it.

 

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SECTION 7.3 Individual Rights of the Trustee . The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee; and any Paying Agent, Registrar or any other agent of the Trustee may do the same with like rights; provided, however, that if any of them acquire any “conflicting interest” (within the meaning of Section 310(b) of the Trust Indenture Act), they must eliminate such conflict within 90 days or resign in accordance with the terms of this Indenture.

SECTION 7.4 Trustee s 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 Issuer’s use of the proceeds from the Notes, and it shall not be responsible for any statement of the Issuer or any other Person in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee’s certificate of authentication.

SECTION 7.5 Notice of Defaults . If a Default occurs and is continuing and is actually known to a Trust Officer of the Trustee, the Trustee shall send to each Holder of Notes of the affected Series a notice of the Default within 90 days after it occurs. Except in the case of a Default specified in Sections 6.1(a)(1) or (2), the Trustee may withhold from the Holders of such Series notice of any continuing Default if a committee of its Trust Officers determines in good faith that withholding the notice is not opposed to the interests of the Holders of the Notes of such Series.

SECTION 7.6 [Reserved ]

SECTION 7.7 Compensation and Indemnity .

(a) The Issuer and the Guarantors, jointly and severally, shall pay to the Trustee from time to time such compensation for its services as shall be agreed to in writing from time to time by the Issuer, the Guarantors and the Trustee. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Issuer and the Guarantors, jointly and severally, shall indemnify the Trustee, its agents, representatives, officers, directors, employees and attorneys against any and all loss, liability, damage, claim (whether asserted by the Issuer, a Guarantor, a Holder or any other person) or expense (including reasonable compensation and expenses and disbursements of the Trustee’s counsel) arising out of or in connection with the administration of this trust and the performance of its duties, or in connection with the enforcement of any rights hereunder, or arising out of or in connection with the exercise or performance of any of its rights or powers hereunder. The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuer shall not relieve the Issuer or the Guarantors of their obligations hereunder. The Issuer shall defend the claim and the Trustee shall provide reasonable cooperation in such defense. The Issuer shall pay the reasonable fees and expenses of counsel to the Trustee reasonably acceptable to the Issuer; provided, however, that the Issuer shall not be required to pay such fees and expenses if the Issuer assumes such defense unless there is a conflict of interest between the Issuer and the Trustee in connection with such defense as determined by the Trustee in consultation with counsel or if there are additional or separate defenses available to the Trustee that are not available to the Issuer and the

 

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Issuer is unable to assert any such defense on the Trustee’s behalf. Notwithstanding the foregoing, the Issuer need not reimburse any expense or indemnify against any loss, liability, damage, claim or expense incurred by the Trustee through its own willful misconduct, bad faith or negligence.

(b) To secure the payment obligations of the Issuer and the Guarantors in this Section 7.7, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, other than money or property held in trust to pay principal of and interest, if any, on particular Notes.

(c) The Issuer’s payment obligations pursuant to this Section 7.7 shall survive the resignation or removal of the Trustee and the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.1(a)(7) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.

SECTION 7.8 Replacement of Trustee .

(a) The Trustee may resign with respect to one or more Series of Notes at any time by giving 30 days’ prior notice of such resignation to the Issuer and be discharged from the trust hereby created by so notifying the Issuer. The Holders of a majority in aggregate principal amount of the outstanding Notes of a Series may remove the Trustee with respect to such Series by so notifying the Trustee and the Issuer 30 days prior in writing. The Issuer shall remove the Trustee with respect to all Series of Notes if:

(i) the Trustee is no longer eligible under Section 7.10;

(ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;

(iii) a receiver or public officer takes charge of the Trustee or its property; or

(iv) the Trustee otherwise becomes incapable of acting.

(b) If, with respect to a Series of Notes, the Trustee resigns or has been removed by the Holders of such Series, Holders of a majority in principal amount of the outstanding Notes of such Series may appoint a successor Trustee with respect to such Series. Otherwise, if the Trustee resigns or is removed (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 Issuer shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes of the affected Series may remove the successor Trustee to replace it with another successor Trustee appointed by the Issuer.

(c) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. 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 under this Indenture. The successor Trustee shall send a notice of its succession to Holders of the affected Series, and include in the notice its name and address of its corporate trust office. 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 7.7.

(d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the Holders of at least 10% in principal amount of the Notes of the affected Series may petition, at the expense of the Issuer, any court of competent jurisdiction for the appointment of a successor Trustee.

 

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(e) If the Trustee fails to comply with Section 7.10, any Holder of Notes of a Series may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the Notes of such Series.

(f) Notwithstanding the replacement of the Trustee pursuant to this Section 7.8, the Issuer’s obligations under Section 7.7 shall continue for the benefit of the retiring Trustee.

SECTION 7.9 Successor Trustee by Merger .

(a) If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another Person, the resulting, surviving or transferee Person without any further act shall, if such resulting, surviving or transferee Person is otherwise eligible under this Indenture, be the successor Trustee.

(b) In case at the time such successor or successors by merger, conversion or consolidation to 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 applicable predecessor Trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any 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 the Notes provide or this Indenture provides that the certificate of the Trustee shall have.

SECTION 7.10 Eligibility; Disqualification .

(a) There shall at all times be one or more Trustees under this Indenture, each of which (1) is a corporation organized and doing business under the laws of the United States or of any state or of the District of Columbia or a corporation or other person permitted to act as trustee by the SEC, (2) is authorized under such laws to exercise corporate trust powers, and (3) is subject to supervision or examination by federal, state, or District of Columbia authorities.

(b) Each such Trustee shall have at all times a combined capital and surplus of not less than $150,000,000 as set forth in its most recent published annual report of condition.

SECTION 7.11 Multiple Trustees .

(a) Notwithstanding anything to the contrary herein, any successor Trustee may be appointed with respect to one or more Series of Notes; provided , however , that at any one time there shall be only one Trustee with respect to the Notes of a particular Series.

(b) In case of the appointment hereunder of a successor Trustee with respect to all Notes, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Issuer and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Issuer or the successor Trustee, such retiring Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder; subject, nevertheless, to its lien provided for in Section 7.7.

 

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(c) In case of the appointment hereunder of a successor Trustee with respect to the Notes of one or more (but not all) Series, the Issuer, the retiring Trustee and each successor Trustee with respect to the Notes of one or more Series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Notes of that or those Series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Notes, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Notes of that or those Series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary, to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Notes of that or those Series to which the appointment of such successor Trustee relates; but, on request of the Issuer or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Notes of that or those Series to which the appointment of such successor Trustee relates; subject, nevertheless, to its lien provided for in Section 7.7.

(d) Upon request of any such successor Trustee, the Issuer shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Trustee with respect to any Series of Notes shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article.

SECTION 7.12 Limitation on Trustee s Liability .

Except as provided in this Article 7, in accepting the trusts hereby created, the entity acting as Trustee is not acting in its individual capacity and, except as provided in this Article 7, all Persons having any claim against the Trustee by reason of the transactions contemplated by this Indenture or any Note shall look only to the Issuer or a Guarantor for payment or satisfaction thereof.

ARTICLE 8.

DISCHARGE OF INDENTURE; DEFEASANCE

SECTION 8.1 Discharge of Liability On Notes; Defeasance .

(a) When (i) the Issuer delivers to the Trustee all outstanding Notes of a Series that have been authenticated (other than lost, stolen or destroyed Notes of such Series replaced or paid pursuant to the terms of this Indenture and Notes of such Series for which payment money has been deposited in trust and thereafter repaid to the Issuer) for cancellation or (ii) (A) all outstanding Notes of such Series

 

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not previously delivered to the Trustee for cancellation have become due and payable by reason of maturity, the giving of a notice of redemption or otherwise, will become due and payable within one year or may 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 Issuer’s name and at the Issuer’s expense, and the Issuer has irrevocably deposited or caused to be deposited with the Trustee, as trust funds in trust solely for the benefit of the Holders, cash, U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes of such Series not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (B) the Issuer has paid or caused to be paid all sums payable by it under this Indenture with respect to the Notes of such Series; and (C) the Issuer has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes of such Series at maturity or the redemption date, as the case may be, then, with respect to such Series of Notes, this Indenture and all of the Issuer’s obligations in respect of the Notes of such Series shall, subject to Section 8.1(c), cease to be of further effect, and the Issuer shall be deemed to have satisfied and discharged this Indenture with respect to the Notes of such Series and all of its obligations in respect of the Notes of such Series. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuer accompanied by an Officer’s Certificate and an Opinion of Counsel and at the cost and expense of the Issuer. For the avoidance of doubt, the Issuer will continue to be obligated to pay all other sums due under this Indenture to the Trustee or to Holders of any other Series of Notes.

(b) Subject to Sections 8.1(c) and 8.2, the Issuer at any time may terminate (i) all its obligations under the Notes of a Series and, with respect to such Series, this Indenture (“ legal defeasance option ”) or (ii) its obligations with respect to such Series under Article 4 (with the exception of Sections 4.1, 4.3, 4.12 and 4.13), the limitations described in clause (4) of paragraphs (a) and (b) under Section 5.1, and the operation of the “cross acceleration provision”, the “bankruptcy provisions” with respect to Significant Subsidiaries and Subsidiary Guarantors and the “judgment default provision” under Section 6.1 (“ covenant defeasance option ”). The Issuer may exercise its legal defeasance option with respect to a Series of Notes notwithstanding its prior exercise of its covenant defeasance option with respect to such Series. If the Issuer exercises its legal defeasance option with respect to Notes of a Series, payment of the Notes of such Series may not be accelerated because of an Event of Default with respect to such Series. If the Issuer exercises its covenant defeasance option with respect to a Series of Notes, payment of the Notes of such Series may not be accelerated because of an Event of Default with respect to such Series specified in Sections 6.1(a) (3), (4), (5), (6), (7) (with respect to Significant Subsidiaries), (8) or (9) or because of the failure to comply with clause (4) of paragraphs (a) and (b) under Section 5.1. If the Issuer exercises its legal defeasance option or its covenant defeasance option with respect to a Series of Notes, each Subsidiary Guarantor shall be released from all its obligations with respect to its Note Guarantee in respect of such Series. Upon satisfaction of the conditions set forth herein and upon request of the Issuer, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuer terminates.

(c) Notwithstanding clauses (a) and (b) above with respect to a Series of Notes, the Issuer’s rights and obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.8, 2.9, 2.10, 2.11, 2.12, 7.7, 7.8 and this Article 8 with respect to such Series of Notes shall survive until the Notes of such Series have been paid in full, and, thereafter, the Issuer’s rights and obligations in Sections 7.7 and 8.4 with respect to such Series shall survive. Notwithstanding anything to the contrary in this Article, the Issuer’s exercise of its legal defeasance option or covenant defeasance option with respect to one Series of Notes shall have no affect on the Issuer’s obligations with respect to any other Series of Notes.

 

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SECTION 8.2 Conditions to Defeasance .

(a) The Issuer may exercise its legal defeasance option or its covenant defeasance option with respect to a Series of Notes only if:

(i) the Issuer irrevocably deposits in trust (the “ defeasance trust ”) with the Trustee money or U.S. Government Obligations or a combination thereof (sufficient in the opinion of a nationally recognized certified public accounting firm) for the payment of principal and interest on the Notes of such Series to redemption or maturity;

(ii) such defeasance or covenant defeasance does not result in a breach or violation of, or constitute a default under, any indenture or other agreement or instrument for borrowed money to which the Issuer is a party or by which the Issuer is bound (other than a default or event of default resulting from the borrowing of funds to be applied to such deposit and any simultaneous deposit relating to other indebtedness and, in each case, the granting of Liens in connection therewith);

(iii) no Default or Event of Default with respect to such Series of Notes under this Indenture has occurred and is continuing after giving effect to such defeasance or covenant defeasance (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and any simultaneous deposit relating to other indebtedness and, in each case, the granting of Liens in connection therewith);

(iv) the Issuer is not an insolvent, unable to pay its debts in full or on the eve of insolvency under applicable law on the date of such deposit;

(v) the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that Holders of the Notes of such Series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel shall be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law);

(vi) the Issuer shall have delivered to the Trustee an Opinion of Counsel in the jurisdiction of organization of the Issuer to the effect that Holders of the Notes of such Series will not recognize income, gain or loss for income tax purposes of such jurisdiction as a result of such deposit and defeasance and will be subject to income tax of such jurisdiction on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and

(vii) the Issuer delivers to the Trustee an Officer’s Certificate and an Opinion of Counsel, each to the effect that all conditions precedent to such defeasance or defeasance as contemplated by this Article 8 have been complied with.

(b) In connection with any defeasance or covenant defeasance involving a redemption that requires the payment of the Applicable Premium, the amount deposited with the Trustee as provided in Section 8.2(a)(i) in respect of such Applicable Premium shall be sufficient if equal to the Applicable Premium calculated as of the date of deposit, with any deficit as of the date of redemption (any such amount, the “ Applicable Premium Deficit ”) only required to be deposited with the Trustee on or prior to the date of redemption. Any Applicable Premium Deficit shall be set forth in an Officer’s Certificate delivered to the Trustee simultaneously with the deposit of such Applicable Premium Deficit that confirms that such Applicable Premium Deficit shall be applied toward such redemption.

 

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SECTION 8.3 Application of Trust Money . The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, interest (if any) and Additional Amounts (if any) on the Notes.

SECTION 8.4 Repayment to the Issuer . The Trustee and the Paying Agent shall promptly turn over to the Issuer upon request any money or U.S. Government Obligations held by it as provided in this Article which, in the written opinion of a nationally recognized firm of independent public accountants delivered to the Trustee (which delivery shall only be required if U.S. Government Obligations have been so deposited), are in excess of the amount thereof which would then be required to be deposited to effect an equivalent discharge or defeasance in accordance with this Article.

Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Issuer upon request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Holders entitled to the money must look to the Issuer for payment as general creditors.

SECTION 8.5 Reinstatement . If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer’s obligations under this Indenture and the Notes of the applicable Series shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided , however , that, if the Issuer has made any payment of interest on or principal of any Notes of the applicable Series because of the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.

ARTICLE 9.

AMENDMENTS

SECTION 9.1 Without Consent of Holders .

(a) The Issuer, the Guarantors and the Trustee may enter into supplemental indentures that amend, waive or supplement the terms of this Indenture, the Notes of any Series or the Subsidiary Guarantees without notice to or consent of any Holder for the following specific purposes:

 

  (1) to cure any ambiguity, omission, defect or inconsistency in this Indenture;

 

  (2) to provide for the assumption by a successor entity of the obligations of the Company, the Issuer or any Subsidiary Guarantor under this Indenture;

 

  (3) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code);

 

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  (4) to add Guarantees with respect to the Notes of any Series, including any Subsidiary Guarantee, or to secure the Notes of any Series;

 

  (5) to add to the covenants of the Company, the Issuer or any Subsidiary Guarantor for the benefit of the Holders of the Notes of any Series or to surrender any right or power conferred upon the Company, the Issuer or any Subsidiary Guarantor;

 

  (6) to make any change that does not adversely affect the rights of any Holder of the Notes of any Series in any material respect;

 

  (7) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the Trust Indenture Act;

 

  (8) to conform the text of this Indenture, the Notes or any Note Guarantee to any provision of the “Description of the Notes” in the Offering Memorandum to the extent that such provision in the “Description of the Notes” was intended to be a verbatim recitation of a provision of this Indenture, the Notes or such Note Guarantee;

 

  (9) to make any amendment to the provisions of this Indenture relating to the transfer and legending of Notes; provided , however , that (A) compliance with this Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any other applicable securities law and (B) such amendment does not materially and adversely affect the rights of Holders to transfer Notes except as required to satisfy any applicable requirements of the securities laws, including any exemption from registration thereunder;

 

  (10) to evidence and provide for the acceptance and appointment under this Indenture of a successor Trustee thereunder pursuant to the requirements thereof; and

 

  (11) to provide for the issuance of Additional Notes in accordance with the terms of this Indenture.

(b) After an amendment under this Section 9.1 becomes effective with respect to a Series of Notes, the Issuer shall mail to Holders of Notes of such Series a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.

SECTION 9.2 With Consent of Holders; Waiver .

(a) The Issuer, the Guarantors and the Trustee may modify and amend any of this Indenture, the Notes of any Series or the Note Guarantees with the written consent of the Holders of not less than a majority in aggregate principal amount of the then outstanding Notes of the affected Series (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, such Notes) and any past default or compliance with any provisions may also be waived with the consent of the Holders of not less than a majority in principal amount of the Notes of such Series then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes). However, no modification or amendment may, without the consent of the Holder of each outstanding Note of such Series affected thereby:

 

  (1) reduce the amount of Notes of such Series whose Holders must consent to an amendment;

 

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  (2) reduce the rate of or extend the time for payment of interest on any Note of such Series;

 

  (3) reduce the principal of or change the Stated Maturity of any Note of such Series;

 

  (4) change the provisions applicable to the redemption of any Note of such Series as provided under Article 3, other than minimum or maximum notice requirements;

 

  (5) make any Note of such Series payable in money other than that stated in the Note of such Series;

 

  (6) modify the contractual right of a Holder of Notes of such Series to bring suit for the payment of principal, interest or premium (if any) on the Notes of such Series held by such Holder, on or after the respective due dates, including by modifying Section 6.7 of this Indenture;

 

  (7) make any change in the amendment or waiver provisions which require each Holder’s consent as described in Sections 9.2(a)(1) through (6) or (8) through (10);

 

  (8) make any change in the ranking or priority of any Note of such Series or Note Guarantee that would adversely affect the Noteholders of such Series;

 

  (9) make any change in the provisions of Section 2.13 that adversely affects the rights of any Noteholder of such Series; or

 

  (10) make any change that would release the Escrowed Property in a manner or at a time other than as described in Section 3.8 that is adverse to the Holders of such Series.

(b) It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. For the avoidance of doubt, no amendment to, or deletion of any of the covenants contained in Article 4 (other than 4.1) shall be deemed to impair or affect any rights of holders of the Notes to institute suit for the enforcement of any payment on or with respect to, or to receive payment of principal of, or premium, if any, or interest on, the Notes.

(c) After an amendment under this Section 9.2 becomes effective with respect to a Series of Notes, the Issuer shall mail to Holders of Notes of such Series a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.

SECTION 9.3 Revocation and Effect of Consents and Waivers .

(a) A consent to an amendment 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 Holder’s 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 Holder’s Note or

 

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portion of the Note if the Trustee receives written notice of revocation at the Corporate Trust Office of the Trustee before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Holder. An amendment or waiver becomes effective upon the (i) receipt by the Issuer or the Trustee of the requisite number of consents, (ii) satisfaction of the conditions to effectiveness as set forth in this Indenture and any indenture supplemental hereto containing such amendment or waiver and (iii) execution of such amendment or waiver (or Guarantee Agreement) by the Issuer, the Company and the Trustee.

(b) The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date.

SECTION 9.4 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 Issuer or the Trustee so determines, the Issuer in exchange for the Note shall issue and the Trustee 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 9.5 Trustee To Sign Amendments, etc. . The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall be fully protected in relying upon, an Officer’s Certificate and an Opinion of Counsel to the effect that such amendment is authorized or permitted by this Indenture and complies with the provisions hereof and is legally valid and binding against the Issuer, the Company and any Subsidiary Guarantors.

ARTICLE 10.

GUARANTEES

SECTION 10.1 Guarantees .

(a) The Company and each Subsidiary Guarantor hereby jointly and severally irrevocably and unconditionally guarantees to each Holder and to the Trustee and their respective successors and assigns (i) the full and punctual payment when due, whether at Stated Maturity, by acceleration, by redemption or otherwise, of all obligations of the Issuer under this Indenture (including obligations to the Trustee) and the Notes, whether for payment of principal of, or interest on in respect of the Notes and all other monetary obligations of the Issuer under this Indenture and the Notes and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Issuer whether for fees, expenses, indemnification or otherwise under this Indenture and the Notes (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, to the fullest extent permitted under applicable law, without notice or further assent from each such Guarantor, and that each such Guarantor shall remain bound under this Article 10 notwithstanding any extension or renewal of any Guaranteed Obligation.

 

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(b) To the fullest extent permitted by applicable law, each Guarantor waives presentation to, demand of payment from and protest to the Issuer of any of the Guaranteed Obligations, notice of protest for nonpayment and notice of any default under the Notes or the Guaranteed Obligations. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (i) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Issuer or any other Person under this Indenture, the Notes or any other agreement or otherwise, (ii) any extension or renewal of any thereof, (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Notes or any other agreement, (iv) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Guaranteed Obligations or (vi) any change in the ownership of such Guarantor.

(c) To the fullest extent permitted by applicable law, each Guarantor hereby waives any right to which it may be entitled (i) to have its obligations hereunder divided among the Guarantors, such that such Guarantor’s obligations would be less than the full amount claimed, (ii) to have the assets of the Issuer first be used and depleted as payment of the Issuer’s or such Guarantor’s obligations hereunder prior to any amounts being claimed from or paid by such Guarantor hereunder and (iii) to require that the Issuer be sued prior to an action being initiated against such Guarantor.

(d) 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.

(e) Except as expressly set forth in Section 8.1(b), 10.2 and 10.6, 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.

Without limiting the generality of the foregoing, the obligations of each Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Notes or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Guarantor or would otherwise operate as a discharge of any Guarantor as a matter of law or equity.

(f) Subject to Section 10.6, 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, subject to Section 10.6, that its Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of 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 Issuer or otherwise.

(g) In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee have at law or in equity against any Guarantor by virtue hereof, upon the failure of the Issuer 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 Holders or 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 law) and (iii) all other monetary obligations of the Issuer to the Holders and the Trustee.

 

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(h) Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any Guaranteed Obligations guaranteed hereby until payment or discharge in full of all Guaranteed Obligations other than obligations for fees and expenses. Each Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article 6 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 6, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purposes of this Section 10.1.

(i) Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys’ fees and expenses) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.1.

(j) Upon request of the Trustee, each Guarantor shall 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.

 

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SECTION 10.2 Limitation on Liability . 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 voidable transaction or similar laws affecting the rights of creditors generally. This Indenture does not apply to any liability to the extent that it would result in this Indenture constituting unlawful financial assistance within the meaning of s. 678 or s. 679 of the Companies Act 2006 of the United Kingdom.

SECTION 10.3 Successors and Assigns . This Article 10 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 10.4 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 10 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 10 at law, in equity, by statute or otherwise.

SECTION 10.5 Modification . No modification, amendment or waiver of any provision of this Article 10, nor the consent to any departure by any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in the same, similar or other circumstances.

SECTION 10.6 Release of Subsidiary Guarantor .

(a) The Note Guarantee of a Subsidiary Guarantor will be automatically released and discharged:

 

  (1) upon such Subsidiary Guarantor becoming an Excluded Subsidiary to the extent permitted by this Indenture;

 

  (2) upon the release or discharge of such Subsidiary Guarantor from its guarantee, and of all Liens, if any, granted by such subsidiary in connection with the Revolving Credit Agreement and any other Indebtedness that required such Subsidiary Guarantor to enter into a supplemental indenture to provide a Note Guarantee pursuant to Section 10.7, other than if such Subsidiary Guarantor would otherwise be required to enter into a supplemental indenture to provide a Note Guarantee pursuant to such Section 10.7 immediately upon such release;

 

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  (3) (a) upon any sale, exchange, disposition, issuance or transfer (including by merger, amalgamation, consolidation or otherwise) of:

(i) the Equity Interests of such Subsidiary Guarantor or any holder of Equity Interests of such Subsidiary Guarantor, after which the applicable Subsidiary Guarantor is no longer a subsidiary of the Issuer, or

(ii) all or substantially all the assets of such Subsidiary Guarantor,

in the case of each of clause (i) and (ii), if such sale, exchange, disposition, issuance or transfer does not violate the applicable provisions of this Indenture required to be satisfied in connection therewith at the time thereof;

 

  (4) upon the designation of such Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with Section 4.12;

 

  (5) immediately prior to or upon the dissolution of such Subsidiary Guarantor if such dissolution does not violate the terms of this Indenture; or

 

  (6) upon the Issuer’s exercise of its legal defeasance option or its covenant defeasance option under Article 8 or if the Issuer’s obligations under this Indenture are discharged in accordance with the terms hereof,

in each case if in connection therewith the Issuer provides an Officer’s Certificate and an Opinion of Counsel to the Trustee each stating that all conditions provided in this Indenture relating to such transaction or release have been complied with.

(b) A Guarantor may consolidate with, merge with or into, or liquidate or dissolve into, or transfer all or substantially all its assets to, any other Person to the extent set forth in Article 5, and upon completion of such a transaction in compliance with such Article 5, the Note Guarantee of such Guarantor will be automatically released and discharged. In addition, the Equity Interests of a Subsidiary Guarantor may be sold or otherwise disposed of to another Person to the extent set forth in Section 4.7, and upon delivery by the Issuer of an Officer’s Certificate to the Trustee to the effect that such a transaction will comply with such Section 4.7, the Note Guarantee of such Subsidiary Guarantor (if no longer a Restricted Subsidiary) will be automatically released and discharged.

 

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SECTION 10.7 Execution of Guarantee Agreement for Future Subsidiary Guarantors . From and including the Distribution Date, the Company and the Issuer will cause each subsidiary of the Company that is a Restricted Subsidiary and not a Subsidiary Guarantor that (i) becomes a borrower or guarantor under the Revolving Credit Agreement or (ii) that Guarantees on the Distribution Date or at any time thereafter, any other Indebtedness of the Company, the Issuer or any Subsidiary Guarantor under Credit Facilities that exceeds $100 million in aggregate principal amount, to execute and deliver to the Trustee within thirty days a Guarantee Agreement; provided , however , that, a Restricted Subsidiary shall not be required to Guarantee the Notes if such Restricted Subsidiary is an Excluded Subsidiary. Notwithstanding the foregoing, the failure by any Non-U.S. Subsidiary Guarantor to execute and deliver a Guarantee Agreement on the Distribution Date in accordance with Section 3.8(c)(3) will not constitute a breach of this Section 10.7; provided that any such Non-U.S. Subsidiary Guarantor executes and delivers a Guarantee Agreement to provide a Note Guarantee within 90 days of the Distribution Date.

SECTION 10.8 Non-Impairment . The failure to endorse a Guarantee on any Note shall not affect or impair the validity thereof.

SECTION 10.9 Contribution . Each Guarantor that makes a payment under its Note 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 Guarantor’s 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.

ARTICLE 11.

MISCELLANEOUS

SECTION 11.1 [Reserved] .

SECTION 11.2 Notices . Any notice or communication shall be in writing and delivered in person or mailed by first class mail addressed as follows:

if to the Company, Issuer or any Subsidiary Guarantor:

Alcoa Corporation

390 Park Avenue

New York, New York 10022-4708

Attention: Vice President and Treasurer

Fax: 212-836-2807

with copies to:

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

Attention: Craig B. Brod; Sung K. Kang

Facsimile: 212-225-3999

 

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if to the Trustee:

The Bank of New York Mellon Trust Company, N.A.

500 Ross Street

Pittsburgh, PA 15262

Attention: Corporate Trust

Facsimile: 412-234-8377

The Issuer, any Guarantor 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 to the Holder at the Holder’s address as it appears on the Register and shall be sufficiently given if so mailed within the time prescribed.

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.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

Where this Indenture 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 applicable procedures of such Depositary, if any, prescribed for the giving of such notice.

If the Issuer sends a notice or communication to the Holders, it shall mail a copy to the Trustee at the same time.

SECTION 11.3 Trustee Instructions . The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“ Instructions ”) given by the Issuer pursuant to this Indenture and delivered using unsecured e-mail, facsimile transmission or other similar unsecured electronic methods (including pdf files) (“ Electronic Means ”); provided , however, that the Issuer shall provide to the Trustee an incumbency certificate listing officers with the authority to provide such Instructions (each, an “ Authorized Officer ”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the Issuer whenever a person is to be added or deleted from the listing. If the Issuer elects to give the Trustee Instructions using Electronic Means and the Trustee elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The issuer understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that Instructions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The Issuer shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the issuers and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the issuers. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such Instructions conflict or are inconsistent with a

 

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subsequent written instruction. The Issuer agrees: (a) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; and (b) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures.

SECTION 11.4 Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Issuer to the Trustee to take or refrain from taking any action under this Indenture (except for authentication of the Notes by the Trustee on the Issue Date, which shall not require an Opinion of Counsel), the Issuer shall furnish to the Trustee:

(a) an Officer’s Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) to the effect that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and

(b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.5) to the effect that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with.

SECTION 11.5 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:

(a) a statement to the effect 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 to the effect 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.

 

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SECTION 11.6 When Notes Disregarded . In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, any Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer or any Guarantor shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination.

SECTION 11.7 Rules by Trustee, Paying Agent and Registrar . The Trustee may make reasonable rules for action by or a meeting of Holders. The Trustee, the Registrar or the Paying Agent may make reasonable rules for their functions.

SECTION 11.8 Business Days . If a payment date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue for the intervening period. If a regular record date is not a Business Day, the record date shall not be affected.

SECTION 11.9 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 11.10 No Recourse Against Others . A director, officer, employee or stockholder, as such, of the Issuer or any Guarantor, or of any stockholder of the Issuer or any Guarantor, shall not have any liability for any obligations of the Issuer or any Guarantor, either directly or through the Issuer or any Guarantor, as the case may be, under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation whether by virtue of any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. By accepting a Note, each Holder shall waive and release all and all such liability. The waiver and release shall be part of the consideration for the issue of the Notes.

SECTION 11.11 Successors . All agreements of the Issuer and any Guarantor in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors.

SECTION 11.12 Multiple Originals . 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 all the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes other than the Trustee’s signature on the certificate of authentication on each Note.

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 WAIVER OF TRIAL BY JURY . EACH PARTY HERETO, EACH SUBSIDIARY GUARANTOR AND EACH HOLDER OF SECURITIES BY ITS ACCEPTANCE THEREOF, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT IT MAY HAVE TO TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

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SECTION 11.15 Force Majeure . 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 acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts that are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

SECTION 11.16 USA Patriot Act Compliance . To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each Person who opens an account. For a non-individual Person such as a business entity, a charity, a trust or other legal entity, the Trustee will ask for documentation to verify its formation and existence as a legal entity. The Trustee may also ask to see financial statements, licenses, identification and authorization documents from individuals claiming authority to represent the entity or other relevant documentation. The Issuer, the Company and any Subsidiary Guarantors agree to provide all such information and documentation as to themselves as requested by the Trustee to ensure compliance with federal law.

SECTION 11.17 Submission to Jurisdiction . Each of the Issuer and each Subsidiary Guarantor not organized in the United States hereby appoints the Company as its agent for service of process in any suit, action or proceeding with respect to this Indenture, the Notes and the Note Guarantees and for actions brought under the U.S. federal or state securities laws brought in any U.S. federal or state court located in the Borough of Manhattan in the County and City of New York. The Company hereby acknowledges and accepts its appointment by the Issuer and each Subsidiary Guarantor not organized in the United States. Such service may be made by mailing or delivering a copy of such process to the Issuer or such Subsidiary Guarantor not organized in the United States in care of the Company at its address as specified in Section 11.2 of this Indenture (or such other address as provided in a written notice to the Trustee). The Company, the Issuer and each Subsidiary Guarantor irrevocably and unconditionally submit to the exclusive jurisdiction of the U.S. federal or state courts sitting in the Borough of Manhattan in the County and City of New York over any suit, action or proceeding arising out of or relating to this Indenture, the Notes or the Note Guarantees and for actions brought under the U.S. federal or state securities laws. Service of any process on the Company in any such action (and written notice of such service to the Issuer) shall be effective service of process against the Issuer or any Guarantor with respect to any such suit, action or proceeding. The Company, the Issuer and each Subsidiary Guarantor irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding has been brought in an inconvenient forum. A final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon the Company, the Issuer and each Subsidiary Guarantor and may be enforced in any other courts to whose jurisdiction the Issuer is or may be subject, by suit upon judgment. The Company, the Issuer and each Subsidiary Guarantor further agrees that nothing herein shall affect any Holder’s right to effect service of process in any other manner permitted by law or bring a suit action or proceeding (including a proceeding for enforcement of a judgment) in any other court or jurisdiction in accordance with applicable law.

SECTION 11.18 Waiver of Immunity . To the extent that each of the Issuer and the Guarantors, or any of their respective properties, assets or revenues may have or may hereafter become entitled to, or have attributed to each of the Issuer and the Guarantors, any right of immunity, on the

 

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grounds of sovereignty or otherwise, from any legal action, suit or proceeding, from the giving of any relief in any such legal action, suit or proceeding, from setoff or counterclaim, from the jurisdiction of any New York state or U.S. federal court, from service of process, from attachment upon or prior to judgment, from attachment in aid of execution of judgment, or from execution of judgment, or other legal process or proceeding for the giving of any relief or for the enforcement of any judgment, in any such court in which proceedings may at any time be commenced, with respect to the obligations and liabilities of each of the Issuer and the Guarantors or any other matter under or arising out of or in connection with this Indenture, each of the Issuer and the Guarantors hereby irrevocably and unconditionally waives or will waive such right to the extent permitted by applicable law, and agrees not to plead or claim, any such immunity and consent to such relief and enforcement.

SECTION 11.19 Conversion of Currency . If for the purposes of obtaining judgment in any court it is necessary to convert a sum due under this Indenture to the Holder from U.S. dollars to another currency, the Issuer and each Guarantor agree, and each Holder by holding such Note will be deemed to have agreed, to the fullest extent that the Issuer, each Guarantor and they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures such Holder could purchase U.S. dollars with such other currency in New York City, New York on the Business Day preceding the day on which final judgment is given.

The Issuer’s and Guarantors’ obligations to any Holder will, notwithstanding any judgment in a currency (the “ Judgment Currency ”) other than U.S. dollars, be discharged only to the extent that on the Business Day following receipt by such Holder or the Trustee, as the case may be, of any amount in such Judgment Currency, such Holder may in accordance with normal banking procedures purchase U.S. dollars with the Judgment Currency. If the amount of the U.S. dollars so purchased is less than the amount originally to be paid to such Holder or the Trustee in the Judgment Currency (as determined in the manner set forth in the preceding paragraph), as the case may be, each of the Issuer and the Guarantors, jointly and severally, agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Holder and the Trustee, as the case may be, against any such loss. If the amount of the U.S. dollars so purchased is more than the amount originally to be paid to such Holder or the Trustee, as the case may be, such Holder or the Trustee, as the case may be, will pay the Issuer and the Guarantors, such excess; provided that such Holder or the Trustee, as the case may be, shall not have any obligation to pay any such excess as long as a Default under the Notes or this Indenture has occurred and is continuing or if the Issuer or the Guarantors shall have failed to pay any Holder or the Trustee any amounts then due and payable under such Note or this Indenture, in which case such excess may be applied by such Holder or the Trustee to such Obligations.

SECTION 11.20 FATCA . The Paying Agent shall be entitled to deduct or withhold from payments under this Indenture to the extent necessary to comply with an agreement described in Section 1471(b) of the Code or otherwise imposed pursuant to FATCA. To the extent permitted under applicable privacy law and if expressly authorized by any agreement between the Issuer and such holder or beneficial owner or by the terms of any tax certification, the Issuer hereby covenants with the Trustee that it will use commercially reasonable efforts to provide the Trustee with any relevant tax certification in the possession of the Issuer or other information identified by the Issuer in its sole discretion as relevant for FATCA withholding tax purposes that may be useful to assist the Trustee to determine whether or not the Trustee is obliged, in respect of any payments to be made by it pursuant to this Indenture, to make any withholding or deduction pursuant to FATCA.

[ 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.

 

ALCOA NEDERLAND HOLDING B.V.
By  

/s/ Renato Bacchi

  Name:   Renato Bacchi
  Title:   Managing Director
ALCOA UPSTREAM CORPORATION
By  

/s/ Renato Bacchi

  Name:   Renato Bacchi
  Title:   Treasurer
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
By  

/s/ Teresa Petta

  Name:   Teresa Petta
  Title:   Vice President

 

A-1


EXHIBIT A

[FORM OF FACE OF NOTE]

[Global Notes Legend]

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“ DTC ”), NEW YORK, NEW YORK, TO THE ISSUER 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.

[[ FOR REGULATION S GLOBAL NOTE ONLY ] UNTIL 40 DAYS AFTER THE LATER OF COMMENCEMENT OR COMPLETION OF THE OFFERING, AN OFFER OR SALE OF SECURITIES WITHIN THE UNITED STATES BY A DEALER (AS DEFINED IN THE SECURITIES ACT (AS DEFINED BELOW)) MAY VIOLATE THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IF SUCH OFFER OR SALE IS MADE OTHERWISE THAN IN ACCORDANCE WITH RULE 144A THEREUNDER.]

[Restricted Notes Legend]

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) 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 RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S 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 ISSUER SO REQUESTS), OR (F) PURSUANT TO AN EFFECTIVE

 

A-2


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.

[ FOR REGULATION S NOTES: ] 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.]

[Temporary Regulation S Global Notes Legend]

EXCEPT AS SET FORTH BELOW, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE PERMANENT REGULATION S GLOBAL NOTE OR ANY OTHER SECURITY REPRESENTING AN INTEREST IN THE SECURITIES REPRESENTED HEREBY WHICH DO NOT CONTAIN A LEGEND CONTAINING RESTRICTIONS ON TRANSFER, UNTIL THE EXPIRATION OF THE “40-DAY DISTRIBUTION COMPLIANCE PERIOD” (WITHIN THE MEANING OF RULE 903(B)(2) OF REGULATION S UNDER THE SECURITIES ACT) AND THEN ONLY UPON CERTIFICATION THAT SUCH BENEFICIAL INTERESTS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY DISTRIBUTION COMPLIANCE PERIOD, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE MAY ONLY BE SOLD, PLEDGED OR TRANSFERRED (I) TO THE ISSUER, (II) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (III) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND ANY STATE THEREOF. HOLDERS OF INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE WILL NOTIFY ANY PURCHASER OF THIS SECURITY OF THE RESALE RESTRICTIONS REFERRED TO ABOVE, IF THEN APPLICABLE. AFTER THE EXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD BENEFICIAL INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL NOTE MAY BE EXCHANGED FOR INTERESTS IN A RULE 144A GLOBAL SECURITY ONLY IF (1) SUCH EXCHANGE OCCURS IN CONNECTION WITH A TRANSFER OF THE SECURITIES IN COMPLIANCE WITH RULE 144A AND (2) THE TRANSFEROR OF THE REGULATION S GLOBAL SECURITY FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE TO THE EFFECT THAT THE REGULATION S GLOBAL NOTE IS BEING TRANSFERRED (A) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES TO BE A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, (B) TO A PERSON WHO IS PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (C) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE MAY BE TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN THE REGULATION S GLOBAL NOTE, WHETHER BEFORE OR AFTER THE EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD, ONLY IF THE TRANSFEROR FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE TO THE EFFECT THAT SUCH TRANSFER IS BEING MADE IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S OR RULE 144 (IF AVAILABLE).

 

A-3


No.            

   $        

[6.75][7.00]% Senior Note due [2024][2026]

CUSIP No. [            ] 1

ISIN No. [            ]

ALCOA NEDERLAND HOLDING B.V., a besloten vennootschap met beperkte aansprakelijkheid incorporated under the laws of the Netherlands, promises to pay to [                ], or registered assigns, the principal sum of [        ] Dollars (as such sum may be increased or decreased as reflected on the Schedule of Increases and Decreases in Global Note attached hereto) on September 30, [2024][2026].

Interest Payment Dates: March 31 and September 30.

Record Dates: March 15 and September 15.

Additional provisions of this Note are set forth on the other side of this Note.

 

1   2024: 144A CUSIP/ISIN: 013822 AA9 / US013822AA98

REG S CUSIP/ISIN: N02175 AA0 / USN02175AA01

2026: 144A CUSIP/ISIN: 013822 AB7 / US013822AB71

REG S CUSIP/ISIN: N02175 AB8 / USN02175AB83

 

A-4


IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed.

 

ALCOA NEDERLAND HOLDING B.V.

By:

 

 

 

Name:

 

Title:

 

A-5


TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

Dated:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
  as Trustee, certifies that this is one of the Notes referred to in the Indenture.
By:  

 

  Authorized Signatory

 

A-6


[FORM OF REVERSE SIDE OF NOTE]

[6.75][7.00]% Senior Note due [2024][2026] (the “ Notes ”)

1. Interest

ALCOA NEDERLAND HOLDING B.V., a besloten vennootschap met beperkte aansprakelijkheid incorporated under the laws of the Netherlands (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the “ Issuer ”), promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Issuer shall pay interest semiannually on March 31 and September 30 of each year. Interest on the Notes shall accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from September 27, 2016 until the principal hereof is due. Interest shall be computed on the basis of a 360-day year of twelve 30-day months.

2. Method of Payment

The Issuer shall pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders at the close of business on the March 15 or September 15 next preceding the interest payment date even if Notes are canceled after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Issuer shall pay principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. Cash payments of principal of, premium, if any, and interest on the Notes are payable at the office or agency of the Issuer maintained for such purpose or, at the option of the Issuer, cash payment of interest may be made by check mailed to the Holders at their respective addresses or transmitted by wire in accordance with wiring instructions set forth in the register of Holders; provided , that (1) all cash payments of principal, premium, if any, and interest with respect to Global Notes registered in the name of or held by DTC or its nominee will be made by wire transfer of immediately available funds to the accounts specified by the registered Holder or Holders thereof and (2) all cash payments of principal, premium, if any, and interest with respect to certificated Notes will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may agree). Until otherwise designated by the Issuer, the Issuer’s office or agency is the office of the Trustee maintained for such purpose. If a payment date falls on a day that is not a Business Day, payment will be made on the next succeeding Business Day and no interest shall accrue for the intervening period.

3. Paying Agent and Registrar

Initially, The Bank of New York Mellon Trust Company, N.A. (the “ Trustee ”), shall act as Paying Agent and Registrar. The Issuer may appoint and change any Paying Agent or Registrar without notice. The Issuer or any of its wholly owned subsidiaries organized under the laws of the United States or any state thereof may act as Paying Agent (prior to an Event of Default), Registrar, co-registrar or transfer agent.

4. Indenture

The Issuer issued the Notes under an Indenture dated as of September 27, 2016 (the “ Indenture ”), among the Issuer, Alcoa Upstream Corporation (the “ Company ”), a Delaware corporation, and the Trustee. Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture and Holders are referred to the Indenture for a statement of such terms and provisions.

 

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The Notes are senior unsecured obligations of the Issuer. The Issuer shall be entitled to issue Additional Notes pursuant to Section 2.15 of the Indenture. The Original Notes of a Series and any Additional Notes of such Series shall be treated as a single class for all purposes of the Indenture. The Indenture imposes certain limitations on the ability of the Company, the Issuer and certain of their subsidiaries to, among other things, incur, assume or guarantee debt or issue certain disqualified equity interests and preferred shares; pay dividends on or make other distributions in respect of capital stock and make other restricted payments and investments; sell or transfer certain assets; create liens on assets to secure debt; enter into certain transactions with affiliates; and restrict dividends and other payments. The Indenture also imposes limitations on the ability of the Company, the Issuer and the Subsidiary Guarantors to consolidate, amalgamate or merge with or into any other Person or convey, transfer or lease all or substantially all their property.

To guarantee the due and punctual payment of the principal of, and interest on the Notes and all other amounts payable by the Issuer under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Company has unconditionally guaranteed the Guaranteed Obligations on a senior unsecured basis pursuant to the terms of the Indenture. Certain other subsidiaries of the Company are required to guarantee the Guaranteed Obligations on or after the Distribution Date, subject to the limitations set forth in the Indenture.

5. Optional Redemption

Except as set forth in this Section 5, the Issuer shall not be entitled to redeem the Notes at its option. For the avoidance of doubt, the Issuer shall be required to redeem the Notes to the extent set forth in Section 6.

(a) Prior to September 30, [2019][2021], the Issuer will be entitled at its option to redeem all, but not less than all, of the Notes at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium as of, and accrued and unpaid interest to but not including, the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

On and after September 30, [2019][2021], the Issuer will be entitled at its option to redeem on one or more occasions all or a portion of the Notes at the redemption prices set forth below (expressed in percentages of principal amount on the redemption date), plus, accrued interest to but not including the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on September 30 of the years set forth below:

 

[2019

     105.063

2020

     103.375

2021

     101.688

2022 and thereafter

     100.000 %] 

[2021

     103.500

2022

     102.333

2023

     101.167

2024 and thereafter

     100.000 %] 

 

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(b) In addition, any time prior to September 30, 2019, the Issuer will be entitled at its option on one or more occasions to redeem the Notes in an aggregate principal amount not to exceed 40% of the aggregate principal amount of the Notes originally issued at a redemption price (expressed as a percentage of principal amount) of [106.75][107.00]% plus accrued and unpaid interest to but not including the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if the principal and premium for such redemption is paid with the net cash proceeds from one or more Qualified Equity Offerings; provided , however , that

 

  (1) at least 60% of the original aggregate principal amount of Notes remains outstanding immediately after the occurrence of each such redemption (other than Notes held, directly or indirectly, by the Company or its Affiliates); and

 

  (2) each such redemption occurs within 180 days after the date of the related Qualified Equity Offering.

(c) The Issuer is also entitled to redeem the Notes, at its option, at any time as a whole but not in part, upon not less than 30 nor more than 60 days’ notice, at 100% of the principal amount thereof on the date of redemption, plus accrued and unpaid interest, if any, to, but not including, the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event the Issuer, the Company or any Subsidiary Guarantor has become or would become obligated to pay, on the next date on which any amount would be payable with respect to the Notes, any Additional Amounts as a result of:

 

  (1) a change in or an amendment to the laws (including any regulations promulgated thereunder) of a Relevant Taxing Jurisdiction (or any political subdivision or taxing authority thereof or therein); or

 

  (2) any change in or amendment to any official position regarding the application or interpretation of such laws or regulations,

which change or amendment is announced or becomes effective on or after the Issue Date (or, if the Relevant Taxing Jurisdiction has changed since the Issue Date, the date on which such jurisdiction became a Relevant Taxing Jurisdiction) and it cannot avoid such obligation by taking reasonable measures available to it.

Before the Issuer publishes or mails notice of redemption of the Notes as described above in this Section 5(c), it will deliver to the Trustee an Officer’s Certificate to the effect that it cannot avoid its obligation to pay Additional Amounts by taking reasonable measures available to it. The Issuer will also deliver an opinion of independent legal counsel of recognized standing stating that it would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations.

(d) If Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in a Change of Control Offer and the Issuer, or any third party making a Change of Control Offer in lieu of the Issuer as described in the Indenture, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuer or such third party will have the right, upon not less than 30 days’ nor more than 60 days’ prior notice (provided that such notice is given not more than 30 days following such purchase pursuant to the Change of Control Offer described in the Indenture) to redeem all Notes that remain outstanding following such purchase at a price in cash equal to 101% of the principal amount thereof on the redemption date plus accrued and unpaid interest (if any) to but not including the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

 

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(e) Any redemption of the Notes may, at the Issuer’s discretion, be subject to one or more conditions precedent, including completion of a Qualified Equity Offering, refinancing transaction or other corporate transaction. In addition, if such redemption or notice is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuer’s discretion, the redemption date may be delayed until such time as any or all of such conditions shall be satisfied (or waived by the Issuer in its sole discretion), or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied (or waived by the Issuer in its sole discretion) by the redemption date, or by the redemption date so delayed. If any condition precedent has not been satisfied, the Issuer will provide written notice to the Trustee prior to the close of business on the Business Day prior to the redemption date. Upon receipt of such notice, the notice of redemption shall be rescinded and the redemption of the Notes shall not occur or, if specified in such notice, the date of such redemption shall be extended to the specified date, which shall not be later than the latest date upon which such redemption is permitted to occur under this Section 5. Upon receipt, the Trustee shall provide such notice to each Holder of the Notes in the same manner in which the notice of redemption was given.

6. Special Mandatory Redemption

If (i) the Escrow Agent and the Trustee have not received an Officer’s Certificate and release notice on or prior to 11:59 p.m. Eastern Standard Time on April 3, 2017 (the “ Outside Date ”) certifying that, substantially concurrently with the Release (as defined below), the Escrow Release Conditions (as defined below) will be satisfied, or (ii) the Company shall have notified the Escrow Agent and the Trustee in writing in the form of an Officer’s Certificate stating that (x) Parent has abandoned the separation and distribution or (y) that the Escrow Release Conditions will not be satisfied (each of the events described in the foregoing clauses (i) and (ii), a “Special Mandatory Redemption Event”), then the Issuer will, on the Special Mandatory Redemption Date, 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 not including, the Special Mandatory Redemption Date (subject to the right of Holders of record of Notes on the relevant record date to receive interest due on the relevant interest payment date). “ Special Mandatory Redemption Date ” means the date that is five Business Days after the Special Mandatory Redemption Notice Date. “ Escrowed Property ” means an amount of cash equal to the net proceeds of the offering of the Notes sold on the Issue Date, plus an additional amount in cash sufficient to make all interest payments due and payable on the Notes to but not including the latest possible Special Mandatory Redemption Date and to pay the maximum possible Special Mandatory Redemption Price, together with any other property from time to time held by the Escrow Agent for the benefit of the Holders of the Notes.

Notice of the Special Mandatory Redemption will be mailed by first-class mail (or otherwise delivered in accordance with the applicable procedures of DTC) by the Issuer no later than three Business Days following a Special Mandatory Redemption Event to each Holder of Notes at its registered address and the Trustee and the Escrow Agent (such date of mailing, the “ Special Mandatory Redemption Notice Date ”).

The Escrowed Property will be released to or at the direction of the Issuer (the “ Release ”) only upon receipt prior to the Outside Date by the Trustee and the Escrow Agent of an Officer’s Certificate (in form and substance required pursuant to the terms of the Escrow Agreements) to the effect that (collectively, the “ Escrow Release Conditions ”):

 

  (1) substantially concurrently with the Release, the separation and distribution will be consummated, in each case in all material respects consistent with the information set forth in the Offering Memorandum, other than modifications that are not material and adverse to the rights of holders of the Notes (as conclusively determined by the Board of Directors of the Company);

 

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  (2) immediately before the Release, each of the Company and the Issuer is a wholly owned subsidiary of the Parent, and immediately after the Release, the Issuer will be a wholly owned subsidiary of the Company;

 

  (3) each Initial Subsidiary Guarantor has executed and delivered to the Trustee a supplemental indenture to the Indenture to provide a Note Guarantee and such Note Guarantees will be effective and enforceable under the Indenture on the Distribution Date, except as otherwise disclosed in the Offering Memorandum (other than any Non-U.S. Subsidiary Guarantor that cannot Guarantee the Notes on the Distribution Date due to the requisite corporate or governmental approvals under the applicable laws of the jurisdiction of incorporation of such Non-U.S. Subsidiary Guarantor for such Note Guarantee not having been received, which such Non-U.S. Subsidiary Guarantors shall execute and deliver to the Trustee supplemental indentures to provide Note Guarantees within 90 days after the Distribution Date); and

 

  (4) at the time of the Release, on a pro forma basis after giving effect to the separation and distribution and the Release, no Default or Event of Default has occurred and is continuing under the Indenture.

7. Sinking Fund

The Notes are not subject to any sinking fund.

8. Notice of Redemption

Notice of any redemption pursuant to Section 5 above shall be mailed by first-class mail (or otherwise delivered in accordance with the Applicable Procedures) at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at his or her registered address, except that redemption notices may be mailed (or otherwise delivered in accordance with the Applicable Procedures) more than 60 days prior to the redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. Notice of any redemption pursuant to Section 6 above shall be delivered as specified in such Section. Any inadvertent defect in the notice of redemption, including an inadvertent failure to give notice, to any Holder selected for redemption shall not impair or affect the validity of the redemption of any other Note redeemed in accordance with provisions of the Indenture. Notes in denominations of $200,000 or less may be redeemed in whole but not in part.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount thereof to be redeemed. We will issue a new Note in a principal amount equal to the unredeemed portion of the original Note in the name of the Holder upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. With respect to registered Notes issued in global form, the principal amount of such Note or Notes will be adjusted in accordance with the Applicable Procedures. Notes held in certificated form must be surrendered to the Paying Agent in order to collect the redemption price. Unless the Issuer defaults in the payment of the redemption price, on and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.

 

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9. Repurchase of Notes at the Option of Holders upon Change of Control Triggering Event and Asset Dispositions

In accordance with Section 4.11 of the Indenture, the Issuer shall be required to offer to purchase Notes upon the occurrence of a Change of Control Repurchase Event. Any Holder of Notes shall have the right, subject to certain conditions specified in the Indenture, to cause the Issuer to repurchase all or any part of the Notes of such Holder at a purchase price equal to 101% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture.

In accordance with Section 4.7(e) of the Indenture, the Issuer shall be required to offer to purchase Notes upon the occurrence of certain events. Subject to certain conditions specified in the Indenture, the Issuer shall be required to make an offer to all Holders to repurchase Notes in accordance with Section 4.7(e) of the Indenture at a purchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase using certain excess proceeds received from certain asset dispositions (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture.

10. Denominations; Transfer; Exchange

The Notes are in registered form without coupons in denominations of $200,000 and whole multiples of $1,000 in excess thereof. A Holder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Issuer need not transfer or exchange any Note selected for redemption or tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Disposition Offer, need not issue, register the transfer of or exchange any Note during the period of 15 days before the mailing of a notice of redemption of Notes to be redeemed and need not register the transfer or exchange of any Note during the period of 15 days prior to an interest payment date.

11. Persons Deemed Owners

The registered Holder of this Note shall be treated as the owner of it for all purposes.

12. Unclaimed Money

If money for the payment of principal, interest, or Applicable Premium (if any) remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money to the Issuer upon its written request unless an applicable abandoned property law designates another Person. After any such payment, Holders entitled to the money must look to the Issuer for payment as general creditors and the Trustee and the Paying Agent shall have no further liability with respect to such monies.

12. Discharge and Defeasance

Subject to certain conditions set forth in the Indenture, the Issuer at any time may terminate some of or all its obligations under the Notes and the Indenture if the Issuer deposits with the Trustee money or U.S. Government Obligations for the payment of principal of, and interest on, the Notes to redemption or maturity, as the case may be.

 

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13. Amendment, Supplement and Waiver

Subject to certain exceptions, the Indenture may be amended with the consent of the Holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes). However, without the consent of each holder of an outstanding Note affected thereby, an amendment or waiver may not, among other things:

 

  (1) reduce the amount of Notes whose holders must consent to an amendment;

 

  (2) reduce the rate of or extend the time for payment of interest on any Note;

 

  (3) reduce the principal of or change the Stated Maturity of any Note;

 

  (4) change the provisions applicable to the redemption of any Note other than minimum or maximum notice requirements;

 

  (5) make any Note payable in money other than that stated in the Note;

 

  (6) modify the contractual right of a holder to bring suit for the payment of principal, interest or premium (if any) on the Notes held by such holder, on or after the respective due dates;

 

  (7) make any change in the amendment or waiver provisions which require each holder’s consent as described in clauses (1) through (6) or (8) through (10) of this sentence;

 

  (8) make any change in the ranking or priority of any Note or Note Guarantee that would adversely affect the Noteholders;

 

  (9) make any change in Section 2.13 of the Indenture regarding “Additional Amounts” that adversely affects the rights of any Noteholder; or

 

  (10) make any change that would release the Escrowed Property in a manner or at a time other than as described under “Special Mandatory Redemption” above that is adverse to the Holders.

Notwithstanding the preceding, without the consent of any holder of the Notes, the Company, the Issuer and the Subsidiary Guarantors and the Trustee may amend the Indenture:

 

  (1) to cure any ambiguity, omission, defect or inconsistency;

 

  (2) to provide for the assumption by a successor entity of the obligations of the Company, the Issuer or any Subsidiary Guarantor under the Indenture;

 

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  (3) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code);

 

  (4) to add Guarantees with respect to the Notes, including any Subsidiary Guarantee, or to secure the Notes;

 

  (5) to add to the covenants of the Company, the Issuer or any Subsidiary Guarantor for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company, the Issuer or any Subsidiary Guarantor;

 

  (6) to make any change that does not adversely affect the rights of any holder of the Notes in any material respect;

 

  (7) to comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act;

 

  (8) to conform the text of the Indenture, the Notes or any Subsidiary Guarantee to any provision of the “Description of the Notes” section of the Offering Memorandum to the extent that such provision in such “Description of the Notes” was intended to be a verbatim recitation of a provision of the Indenture, the Notes or such Subsidiary Guarantee;

 

  (9) to make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes; provided , however , that (A) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any other applicable securities law and (B) such amendment does not materially and adversely affect the rights of Holders to transfer Notes except as required to satisfy any applicable requirements of the securities laws, including any exemption from registration thereunder;

 

  (10) to evidence and provide for the acceptance and appointment under the Indenture of a successor Trustee thereunder pursuant to the requirements thereof; and

 

  (11) to provide for the issuance of Additional Notes in accordance with the terms of the Indenture.

14. Defaults and Remedies

Under the Indenture, each of the following is an Event of Default:

 

  (1) a default in the payment of interest on the Notes when due, continued for 30 days;

 

  (2) a default in the payment of principal of any Note when due at its Stated Maturity, upon redemption, upon required purchase, upon declaration of acceleration or otherwise;

 

  (3) the failure by the Company, the Issuer or any Subsidiary Guarantor to comply with its obligations Section 5.1 of the Indenture regarding certain mergers and consolidations;

 

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  (4) the failure by the Company, the Issuer or any Subsidiary Guarantor to comply for 60 days after notice with any of its obligations, covenants or other agreements under the Indenture or the Notes (other than a default referred to in clause (1), (2) or (3) above);

 

  (5) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company, the Issuer or any Restricted Subsidiary (or the payment of which is Guaranteed by the Company, the Issuer or any Restricted Subsidiary), whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, which default:

 

  (A) is caused by a failure to pay principal on such Indebtedness at its Stated Maturity (after giving effect to any applicable grace period provided in such Indebtedness) (“ payment default ”); or

 

  (B) results in the acceleration of such Indebtedness prior to its maturity (the “ cross acceleration provision ”);

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated and remains unpaid, aggregates $100 million or more (or its foreign currency equivalent);

 

  (6) failure by the Company, the Issuer or any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $100 million (or its foreign currency equivalent) (net of any amounts covered by a reputable and creditworthy insurance company), which judgments are not paid, discharged or stayed for a period of 90 days or more after such judgment becomes final and non-appealable (the “ judgment default provision ”);

 

  (7) certain events of bankruptcy, insolvency or reorganization of the Company, the Issuer or a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary (the “ bankruptcy provisions ”);

 

  (8) the failure by the Company or the Issuer to comply with, or the breach of, any material provision of the Escrow Agreements prior to the Distribution Date; or

 

  (9)

the Note Guarantee of the Company, or any Note Guarantee of a Significant Subsidiary (other than a Norwegian Guarantor (as defined in the Offering Memorandum)) or any group of Subsidiary Guarantors (other than any Norwegian Guarantor (as defined in the Offering Memorandum)) that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a final and non-appealable judicial proceeding or a responsible officer of the Company or any Subsidiary Guarantor that is a Significant Subsidiary

 

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  or the responsible officers of any group of Subsidiary Guarantors that, taken together (as of the date of the latest consolidated financial statements of the Company made available to the Holders), would constitute a Significant Subsidiary, denies or disaffirms in writing its obligations under the Indenture or its Note Guarantee, other than by reason of the termination of the Indenture or release of any such Note Guarantee in accordance with the Indenture.

However, a default under clause (4) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the Notes then outstanding notify the Company and the Issuer of the default and the Company and the Issuer do not cure such default within the time specified after receipt of such notice.

If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the Notes then outstanding may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or the Issuer occurs and is continuing, the principal of and interest on all the Notes will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the Notes then outstanding may rescind any such acceleration with respect to the Notes and its consequences.

Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default (except a Default in payment of principal or interest) so long as a committee of its Trust Officers in good faith determines that withholding notice is not opposed to the interest of the Holders of the Notes.

15. Trustee Dealings with the Issuer

The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Trustee, subject to certain restrictions specified in the Indenture.

16. No Recourse Against Others

A director, officer, employee or stockholder, as such, of the Issuer or any Guarantor, or of any stockholder of the Issuer or any Guarantor, shall not have any liability for any obligations of the Issuer or any Guarantor, either directly or through the Issuer or any Guarantor, as the case may be, under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation whether by virtue of any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. By accepting a Note, each Holder shall waive and release all and all such liability. The waiver and release shall be part of the consideration for the issue of the Notes.

17. Authentication

This Note shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Note.

 

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18. Abbreviations

Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act).

19. Governing Law

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

The Indenture provides that the Issuer, the Trustee, and each Holder by its acceptance thereof, 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 Indenture, the Notes or any transaction contemplated thereby.

20. CUSIP and ISIN Numbers

The Issuer has caused CUSIP and ISIN numbers to be printed on the Notes and has directed the Trustee to use CUSIP and ISIN numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.

The Issuer shall furnish to any Holder of Notes upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note.

 

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ASSIGNMENT FORM

To assign this Note, fill in the form below:

I or we assign and transfer this Note to

(Print or type assignee’s name, address and zip code)

(Insert assignee’s soc. sec. or tax I.D. No.)

and irrevocably appoint                      agent to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.

 

 

 

Date:  

 

    Your Signature:  

 

 

 

 

Sign exactly as your name appears on the other side of this Note.

Signature Guarantee*:

 

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

 

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CERTIFICATE TO BE DELIVERED UPON EXCHANGE

OR REGISTRATION OF TRANSFER RESTRICTED NOTES

This certificate relates to $         principal amount of Notes held in (check applicable space)                     book-entry or                      definitive form by the undersigned.

The undersigned (check one box below):

 

  ¨ has requested the Trustee by written order to deliver in exchange for its beneficial interest in a Global Note held by the Depositary a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Note (or the portion thereof indicated above) in accordance with the Indenture; or

 

  ¨ has requested the Trustee by written order to exchange or register the transfer of a Note or Notes.

In connection with any transfer of any of the Notes evidenced by this certificate, the undersigned confirms that such Notes are being transferred in accordance with its terms:

CHECK ONE BOX BELOW

 

(1)    ¨    to the Issuer or subsidiary thereof; or
(2)    ¨    under a registration statement that has been declared effective under the Securities Act of 1933, as amended (the “ Securities Act ”); or
(3)    ¨    for so long as the Notes are eligible for resale under Rule 144A, to a person seller reasonably believes is a qualified institutional buyer that is purchasing for its own account or the account of another qualified buyer that is purchasing for its own account or for the account of another qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A; or
(4)    ¨    through offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act; or
(5)    ¨    under any other available exemption from the registration requirements of the Securities Act.

Unless one of the boxes is checked, the Trustee shall refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided , however , that if box (5) is checked, the Issuer or the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions, certifications and other information as the Issuer or the Trustee has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.

 

A-19


 

Your Signature

 

Signature of Signature Guarantee
Date:  

 

 

 

Signature of Signature Guarantor

 

 

TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.

The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer and the Guarantors as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

 

Dated:

  

 

   NOTICE: To be executed by an executive officer
   Name:
   Title:

 

Signature Guarantee*:

 

 

 

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

[TO BE ATTACHED TO GLOBAL NOTES]

 

A-20


SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE

The initial principal amount of this Global Note is $[        ]. The following increases or decreases in this Global Note have been made:

 

Date of Exchange

   Amount of
decrease in
Principal
Amount of
this Global
Note
     Amount of
increase in
Principal
Amount of
this Global
Note
     Principal
amount of
this Global
Note following
such decrease
or increase
     Signature of
authorized
signatory of
Trustee or
Custodian
 
           
           
           

 

A-21


OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Note purchased by the Issuer pursuant to [[Section 4.7] (Asset Disposition Offer)][[Section 4.11] (Change of Control Repurchase Event)] of the Indenture, check the box:

 

  ¨ Asset Disposition Offer

 

  ¨ Change of Control Repurchase Event

If you want to elect to have only part of this Note purchased by the Issuer pursuant to [[Section 4.7][Section 4.11] of the Indenture], state the amount ($200,000 or a whole multiple of $1,000 in excess thereof):

$        

 

Date:  

 

   

 

Your Signature:

  

 

   (Sign exactly as your name appears on the other side of the Note)

 

Signature Guarantee:

 

 

  Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee

 

A-22


EXHIBIT B

[FORM OF SUPPLEMENTAL INDENTURE] 2

SUPPLEMENTAL INDENTURE (this “ Supplemental Indenture ”) dated as of [                    ], among [GUARANTOR] (the “ New Guarantor ”), a subsidiary of ALCOA UPSTREAM CORPORATION (or its successor), a corporation organized under the laws of Delaware (the “ Company ”), the Company, ALCOA NEDERLAND HOLDING B.V (the “Issuer”) and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as the Trustee, (the “ Trustee ”) under the indenture referred to below.

W I T N E S S E T H :

WHEREAS the Issuer and the Company have heretofore executed and delivered to the Trustee an Indenture (the “ Indenture ”) dated as of September 27, 2016, providing for the issuance of 6.75% Senior Unsecured Notes due 2024 and 7.00% Senior Unsecured Notes due 2026 (collectively, the “ Notes ”);

WHEREAS the Indenture provides that under certain circumstances the Company and the Issuer are required to cause the New Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor shall unconditionally guarantee all the Issuer’s obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein and under the Indenture; and

WHEREAS pursuant to Section 9.1 of the Indenture, the Trustee, the Issuer, the Company and the New Guarantor are authorized to execute and deliver this Supplemental Indenture;

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor, the Issuer, the Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. Agreement to Guarantee . The New Guarantor hereby agrees, jointly and severally with all the existing Guarantors, to unconditionally guarantee the Issuer’s obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes.

3. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

2   Note: This Supplemental Indenture may be modified in accordance with the definition of “Guarantee Agreement”.

 

B-1


5. Waiver of Jury Trial . EACH OF THE NEW GUARANTOR AND THE TRUSTEE 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 SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES, THE SUBSIDIARY GUARANTEES OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

6. Trustee Makes No Representation . The Trustee makes any representation as to the validity or sufficiency of this Supplemental Indenture.

7. Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or .pdf transmission shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or .pdf shall be deemed to be their original signatures for all purposes.

8. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction thereof. 1

 

B-2


IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

 

[NEW GUARANTOR],
By:  

 

  Name:
  Title:
ALCOA NEDERLAND HOLDING B.V.
By  

 

  Name:
  Title:
ALCOA UPSTREAM CORPORATION
By  

 

  Name:
  Title:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
By  

 

  Name:
  Title:

 

B-3

Exhibit 10.20

FORM OF

ALCOA CORPORATION

CHANGE IN CONTROL

SEVERANCE PLAN

The Company hereby adopts, as of             , 2016, the Alcoa Corporation Change in Control Severance Plan for the benefit of certain employees of the Company and its subsidiaries, on the terms and conditions hereinafter stated. All capitalized terms used herein are defined in Section 1 hereof.

Section 1. DEFINITIONS . As hereinafter used:

1.1 “ Affiliate ” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Exchange Act.

1.2 “ Applicable Multiplier ” shall mean three (3); provided, however, that, with respect to an Eligible Employee who incurs a Severance during the three year period immediately preceding such individual’s Mandatory Retirement Age, such multiplier shall be equal to (x) the number of full and partial months remaining until such Eligible Employee attains Mandatory Retirement Age, (y) divided by twelve.

1.3 “ Applicable Period ” shall mean the thirty-six (36) month period immediately following an Eligible Employee’s Severance Date; provided, however, that, with respect to an Eligible Employee who incurs a Severance during the three year period immediately preceding such individual’s Mandatory Retirement Age, the Applicable Period shall mean the period remaining until such Eligible Employee attains Mandatory Retirement Age.

1.4 “ Beneficial Owner ” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

1.5 “ Board ” means the Board of Directors of the Company.

1.6 “ Cause ” means: (i) the willful and continued failure by the Eligible Employee to substantially perform the Eligible Employee’s duties with the Employer that has not been cured within thirty (30) days after a written demand for substantial performance is delivered to the Eligible Employee by the Board, which demand specifically identifies the manner in which the Board believes that the Eligible Employee has not substantially performed the Eligible Employee’s duties, or (ii) the willful engaging by the Eligible Employee in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Eligible Employee’s part shall be deemed “willful” unless done, or omitted to be done, by the Eligible Employee not in good faith and without reasonable belief that the Eligible Employee’s act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists and the Board finding to that effect is adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board (after reasonable notice to the Eligible Employee and an opportunity for the Eligible Employee, together with the Eligible Employee’s counsel, to be heard by the Board).

1.7 “ Change in Control ” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(a) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either

 

1


(A) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided , however , that, for purposes of this Section 1.7, the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliated Company or (iv) any acquisition pursuant to a transaction that complies with Sections 1.7 (c)(A), 1.7(c)(B) and 1.7(c)(C);

(b) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided , however , that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(c) consummation of a reorganization, merger, statutory share exchange or consolidation or similar transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (A) all or substantially all of the individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 55% or more of the then-outstanding shares of common stock (or, for a non-corporate entity, equivalent securities) and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors (or, for a non-corporate entity, equivalent governing body), as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then-outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors (or, for a non-corporate entity, equivalent governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(d) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company.

1.8 “ Code ” means the Internal Revenue Code of 1986, as it may be amended from time to time.

1.9 “ Committee ” means the Compensation Committee of the Board.

 

2


1.10 “ Company ” means Alcoa Corporation, a Delaware corporation, or any successors thereto.

1.11 “ DB Pension Plan ” means any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company or any of its Affiliates and any other defined benefit plan or agreement entered into between the Eligible Employee and the Company or any of its Affiliates which is designed to provide the Eligible Employee with supplemental defined benefit retirement benefits.

1.12 “ DC Pension Plan ” means any tax-qualified, supplemental or excess defined contribution plan maintained by the Company or any of its Affiliates and any other defined contribution plan or agreement entered into between the Eligible Employee and the Company or any of its Affiliates which is designed to provide the Eligible Employee with supplemental defined contribution retirement benefits.

1.13 “ Eligible Employee ” means any Tier I, Tier II or Tier III Employee. An Eligible Employee becomes a “ Severed Employee ” once he or she incurs a Severance.

1.14 “ Employer ” means the Company or any of its subsidiaries which is an employer of the Eligible Employee.

1.15 “ Entity ” means any individual, entity, person (within the meaning of Section 3(a)(9) of the Exchange Act or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than (i) an employee plan of the Company or any of its Affiliates, (ii) any Affiliate of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by shareholders of the Company in substantially the same proportions as their ownership of the Company.

1.16 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

1.17 “ Good Reason ” in respect of an Eligible Employee means the occurrence, after a Change in Control (or prior to a Change in Control, under the circumstances described in the second sentence of Section 1.26 hereof, treating all references below to a “Change in Control” as references to a “Potential Change in Control”), of:

(i) the assignment to the Eligible Employee of any duties inconsistent with the Eligible Employee’s employment status with the Employer immediately prior to the Change in Control or a substantial adverse alteration in the nature or status of the Eligible Employee’s responsibilities from those in effect immediately prior to the Change in Control, including, but not limited to, (x) with respect to a Tier I Employee, the Eligible Employee’s ceasing to hold the office as the sole chief executive officer of the Company (or its parent or successor) and to function in that capacity, reporting directly to the board of directors of a public company, and (y) with respect to a Tier II Employee, the Eligible Employee’s ceasing to report directly to the chief executive officer of a public company;

(ii) a reduction by the Company in the Eligible Employee’s total compensation and benefits in the aggregate from that in effect immediately prior to the Change in Control. Total compensation and benefits includes, but is not limited to (1) annual base salary, annual variable compensation opportunity (taking into account applicable performance criteria and the target bonus amount of annual variable compensation); (2) long term stock-based and cash incentive opportunity (taking into account applicable performance criteria and the target stock option amount); and (3) benefits and perquisites under pension, savings, life insurance, medical, health, disability, accident and material fringe benefit plans of the Company or its subsidiaries or Affiliates in which the Eligible Employee was participating immediately before the Change in Control;

 

3


(iii) the relocation of the Eligible Employee’s principal place of employment to a location more than fifty (50) miles from the Eligible Employee’s principal place of employment immediately prior to the Change in Control; or

(iv) the failure by the Employer to pay to the Eligible Employee any portion of the Eligible Employee’s compensation, within fourteen (14) days of the date such compensation is due.

The Eligible Employee’s right to terminate the Eligible Employee’s employment for Good Reason shall not be affected by the Eligible Employee’s incapacity due to physical or mental illness. The Eligible Employee’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any good faith determination by the Eligible Employee that Good Reason exists shall be conclusive.

1.18 “ Incumbent Board ” shall mean individuals who, as of the date hereof, constitute the Board cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the Board.

1.19 “ Mandatory Retirement Age ” means, solely for purposes of this Plan, age 75.

1.20 “ Notice of Termination ” shall have the meaning set forth in Section 3.6.

1.21 “ Plan ” means the Alcoa Corporation Change in Control Severance Plan, as set forth herein, as it may be amended from time to time.

1.22 A “ Potential Change in Control ” shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:

(a) the Company is negotiating an agreement, the consummation of which may result in the occurrence of a Change in Control;

(b) the Company or any Entity states an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;

(c) any Entity becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company’s then outstanding securities with the purpose or with the effect of changing or influencing the control of the Company.

A Potential Change in Control shall be considered to be pending during the period beginning on the date when it occurs and ending on the occurrence of a subsequent Change in Control; provided, a Potential Change in Control shall be considered to cease to be pending on the first anniversary of such date unless either (i) a Change in Control has previously occurred or (ii) the Incumbent Board determines that the Potential Change in Control is still pending; and if the Incumbent Board does so determine, then the Potential Change in Control shall continue to be considered pending until the occurrence of a Change in Control or a determination by the Incumbent Board that the Potential Change in Control is no longer pending.

 

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1.23 A “ Separation from Service ” means (i) an Eligible Employee ceases to provide any services to the Company in any capacity (whether as an employee or an independent contractor), other than bona fide services at a level that does not exceed more than fifty (50) percent of the average level of bona fide services (whether as an employee or an independent contractor) performed by the Eligible Employee over the preceding thirty-six (36) month period (or the full period of services to the Company if the Eligible Employee has been providing services to the Company for less than thirty-six (36) months), and (ii) the Company and the Eligible Employee reasonably anticipate that such cessation will be permanent.

1.24 “ Severance ” means an Eligible Employee’s Separation from Service on or within three years immediately following the date of the Change in Control, (x) by the Employer other than for Cause, or (y) by the Eligible Employee for Good Reason. In addition, for purposes of this Plan, the Eligible Employee shall be deemed to have incurred a Severance, if (i) the Eligible Employee’s Separation from Service occurs because his employment is terminated by the Employer without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of an Entity who has entered into an agreement with the Company the consummation of which would constitute a Change in Control or (ii) the Eligible Employee’s Separation from Service occurs because he terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Entity. For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Eligible Employee shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct. An Eligible Employee will not be considered to have incurred a Severance if his or her employment is discontinued by reason of the Eligible Employee’s death or a physical or mental condition causing such Eligible Employee’s inability to substantially perform his or her duties with the Company, including, without limitation, such condition entitling him or her to benefits under any sick pay or disability income policy or program of the Company.

1.25 “ Severance Date ” means the date on which an Eligible Employee’s Severance takes place.

1.26 “ Severance Pay ” means the payment determined pursuant to Section 2.1(a) hereof.

1.27 “ Tier I Employee ” means the Chief Executive Officer of the Company.

1.28 “ Tier II Employee ” means (i) the Chief Financial Officer, the President and Chief Operating Officer, the General Counsel and the head of Corporate Development for the Company, and (ii) any such other officer (other than an assistant officer) of the Company as the Committee determines.

1.29 “ Tier III Employee ” means (i) any officer (other than an assistant officer) of the Company and (ii) any such other key executive of the Company or any of its subsidiaries or Affiliates as the Committee determines, which employee, in each case, is not a Tier I Employee or Tier II Employee.

Section 2. BENEFITS .

2.1 Severance Payments and Benefits . Each Eligible Employee who incurs a Severance shall be entitled, subject to Section 2.3, to receive the following payments and benefits from the Company.

(a) Severance Pay equal to the product of (i) the sum of (x) the Severed Employee’s annual base salary, and (y) his or her target annual variable compensation with respect to the year in which the Change in Control occurs and (ii) the Applicable Multiplier. For purposes of this Section 2.1(a), annual base salary shall be the higher of (i) base monthly salary in the calendar month immediately preceding a Change in Control or (ii) base monthly salary in the calendar month immediately preceding the Severed Employee’s Severance Date (in either case without regard to any reductions therein which constitute Good Reason) multiplied by twelve.

 

5


(b) During the Applicable Period, the Company shall arrange to provide the Severed Employee and anyone entitled to claim through the Severed Employee life, accident and health (including medical, behavioral, prescription drug, dental and vision) benefits substantially similar to those provided to the Severed Employee and anyone entitled to claim through the Severed Employee immediately prior to Employee’s Severance Date or, if more favorable to the Severed Employee, those provided to the Severed Employee and those entitled to claim through the Severed Employee immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Severed Employee than the after tax cost to the Severed Employee immediately prior to such Severance Date or occurrence.

(c) In addition to the retirement benefits to which the Severed Employee is entitled under each DC Pension Plan or any successor plan thereto, the Company shall pay the Severed Employee a lump sum amount, in cash, equal to the product of (i) the value of contributions or allocations actually made by the Company to all DC Pension Plans, on behalf of the employee, with respect to the calendar year immediately preceding the year in which the Change in Control occurs (but assuming such contributions and allocations had been based on the annualized base salary plus target annual variable compensation as determined in Section 2.1(a)) and (ii) the Applicable Multiplier. Such contributions or allocations shall specifically not include any employee deferrals or contributions, or any earnings.

(d) In addition to the retirement benefits to which the Severed Employee is entitled under each DB Pension Plan or any successor plan thereto, the Company shall pay the Severed Employee a lump sum amount, in cash, equal to the excess of the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined in accordance with each of the DB Pension Plan’s normal form of payment, commencing at the date (but in no event earlier than the end of the Applicable Period) as of which the actuarial equivalent of such form of payment is greatest) which the Severed Employee would have accrued and vested in under the terms of all DB Pension Plans determined:

(i) without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the date of the Severed Employee’s Severance Date, which amendment adversely affects in any manner the computation of retirement benefits thereunder, and

(ii) as if the Severed Employee had accumulated (after the Severed Employee’s Severance Date) a number of additional months of age and service credit thereunder as if the Severed Employee had remained employed by the Company during the Applicable Period (for all such purposes of determining pension benefits and eligibility for such benefits including all applicable retirement subsidies), and

(iii) as if the Severed Employee had been credited under each DB Pension Plan compensation for each full calendar month during the Applicable Period following the calendar month of the Severed Employee’s Severance Date equal to the Severed Employee’s annualized base salary plus target annual variable compensation as determined in Section 2.1(a) divided by twelve over the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined in accordance with each of the DB Pension Plan’s normal form of payment commencing at the date (but in no event earlier than the Severed Employee’s Severance Date) as of which the actuarial equivalent of such form of payment is greatest) which the Severed Employee had accrued and vested in pursuant to the provisions of the DB Pension Plans as of the Severed Employee’s Severance Date.

For purposes of this Section 2.1(d), “actuarial equivalent” shall be determined based upon the Severed Employee’s age as of the Severed Employee’s Severance Date using the same assumptions utilized under the Pension Plan for Certain Salaried Employees of Alcoa USA Corp., Section 8.3(d)(ii) or the successor to such provision (without regard to applicable dollar limitations) immediately prior to the Severed Employee’s Severance Date or, if more favorable to the Severed Employee, immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

 

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(e) If the Severed Employee would have become entitled to benefits under the Company’s post-retirement health care or life insurance plans, as in effect immediately prior to the Severed Employee’s Severance Date or, if more favorable to the Severed Employee, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Severed Employee’s employment terminated at any time during the Applicable Period, the Company shall provide such post-retirement health care or life insurance benefits to the Severed Employee and the Severed Employee’s dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in 2.1(b) terminate and ending upon the death of the Eligible Employee. Any such benefit, which is dependent on service or compensation shall be determined as if the Severed Employee had accumulated (after the Severed Employee’s Severance Date) a number of additional months of age and service credit thereunder as if the Severed Employee had remained employed by the Company up to the foregoing commencement date, and as if the Severed Employee had been credited with compensation for each full calendar month following the calendar month of the Severed Employee’s Severance Date up to the foregoing commencement date equal to the Severed Employee’s annualized based salary as determined in Section 2.1(a) divided by twelve plus the Severed Employee’s target annual variable compensation as determined in Section 2.1(a) divided by twelve. Except for the additional service and compensation during the Applicable Period, nothing herein is intended to provide the Severed Employee with benefits, which exceed the benefits provided to other participants in said post-retirement health care or life insurance plans, as in effect from time to time.

(f) The Company shall provide the Severed Employee with reasonable outplacement services suitable to the Severed Employee’s position for a period of six (6) months or, if earlier, until the first acceptance by the Severed Employee of an offer of employment.

The amounts described in Sections 2.1(a), (c) and (d) shall be paid to the Eligible Employee in a cash lump sum as soon as practicable after the Severance Date but in no event later than 30 days after the Severance Date; provided, that if the Severed Employee is, as of the Severance Date, a “specified employee” within the meaning of Section 409A of the Code as determined in accordance with the methodology duly adopted by the Company as in effect on the Severance Date, then such amounts shall instead be paid on the first business day that is at least six months after the Severance Date (or if sooner, upon the death of the Severed Employee), with interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, from the first business day after the Severance Date through the date of payment.

In order to comply with Section 409A of the Code, the following shall apply to health care benefits provided pursuant to Sections 2.1(b) and (e), the costs of which are not fully paid by the Severed Employee (the “Health Benefits”). Any and all reimbursements of eligible expenses made pursuant to the Health Benefits shall be made no later than the end of the calendar year next following the calendar year in which the expenses were incurred. The amount of expenses that are eligible for reimbursement or of in-kind benefits that are provided pursuant to the Health Benefits in any given calendar year shall not affect the expenses that are eligible for reimbursement or benefits to be provided pursuant to the Health Benefits in any other calendar year, except as specifically permitted by Treasury Regulation Section 1.409A-3(i)(iv)(B). The Severed Employee’s right to the Health Benefits may not be liquidated or exchanged for any other benefit.

2.2 Legal Fees . The Company shall pay to the Eligible Employee all legal fees and expenses incurred by the Eligible Employee in disputing in good faith any issue hereunder or in seeking in good faith to obtain or enforce any benefit or right provided by this Plan; provided , that the payment of legal fees hereunder by the Company shall not be required if the Eligible Employee pursues such dispute in a

 

7


manner inconsistent with the provisions of Sections 3.4 and 3.5 hereof; and provided further , that, the Eligible Employee shall be required to repay any such amounts to the Company to the extent that an arbitrator issues a final, unappealable order setting forth a determination that the position taken by the Eligible Employee was frivolous or advanced in bad faith. The Company shall pay to the Eligible Employee all legal fees and expenses incurred in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within fourteen (14) business days after delivery of the Eligible Employee’s written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. In order to comply with Section 409A of the Code, in no event shall the payments by the Company under this Section 2.2 be made later than the end of the calendar year next following the calendar year in which such fees and expenses were incurred, provided, that the Eligible Employee shall have submitted an invoice for such fees and expenses at least fourteen (14) business days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred. The amount of such legal fees and expenses that the Company is obligated to pay in any given calendar year shall not affect the legal fees and expenses that the Company is obligated to pay in any other calendar year, and the Eligible Employee’s right to have the Company pay such legal fees and expenses may not be liquidated or exchanged for any other benefit.

2.3 Withholding . The Company shall be entitled to withhold from amounts to be paid to the Severed Employee hereunder any federal, state or local withholding or other taxes or charges (or foreign equivalents of such taxes or charges) which it is from time to time required to withhold.

2.4 Status of Plan Payments . Neither Severance Pay nor any payment made pursuant to Section 2.1(c) or (d) hereof shall constitute “compensation” (or similar term) under the Company’s and its Affiliates’ employee benefit plans, including any DB Pension Plan or DC Pension Plan.

2.5 Mitigation; Setoff . The Severed Employee is not required to seek other employment or attempt in any way to reduce any amounts payable to him or her under the Plan. Further, except as specifically provided in Section 2.1(b), no payment or benefit provided for in this Plan shall be reduced by any compensation earned by the Severed Employee as a result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Severed Employee to the Company or its Affiliates, or otherwise.

Section 3. PLAN ADMINISTRATION; CLAIMS PROCEDURES.

3.1 The Committee shall administer the Plan and may interpret and construe the terms of the Plan, prescribe, amend and rescind rules and regulations under the Plan and make all other determinations necessary or advisable for the administration of the Plan, subject to all of the provisions of the Plan, including, without limitation, Section 3.4. Any determination by the Committee shall be final and binding with respect to the subject matter thereof on all Eligible Employees.

3.2 The Committee may delegate any of its duties hereunder to such person or persons from time to time as it may designate.

3.3 The Committee is empowered, on behalf of the Plan, to engage accountants, legal counsel and such other personnel as it deems necessary or advisable to assist it in the performance of its duties under the Plan. The functions of any such persons engaged by the Committee shall be limited to the specified services and duties for which they are engaged, and such persons shall have no other duties, obligations or responsibilities under the Plan. Such persons shall exercise no discretionary authority or discretionary control respecting the management of the Plan. All reasonable expenses thereof shall be borne by the Company.

 

8


3.4 In the event of a claim by a Severed Employee, such Severed Employee shall present the reason for his or her claim, dispute or controversy in writing to the Committee. The Committee shall, within sixty (60) days after receipt of such written claim, dispute or controversy, send a written notification to the Severed Employee as to its disposition. In the event the claim, dispute or controversy is wholly or partially denied, such written notification shall (i) state the specific reason or reasons for the denial, (ii) make specific reference to pertinent Plan provisions on which the denial is based, (iii) provide a description of any additional material or information necessary for the Severed Employee to perfect the claim, dispute or controversy and an explanation of why such material or information is necessary, and (iv) set forth the procedure by which the Severed Employee may appeal the denial of his or her claim, dispute or controversy. In the event a Severed Employee wishes to appeal the denial of his or her claim, dispute or controversy he or she may request a review of such denial by making application in writing to the Committee within sixty (60) days after receipt of such denial. Such Severed Employee (or his or her duly authorized legal representative) may, upon written request to the Committee, review any documents pertinent to his or her claim, dispute or controversy and submit in writing, issues and comments in support of his or her position. Within sixty (60) days after receipt of a written appeal (unless special circumstances require an extension of time, but in no event more than one hundred twenty (120) days after such receipt), the Committee shall notify the Severed Employee of the final decision. The final decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. Notwithstanding the foregoing, any claim, dispute or controversy regarding whether an Eligible Employee was terminated for Cause shall be submitted to the Board in accordance with Section 1.6, and upon the mutual agreement of the Severed Employee and the Committee, any claim, dispute or controversy that has been submitted by the Severed Employee in writing to the Committee may be submitted directly to arbitration in accordance with Section 3.5.

3.5 Any unresolved claim, dispute or controversy arising under or in connection with the Plan, and which is not resolved in accordance with Section 3.4, shall be settled exclusively by arbitration in New York City or at any other mutually agreed upon location. All claims, disputes and controversies shall be submitted to the CPR Institute for Dispute Resolution (“CPR”) in accordance with the CPR’s rules then in effect; provided, however, that the evidentiary standards set forth in this Agreement shall apply. The claim, dispute or controversy shall be heard and decided by three arbitrators selected from CPR’s employment panel. The arbitrator’s decision shall be final and binding on all parties. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.

3.6 Any purported termination of an Eligible Employee’s employment shall be communicated by written Notice of Termination from one party hereto to the other party in accordance with Section 5.7. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Plan relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Eligible Employee’s employment under the provision so indicated, and shall specify the Severance Date (which, in the case of a termination by the Company, shall not be less than thirty (30) days and, in the case of a termination by the Eligible Employee, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). The Company and the Eligible Employee shall take all steps necessary (including with regard to any post-termination services by the Eligible Employee) to ensure that any termination described in this Section 3.6 constitutes a Separation from Service occurring on the Severance Date.

Section 4. PLAN MODIFICATION OR TERMINATION .

The Plan may be amended or terminated by the Board at any time; provided, however, that the Committee may make amendments to the Plan (i) that are required by law, (ii) that will have minimal effect upon the Company’s cost of providing benefits, or (iii) that do not change or alter the character and

 

9


intent of the Plan; and further provided that the Plan may not be terminated, or amended in any manner that adversely affects any Eligible Employee, (A) within three years immediately following a Change in Control, or (B) during the pendency of a Potential Change in Control.

Section 5. GENERAL PROVISIONS .

5.1 Except as otherwise provided herein or by law, no right or interest of any Eligible Employee under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Eligible Employee under the Plan shall be liable for, or subject to, any obligation or liability of such Eligible Employee. When a payment is due under this Plan to an Eligible Employee who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative.

Nothing herein is intended to affect an employee’s rights under any unemployment law or severance contract or plan.

5.2 Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Eligible Employee, or any person whomsoever, the right to be retained in the service of the Company, and all Eligible Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

5.3 If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

5.4 This Plan shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Eligible Employee, present and future, and any successor to the Company. If an Eligible Employee shall die while any amount would still be payable to such Eligible Employee hereunder if the Eligible Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the executor, personal representative or administrators of the Eligible Employee’s estate.

5.5 The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

5.6 The Plan shall not be funded. No Eligible Employee shall have any right to, or interest in, any assets of the Company which may be applied by the Company to the payment of benefits or other rights under this Plan.

5.7 Any notice or other communication required or permitted pursuant to the terms hereof shall have been duly given when delivered or mailed by United States Mail, first class, postage prepaid, addressed to the intended recipient at his, her or its last known address.

5.8 This Plan shall be construed and enforced according to the laws of the State of Delaware to the extent not preempted by federal law, which shall otherwise control.

 

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Exhibit 10.21

FORM OF INCENTIVE COMPENSATION PLAN

OF

ALCOA CORPORATION

(Effective [●] , 2016)

ARTICLE I - DEFINITIONS

For the purposes of this Incentive Compensation Plan (“Plan”), unless a different meaning is clearly required by the context:

AWARD YEAR means any calendar year for which awards are made to Eligible Employees.

BOARD means the Board of Directors of the Company, and includes the Executive Committee or any other duly authorized committee thereof when acting in lieu thereof and/or pursuant to authority delegated thereby.

BOARD COMMITTEE means the Compensation and Benefits Committee of the Board of Directors or such other committee selected by the Board of Directors comprised solely of independent directors.

COMMITTEE means the Incentive Compensation Committee and, with respect to awards for officers of the Company, the Compensation and Benefits Committee of the Board.

COMPANY means Alcoa Corporation and any successor thereto.

DEFERRED COMPENSATION PLAN means the Company’s Deferred Compensation Plans as amended from time to time.

DISABILITY means a mental or physical condition preventing the employee from performing his position satisfactorily, where a qualified physician designated by the Committee certifies that, in his opinion, the employee’s state of health is such that he should not be burdened with the responsibilities of his position even though he is not totally or permanently disabled.

ELIGIBLE EMPLOYEE has the meaning set forth in Article II, Section 2.

RETIREMENT means (a) termination of employment in which there is a right to immediate payment of a pension benefit under the provisions of any retirement plan or arrangement of the Company or a Subsidiary; or (b) termination of employment upon or after attaining age 65 regardless of pension eligibility.

SUBSIDIARY means any corporation in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock of such corporation, and any corporation, partnership, joint venture, limited liability company or other business entity as to which the Company possesses a significant ownership interest, directly or indirectly, as determined by the Company.

ARTICLE II - PARTICIPATION

SECTION 1. Purpose. The purpose of the Plan is to provide annual cash incentive compensation for Eligible Employees if performance metrics for financial and non-financial performance established by the Committee from time to time are achieved. The Committee reserves the right to make adjustments to awards to reflect individual performance.

SECTION 2. Eligibility. Officers and other key employees of the Company and its Subsidiaries who have, in the sole judgment of the Committee, contributed to the management, growth, and success of some part or all of the business of those companies shall be eligible for awards under the Plan (referred to as “Eligible Employees”).

SECTION 3. Limits on awards. The aggregate amount of awards for any Award Year shall not exceed an amount determined by or in accordance with a procedure specified by the Board Committee. All awards shall be granted in accordance with guidelines approved from time to time by the Board Committee and any exceptions to the guidelines require the approval of the Board Committee.

 

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ARTICLE III - AWARDS

SECTION 1. Determination. For each Award Year, the Committee shall make awards to such Eligible Employees in such individual amounts as it deems appropriate under the circumstances, taking into account individual performance and the financial and non-financial performance metrics established by the Committee for the Award Year.

SECTION 2. Cash awards. Except as otherwise determined by the Committee and except for awards or portions of awards which may be deferred, each award shall be paid in cash at a time determined by the Board Committee as soon as practicable following the Award Year, but in any event no later than March 15 of the year following the Award Year. Cash payment of awards shall be made from the general funds of the Company. In its discretion, the Company may establish one or more trusts or special funds from which awards may be paid.

SECTION 3. Deferred awards. Eligible Employees who are also eligible to participate in the Deferred Compensation Plan may defer all or part of their awards under this Plan in accordance with the terms of the Deferred Compensation Plan.

ARTICLE IV - ADMINISTRATION

SECTION 1. Committee. The Incentive Compensation Committee for the Plan shall be appointed by the Board and shall have exclusive power and authority to interpret and administer the Plan; provided however, that the Compensation and Benefits Committee of the Board shall have exclusive power and authority to interpret and administer the Plan with respect to and to make awards to Eligible Employees who are officers of the Company. The Incentive Compensation Committee may take all action, including the adoption of rules and regulations as it deems appropriate for the administration of the Plan and all determinations by the Committee shall be final and binding upon the Company, its Subsidiaries, Eligible Employees and their beneficiaries.

SECTION 2. Amendments. The Board may from time to time amend, modify, suspend or terminate the Plan provided, however, that no such amendment, modification, suspension or termination shall affect any right or obligation with respect to any award theretofore made.

SECTION 3. Expenses. All expenses of administering the Plan shall be paid by the Company, which in turn may seek reimbursement from Subsidiaries. The cost of all awards incurred by the Company with respect to employees of any Subsidiary shall be reimbursed by the Subsidiary.

SECTION 4. Unsecured obligation. No Eligible Employee or other person shall, by virtue of any award or any unpaid installment thereof, have any interest whatever, either vested or contingent, in any property of the Company or its Subsidiaries.

SECTION 5. No rights to employment or awards. Participation in the Plan shall not give any employee the right to continued employment by the Company or its Subsidiaries. Holding the status of an Eligible Employee shall not give any employee the right to any award.

SECTION 6. Taxes. Each Eligible Employee is solely liable for any taxes due in regards to payments under this Plan, including but not limited to, federal, state, local, social security, foreign and excise taxes under Internal Revenue Code Section 409A if for any reason the Internal Revenue Service determines that amounts payable under this Plan are subject to the provisions of Section 409A.

SECTION 7. Construction. The Plan shall be construed in accordance with and governed by the laws of the State of Delaware, excluding any choice of law provisions which may indicate the application of the laws of another jurisdiction.

 

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ARTICLE V - FORFEITURE AND PRO-RATA PAYMENTS

SECTION 1. Forfeiture of Incentive Compensation. If the Board learns of any misconduct by an Eligible Employee that contributed to the Company’s having to restate all or a portion of its financial statements, it shall take such action as it deems necessary to remedy the misconduct, prevent its recurrence and, if appropriate, based on all relevant facts and circumstances, take remedial action against the wrongdoer in a manner it deems appropriate. In determining what remedies to pursue, the Board shall take into account all relevant factors, including whether the restatement was the result of negligent, intentional or gross misconduct. The Board shall, to the full extent permitted by governing law, in all appropriate cases, require reimbursement of any award under the Plan (including any bonus or incentive compensation that has been deferred) if: a) the amount of the award was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, b) the Eligible Employee engaged in intentional misconduct that caused or partially caused the need for the restatement, and c) the amount of the award that would have been awarded to the Eligible Employee had the financial results been properly reported would have been lower than the amount actually awarded. In addition, the Board, in its full and complete discretion, may dismiss the Eligible Employee, authorize legal action for breach of fiduciary duty or take such other action to enforce the Eligible Employee’s obligations to the Company as the Board determines fit the facts surrounding the particular case. The Board may, in determining appropriate remedial action, take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities. The Board’s power to determine the appropriate punishment for the wrongdoer is in addition to, and not in replacement of, remedies imposed by such entities.

SECTION 2. Pro-rata Distribution upon Retirement. In the Committee’s discretion, if an Eligible Employee’s Retirement or termination of employment due to a Disability occurs during an Award Year, the Eligible Employee may be awarded a pro-rata portion of the award under the Plan that would have been paid for the Award Year had the Eligible Employee remained in active service through the end of the Award Year, based on the number of days of active service during the Award Year.

SECTION 3. Pro-rata Distribution upon a Change in Control. In the event of a Change in Control, as defined in the Alcoa Corporation 2016 Stock Incentive Plan, as the same may be amended from time to time, or any successor plan approved by the shareholders of the Company, Eligible Employees, at the discretion of the Committee, shall be paid a pro-rata portion of target incentive compensation for the Award Year, based on the days of service during the Award Year from the beginning of the Award Year through the date of the Change in Control. Such payment shall be made within 60 days of a Change in Control.

SECTION 4. Pro-rata distribution upon death. Upon the death of an Eligible Employee a pro-rata portion of the award for the Award Year shall be paid to the Eligible Employee’s beneficiary or beneficiaries, based on the number of days the Eligible Employee was actively employed during the Award Year.

ARTICLE VI - CLAIMS AND APPEALS

SECTION 1. Denied Claims and Appeals . If a claim by an Eligible Employee is denied, in whole or in part the Eligible Employee, or his or her representative will receive written notice from the plan administrator. This notice will include the reasons for denial, the specific plan provision involved, an explanation of how claims are reviewed, the procedure for requesting a review of the denied claim, and a description of the information that must be submitted with the appeal. The Eligible Employee, or his or her representative, may file a written appeal for review of a denied claim to the Committee. The process and the time frames for the determination claims and appeals are as follows:

(a) The plan administrator reviews initial claim and makes determination within 90 days of the date the claim is received.

(b) The plan administrator may extend the above 90-day period an additional 90 days if required due to special circumstances beyond control of plan administrator.

(c) The Eligible Employee, or his or her representative, may submit an appeal of a denied claim within 60 days of receipt of the denial.

(d) The plan administrator reviews and makes a determination on the appeal within 60 days of the date the appeal was received.

(e) The plan administrator may extend the above 60-day period an additional 60 days if required by special circumstances beyond the control of the plan administrator.

 

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SECTION 2. Extension of Period to Determine Initial Claims or Appeals . In the case where the plan administrator requires an extension of the period to provide a determination on an initial claim or an appeal, the Plan will notify the Eligible Employee, or their representative, prior to the expiration of the initial determination period. The notification will describe the circumstances requiring the extension and the date a determination is expected to be made. If additional information is required from the Eligible Employee, the determination period will be suspended until the earlier of i) the date the information is received by the plan administrator or ii) 45 days from the date the information was requested.

SECTION 3. Exhaustion of Plan Remedies . Eligible Employees, or their representative, who having received an adverse appeal determination and thereby exhausted the remedies provided under this Plan, proceed to file suit in state or federal court, must file such suit within 180 days from the date of the adverse appeal determination notice.

 

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Exhibit 10.22

FORM OF

ALCOA CORPORATION

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

Effective November 1, 2016

1. General . This Non-Employee Director Compensation Policy (the “ Policy ”), sets forth the cash and equity-based compensation that has been approved by the board of directors of Alcoa Inc., a Pennsylvania corporation (“ Parent ”) as payable to eligible non-employee members of the board of directors of Alcoa Corporation (“ Non-Employee Directors ”) commencing November 1, 2016, and which shall be additionally approved by the board of directors of Alcoa Corporation (the “ Board ”) as soon as practicable following the date of the separation of Alcoa Corporation, a Delaware corporation (the “ Company ”) from the Parent (the “ Separation Date ”). Subject to such approval by the Board, the cash and equity-based compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Parent or the Board, to each Non-Employee Director who may be eligible to receive such compensation. This Policy shall remain in effect until it is revised or rescinded by further action of the Board.

2. Cash Compensation .

(a) Annual Retainers . Each Non-Employee Director shall be eligible to receive an annual cash retainer of $120,000 for service on the Board. In addition, a Non-Employee Director shall receive the following additional annual retainers, as applicable:

 

Non-Employee Director Position

   Additional
Annual
Cash
Retainer
Fee
 

Chairman Fee

   $ 25,000   

Audit Committee Chair Fee (includes Audit Committee Member Fee)

   $ 27,500   

Audit Committee Member Fee

   $ 11,000   

Compensation and Benefits Committee Chair Fee

   $ 20,000   

Other Committee Chair Fee

   $ 16,500   

(b) Payment of Retainers . The annual retainers described in Section 2(a) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than the third business day following the end of each calendar quarter (if not deferred by the Non-Employee Director in accordance with subsection (c) hereof). In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described in Section 2(a), for an entire calendar quarter, the retainer paid to such Non-Employee Director shall be prorated for the portion of such calendar quarter actually served as a Non-Employee Director, or in such positions, as applicable.

(c) Deferral of Retainers . Non-Employee Directors may elect to defer payment of all or a portion of the annual retainers described in Section 2(a) into specified investment funds and/or into vested restricted share units for shares of the Company’s common stock, which deferral will be made pursuant to the terms of the Company’s 2016 Deferred Fee Plan for Directors or its successor plan (the “ Deferred Fee Plan ”). Unless otherwise determined by the Board, any restricted share units will be granted under the Alcoa Corporation 2016 Stock Incentive Plan or its successor plan (the “ Equity Plan ”), on the date on which such retainer(s) would otherwise have been paid in cash.


3. Equity Compensation . Non-Employee Directors shall be granted the equity awards described below. The awards described below in paragraphs 3(a) and 3(b) shall be granted under and shall be subject to the terms and provisions of the Equity Plan and shall be granted subject to an award agreement in substantially the same form approved by the Board prior to the grant date, setting forth the terms of the award, consistent with the Equity Plan. For purposes of this Section 3, the number of shares subject to any restricted share unit award will be determined by dividing the grant date dollar value specified under subsection (a) or (b) hereof by the Fair Market Value (as defined in the Equity Plan) of a share of the Company’s common stock on the date of grant.

(a) Annual Equity Award . A person who is a Non-Employee Director immediately following each annual meeting of the Company’s stockholders and who will continue to serve as a Non-Employee Director following such annual meeting shall be automatically granted, on the second market trading day following the date of each such annual meeting, a restricted share unit award with a grant date value equal to $120,000 (the “ Annual Equity Award ”). The Annual Equity Award shall vest on the earlier of the first anniversary date of the grant date or the date of the Company’s next subsequent annual meeting of stockholders following the grant date.

(b) Pro-Rated Annual Equity Award . On the date of a person’s initial appointment as a Non-Employee Director (or, if such date is not a market trading day, the first market trading day thereafter), and provided such person has not otherwise received an Annual Equity Award for the relevant year under Section 3(a), the Non-Employee Director shall be automatically granted a restricted share unit award with a grant date value equal to $120,000 multiplied by a fraction, the numerator of which is 365 less the number of days that have elapsed since the date of the Company’s last annual meeting of stockholders (or if an annual stockholder meeting has yet to be held, then the Separation Date) and the Non-Employee Director’s date of initial appointment, and the denominator of which is 365 (the “ Pro-Rated Award ”). The Pro-Rated Award shall vest on the date of the Company’s next subsequent annual meeting of stockholders following the date of the Non-Employee Director’s appointment to the Board.

(c) Deferral of Equity Award . Payment of the Annual Equity Award or any Pro-Rated Award will be deferred until the Non-Employee Director’s separation from service, in accordance with the terms of the Deferred Fee Plan, unless otherwise required by applicable laws.

4. Stock Ownership Guideline . Non-Employee Directors are required to attain ownership of at least $750,000 in the Company’s common stock and maintain such ownership until retirement from the Board.

5. Policy Subject to Amendment, Modification and Termination . This Policy may be amended, modified or terminated by the Board in the future at its sole discretion, provided that no such

 

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action that would materially and adversely impact the rights with respect to annual retainers payable in the fiscal quarter during which a Non-Employee Director is then performing services shall be effective without the consent of the affected Non-Employee Director.

 

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Exhibit 10.23

Form of Alcoa Corporation Internal Revenue Code 162(m) Compliant Annual Cash Incentive Compensation Plan

1. Purpose of the Plan .

This Alcoa Corporation Annual Incentive Plan is intended to attract, retain, motivate and reward Participants by providing them with the opportunity to earn annual incentive compensation under the Plan related to the Company’s performance. Incentive compensation granted under the Plan is intended to be qualified as performance-based compensation within the meaning of Section 162(m).

2. Definitions .

For purposes of the Plan, the following terms shall be defined as follows:

 

  (a) “Alcoa Corporation” means Alcoa Corporation and its successors or assigns.

 

  (b) “Award” means cash incentive compensation earned under the Plan pursuant to Section 4 of this Plan.

 

  (c) “Board of Directors” means the Board of Directors of Alcoa Corporation.

 

  (d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations, and administrative guidance issued thereunder.

 

  (e) “Committee” means the Compensation and Benefits Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan. The Committee shall at all times be comprised solely of two or more outside directors within the meaning of Treasury Regulation Section 1.162-27(e).

 

  (f) “Company” means Alcoa Corporation and all of its Subsidiaries, collectively.

 

  (g) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

  (h) “Participant” means, with respect to each Performance Period, each executive officer, within the meaning of Rule 3b-7 of the Exchange Act, of Alcoa Corporation at any time during such period who is designated by the Committee to participate.

 

  (i) “Performance Measures” means the performance measures set forth in Section 4(b) of this Plan.

 

  (j) “Performance Period” means a fiscal year of the Company or such shorter period as may be designated by the Committee with respect to an Award.

 

  (k) “Performance Targets” means performance goals and objectives set in respect of any of the Performance Measures for a Performance Period.

 

  (l) “Plan” means this Alcoa Corporation Internal Revenue Code 162(m) Compliant Annual Cash Incentive Compensation Plan, as may be amended from time to time.

 

  (m) “Section 162(m)” means Section 162(m) of the Code.

 

  (n) “Section 409A” means Section 409A of the Code.

 

  (o) “Subsidiary” means any “subsidiary” within the meaning of Rule 405 under the Securities Act of 1933, as amended.

3. Administration .

 

  (a) Power and Authority of the Committee. The Plan shall be administered by the Committee which shall have full power and authority:

 

  (i) to designate each Performance Period;

 

  (ii) to establish the Performance Targets for each Performance Period and to determine whether and to what extent such Performance Targets have been reached;

 

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  (iii) to determine at any time the cash amount payable with respect to an Award;

 

  (iv) to prescribe, amend and rescind rules and procedures relating to the Plan;

 

  (v) subject to the provisions of this Plan and Section 162(m), to delegate to one or more officers of the Company some of its authority under the Plan;

 

  (vi) to employ such legal counsel, independent auditors and consultants as it deems desirable for the administration of the Plan and to rely upon any opinion or computation received therefrom;

 

  (vii) to amend, modify, or cancel any Award, and authorize the exchange, substitution, or replacement of Awards; and

 

  (viii) to make all determinations, and to formulate such procedures, as may be necessary or advisable in the opinion of the Committee for the administration of the Plan.

 

  (b) Plan Construction and Interpretation. The Committee shall have full power and authority to construe and interpret the Plan and to correct any defect or omission, or reconcile any inconsistency, in the Plan or any Award.

 

  (c) Determinations of Committee Final and Binding. All determinations by the Committee in carrying out and administering the Plan and in construing and interpreting the Plan shall be made in the Committee’s sole discretion and shall be final, binding and conclusive for all purposes and upon all persons interested herein. The Committee’s decisions regarding the amount of each Award need not be consistent among Participants.

 

  (d) Liability of Committee. No member of the Committee (or its delegates) shall be liable for any action or determination made in good faith with respect to the Plan or any Award, and the members of the Committee (and its delegates) shall be entitled to indemnification and reimbursement in the manner provided in the Company’s Articles of Incorporation or its By-laws, as applicable, in each case as amended and in effect from time to time. In the performance of its responsibilities with respect to the Plan, the Committee shall be entitled to rely upon information and advice furnished by the Company’s officers and employees, the Company’s accountants, the Company’s legal counsel or any other person the Committee deems necessary, and no member of the Committee shall be liable for any action taken or not taken in good faith reliance upon any such advice.

4. Awards .

 

  (a) Performance Targets. No later than 90 days after the beginning of the relevant Performance Period or, if the Performance Period is less than one year, the date on which 25% of the Performance Period elapses, or such earlier or later date as may be required by Section 162(m), the Committee shall (i) designate each Participant for the Performance Period, (ii) establish in writing specific Performance Targets related to the applicable Performance Measures and the incentive amount which may be earned for the Performance Period by each Participant with sufficient specificity to satisfy the requirements of Section 162(m), and (iii) specify the relationship between the Performance Targets and the amount of incentive compensation to be earned by each Participant for the Performance Period. The Committee has the discretion to structure Awards in any manner it deems advisable, including specifying that the Award may become payable in the event of death, disability or a change in ownership or control to the extent permissible under Section 162(m). The Committee may also structure Awards as an allocation of a Section 162(m) cash bonus pool to those Participants who are bonus pool Participants for the applicable Performance Period, which cash bonus pool shall be determined based upon the level of achievement of one or more specific Performance Targets related to the applicable Performance Measures, provided such allocations total no more than 100% of the Section 162(m) pool and provided further that each such allocation satisfies the maximum individual amount limit set forth in Section 4(f).

 

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  (b) Performance Measures. The Performance Measures from which the Committee shall establish Performance Targets shall relate to the achievement of operational goals based on the attainment by the Company, on a consolidated basis, and/or by specified Subsidiaries or divisions or business units of the Company, of specified levels of one or more of the following performance criteria, any one of which, if applicable, may be normalized for fluctuations in currency or the price of aluminum on the London Metal Exchange or established relative to a comparison with other corporations or an external index or indicator, or relative to a comparison with performance in prior periods, as the Committee deems appropriate: (i) earnings, including operating income, earnings before or after taxes, and earnings before or after interest, taxes, depreciation, and amortization; (ii) book value per share; (iii) pre-tax income, after-tax income, income from continuing operations, or after tax operating income; (iv) operating profit or improvements thereto; (v) earnings per common share (basic or diluted) or improvement thereto; (vi) return on assets (net or gross); (vii) return on capital; (viii) return on invested capital; (ix) sales, revenues or returns on sales or revenues or growth in sales, revenues or returns on sales or revenues; (x) share price appreciation; (xi) total shareholder return; (xii) cash flow, operating cash flow, free cash flow, cash flow return on investment (discounted or otherwise), improvements in cash on hand, reduction of debt, improvements in the capital structure of the Company including debt to capital ratios; (xiii) implementation or completion of critical projects or processes; (xiv) economic profit, economic value added or created; (xv) cumulative earnings per share growth; (xvi) achievement of cost reduction goals; (xvii) return on shareholders’ equity; (xviii) total shareholders’ return improvement or relative performance as compared with other selected companies or as compared with Company, Subsidiary, division or business unit history; (xix) reduction of days working capital, working capital or inventory; (xx) operating margin or profit margin or growth thereof; (xxi) cost targets, reductions and savings, productivity and efficiencies; (xxii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, geographic business expansion, customer satisfaction (including improvements in product quality and delivery), employee satisfaction, human resources management including improvements in diversity representation, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xxiii) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long-term business goals, formation of joint ventures, research or development collaborations, technology and best practice sharing within the Company, and the completion of other corporate goals or transactions; (xxiv) the achievement of sustainability measures, community engagement measures or environmental, health or safety goals of the Company or the Subsidiary, division or business unit of the Company for or within which the Participant is primarily employed; (xxv) improvement in performance against competition benchmarks approved by the Committee; or (xxvi) improvements in audit and compliance measures.

 

  (c) Determination of Award. Following the completion of each Performance Period and prior to payment of any Award, the Committee shall certify in writing whether and the extent to which the applicable Performance Targets have been achieved for such Performance Period and the amount of the Award, if any, pursuant to this Section 4, earned by Participants for such Performance Period. In determining the amount of the Award earned by a Participant for a given Performance Period, the Committee shall have the right to eliminate or reduce (but not to increase) the incentive amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the Performance Period.

 

  (d)

Adjustments. At the time the Committee determines the terms of the Award in accordance with Section 4(a) herein, the Committee may also specify any inclusion(s) or exclusion(s) for charges related to any event(s) or occurrence(s) which the Committee determines should be included or excluded, as appropriate, for purposes of measuring performance against the applicable Performance Targets, which may include (i) for those occurring within such Performance Period, restructuring, reorganizations, discontinued operations, non-core businesses in continuing

 

3


  operations, acquisitions, dispositions, or any other unusual, infrequently occurring, nonrecurring or non-core items; (ii) the aggregate impact in any Performance Period of accounting changes, in each case as those terms are defined under generally accepted accounting principles and provided in each case that such items are objectively determinable by reference to the Company’s financial statements, notes to the Company’s financial statements and/or management’s discussion and analysis of financial condition and results of operations, appearing in the Company’s Annual Report on Form 10-K for the applicable year; (iii) foreign exchange gains or losses, (iv) amortization of intangible assets, impairments of goodwill and other intangible assets, asset write downs, non–cash interest expense, capital charges, or payments of bonuses or other financial and general and administrative expenses for the Performance Period, (v) environmental or litigation reserve adjustments, litigation or claim judgments or settlements, (vi) any adjustments for other unusual or infrequently occurring items, discrete tax items, strike and/or strike preparation costs, business interruption, curtailments, natural disasters, force majeure events, or (vii) mark to market gains or losses. Any such inclusion(s) or exclusion(s) shall be prescribed in a form that meets the requirements for deductibility under Section 162(m). If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances, render previously established Performance Measures or Performance Targets unsuitable, the Committee may, in its discretion, modify such Performance Measures or Performance Targets, in whole or in part, as the Committee deems appropriate and equitable; provided that, unless the Committee determines otherwise, no such action shall be taken if and to the extent it would result in the loss of an otherwise available exemption of the Award under Section 162(m).

 

  (e) Payment of Awards. Awards shall be paid to the Participant on a date after the end of the Performance Period that is no later than two and one-half months following the end of such Performance Period, unless deferred as described in Section 5 of this Plan. Awards will be paid in cash as determined by the Committee. Payment of Awards may be subject to such vesting, forfeiture, transfer or such other restrictions (or any combination thereof) as the Committee shall specify.

 

  (f) Maximum Amount. The maximum aggregate incentive amount of any Award that may be earned under the Plan by a Participant for all Performance Periods beginning in any given fiscal year of the Company shall be $9,000,000.

5. Deferral .

Subject to applicable laws, including, without limitation, Section 409A, the Committee may (i) require the mandatory deferral of some or all of an Award on terms established by the Committee or (ii) permit a Participant to elect to defer a portion of an Award in accordance with the terms established under the Alcoa Corporation Deferred Compensation Plan as the same may be amended, or under any successor plan.

6. Effective Date .

The Plan became effective as of the Company’s separation from Alcoa Inc. on [●]

7. Amendment and Termination .

Subject to applicable laws, rules and regulations, the Board of Directors or the Committee may at any time amend, suspend, discontinue or terminate the Plan; provided , however , that no such action shall be effective without approval by the stockholders of Alcoa Corporation to the extent necessary to comply with applicable laws, including to continue to qualify the amounts payable hereunder as performance-based compensation under Section 162(m), or applicable rules of a stock exchange on which Alcoa Corporation’s shares are traded.

8. Miscellaneous .

 

  (a) Tax Withholding. The Company shall have the right to deduct from all cash payments made to a Participant, or, if deemed necessary by the Company, from wages or other cash compensation paid to the Participant by the Company, any applicable taxes (including social contributions or similar payments) required to be withheld with respect to such payments.

 

4


  (b) No Rights to Awards or Employment. This Plan is not a contract between the Company and a Participant. No Participant shall have any claim or right to receive Awards under the Plan. Nothing in the Plan shall confer upon any employee of the Company any right to continued employment with the Company or interfere in any way with the right of the Company to terminate the employment of any of its employees, in accordance with the laws of the applicable jurisdiction, at any time, with or without cause, including, without limitation, any individual who is then a Participant in the Plan.

 

  (c) Section   409A. The Company intends that the Plan and each Award granted hereunder that is subject to Section 409A shall comply with Section 409A and that the Plan shall be interpreted, operated and administered accordingly. If any provision of the Plan contravenes any regulations or guidance promulgated under Section 409A or could cause any Award to be subject to taxes, interest or penalties under Section 409A, the Board of Directors or the Committee may, in its sole discretion, modify the Plan to (a) comply with, or avoid being subject to, Section 409A, (b) avoid the imposition of taxes, interest and penalties under Section 409A, and/or (c) maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A. Neither the Board of Directors nor the Committee is obligated to modify the Plan and there is no guarantee that any payments will be exempt from interest and penalties under Section 409A. Notwithstanding anything herein to the contrary, in no event shall the Company be liable for the payment of or gross up in connection with any taxes and or penalties owed by the Participant pursuant to Section 409A. Moreover, any discretionary authority that the Board of Directors or the Committee may have pursuant to the Plan shall not be applicable to an Award that is subject to Section 409A to the extent such discretionary authority will contravene Section 409A. Although the Company, the Board of Directors and the Committee may attempt to avoid adverse tax treatment under Section 409A, none of them makes any representation to that effect and each of them expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment.

 

  (d) Other Compensation. Nothing in this Plan shall preclude or limit the ability of the Company to pay any compensation to a Participant under the Company’s other compensation and benefit plans and programs, including without limitation any equity plan or bonus plan, program or arrangement.

 

  (e) No Limitation on Corporate Actions. Nothing contained in the Plan shall be construed to prevent the Company from taking or not taking any corporate action, whether or not such action could have an adverse effect on any Awards made under the Plan. No Participant, beneficiary or other person shall have any claim against the Company, Alcoa Corporation, or any Subsidiary as a result of any such action.

 

  (f) Unfunded Plan. The Plan is intended to constitute an unfunded plan for incentive compensation. Prior to the payment of any Award, nothing contained herein shall give any Participant any rights that are greater than those of a general creditor of the Company. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver payment in cash, with respect to Awards hereunder.

 

  (g) Non-Transferability. Except as set forth in Section 8(h) herein, no Participant or beneficiary shall have the power or right to sell, transfer, assign, pledge or otherwise encumber or dispose of the Participant’s interest under the Plan.

 

  (h) Designation of Beneficiary. Unless otherwise provided by the Committee (or its delegate), a Participant may designate a beneficiary or beneficiaries to receive any payments which may be made following the Participant’s death in accordance with the Company’s policies as in effect from time to time. If a Participant does not designate a beneficiary, or the designated beneficiary or beneficiaries predeceases the Participant, any payments which may be made following the Participant’s death shall be made to the Participant’s estate.

 

  (i) Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

 

5


  (j) Expenses. The costs and expenses of administering the Plan shall be borne by the Company.

 

  (k) Clawback. Awards under the Plan (including Awards previously earned by or paid to a Participant) are subject to the Company’s clawback policy (or policies) regarding recoupment of compensation as in effect from time to time, as well as to any clawback requirement imposed under applicable laws, rules, regulations or stock exchange listing standards, including, without limitation, clawback requirements imposed pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Section 304 of the Sarbanes-Oxley Act of 2002, or any regulations promulgated thereunder, or similar requirements under the laws of any other jurisdiction.

 

  (l) Governing Law. The Plan and all actions taken thereunder shall be governed by and construed in accordance with and governed by the laws of the State of Delaware . The jurisdiction and venue for any disputes arising under, or any actions brought to enforce (or otherwise relating to), the Plan will be exclusively in the courts in the State of Delaware, including the Federal Courts located therein (should Federal jurisdiction exist).

 

6

Exhibit 10.24

FORM OF

ALCOA CORPORATION

2016 DEFERRED FEE PLAN FOR DIRECTORS

(Effective November 1, 2016)

 

ARTICLE I INTRODUCTION

Alcoa Corporation (the “ Company ”) has established this 2016 Deferred Fee Plan for Directors (the “ Plan ”) to provide non-employee directors with an opportunity to defer receipt of fees earned for services as a member of the Company’s Board of Directors (the “ Board ”), to provide for deferrals of Restricted Share Units (as defined herein) with respect to common stock of the Company granted to non-employee directors, and to receive liabilities transferred from the Alcoa Inc. Plans.

 

ARTICLE II DEFINITIONS

 

  2.1 Definitions . The following definitions apply unless the context clearly indicates otherwise:

 

  (a) Alcoa Inc. Plans means the Alcoa Inc. Deferred Fee Plan for Directors (the “ Alcoa Inc. 1999 Plan ”) and the Alcoa Inc. 2005 Deferred Fee Plan for Directors (the “ Alcoa Inc. 2005 Plan ”).

 

  (b) Legacy Alcoa DSU Account means any amount held in a Director’s Deferred Fee Account that is notionally credited in Shares, in accordance with the terms of the Employee Matters Agreement and Article VII.

 

  (c) Alcoa Stock Fund means, with respect to a Director who prior to the Effective Date participated in one or both of the Alcoa Inc. Plans, the investment option established under the Alcoa Inc. Plans with reference to the Alcoa Stock Fund under Alcoa Inc.’s principal tax-qualified retirement savings plan for salaried employees.

 

  (d) Annual Equity Award means the annual Restricted Share Unit award that a Director will be entitled to receive as compensation for serving as a Director in a relevant year (not including any Fees), which will be granted under the Stock Plan.

 

  (e) Beneficiary means the person or persons designated by a Director under Section 4.1 to receive any amount payable under Section 5.3.

 

  (f) Board has the meaning ascribed to such term in Article I.

 

  (g) Chairman means the Chairman of the Board.

 

  (h) Code means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

  (i) Company has the meaning ascribed to such term in Article I.

 

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  (j) Credits means amounts credited to a Director’s Deferred Fee Account, with all Investment Option units valued by reference to the comparable fund offered under the Savings Plan.

 

  (k) Deferred Fee Account means a bookkeeping account established by the Company in the name of a Director with respect to amounts deferred into Investment Options hereunder. For the avoidance of doubt, Deferred Fee Account does not include any amounts deferred into Deferred Fee RSU Awards.

 

  (l) Deferred Fee RSU Award means each award of Restricted Share Units granted in lieu of Fees pursuant to a deferral election made by a Director pursuant to Article III.

 

  (m) Director means a non-employee member of the Board who participates in this Plan. Any Director who is a director or chairman of the board of directors of a subsidiary or affiliate of the Company shall not, by virtue thereof, be deemed to be an employee of the Company or such subsidiary or affiliate for purposes of eligibility under this Plan.

 

  (n) Director Share Ownership Guideline means the minimum value of Shares (or, if applicable, units in the Legacy Alcoa DSU Account), required to be held by each Director until retirement from the Board, as established from time to time by the Board. Effective November 1, 2016, the Director Share Ownership Guideline for a Director is $750,000. A Director’s compliance with the Director Share Ownership Guideline shall be measured based on the value of the Director’s investment on the first Monday in December of each year, or on such other date as may be designated by the Secretary’s office (the “ Annual Valuation Date” ).

 

  (o) Effective Date means November 1, 2016, the effective date of the separation of the Company’s business from Alcoa Inc.’s business.

 

  (p) Employee Matters Agreement means the Employee Matters Agreement dated as of the Effective Date by and between Alcoa Inc. and the Company relating to the transfer of employees in connection with the separation of the Company’s business from Alcoa Inc.’s business, which agreement is incorporated herein by reference.

 

  (q) Equity Restructuring means a nonreciprocal transaction between the Company and its shareholders, such as a stock dividend, stock split (including a reverse stock split), spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the price of Shares (or other securities) and causes a change in the per share value of the Shares.

 

  (r) Fair Market Value means, with respect to Shares on any given date, the closing price per Share on that date as reported on the New York Stock Exchange or other stock exchange on which the Shares principally trade. If the New York Stock Exchange or such other exchange is not open for business on the date fair market value is being determined, the closing price as reported for the next business day on which that exchange is open for business will be used.

 

  (s)

Fees means all cash amounts payable to a Director for services rendered as a member of the Board that are specifically designated as fees, including, but not limited to, annual


  and/or quarterly retainer fees, fees (if any) paid for attending meetings of the Board or any Committee thereof, fees for serving as a Committee Chair, as Lead Director or Chairman or as a member of a Committee, and any per diem fees.

 

  (t) Investment Options means the respective options established hereunder with reference to the comparable funds under the Savings Plan, with the exception of the Company’s Stock Fund.

 

  (u) Plan has the meaning ascribed to such term in Article I.

 

  (v) Restricted Share Unit means an award of a right to receive Shares, including any such award that is granted under, and subject to the terms of, the Stock Plan.

 

  (w) Shares means the shares of common stock of the Company, $0.01 par value per Share.

 

  (x) Savings Plan means the Company’s principal tax-qualified retirement savings plan for salaried employees.

 

  (y) Secretary means the Secretary of the Company.

 

  (z) Separation from Service means a “separation from service” as defined in Section 409A of the Code.

 

  (aa) Stock Plan means the Alcoa Corporation 2016 Stock Incentive Plan, as may be amended from time to time in accordance with its terms, and any successor thereto.

 

  (bb) Unforeseeable Emergency means a severe financial hardship to the Director resulting from (1) an illness or accident of the Director or his or her spouse or dependent; (2) loss of the Director’s property due to casualty; or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Director’s control. For the avoidance of doubt, a circumstance does not constitute an “Unforeseeable Emergency” for purposes of the Plan unless such circumstance constitutes an “unforeseeable emergency” as defined in Section 409A of the Code.

 

ARTICLE III DEFERRAL OF COMPENSATION

 

  3.1 Deferral of Fees . A Director may elect, with respect to each calendar year, to defer under the Plan the receipt of all Fees, or of all Fees of one or more types, or a specified portion (in 1% increments) otherwise payable to him or her and may elect to invest such deferred Fees in one or more Investment Options and/or in Deferred Fee RSU Awards. Fees deferred in respect of each calendar year shall be separately designated and tracked in an individual sub-account to the Director’s Deferred Fee Account (each, an “ Annual Sub-Account ”) and shall be paid in accordance with Article V of the Plan.

 

  3.2

Deferral of Restricted Share Units . Unless otherwise determined by the Board or as may be required pursuant to Section 6.6, any Restricted Share Units granted to a Director (whether as a Deferred Fee RSU Award or an Annual Equity Award) shall, once any vesting requirements have been met, be deferred and paid in accordance with Article V of the Plan. Any dividend equivalents on Restricted Share Units shall be deferred and paid in the same manner and at the same time as the Restricted Share Units to which they relate.


  3.3 Manner of Electing Deferral . A Director may elect to defer the receipt of all or certain Fees and may elect the form of payment of Restricted Share Units by giving written notice (including by electronic means) to the Secretary on an election form provided by the Company, or in any other manner that is deemed sufficient from time to time by the Board. Such election form will require the Director to specify (i) the percentage (if any) of the Director’s Fees that will be deferred and the manner of investment of such deferred Fees in accordance with Sections 3.5 and 3.6, and (ii) the form of payment of any deferred Fees (including Deferred Fee RSU Awards) and, separately, of the Director’s Annual Equity Award, which in each case, may be either a single lump sum payment or up to ten (10) annual installment payments. In the event and to the extent that a Director fails to specify the form of payment, payment will be made in a lump sum. Payment will be made in accordance with Article V of the Plan.

 

  3.4 Annual Elections of Deferral . An election to defer Fees and to elect the form of payment of an Annual Equity Award shall be made prior to the beginning of the calendar year in which the Fees will be earned or, as applicable, the Annual Equity Award will be granted; provided, however, that an election made within 30 days after a person first becomes a Director shall be effective for Fees earned, or any Annual Equity Award granted, after the date of such deferral election. The election to defer receipt of payment may not be canceled or modified unless the Chairman, in his sole discretion, determines in accordance with Section 5.1 that an Unforeseeable Emergency exists, or except as otherwise permitted by the Code.

 

  3.5 Deferring Fees into Investment Options . A Director may designate all or a portion of his or her deferred Fees to be invested in one or more of the Investment Options, in which case, the Director’s deferred Fees shall be credited to the designated Investment Option(s) at the beginning of the calendar quarter following the quarter in which such Fees were earned. Such Fees shall be credited to the Director’s Deferred Fee Account as Credits for “units” in the Director’s Deferred Fee Account. As of any specified date, the value per unit in the Director’s Deferred Fee Account shall be deemed to be the value determined for the comparable fund under the Savings Plan.

 

  3.6 Deferred Fee RSU Awards . A Director may designate all or a portion of his or her deferred Fees to be invested in Deferred Fee RSU Awards, except that a deferral of Fees pursuant to an election made within 30 days after a person first becomes a Director may be invested in Deferred Fee RSU Awards only with respect to any Fees to be earned in the quarter (or other Fees payment period) following the quarter in which the Director commences service on the Board. The number of Restricted Share Units subject to each Deferred Fee RSU Award shall be determined by dividing the dollar amount of the Fees subject to the Director’s election by the Fair Market Value of a Share on the date(s) that such Fees (or any installment thereof) would otherwise have been paid in cash to the Director (the “ Fees Payment Date ”). Unless otherwise determined by the Board, the Deferred Fee RSU Award shall (i) be granted on the applicable Fees Payment Date(s), (ii) not be subject to vesting requirements or other forfeiture restrictions, and (iii) be granted under, and subject to the terms of, the Stock Plan and evidenced by a form of Award Agreement (as defined in the Stock Plan) that shall be approved by the Board prior to the grant of any such Deferred Fee RSU Award, which Award Agreement is incorporated by reference into this Section 3.6. The Shares subject to the Deferred Fee RSU Award shall be delivered to the Director in accordance with Article V of the Plan.


  3.7 Subsequent Deferral Elections . After a deferral election made by a Director in accordance with this Article III has become irrevocable under Section 409A of the Code, the Director may elect to change the time and form of payment of the deferred amount covered by such election only by submitting a payment election change at least (12) months prior to the date on which the deferred amount (or first installment thereof, as applicable) is scheduled to be paid (the “ First Scheduled Payment Date ”) that will result in a delay of payment (or commencement of payment) of such deferred amount until the date that is at least five (5) years after the First Scheduled Payment Date. A payment election change is irrevocable upon receipt and shall not take effect until the first date that is at least twelve (12) months after the date of receipt.

 

  3.8 Transfers Between Investment Options . Subject to Section 7.3, to the extent that a Director has Credits notionally invested in one or more Investment Options (other than the Legacy Alcoa DSU Account, if applicable), the Director may elect to designate a different Investment Option for all or any portion of such Credits in accordance with the procedures established by the Board from time to time.

 

  3.9 Method of Payment. All payments with respect to a Director’s Deferred Fee Account shall be made in cash, and no Director shall have the right to demand payment in Shares or in any other medium. Subject to the terms of the Stock Plan, if applicable, and except as set forth in Section 5.2, all payments with respect to Deferred Fee RSU Awards and Annual Equity Awards shall be made in Shares.

 

ARTICLE IV BENEFICIARIES

 

  4.1 Designation of Beneficiary . Each Director may designate from time to time one or more natural persons or entities as his or her Beneficiary or Beneficiaries to whom the amounts credited to his or her Deferred Fee Account and/or his or her Deferred Fee RSU Awards are to be paid if he or she dies before all such amounts have been paid to the Director. Each Beneficiary designation shall be made on a form prescribed by the Company and shall be effective only when filed with the Secretary during the Director’s lifetime. Each Beneficiary designation filed with the Secretary shall revoke all Beneficiary designations previously made. The revocation of a Beneficiary designation shall not require the consent of any Beneficiary. In the absence of an effective Beneficiary designation, or if payment cannot be made to a Beneficiary, payment shall be made to the Director’s estate. Any beneficiary designation with respect to an Annual Equity Award or Deferred Fee RSU Award will be made in accordance with the terms of the Stock Plan, to the extent applicable.

 

ARTICLE V PAYMENTS

 

  5.1

Payment upon Unforeseeable Emergency . No payment may be made from a Director’s Deferred Fee Account or in settlement of a Director’s Annual Equity Awards and Deferred Fee RSU Awards except as provided in this Article V, unless an Unforeseeable Emergency exists as determined by the Chairman in his sole discretion. If an Unforeseeable Emergency is determined by the Chairman to exist, the Chairman shall determine when and to what extent Credits in the Director’s Deferred Fee Account and/or Shares underlying the Director’s Annual


  Equity Awards and Deferred Fee RSU Awards may be paid to such Director prior to or after the Director’s Separation from Service; provided, however, that the amounts distributed in connection with such an emergency cannot exceed the amounts necessary to satisfy the emergency plus what is necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which the hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Director’s assets (to the extent such liquidation would not itself cause severe financial hardship). All payments with respect to an Unforeseeable Emergency shall be made in a lump sum upon the Chairman’s determination that an Unforeseeable Emergency exists, subject to any advance approval by the Board as may be required for purposes of exemption under Section 16(b) of the Securities Exchange Act of 1934, as amended.

 

  5.2 Payment upon a Director’s Separation from Service .

 

  (a) Payment of any amount in a Director’s Deferred Fee Account (valued in accordance with the last sentence of Section 3.5) and of the Director’s Deferred Fee RSU Awards (if any) and Annual RSU Awards shall be made following the Director’s Separation from Service, as set forth in this Section 5.2, except as otherwise set forth in Section 5.1 or Section 5.3.

 

  (b) To the extent a Director elected to receive a lump sum payment, such payment shall be made in the sixth calendar month that commences following the date of the Director’s Separation from Service, but in no event earlier than after a full six (6) months following such Separation from Service.

 

  (c) To the extent a Director elected to receive installment payments, the first such installment payment shall be made either (i) during the sixth calendar month that commences following the Director’s Separation from Service, but in no event earlier than after a full six (6) months following such Separation from Service, or (ii) during the first month of the calendar year following the Director’s Separation from Service, whichever of (i) or (ii) occurs later. Subsequent installment payments shall be made during the first calendar month of each succeeding year until the Director’s Deferred Fee Account is exhausted or all Restricted Share Units have been paid, as applicable. If the Director elected to receive deferred Fees credited to any Annual Sub-Account or settlement of a Deferred Fee RSU Award or Annual Equity Award in installment payments, the amount of each payment shall be, respectively, a fraction of the value of the Director’s Annual Sub-Account and in such sub-account, or a fraction of the number of Restricted Share Units that remains subject to such Deferred Fee RSU Award or Annual Equity Award, in each case on the last day of the calendar month preceding payment, the numerator of which fraction is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. Any fractional Share portion of an installment payment of a Deferred Fee RSU Award or Annual Equity Award, or any portion of a dividend equivalent on such award that was not reinvested in additional Restricted Share Units pursuant to its terms, will be paid in cash at the same time as the installment payment to which it is attributable.

 

  5.3

Payment upon a Director’s Death . If a Director dies with any amount credited to his or her Deferred Fee Account and/or any outstanding Deferred Fee RSU Awards, the value of said Deferred Fee Account and/or Shares underlying such Deferred Fee RSU Awards shall be paid as soon as administratively practicable in a single payment to the Beneficiary (or in separate


  payments to the Beneficiaries if more than one were designated by the Director) or to the Director’s estate, as the case may be (subject to the terms of the Stock Plan if and to the extent applicable to the Deferred Fee RSU Awards). If a Director dies with any outstanding Annual Equity Awards that are vested (or become vested upon the Director’s death), such awards shall be paid as soon as administratively practicable in a single payment to the party eligible to receive such payment under the terms of the Stock Plan.

 

  5.4 Separate Payments. Each payment payable under this Plan is intended to constitute a separate payment for purposes of Section 409A of the Code.

 

ARTICLE VI MISCELLANEOUS

 

  6.1 Director’s Rights Unsecured . Payments payable hereunder shall be payable out of the general assets of the Company, and no segregation of assets for such payments shall be made by the Company. The right of any Director or Beneficiary to receive payments from a Deferred Fee Account shall be a claim against the general assets of the Company as an unsecured general creditor. The Company may, in its absolute discretion, establish one or more trusts or reserves, which may be funded by reference to amounts of Credits standing in the Director’s Deferred Fee Accounts hereunder or otherwise. Any such trust or reserve shall remain subject to the claims of creditors of the Company. If any amounts held in a trust of the above described nature are found (due to the creation or operation of said trust) in a final decision by a court of competent jurisdiction, or under a “determination” by the Internal Revenue Service in a closing agreement in audit or final refund disposition (within the meaning of Section 1313(a) of the Code), to have been includable in the gross income of a Director or Beneficiary prior to payment of such amounts from said trust, the trustee for the trust shall, as soon as practicable, pay to such Director or Beneficiary an amount equal to the amount determined to have been includable in gross income in such determination, and shall accordingly reduce the Director’s or Beneficiary’s future benefits payable under this Plan. The trustee shall not make any distribution to a Director or Beneficiary pursuant to this paragraph unless it has received a copy of the written determination described above, together with any legal opinion that it may request as to the applicability thereof.

 

  6.2 Responsibility for Taxes. The Director or Beneficiary is liable for any and all taxes that are applicable to the amounts payable under the Plan, including any taxes deemed payable prior to payment out of the Plan.

 

  6.3 Non -assignability. The right of any Director or Beneficiary to the payment of Credits in a Deferred Fee Account shall not be assigned, transferred, pledged or encumbered and shall not be subject in any manner to alienation or anticipation.

 

  6.4

Administration and Interpretation . The Plan shall be administered by the Board. Subject to the terms of the Plan and applicable law and without limitation, the Board shall have full power and authority to: (i) designate Directors for participation, (ii) determine the terms and conditions of any deferral made under the Plan, (iii) interpret and administer the Plan and any instrument or agreement relating to, or deferral made under, the Plan, (iv) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan, and (v) make any other determination and take any other action that the Board deems necessary or desirable for the administration of the Plan. To the


  extent permitted by applicable laws, the Board may, in its discretion, delegate to the Secretary’s office any or all authority and responsibility to act with respect to administrative matters relating to the Plan, and to the extent set forth in the Plan, the Board may delegate certain questions of construction and interpretation to the Chairman, whose decision on such matters shall be final and binding. The determination of the Board on all matters within its authority relating to the Plan shall be final, conclusive and binding upon all parties, including the Company, its shareholders, the Directors and any Beneficiary.

 

  6.5 Section   409A of the Code. The Plan is intended to comply with the requirements of Section 409A of the Code, and the provisions of the Plan and any deferral election form shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any deferral election form would otherwise frustrate or conflict with this intent, the provision, such provision, term or condition will be interpreted and deemed amended so as to avoid this conflict. Although the Company may attempt to avoid adverse tax treatment under Section 409A of the Code, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment. The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on a Director.

 

  6.6 Non-U.S. Directors . Directors who are foreign nationals or residents or employed outside the United States, or both, may participate in the Plan on such terms and conditions different from those applicable to Directors who are not foreign nationals or residents or who are employed in the United States as may, in the judgment of the Board, be necessary or desirable in order to recognize differences in local law, regulations or tax policy.

 

  6.7 Amendment and Termination . The Plan may be amended, modified or terminated at any time by the Board. No amendment, modification or termination shall, without the consent of a Director, adversely affect such Director’s rights with respect to amounts theretofore credited to his or her Deferred Fee Account or with respect to Annual Equity Awards or Deferred Fee RSU Awards theretofore granted to such Director.

 

  6.8 Notices . All notices to the Company under the Plan shall be in writing and shall be given to the Secretary or to an agent or other person designated by the Secretary.

 

  6.9 Governing Law . This Plan shall be construed in accordance with and governed by the laws of the State of Delaware, excluding any choice of law provisions, which may indicate the application of the laws of another jurisdiction.

 

ARTICLE VII TRANSFER OF LIABILITIES UNDER ALCOA INC. PLANS

 

  7.1 Transfer of Liabilities . In accordance with the terms of the Employee Matters Agreement, if prior to the Effective Date a Director participated in one or both of the Alcoa Inc. Plans, the Director’s Deferred Fee Account or Legacy Alcoa DSU Account, as applicable, will be credited with the applicable amount of such Director’s deferred fee account balance under the Alcoa Inc. Plan(s) and all liabilities relating to the participation of the Director in the Alcoa Inc. Plan(s) shall be transferred to this Plan and assumed by the Company. To the extent the Director’s deferred fee account balance under the Alcoa Inc. Plan(s) was invested in one or more investment options other than the Alcoa Stock Fund, it will be reflected as a Credit in an equivalent Investment Option(s) in the Director’s Deferred Fee Account, as determined by the Company.


  7.2 Adjustment of Credits in Alcoa Stock Fund . Any amount transferred from a Director’s deferred fee account under an Alcoa Inc. Plan that was notionally invested in the Alcoa Stock Fund will, following adjustment of such amount in accordance with the terms of the Employee Matters Agreement, be held as a Credit in the Legacy Alcoa DSU Account and will be subject to the terms set forth in Section 7.3 and Section 7.4.

 

  7.3 Transfers to or from the Legacy Alcoa DSU Account . The Legacy Alcoa DSU Account has been established solely for the purpose of receiving amounts transferred from a Director’s deferred fee account under an Alcoa Inc. Plan and is not an Investment Option under this Plan. No deferred Fees or Credits notionally invested in Investment Options may be credited to, or transferred into, the Legacy Alcoa DSU Account. A Director who holds Credits in the Legacy Alcoa DSU Account may not transfer such Credits to other Investment Options if, as of the last Annual Valuation Date, the Director is not in compliance with the Director Share Ownership Guideline. If the Director is in compliance with the Director Share Ownership Guideline as of the last Annual Valuation Date, the Director may transfer Credits from the Legacy Alcoa DSU Account to other Investment Options only upon preclearance of such transaction by the Secretary in accordance with the Company’s Insider Trading Policy. Notwithstanding the foregoing, beginning six (6) months after the Director’s Separation from Service, and prior to a complete distribution of any amounts in the Director’s Deferred Fee Account, the Director may transfer Credits from the Legacy Alcoa DSU Account to other Investment Options to the same extent and frequency as a participant in the Savings Plan may transfer investment credits into or out of the Company’s Stock Fund. Any transfer out of the Legacy Alcoa DSU Account permitted by this Section 7.3 can be accomplished only once every fifteen (15) days. In addition, such transfers shall be subject to reasonable administrative minimums, and any other restrictions recommended by counsel to ensure compliance with applicable law.

 

  7.4 Capitalization Adjustments . In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to shareholders, or any other change affecting the Shares or the price of the Shares or, alternatively, in the event of an Equity Restructuring, any Credits in the Legacy Alcoa DSU Account will be subject to the applicable adjustment provisions of the Stock Plan.

 

  7.5

Assumption of Terms of Alcoa Inc. Plans . Deferred fee amounts that are transferred to a Director’s Deferred Fee Account from his or her account under an Alcoa Inc. Plan will be subject to the same terms and conditions as applied under the applicable Alcoa Inc. Plan. To effectuate the foregoing, the Company hereby adopts the terms of the Alcoa Inc. 1999 Plan as Appendix A to the Plan and the terms of the Alcoa Inc. 2005 Plan as Appendix B to the Plan (together, the “ Appendices ”), which shall apply, respectively, to deferred fee amounts transferred from the Alcoa Inc. 1999 Plan and the Alcoa Inc. 2005 Plan. For purposes of the Company’s adoption of the terms of the Alcoa Inc. Plans, unless the context otherwise requires, references in an Alcoa Inc. Plan to: (i) the “Company” means Alcoa Corporation, (ii) the “Board of Directors” or the “Board” means the Board of Directors of Alcoa Corporation, (iii) the “Alcoa Stock Fund” means the Legacy Alcoa DSU Account, (iv) “stock,” “common stock” or “shares” means shares of Alcoa Corporation common stock, and (v) “Investment Options” means the Investment Options under


  Section 2.1(t) of the Plan. Further, notwithstanding the terms of the Alcoa Inc. Plans, transfers of Credits between Investment Options or from the Legacy Alcoa DSU Account will be governed by Section 3.8 and Section 7.3 of the Plan, and any change to a Director’s previous deferral election that is permitted under an Alcoa Inc. Plan will be subject to the subsequent deferral election requirements in Section 3.7 of the Plan. The Appendices, as modified by this Section 7.5, are incorporated by reference in this Article VII.


APPENDIX A

ALCOA INC.

DEFERRED FEE PLAN FOR DIRECTORS

(Amended July 9, 1999)

Article I - INTRODUCTION

Alcoa Inc. (the “Company”) has established this Deferred Fee Plan for Directors (the “Plan”) to provide non-employee Directors with an opportunity to defer receipt of cash fees to be earned for services rendered as a Director, generally until after termination of service as a Director.

Article II - DEFINITIONS

 

  2.1 Definitions . The following definitions apply unless the context clearly indicates otherwise:

 

  (a) Alcoa Stock Option shall mean the Investment Option established hereunder with reference to the Alcoa Stock fund under the Savings Plan.

 

  (b) Beneficiary means the person or persons designated by a Participant under Section 4.1 to receive any amount payable under Section 5.3.

 

  (c) Board of Directors means the Board of Directors of the Company.

 

  (d) Committee means the Inside Director Committee of the Board.

 

  (e) Credits means amounts credited to a Participant’s Deferred Fee Account, with all Investment Option units valued by reference to the comparable fund offered under the Company’s principal savings plan for salaried employees (“Savings Plan”).

 

  (f) Deferred Fee Account means a bookkeeping account established by the Company in the name of a Director with respect to amounts deferred hereunder.

 

  (g) Director means a non-employee member of the Board of Directors. Any Director who is a director or chairman of the board of directors of a subsidiary or affiliate of the Company shall not, by virtue thereof, be deemed to be an employee of the Company or such subsidiary or affiliate for purposes of eligibility under this Plan.

 

  (h) Fees means all cash amounts payable to a Director for services rendered as a Director and which are specifically designated as fees, including, but not limited to, annual and/or quarterly retainer fees, fees (if any) paid for attending meetings of the Board of Directors or any committee thereof and any per diem fees.


  (i) Investment Option means the respective options established hereunder with reference to the comparable funds under the Savings Plan, except as otherwise determined by the Committee for any fund added to the Savings Plan after January 1, 1993.

 

  (j) Participant means a person who has elected to participate in the Plan.

 

  (k) Secretary means the Secretary of the Company.

 

  (l) Unforeseeable Emergency means a severe financial hardship resulting from extraordinary and unforeseeable circumstances arising as a result of one or more recent events beyond the control of the Participant, which cannot be eliminated by other reasonably available resources of the Participant.

Article III - DEFERRAL OF COMPENSATION

3.1 Amount of Deferral . A Director may elect to defer receipt of all Fees, or of all Fees of one or more types, or a specified portion (in 10% increments) of either of the foregoing, otherwise payable to him or her.

3.2 Manner of Electing Deferral . A Director may elect, or modify a prior election, to defer the receipt of all or certain Fees by giving written notice to the Secretary on a form provided by the Company.

3.3 Time of Election of Deferral; Revocation . An election to defer Fees shall be made prior to the beginning of the calendar quarter in which the Fees will be earned; provided, however, that an election made within 30 days after a person first becomes a Director shall be effective for Fees earned after such election is made. An election shall continue in effect until the end of the Participant’s service as a Director or until the Secretary is notified in writing of a cancellation or modification of the election pursuant to this Section 3.3, whichever shall occur first; provided, however, that unless and then only to the extent that the Committee, in its sole discretion, determines that an Unforeseeable Emergency exists, the election deferring receipt of payment may not be canceled or modified except with regard to Fees to be earned in the quarter(s) beginning after the date the election is so canceled or modified.


3.4  Deferring Fees . A Participant shall designate the portion of his or her deferred Fees to be invested in one or more of the Investment Options. Beginning January 1, 1996, all Fees deferred by a Participant in any calendar year shall be invested in the Alcoa Stock Option until one-half of the amount of the annual retainer fee to which such Participant is entitled for such year has been so invested. Thereafter, designations of other Investment Options by a Participant may be made or shall be given effect. A Participant’s deferred Fees shall be credited to the designated Investment Option(s) at the end of the month in which such deferred Fees would have been payable to such Participant but for an election to defer receipt of those Fees, except that the retainer fees shall be credited as of the first day of January, April, July and October of the year in which they are earned. Such Fees shall be credited to a Participant’s Deferred Fee Account as Credits for “units” in the Participant’s Deferred Fee Account. As of any specified date the value per unit shall be deemed to be the value determined for the comparable fund under the Savings Plan.

3.5 Transfers . A Participant may elect to designate a different Investment Option for all or any portion of the Credits for units in the various Investment Options in his or her Deferred Fee Account, except that Credits for units in the Alcoa Stock Option may not be transferred to any other Investment Option while the Participant is a Director. Beginning six months after termination of Board service and prior to a complete distribution of the Participant’s account, the Participant may transfer Credits for units in the Alcoa Stock Option to other Investment Options to the same extent and frequency as a participant in the Savings Plan. A written election for transfer on a form provided by the Company must be received by the Secretary prior to 4:00 p.m. Eastern Time the business day when it is to become effective. Such election shall be subject to reasonable administrative minimums, and any restrictions recommended by counsel to assure that the Alcoa Stock Option does not become subject to Section 16 of the Securities Exchange Act of 1934 and/or to assure compliance with the provisions thereof.

3.6 Method of Payment .

 

  (a) All payments with respect to a Participant’s Deferred Fee Account shall be made in cash, and no Participant shall have the right to demand payment in shares of Company stock or in any other medium.


  (b) Payments shall be made in a lump sum or, at the election of the Participant, in annual or quarterly installments. The date of the first such payment shall not be later than the first day of the first calendar quarter subsequent to the Participant’s attainment of age 70 in which the Participant shall not be serving as a Director.

 

  (c) An election to receive installment payments in lieu of a lump sum must be made at least one year before the Participant’s service as a Director terminates.

3.7 Election for pre-1990 . Any Participant who deferred Fees payable for any year prior to 1990 shall be permitted to elect to designate one or more of the current Investment Options for all (but not less than all) of the amount credited to his Deferred Fee Account. The election must be received by the Secretary prior to the effective date fixed by the Committee and is subject to the approval of the Committee. Through the date such election becomes effective (if any) his Deferred Fee Account will earn interest as provided in the Plan prior to the 1989 amendments.

3.8 Transition Provision for 1992 . The blackout period from November 2, 1992 through January 1, 1993 and the mapping of Credits from the old to the new Investment Options shall be administered under the Plan in the same fashion as for the Savings Plan, except as otherwise determined by the Committee.

Article IV - BENEFICIARIES

4.1 Designation of Beneficiary . Each Participant may designate from time to time any person or persons, natural or otherwise, as his Beneficiary or Beneficiaries to whom the amounts credited to his or her Deferred Fee Account are to be paid if he or she dies before all such amounts have been paid to the Participant. Each Beneficiary designation shall be made on a form prescribed by the Company and shall be effective only when filed with the Secretary during the Participant’s lifetime. Each Beneficiary designation filed with the Secretary shall revoke all Beneficiary designations previously made. The revocation of a Beneficiary designation shall not require the consent of any Beneficiary. In the absence of an effective Beneficiary designation or if payment can be made to no Beneficiary, payment shall be made to the Participant’s estate.


Article V - PAYMENTS

5.1 Payment of Deferred Fees . No payment may be made from a Director’s Deferred Fee Account except as provided in this Article, unless and then only to the extent that an Unforeseeable Emergency exists as determined by the Committee in its sole discretion. In the latter case the Committee shall determine when and to what extent Credits in a Participant’s Deferred Fee Account may be paid to such Participant prior to or after termination as a Director.

5.2. Payment Upon Termination as Director . The value of a Participant’s Deferred Fee Account shall be payable in cash in a lump sum on or about the first day of the calendar quarter succeeding the quarter in which the Participant’s service as a Director is terminated, or, if elected in advance under Section 3.6 hereof, in a lump sum or annual or quarterly installments beginning as specified in the election. If installments are elected, the amount of each payment shall be a fraction of the value of the Participant’s Deferred Fee Account on the last day of the calendar quarter preceding payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. Such installment payments shall be made on or about the first day of each succeeding year or quarterly period until said Account is exhausted, except as provided in Section 5.1 or Section 5.3.

5.3 Payment Upon Participant’s Death . If a Participant dies with any amount credited to his or her Deferred Fee Account, the value of said Account shall be paid in a single payment(s) to the Beneficiary(ies) or estate, as the case may be, on or about the first day of the calendar quarter next following the date of death or such later date as shall have been selected by the Participant with the consent of the Committee.

Article VI - MISCELLANEOUS

6.1 Participant’s Rights Unsecured . The right of any Participant to receive payments from his or her Deferred Fee Account shall be a claim against the general assets of the Company as an unsecured general creditor. The Company may, in its absolute discretion, establish one or more trusts or reserves which may be funded by reference to amounts of Credits standing in Participants’ Deferred Fee Accounts hereunder or otherwise.


6.2 Non-assignability . The right of any Participant or Beneficiary to the payment of Credits in a Deferred Fee Account shall not be assigned, transferred, pledged or encumbered and shall not be subject in any manner to alienation or anticipation.

6.3 Administration and Interpretation . The Plan shall be administered by the Committee which shall have authority to adopt rules and regulations for carrying out the Plan and to interpret, construe and implement its provisions. Decisions of the Committee shall be final and binding. Routine administration may be delegated by the Committee.

6.4 Amendment and Termination . The Plan may be amended, modified or terminated at any time by the Board of Directors. No amendment, modification or termination shall, without the consent of a Participant, adversely affect such Participant’s rights with respect to amounts theretofore credited to his or her Deferred Fee Account or earlier effect the payment of Fees already deferred.

6.5 Notices . All notices to the Company under the Plan shall be in writing and shall be given to the Secretary or to an agent or other person designated by the Secretary.

6.6 Governing Law . This Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, excluding any choice of law provisions which may indicate the application of the laws of another jurisdiction.


APPENDIX B

ALCOA INC.

2005 DEFERRED FEE PLAN FOR DIRECTORS

(Effective January 1, 2005; As Amended Effective December 3, 2014)

ARTICLE I - INTRODUCTION

Alcoa Inc. (the “Company”) has established this 2005 Deferred Fee Plan for Directors (the “Plan”) to provide non-employee Directors with an opportunity to defer receipt of fees earned for services as a member of the Company’s Board of Directors (the “Board”) in 2005 and beyond.

ARTICLE II - DEFINITIONS

2.1 Definitions . The following definitions apply unless the context clearly indicates otherwise:

 

  (a) Alcoa Stock Fund means the Investment Option established hereunder with reference to the Alcoa Stock Fund under the Savings Plan.

 

  (b) Beneficiary means the person or persons designated by a Director under Section 4.1 to receive any amount payable under Section 5.3.

 

  (c) Chairman means the Chairman of the Board.

 

  (d) Credits means amounts credited to a Director’s Deferred Fee Account, with all Investment Option units valued by reference to the comparable fund offered under the Company’s principal savings plan for salaried employees (“Savings Plan”).

 

  (e) Deferred Fee Account means a bookkeeping account established by the Company in the name of a Director with respect to amounts deferred hereunder.

 

  (f) Director means a non-employee member of the Board who participates in this Plan. Any Director who is a director or chairman of the board of directors of a subsidiary or affiliate of the Company shall not, by virtue thereof, be deemed to be an employee of the Company or such subsidiary or affiliate for purposes of eligibility under this Plan.

 

  (g) Director Share Ownership Guideline means the minimum number of shares of Company stock or stock equivalents required to be held by each Director, as established from time to time by the Board. Effective January 1, 2013, the Director Share Ownership Guideline for a Director shall be $400,000. A Director is required to invest in Alcoa common stock or defer into the Alcoa stock fund under this Plan until the value of the investment reaches $400,000. The investment will be valued on the first Monday in December of each year and shall be held until retirement from the board of directors of the Company. Until the Director Share Ownership Guideline is satisfied by a particular Director, he or she is required to defer the Required Deferral Amount (defined below) or otherwise use that amount of annual Fees for the purchase of Company stock.


  (h) Fees means all cash amounts payable to a Director for services rendered as a member of the Board in 2005 and thereafter that are specifically designated as fees, including, but not limited to, annual and/or quarterly retainer fees, fees (if any) paid for attending meetings of the Board or any Committee thereof, Committee Chair fees, Lead Director fees and any per diem fees.

 

  (i) Investment Options means the respective options established hereunder with reference to the comparable funds under the Savings Plan.

 

  (j) Required Deferral Amount means 50% of annual Fees, until such time as a Director has satisfied the then applicable Director Share Ownership Guideline.

 

  (k) Secretary means the Secretary of the Company.

 

  (l) Unforeseen Emergency means a severe financial hardship to the Director resulting from (1) an illness or accident affecting the Director or his or her spouse or dependent; (2) loss of the Director’s property due to casualty; or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Director’s control.

ARTICLE III - DEFERRAL OF COMPENSATION

3.1 Amount of Deferral . Beginning January 1, 2005, until a Director owns beneficial shares of Alcoa Stock and/or has units in the Alcoa Stock Fund at least equal to the then applicable Director Share Ownership Guideline, the Director will be required to defer at least the Required Deferral Amount in the Alcoa Stock Fund. Beyond that requirement, a Director may elect to defer receipt of all Fees, or of all Fees of one or more types, or a specified portion (in 1% increments) otherwise payable to him or her.

3.2 Manner of Electing Deferral . A Director may elect, or modify a prior election, to defer the receipt of all or certain Fees by giving written notice to the Secretary on a form provided by the Company, or in any other manner that is deemed sufficient from time to time by the Chairman.

3.3 Annual Elections of Deferral . An election to defer Fees shall be made prior to the beginning of the calendar year in which the Fees will be earned; provided, however, that an election made within 30 days after a person first becomes a Director shall be effective for Fees earned during that year. An election shall continue in effect until the end of the year following the date of the deferral election, or until the end of the Director’s service on the Board, whichever shall occur first. The election to defer receipt of payment may not be canceled or modified unless the Chairman, in his sole discretion, determines that an Unforeseen Emergency exists, or except as otherwise permitted by Internal Revenue Service regulations.

3.4 Deferring Fees . A Director shall designate the portion of his or her deferred Fees to be invested in one or more of the Investment Options. Deferral of the Required Deferral Amount into the Alcoa Stock Fund is required until the Director Share Guideline is satisfied. Any Director who has satisfied the Director Share Ownership Guideline or who wishes to defer funds other than the Required Deferral Amount may designate Investment Options other than the Alcoa Stock Fund for those amounts. A Director’s deferred Fees shall be credited to the designated Investment Option(s) at the beginning of


the calendar quarter following the quarter in which such Fees were earned. Such Fees shall be credited to the Director’s Deferred Fee Account as Credits for “units” in the Director’s Deferred Fee Account. As of any specified date, the value per unit in the Director’s Deferred Fee Account shall be deemed to be the value determined for the comparable fund under the Savings Plan.

3.5 Transfers . A Director may elect to designate a different Investment Option for all or any portion of the Credits for units in the various Investment Options in his or her Deferred Fee Account, except that, once the Credits in the Alcoa Stock Fund equal the Director Share Ownership Guideline, Credits for at least that number of units must be maintained in the Alcoa Stock Fund for the duration of the Director’s service on the Board. Beginning six (6) months after termination of Board service, and prior to a complete distribution of the Director’s account, the Director may transfer Credits for units in the Alcoa Stock Fund to other Investment Options to the same extent and frequency as a participant in the Savings Plan. A written election on a form provided by the Company for transfer of investments into or out of any fund other than the Alcoa Stock Fund must be received by the Secretary prior to 4:00 p.m. Eastern Time on the business day when it is to become effective. Transfer of investments into or out of the Alcoa Stock Fund must be received by 8:00 a.m. Eastern Time on the business day it is to become effective. Such transfers into or out of the Alcoa Stock Fund can be accomplished only once every fifteen (15) days. In addition, such transfers shall be subject to reasonable administrative minimums, and any restrictions recommended by counsel to assure compliance with applicable law.

3.6 Method of Payment .

 

  (a) All payments with respect to a Director’s Deferred Fee Account shall be made in cash, and no Director shall have the right to demand payment in shares of Company Stock or in any other medium.

 

  (b) Payments shall be made in a lump sum as soon as administratively practicable following six (6) months after the conclusion of the Director’s service on the Board. Notwithstanding the foregoing, a Director can elect (at the time of making his or her annual deferral designation under Section 3.3) to receive the deferred Fees in up to ten (10) annual installments. The first such installment payment shall occur during the sixth month following the conclusion of the Director’s service on the Board, or during the first month of the calendar year following the conclusion of the Director’s service on the Board, whichever occurs later.

 

  (c) A Director may make an election to receive deferred Fees in up to ten (10) annual installments or a lump sum payment, provided that if such election is made by a Director to change the manner of payment of the amounts in such Director’s Deferred Fee Account and not with respect to the annual deferral designation made for Fees to be earned in an upcoming year, such payment election change (i) must be made at least twelve (12) months before the Director’s service on the Board ends, (ii) will be effective twelve (12) months following the date of the payment election change, and (iii) will result in a delay of payment of such deferred Fees until the later of (x) five (5) years from the date of the payment election change and (y) the end of the Director’s service on the Board. A payment election change is irrevocable upon receipt unless a Director makes a subsequent payment election change, in which case such subsequent payment election change shall be subject to the requirements of the foregoing clauses (i) to (iii).


ARTICLE IV - BENEFICIARIES

4.1 Designation of Beneficiary . Each Director may designate from time to time one or more natural persons or entities as his or her Beneficiary or Beneficiaries to whom the amounts credited to his or her Deferred Fee Account are to be paid if he or she dies before all such amounts have been paid to the Director. Each Beneficiary designation shall be made on a form prescribed by the Company and shall be effective only when filed with the Secretary during the Director’s lifetime. Each Beneficiary designation filed with the Secretary shall revoke all Beneficiary designations previously made. The revocation of a Beneficiary designation shall not require the consent of any Beneficiary. In the absence of an effective Beneficiary designation, or if payment can be made to no Beneficiary, payment shall be made to the Director’s estate.

ARTICLE V - PAYMENTS

5.1 Payment of Deferred Fees . No payment may be made from a Director’s Deferred Fee Account except as provided in this Article, unless an Unforeseen Emergency exists as determined by the Chairman in his sole discretion. If an Unforeseen Emergency is determined by the Chairman to exist, the Chairman shall determine when and to what extent Credits in the Director’s Deferred Fee Account may be paid to such Director prior to or after the Director’s service on the Board; provided, however, that the amounts distributed in connection with such an emergency cannot exceed the amounts necessary to satisfy the emergency plus what is necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which the hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Director’s assets (to the extent such liquidation would not itself cause severe financial hardship.).

5.2. Payment upon Termination of Service on the Board . The value of a Director’s Deferred Fee Account, determined in accordance with the last sentence of Section 3.4, shall be payable in cash in a lump sum as soon as administratively practicable following six (6) months after the Director’s service on the Board ends, or if elected in advance by the Director under Section 3.6 hereof, in annual installments. If installments are elected, the amount of each payment shall be a fraction of the value of the Director’s Deferred Fee Account designated by the Director for installment payments and in such account on the last day of the calendar month preceding payment, the numerator of which is one and the denominator of which is the total number of installments elected minus the number of installments previously paid. The first installment payment shall be made as provided in the last sentence of Section 3.6(b), and all subsequent installment payments shall be made during the first month of each succeeding year until said account is exhausted, except as provided in Section 5.1 or Section 5.3.

5.3 Payment upon a Director’s Death . If a Director dies with any amount credited to his or her Deferred Fee Account, the value of said account shall be paid as soon as administratively practicable in a single payment to the Beneficiary (or in several payments to each of the Beneficiaries if more than one were named by the Director) or to the Director’s estate, as the case may be.

ARTICLE VI - MISCELLANEOUS

6.1 Director’s Rights Unsecured . Payments payable hereunder shall be payable out of the general assets of the Company, and no segregation of assets for such payments shall be made by the Company. The right of any Director or Beneficiary to receive payments from a Deferred Fee Account shall be a claim against the general assets of the Company as an unsecured general creditor. The Company may,


in its absolute discretion, establish one or more trusts or reserves, which may be funded by reference to amounts of Credits standing in the Director’s Deferred Fee Accounts hereunder or otherwise. Any such trust or reserve shall remain subject to the claims of creditors of the Company. If any amounts held in a trust of the above described nature are found (due to the creation or operation of said trust) in a final decision by a court of competent jurisdiction, or under a “determination” by the Internal Revenue Service in a closing agreement in audit or final refund disposition (within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended), to have been includable in the gross income of a Director or Beneficiary prior to payment of such amounts from said trust, the trustee for the trust shall, as soon as practicable, pay to such Director or Beneficiary an amount equal to the amount determined to have been includable in gross income in such determination, and shall accordingly reduce the Director’s or Beneficiary’s future benefits payable under this Plan. The trustee shall not make any distribution to a Director or Beneficiary pursuant to this paragraph unless it has received a copy of the written determination described above, together with any legal opinion that it may request as to the applicability thereof.

6.2 Responsibility for Taxes . The Director or Beneficiary is liable for any and all taxes that are applicable to the amounts payable under the Plan, including any taxes deemed payable prior to payment out of the Plan.

6.3 Non-assignability . The right of any Director or Beneficiary to the payment of Credits in a Deferred Fee Account shall not be assigned, transferred, pledged or encumbered and shall not be subject in any manner to alienation or anticipation.

6.4 Administration and Interpretation . The Plan shall be administered by the Secretary’s office. Questions of construction and interpretation will be referred to the Chairman. The Chairman’s decision shall be final and binding.

6.5 Amendment and Termination . The Plan may be amended, modified or terminated at any time by the Board. No amendment, modification or termination shall, without the consent of a Director, adversely affect such Director’s rights with respect to amounts theretofore credited to his or her Deferred Fee Account or earlier effect the payment of Fees already deferred.

6.6 Notices . All notices to the Company under the Plan shall be in writing and shall be given to the Secretary or to an agent or other person designated by the Secretary.

6.7 Governing Law . This Plan shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, excluding any choice of law provisions, which may indicate the application of the laws of another jurisdiction.

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Exhibit 99.1

LOGO

[                    ], 2016

Dear Alcoa Inc. Shareholder:

In September 2015, we announced our plan to separate into two independent, publicly traded companies: a globally cost-competitive upstream company and an innovation and technology-driven value-add company. The upstream company will include the five business units that today make up Global Primary Products—Bauxite, Alumina, Aluminum, Cast Products and Energy—and a Rolled Products business unit consisting of the rolling mill operations in Warrick, Indiana, and Saudi Arabia (the “Warrick and Ma’aden Rolling Mills”) (collectively, the “Upstream Businesses”). The value-add company will include the Engineered Products and Solutions, Global Rolled Products (other than the Warrick and Ma’aden Rolling Mills), and Transportation and Construction Solutions business segments (collectively, the “Value-Add Businesses”).

The separation will create two industry-leading, independent public companies with distinct product portfolios and corporate strategies. We believe that the upstream company will be a cost-competitive industry leader in bauxite mining, alumina refining, aluminum production, and aluminum can packaging for the North America market, positioned for success throughout the market cycle. The value-add company will be a premier provider of high-performance multi-material products and solutions. The companies will have distinct value profiles, and the separation will allow each company to effectively allocate resources and deploy capital in line with each company’s growth priorities and cash-flow profiles. As independent entities, each company will be positioned to capture opportunities in increasingly competitive and rapidly evolving markets, and to pursue their own independent strategies, positioning each to push the performance envelope within distinct operating environments.

The separation will occur by means of a pro rata distribution by Alcoa Inc. (“ParentCo”) of at least 80.1% of the outstanding shares of a newly formed upstream company named Alcoa Upstream Corporation (“Alcoa Corporation”), which will own the Upstream Businesses. ParentCo, the existing publicly traded company, will continue to own the Value-Add Businesses, and will become the value-add company. In conjunction with the separation, ParentCo will change its name to “Arconic Inc.” (“Arconic”) and will change its stock symbol from “AA” to “ARNC”, and “Alcoa Upstream Corporation” will change its name to “Alcoa Corporation” and will apply for authorization to list its common stock on the New York Stock Exchange under the symbol “AA.”

Upon completion of the separation, each ParentCo shareholder as of the record date will continue to own shares of ParentCo (which, as a result of ParentCo’s name change to Arconic, will be Arconic shares) and will own a pro rata share of the outstanding common stock of Alcoa Corporation to be distributed. Each ParentCo shareholder will receive one share of Alcoa Corporation common stock for every three shares of ParentCo common stock held as of the close of business on October 20, 2016, the record date for the distribution, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to that date. If the reverse stock split is not effected, each ParentCo shareholder will receive one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock held as of the close of business on the record date. The Alcoa Corporation common stock will be issued in book-entry form only, which means that no physical share certificates will be issued. It is intended that, for U.S. federal income tax purposes, the distribution generally will be tax-free to ParentCo shareholders. No vote of ParentCo shareholders is required for the distribution. You do not need to take any action to receive shares of Alcoa Corporation common stock to which you are entitled as a ParentCo shareholder, and you do not need to pay any consideration or surrender or exchange your ParentCo common stock.

We encourage you to read the attached information statement, which is being provided to all ParentCo shareholders that held shares on the record date for the distribution. The information statement describes the separation in detail and contains important business and financial information about Alcoa Corporation.


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We believe the separation provides tremendous opportunities for our businesses and our shareholders, as we work to continue to build long-term shareholder value. We appreciate your continuing support of Alcoa Inc., and look forward to your future support of Arconic Inc. and Alcoa Corporation.

Sincerely,

Klaus Kleinfeld

Chairman and Chief Executive Officer

Alcoa Inc.


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LOGO

[                    ], 2016

Dear Future Alcoa Upstream Corporation Stockholder:

I am excited to welcome you as a future stockholder of Alcoa Upstream Corporation (“Alcoa Corporation”). Alcoa Corporation is a cost-competitive large scale industry leader in global aluminum production. Our operations will comprise business units focused on Bauxite, Alumina, Aluminum, Cast Products, Rolled Products and Energy, which together will encompass all major production activities along the primary aluminum industry value chain, providing Alcoa Corporation an important position in each critical segment of the supply chain.

At the time of its separation from Alcoa Inc. (“ParentCo”), Alcoa Corporation’s first-class asset base will include the world’s largest bauxite mining portfolio and what we believe is the most attractive global alumina refining system, both with first quartile cost curve positions. Our leading bauxite and refining operations supply a strategic global aluminum smelting portfolio with a highly competitive second quartile cost curve position. Our smelter footprint is enhanced by a strategic network of co-located casthouse facilities producing value-added aluminum products for customers in key global markets, and rolling mill operations in Warrick, Indiana, and Saudi Arabia that will serve the North American aluminum can packaging market. Alcoa Corporation’s metal operations are complemented by a substantial portfolio of global energy assets offering third-party sales opportunities, and in some cases, the operational flexibility to consume electricity for metal production or capture earnings from power sales. Alcoa Corporation’s global footprint will include 27 facilities worldwide and approximately 16,000 employees.

Over the past few years, ParentCo has implemented a comprehensive strategy to secure our company as a cost-competitive industry leader in bauxite mining, alumina refining, aluminum production and value-added casting and rolling, positioned for success throughout the market cycle. We have accomplished this by strengthening each of our businesses for greater efficiency, profitability and value-creation. By reshaping our portfolio, we have made our company more resilient against market down-swings, while remaining prepared to capitalize on the upswings. We have developed new opportunities in establishing our bauxite and cast products businesses and our diverse sites offer close proximity to major markets, well situated to capture robust aluminum demand. We continue to enhance our competitiveness through rigorous portfolio management and strong cost controls and are committed to a philosophy of disciplined capital allocation and prudent return of capital to shareholders.

Upon completion of the separation, “Alcoa Upstream Corporation” will be renamed “Alcoa Corporation,” and we intend to list Alcoa Corporation’s common stock on the New York Stock Exchange under the symbol “AA.” ParentCo, to be renamed “Arconic Inc.,” will change its stock symbol from “AA” to “ARNC” in connection with the separation.

At Alcoa Corporation, our vision for the future is clear. We intend to deliver unparalleled value for our customers, working faster and smarter, enabling us to succeed in partnership with them. We will strive to ensure operational excellence within our strong foundation of assets, drive continuous improvement, harness innovation and creativity and maintain profitability through market troughs and peaks. We will adhere to a philosophy advocating prudent use of capital, and intend to carefully consider opportunities to generate superior outcomes for our investors. As an industry leader, we intend to attract and retain the best talent in metals and mining, treat our people with respect and dignity and embrace best-in-class ethical and sustainability standards. As we prepare to become a standalone company, we look to build upon our rich heritage, ready to seize the future and excel.

Sincerely,

Roy Harvey

Chief Executive Officer

Alcoa Upstream Corporation


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the United States Securities Exchange Act of 1934, as amended.

 

Preliminary and Subject to Completion, Dated September 29, 2016

INFORMATION STATEMENT

Alcoa Upstream Corporation

 

 

This information statement is being furnished in connection with the distribution by Alcoa Inc. (“ParentCo”) to its shareholders of outstanding shares of common stock of Alcoa Upstream Corporation (“Alcoa Corporation”), a wholly owned subsidiary of ParentCo that will hold the assets and liabilities associated with ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, as well as a Rolled Products business consisting of ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia (collectively, the “Alcoa Corporation Business”). To implement the separation, ParentCo currently plans to distribute at least 80.1% of the outstanding shares of Alcoa Corporation common stock on a pro rata basis to ParentCo shareholders in a distribution that is intended to qualify as generally tax-free to the ParentCo shareholders for United States (“U.S.”) federal income tax purposes. Immediately after the distribution becomes effective, ParentCo will own no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation. Prior to completing the separation, ParentCo may adjust the percentage of Alcoa Corporation shares to be distributed to ParentCo shareholders and retained by ParentCo in response to market and other factors, and it will amend this information statement to reflect any such adjustment.

For every three shares of common stock of ParentCo held of record by you as of the close of business on October 20, 2016, which is the record date for the distribution, you will receive one share of Alcoa Corporation common stock, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to that date. If the reverse stock split is not effected, then for every nine shares of common stock of ParentCo held of record by you as of the close of business on the record date, you will receive one share of Alcoa corporation common stock. You will receive cash in lieu of any fractional shares of Alcoa Corporation common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of ParentCo common stock in the “regular-way” market after the record date and before the distribution date, you also will be selling your right to receive shares of Alcoa Corporation common stock in connection with the separation and distribution. We expect the shares of Alcoa Corporation common stock to be distributed by ParentCo to you at 12:01 a.m., Eastern Time, on November 1, 2016. We refer to the date of the distribution of the Alcoa Corporation common stock as the “distribution date.”

Until the separation occurs, Alcoa Corporation will be a wholly owned subsidiary of ParentCo and consequently, ParentCo will have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date, as well as to reduce the amount of outstanding shares of common stock of Alcoa Corporation that it will retain, if any, following the distribution.

No vote of ParentCo shareholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send ParentCo a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of ParentCo common stock or take any other action to receive your shares of Alcoa Corporation common stock.

There is no current trading market for Alcoa Corporation common stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and we expect “regular-way” trading of Alcoa Corporation common stock to begin on the first trading day following the completion of the distribution. “Alcoa Upstream Corporation” will change its name to “Alcoa Corporation” and intends to have its common stock authorized for listing on the New York Stock Exchange (the “NYSE”) under the symbol “AA.” ParentCo will be renamed “Arconic Inc.” (“Arconic”) and will change its stock symbol from “AA” to “ARNC” in connection with the separation.

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “ Risk Factors ” beginning on page 23.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

 

The date of this information statement is [                    ], 2016.

This information statement was first mailed to ParentCo shareholders on or about [                    ], 2016.


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TABLE OF CONTENTS

 

     Page  

Questions and Answers About The Separation and Distribution

     1   

Information Statement Summary

     9   

Summary of Risk Factors

     16   

Summary Historical and Unaudited Pro Forma Combined Financial Data

     22   

Risk Factors

     23   

Cautionary Statement Concerning Forward-Looking Statements

     45   

The Separation and Distribution

     47   

Dividend Policy

     56   

Capitalization

     57   

Selected Historical Combined Financial Data of Alcoa Corporation

     58   

Unaudited Pro Forma Combined Condensed Financial Statements

     59   

Business

     65   

Management’s Discussion and Analysis of Financial Condition And Results Of Operations

     105   

Management

     149   

Directors

     150   

Director Compensation

     162   

Compensation Discussion and Analysis

     163   

Executive Compensation

     178   

Certain Relationships and Related Party Transactions

     192   

Material U.S. Federal Income Tax Consequences

     201   

Description of Material Indebtedness

     205   

Security Ownership of Certain Beneficial Owners and Management

     209   

Description of Alcoa Corporation Capital Stock

     210   

Where You Can Find More Information

     214   

Index to Financial Statements

     F-1   

 

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Presentation of Information

Unless the context otherwise requires:

 

  The information included in this information statement about Alcoa Corporation, including the Combined Financial Statements of Alcoa Corporation, which primarily comprise the assets and liabilities of ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, as well as ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution.

 

  References in this information statement to “Alcoa Corporation,” “we,” “us,” “our,” “our company” and “the company” refer to Alcoa Upstream Corporation, a Delaware corporation, and its subsidiaries.

 

  References in this information statement to “ParentCo” refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries, including the Alcoa Corporation Business prior to completion of the separation.

 

  References in this information statement to the “Alcoa Corporation Business” refer to ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, as well as a Rolled Products business consisting of ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia.

 

  References in this information statement to “Arconic” refer to ParentCo after the completion of the separation and the distribution, following which ParentCo will change its name to “Arconic Inc.” and its business will comprise the Engineered Products and Solutions, Global Rolled Products (other than the rolling mill operations in Warrick, Indiana, and the 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia) and Transportation and Construction Solutions businesses.

 

  References in this information statement to the “Arconic Business” refer to ParentCo’s Engineered Products and Solutions, Global Rolled Products (other than the rolling mill operations in Warrick, Indiana, and the 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia) and Transportation and Construction Solutions businesses, collectively.

 

  References in this information statement to the “separation” refer to the separation of the Alcoa Corporation Business from ParentCo’s other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, Alcoa Corporation, to hold the assets and liabilities associated with the Alcoa Corporation Business after the distribution.

 

  References in this information statement to the “distribution” refer to the distribution of at least 80.1% of Alcoa Corporation’s issued and outstanding shares of common stock to ParentCo shareholders as of the close of business on the record date for the distribution.

 

  References in this information statement to Alcoa Corporation’s per share data assume a distribution ratio of one share of Alcoa Corporation common stock for every three shares of ParentCo common stock and a distribution of approximately 80.1% of the outstanding shares of Alcoa Corporation common stock.

 

  References in this information statement to Alcoa Corporation’s historical assets, liabilities, products, businesses or activities generally refer to the historical assets, liabilities, products, businesses or activities of the Alcoa Corporation Business as the business was conducted as part of ParentCo prior to the completion of the separation.

Trademarks and Trade Names

Alcoa Corporation owns or has rights to use the trademarks and trade names that we use in conjunction with the operation of our business. Among the trademarks that Alcoa Corporation owns or has rights to use that appear in this information statement are the name “Alcoa” and the Alcoa symbol for aluminum products. Solely for

 

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convenience, we only use the TM or ® symbols the first time any trademark or trade name is mentioned. Each trademark or trade name of any other company appearing in this information statement is, to our knowledge, owned by such other company.

Industry Information

Unless indicated otherwise, the information concerning our industry contained in this information statement is based on Alcoa Corporation’s general knowledge of and expectations concerning the industry. Alcoa Corporation’s market position, market share and industry market size are based on estimates using Alcoa Corporation’s internal data and estimates, based on data from various industry analyses, our internal research and adjustments and assumptions that we believe to be reasonable. Alcoa Corporation has not independently verified data from industry analyses and cannot guarantee their accuracy or completeness. In addition, Alcoa Corporation believes that data regarding the industry, market size and its market position and market share within such industry provide general guidance but are inherently imprecise. Further, Alcoa Corporation’s estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions.

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

 

What is Alcoa Corporation and why is ParentCo separating Alcoa Corporation’s business and distributing Alcoa Corporation stock?   

Alcoa Corporation, which is currently a wholly owned subsidiary of ParentCo, was formed to own and operate ParentCo’s Alcoa Corporation Business. The separation of Alcoa Corporation from ParentCo and the distribution of Alcoa Corporation common stock are intended, among other things, to enable the management of both companies to pursue opportunities for long-term growth and profitability unique to each company’s business and allow each business to more effectively implement its own distinct capital structure and capital allocation strategies. ParentCo expects that the separation will result in enhanced long-term performance of each business for the reasons discussed in the sections entitled “The Separation and Distribution—Reasons for the Separation.”

 

Why am I receiving this document?   

ParentCo is delivering this document to you because you are a holder of shares of ParentCo common stock. If you are a holder of shares of ParentCo common stock as of the close of business on October 20, 2016, the record date of the distribution, you will be entitled to receive one share of Alcoa Corporation common stock for every three shares of ParentCo common stock that you hold at the close of business on such date, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date. If the reverse stock split is not effected, you will be entitled to receive one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock that you hold at the close of business on such date. Each of these ratios assumes a distribution of approximately 80.1% of the outstanding shares of Alcoa Corporation common stock and applies the distribution ratio without accounting for cash to be issued in lieu of fractional shares. This document will help you understand how the separation and distribution will affect your post-separation ownership in Arconic and Alcoa Corporation.

 

How will the separation of Alcoa Corporation from ParentCo work?   

As part of the separation, and prior to the distribution, ParentCo and its subsidiaries expect to complete an internal restructuring in order to transfer to Alcoa Corporation the Alcoa Corporation Business that Alcoa Corporation will own following the separation. To accomplish the separation, ParentCo will distribute at least 80.1% of the outstanding shares of Alcoa Corporation common stock to ParentCo shareholders on a pro rata basis in a distribution intended to be generally tax-free to ParentCo shareholders for U.S. federal income tax purposes. Following the distribution, ParentCo shareholders will own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation will be a separate company from ParentCo. ParentCo will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution. Following the separation, the number of shares of ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be Arconic shares) you own will not change as a result of the separation.

 

 

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What is the record date for the distribution?   

The record date for the distribution will be [                    ], 2016.

 

 

When will the distribution occur?   

We expect that at least 80.1% of the outstanding shares of Alcoa Corporation common stock will be distributed by ParentCo at 12:01 a.m., Eastern Time, on November 1, 2016, to holders of record of shares of ParentCo common stock at the close of business on October 20, 2016, the record date for the distribution.

 

What do shareholders need to do to participate in the distribution?   

Shareholders of ParentCo as of the record date for the distribution will not be required to take any action to receive Alcoa Corporation common stock in the distribution, but you are urged to read this entire information statement carefully. No shareholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of ParentCo common stock, or take any other action to receive your shares of Alcoa Corporation common stock. Please do not send in your ParentCo stock certificates. The distribution will not affect the number of outstanding shares of ParentCo common stock or any rights of ParentCo shareholders, although it will affect the market value of each outstanding share of ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be Arconic common stock after the separation).

 

How will shares of Alcoa Corporation common stock be issued?   

You will receive shares of Alcoa Corporation common stock through the same channels that you currently use to hold or trade shares of ParentCo common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of Alcoa Corporation shares will be documented for you in the same manner that you typically receive shareholder updates, such as monthly broker statements and 401(k) statements.

 

  

If you own shares of ParentCo common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, ParentCo, with the assistance of Computershare Trust Company, N.A. (“Computershare”), the distribution agent, will electronically distribute shares of Alcoa Corporation common stock to you or to your brokerage firm on your behalf in book-entry form. Computershare will mail you a book-entry account statement that reflects your shares of Alcoa Corporation common stock, or your bank or brokerage firm will credit your account for the shares.

 

How many shares of Alcoa Corporation common stock will I receive in the distribution?    ParentCo will distribute to you one share of Alcoa Corporation common stock for every three shares of ParentCo common stock held by you as of close of business on the record date for the distribution, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date. If the reverse stock split is not effected, ParentCo will distribute to you one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock held by you as of the close of business on such date. Based on approximately [        ] shares of ParentCo common stock outstanding as of [                    ], 2016, and assuming a distribution of approximately 80.1% of the outstanding shares of Alcoa Corporation

 

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common stock and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), a total of approximately [        ] million shares of Alcoa Corporation common stock will be distributed to ParentCo’s shareholders and approximately [        ] million shares of Alcoa Corporation common stock will continue to be owned by ParentCo. For additional information on the distribution, see “The Separation and Distribution.”

 

Will Alcoa Corporation issue fractional shares of its common stock in the distribution?   

No. Alcoa Corporation will not issue fractional shares of its common stock in the distribution. Fractional shares that ParentCo shareholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

 

What are the conditions to the distribution?   

The distribution is subject to the satisfaction (or waiver by ParentCo in its sole discretion) of the following conditions:

 

•       the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement in effect; and no proceedings for such purposes having been instituted or threatened by the SEC;

 

•       the mailing of this information statement to ParentCo shareholders;

 

•       (i) the private letter ruling from the Internal Revenue Service (the “IRS”) regarding certain U.S. federal income tax matters relating to the separation and distribution received by ParentCo continuing to be valid and being satisfactory to the ParentCo Board of Directors and (ii) the receipt of by ParentCo and continuing validity of an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”);

 

•       the internal reorganization having been completed and the transfer of assets and liabilities of the Alcoa Corporation Business from ParentCo to Alcoa Corporation, and the transfer of assets and liabilities of the Arconic Business from Alcoa Corporation to ParentCo, having been completed in accordance with the separation and distribution agreement;

 

•       the receipt of one or more opinions from an independent appraisal firm to the ParentCo Board of Directors as to the solvency of ParentCo and Alcoa Corporation after the

 

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completion of the distribution, in each case in a form and substance acceptable to the ParentCo Board of Directors in its sole and absolute discretion;

 

•       all actions necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder having been taken or made and, where applicable, having become effective or been accepted;

 

•       the execution of certain agreements contemplated by the separation and distribution agreement;

 

•       no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;

 

•       the shares of Alcoa Corporation common stock to be distributed having been accepted for listing on the NYSE, subject to official notice of distribution;

 

•       ParentCo having received certain proceeds from the financing arrangements described under “Description of Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements; and

 

•       no other event or development existing or having occurred that, in the judgment of ParentCo’s Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and the other related transactions.

 

ParentCo and Alcoa Corporation cannot assure you that any or all of these conditions will be met, or that the separation will be consummated even if all of the conditions are met. ParentCo can decline at any time to go forward with the separation. In addition, ParentCo may waive any of the conditions to the distribution. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”

 

What is the expected date of completion of the separation?   

The completion and timing of the separation are dependent upon a number of conditions. We expect that the shares of Alcoa Corporation common stock will be distributed by ParentCo at 12:01 a.m., Eastern Time, on November 1, 2016, to the holders of record of shares of ParentCo common stock at the close of business on October 20, 2016, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or that all conditions to the distribution will be met, by November 1, 2016 or at all.

 

Will ParentCo and Alcoa Corporation be renamed in conjunction with the Separation?   

Yes. In conjunction with the separation, ParentCo will change its name to “Arconic Inc.” and will change its stock symbol from “AA” to “ARNC,” and “Alcoa Upstream Corporation” will change its name to “Alcoa Corporation” and will apply for authorization to list its common stock on the NYSE under the symbol “AA.”

 

 

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Can ParentCo decide to cancel the distribution of Alcoa Corporation common stock even if all the conditions have been met?   

Yes. Until the distribution has occurred, ParentCo has the right to terminate the distribution, even if all of the conditions are satisfied.

 

What if I want to sell my ParentCo common stock or my Alcoa Corporation common stock?

 

  

You should consult with your financial advisors, such as your stock broker, bank or tax advisor.

 

What is “regular-way” and “ex-distribution” trading of ParentCo common stock?   

Beginning on or shortly before the record date for the distribution and continuing up to and through the distribution date, we expect that there will be two markets in ParentCo common stock: a “regular-way” market and an “ex-distribution” market. ParentCo common stock that trades in the “regular-way” market will trade with an entitlement to shares of Alcoa Corporation common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to Alcoa Corporation common stock distributed pursuant to the distribution. If you decide to sell any shares of ParentCo common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your ParentCo common stock with or without your entitlement to Alcoa Corporation common stock pursuant to the distribution.

 

Where will I be able to trade shares of Alcoa Corporation common stock?   

Alcoa Corporation intends to apply for authorization to list its common stock on the NYSE under the symbol “AA.” ParentCo will change its name to Arconic and will change its stock symbol from “AA” to “ARNC” upon completion of the separation. Alcoa Corporation anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date for the distribution and will continue up to and through the distribution date, and that “regular-way” trading in Alcoa Corporation common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell Alcoa Corporation common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. Alcoa Corporation cannot predict the trading prices for its common stock before, on or after the distribution date.

 

What will happen to the listing of ParentCo common stock?   

ParentCo common stock will continue to trade on the NYSE after the distribution but will be traded as Arconic common stock due to ParentCo’s name change to Arconic and under the stock symbol “ARNC” instead of “AA.”

 

Will the number of shares of ParentCo common stock that I own change as a result of the distribution?   

No. The number of shares of ParentCo common stock that you own will not change as a result of the distribution. Following the separation, ParentCo common stock will be referred to as Arconic common stock as a result of ParentCo’s name change to Arconic.

 

Will the distribution affect the market price of my ParentCo common stock?    Yes. As a result of the distribution, ParentCo expects the trading price of shares of ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be referred to as Arconic common stock) immediately following the distribution to be

 

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different from the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Alcoa Corporation Business. There can be no assurance whether the aggregate market value of the Arconic common stock and the Alcoa Corporation common stock following the separation will be higher or lower than the market value of ParentCo common stock if the separation did not occur. This means, for example, that the combined trading prices of three shares of Arconic common stock and one share of Alcoa Corporation common stock after the distribution may be equal to, greater than or less than the trading price of a share of ParentCo common stock before the distribution.

 

What are the material U.S. federal income tax consequences of the separation and the distribution?   

It is a condition to the distribution that (i) the private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the separation and distribution received by ParentCo remain valid and be satisfactory to the ParentCo Board of Directors, and (ii) ParentCo receive an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as transactions that are generally tax-free under Sections 355 and 368(a)(1)(D) of the Code. Assuming the distribution, together with certain related transactions, so qualifies, for U.S. federal income tax purposes, you will not recognize any gain or loss, and no amount will be included in your income, upon your receipt of Alcoa Corporation common stock pursuant to the distribution. You will, however, recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of Alcoa Corporation common stock.

 

You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as any foreign tax laws. For more information regarding the material U.S. federal income tax consequences of the distribution, see the section entitled “Material U.S. Federal Income Tax Consequences.”

 

What will Alcoa Corporation’s relationship be with Arconic following the separation?    Following the distribution, ParentCo shareholders (or Arconic shareholders after ParentCo’s name change to Arconic) will own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation will be a separate company from ParentCo. ParentCo will retain no more than 19.9% of the outstanding shares of Alcoa Corporation following the distribution. Alcoa Corporation will enter into a separation and distribution agreement with ParentCo to effect the separation and to provide a framework for Alcoa Corporation’s relationship with Arconic after the separation and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement, a stockholder and registration rights agreement with respect to Arconic’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement

 

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relating to the North American packaging business. These agreements will provide for the allocation between Alcoa Corporation and Arconic of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) of ParentCo and its subsidiaries attributable to periods prior to, at and after Alcoa Corporation’s separation from ParentCo and will govern the relationship between Alcoa Corporation and Arconic subsequent to the completion of the separation. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Party Transactions.”

 

How will Arconic vote any shares of Alcoa Corporation common stock it retains?   

Arconic will agree to vote any shares of Alcoa Corporation common stock that it retains in proportion to the votes cast by Alcoa Corporation’s other stockholders and is expected to grant Alcoa Corporation a proxy to vote its shares of Alcoa Corporation common stock in such proportion. For additional information on these voting arrangements, see “Certain Relationships and Related Person Transactions—Stockholder and Registration Rights Agreement.”

 

What does Arconic intend to do with any shares of Alcoa Corporation common stock it retains?   

Arconic currently plans to dispose of all of the Alcoa Corporation common stock that it retains after the distribution, which may include dispositions through one or more subsequent exchanges for debt or equity or a sale of its shares for cash, following a 60-day lock-up period and within the 18-month period following the distribution, subject to market conditions. Any shares not disposed of by Arconic during such 18-month period will be sold or otherwise disposed of by Arconic consistent with the business reasons for the retention of those shares, but in no event later than five years after the distribution.

 

Who will manage Alcoa Corporation after the separation?   

Alcoa Corporation will benefit from a management team with an extensive background in the Alcoa Corporation Business. Led by Roy C. Harvey, who will be Alcoa Corporation’s President and Chief Executive Officer, and William F. Oplinger, who will be Alcoa Corporation’s Chief Financial Officer, Alcoa Corporation’s management team will possess deep knowledge of, and extensive experience in, its industry. For more information regarding Alcoa Corporation’s directors and management, see “Management” and “Directors.”

 

Are there risks associated with owning Alcoa Corporation common stock?   

Yes. Ownership of Alcoa Corporation common stock is subject to both general and specific risks relating to Alcoa Corporation’s business, the industry in which it operates, its ongoing contractual relationships with Arconic and its status as a separate, publicly traded company. Ownership of Alcoa Corporation common stock is also subject to risks relating to the separation. Certain of these risks are described in the “Risk Factors” section of this information statement, beginning on page 23. We encourage you to read that section carefully.

 

 

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Does Alcoa Corporation plan to pay dividends?   

The declaration and payment of any dividends in the future by Alcoa Corporation will be subject to the sole discretion of its Board of Directors and will depend upon many factors. See “Dividend Policy.”

 

Will Alcoa Corporation incur any indebtedness prior to or at the time of the distribution?   

A subsidiary of Alcoa Corporation has incurred certain indebtedness in connection with the separation, including (i) a secured revolving credit agreement providing for revolving loans in an aggregate principal amount of up to $1.5 billion and (ii) $1.25 billion of senior notes. Upon release of the senior notes from escrow, Alcoa Corporation intends to pay a substantial portion of the proceeds of the senior notes to Arconic. ParentCo’s existing senior notes are expected to remain an obligation of Arconic after the separation, except to the extent that Arconic uses funds received by it from Alcoa Corporation to repay such existing indebtedness.

 

See “Description of Material Indebtedness” and “Risk Factors—Risks Related to Our Business.”

 

Who will be the distribution agent for the distribution and transfer agent and registrar for Alcoa Corporation common stock?   

The distribution agent, transfer agent and registrar for the Alcoa Corporation common stock will be Computershare Trust Company, N.A. For questions relating to the transfer or mechanics of the stock distribution, you should contact Computershare toll free at 1-888-985-2058.

 

Where can I find more information about ParentCo and Alcoa Corporation?   

Before the distribution, if you have any questions relating to ParentCo’s business performance, you should contact:

 

Alcoa Inc.

390 Park Avenue

New York, New York 10022-4608

Attention: Investor Relations

 

After the distribution, Alcoa Corporation shareholders who have any questions relating to Alcoa Corporation’s business performance should contact Alcoa Corporation at:

 

Alcoa Corporation

390 Park Avenue

New York, New York 10022-4608

Attention: Investor Relations

 

The Alcoa Corporation investor website ( www.[                    ].com ) will be operational on or around [                    ], 2016.  The Alcoa Corporation website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.

 

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INFORMATION STATEMENT SUMMARY

The following is a summary of selected information discussed in this information statement. This summary may not contain all of the details concerning the separation or other information that may be important to you. To better understand the separation and our business and financial position, you should carefully review this entire information statement. Unless the context otherwise requires, the information included in this information statement about Alcoa Corporation, including the Combined Financial Statements of Alcoa Corporation, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Alcoa Corporation,” “we,” “us,” “our,” “our company” and “the company” refer to Alcoa Upstream Corporation, a Delaware corporation, and its subsidiaries. Unless the context otherwise requires, references in this information statement to “ParentCo” refer to Alcoa Inc., a Pennsylvania corporation, and its consolidated subsidiaries, including the Alcoa Corporation Business prior to completion of the separation.

Unless the context otherwise requires, references in this information statement to our historical assets, liabilities, products, businesses or activities of our businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia, as such operations were conducted as part of ParentCo prior to completion of the separation.

Our Company

Alcoa Corporation is a global industry leader in the production of bauxite, alumina and aluminum, enhanced by a strong portfolio of value-added cast and rolled products and substantial energy assets. Alcoa Corporation draws on the innovation culture, customer relationships and strong brand of ParentCo. Previously known as the Aluminum Company of America, ParentCo pioneered the aluminum industry 128 years ago with the discovery of the first commercial process for the affordable production of aluminum. Since the discovery, Alcoa aluminum was used in the Wright brothers’ first flight (1903), and ParentCo helped produce the first aluminum-sheathed skyscraper (1952), the first all-aluminum vehicle frame (1994) and the first aluminum beer bottle (2004). Today, Alcoa Corporation extends this heritage of product and process innovation as it strives to continuously redefine world-class operational performance at its locations, while partnering with its customers across its range of global products. We believe that the lightweight capabilities and enhanced performance attributes that aluminum offers across a number of end markets are in increasingly high demand and underpin strong growth prospects for Alcoa Corporation.

 



 

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Alcoa Corporation’s operations encompass all major production processes in the primary aluminum industry value chain, which we believe provides Alcoa Corporation with a strong platform from which to serve our customers in each critical segment. Our portfolio is well-positioned to take advantage of a projected 5% growth in global aluminum demand in 2016 and to be globally cost competitive throughout all phases of the aluminum commodity price cycle.

 

LOGO

Our Strengths

Alcoa Corporation’s significant competitive advantages distinguish us from our peers.

World-class aluminum assets. Alcoa Corporation has an industry-leading, cost-competitive portfolio comprising six businesses—Bauxite, Alumina, Aluminum, Cast Products, Rolled Products and Energy. These assets include the largest bauxite mining portfolio in the world; a first quartile low cost, globally diverse alumina refining system; and a newly optimized aluminum smelting portfolio. With our innovative network of casthouses, we can customize the majority of our primary aluminum production to the precise specifications of our customers and we believe that our rolling mills provide us with a cost competitive and efficient platform to serve the North American packaging market. Our portfolio of energy assets provides third-party sales opportunities, and in some cases, has the operational flexibility to either support metal production or capture earnings through third-party power sales. In addition, the expertise within each business supports the next step in our value chain by providing optimized products and process knowledge.

Our fully integrated Saudi Arabian joint venture, formed in 2009 with the Saudi Arabian Mining Company (Ma’aden), showcases those synergies. Through our Ma’aden joint venture, we have developed the lowest cost aluminum production complex within the worldwide Alcoa Corporation system. The complex includes a bauxite mine, an alumina refinery, an aluminum smelter and a rolling mill. The complex, which relies on low-cost and clean power generation, is an integral part of Alcoa Corporation’s strategy to lower its overall production cost base. By establishing a strong footprint in the growing Middle East region, Alcoa Corporation is also well-positioned to capitalize on growth and new market opportunities in the region. Ma’aden owns a 74.9% interest in the joint venture. Alcoa Corporation owns a 25.1% interest in the smelter and rolling mill; and Alcoa World Alumina and Chemicals (which is owned 60% by Alcoa Corporation) holds a 25.1% interest in the mine and refinery.

Customer relationships across the industry spectrum and around the world. As a well-established world leader in the production of bauxite, alumina and aluminum products, Alcoa Corporation has the scale, global reach and proximity to major markets to deliver our products to our customers and their supply chains all over the world. We believe Alcoa Corporation’s global network, broad product portfolio and extensive technical expertise position us to be the supplier of choice for a range of customers across the entire aluminum value chain. Our global reach also provides portfolio diversity that can enable us to benefit from local or regional economic cycles. Every Alcoa Corporation business segment operates in multiple countries and both hemispheres.

 



 

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Alcoa Corporation Global Footprint

 

LOGO

Access to key strategic markets. As illustrated by our bauxite mining operations in the Brazilian Amazon rainforest, and our participation in the first fully integrated aluminum complex in Saudi Arabia, our ability to operate successfully and sustainably has allowed us to forge partnerships in new markets, enter markets more efficiently, gain local knowledge, develop local capacity and reduce risk. We believe that these attributes also make us a preferred strategic partner of our current host countries and of those looking to evaluate and build future opportunities in our industry.

Experienced management team with substantial industry expertise. Our management team has a strong track record of performance and execution. Roy C. Harvey, who has served as President of ParentCo’s Global Primary Products business, will be Alcoa Corporation’s Chief Executive Officer. Mr. Harvey has served more than 14 years in various capacities at ParentCo, including as ParentCo’s Executive Vice President of Human Resources and Environment, Health, Safety and Sustainability and Vice President of Investor Relations. In addition, William F. Oplinger, ParentCo’s Executive Vice President and Chief Financial Officer, will become Alcoa Corporation’s Chief Financial Officer. Tómas Már Sigurdsson, the Chief Operating Officer of ParentCo’s Global Primary Products business, will become Alcoa Corporation’s Chief Operating Officer. Our senior management team collectively has more than 110 years of experience in the metals and mining, commodities and aluminum industries.

History of operational excellence and continuous productivity improvements. Alcoa Corporation’s dedication to operational excellence has enabled us to withstand unfavorable market conditions. In addition, our productivity program has allowed us to capture cost savings and, by focusing on continuously improving our manufacturing and procurement processes, we seek to produce ongoing cost benefits through the efficient use of raw materials, resources and other inputs. We believe that Alcoa Corporation is positioned to be resilient against market down-swings and to capitalize on the upswings throughout the market cycle.

 



 

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Positioned for future market scenarios. Since 2010, we have reshaped our portfolio and implemented other changes to our business model in order to make Alcoa Corporation more resilient in times of market volatility. We believe these changes will continue to drive value-creation opportunities in the years ahead. Among other disciplined actions, we have:

 

    closed, divested or curtailed 35% of total smelting operating capacity and 25% of total operating refining capacity, enabling us to become more cost competitive;

 

    enhanced our portfolio through our 25.1% investment in the Alcoa Corporation-Ma’aden joint venture in Saudi Arabia, the lowest-cost integrated aluminum complex within the worldwide Alcoa Corporation system, which is now fully operational;

 

    revolutionized the way we sell smelter-grade alumina by shifting our pricing model to an Alumina Price Index (API) or spot pricing, which reflects alumina supply and demand fundamentals;

 

    grown our portfolio of value-added cast product offerings, and increased the percentage of value-added products we sell;

 

    transitioned our non-rolling assets from a regional operating structure to five separate business units focused on Bauxite, Alumina, Aluminum, Cast Products and Energy, and taken significant steps to position each business unit for greater efficiency, profitability and value-creation at each stage of the value chain; and

 

    reduced costs in our Rolled Products operations, and intensified our focus on innovation and value-added products, including aluminum bottle and specialty coatings.

Through our actions, we have improved the position of our alumina refining system on the global alumina cost curve from the 30 th percentile in 2010, to a first quartile 23 rd percentile in 2015, with a target to reach the 21 st percentile by the end of 2016. We have also improved eight points on the global aluminum cost curve since 2010, to the 43 rd percentile in 2015, while targeting the 38 th percentile by the end of 2016. In addition, we have maintained a first quartile 19 th percentile position on the global bauxite cost curve.

The combined effect of these actions has been to enhance our business position in a recovering macroeconomic environment for bauxite, alumina, aluminum and aluminum products, which we believe will allow us to weather the market downturns today while preparing to capitalize on upswings in the future.

Dedication to environmental excellence and safety . We regularly review our strategy and performance with a view toward maximizing our efficient use of resources and our effective control of emissions, waste and land use, and to improve our environmental performance. For example, in order to lessen the impact of our mining activities, we have targeted minimum environmental footprints for each mine to achieve by 2020. Three of our mines that were active in 2015 have already achieved their minimum environmental footprint. During 2015, we disturbed a total of 2,988 acres of mine lands worldwide and rehabilitated 3,233 acres. Alcoa Corporation’s business lowered its carbon dioxide (CO2) intensity by more than 12% between 2010 and 2015, achieving its target of 30% reduction in CO2 intensity from a 2005 baseline, a full five years ahead of target. Alcoa Corporation is also committed to a world-class health and safety culture that has consistently delivered incident rates below industry averages. As part of ParentCo, the Alcoa Corporation business improved its Days Away, Restricted, and Transfer (DART) rate—a measure of days away from work or job transfer due to injury or illnesses—by 62% between 2010 and 2015. Alcoa Corporation intends to continue to intensify our fatality prevention efforts and the safety and well-being of our employees will remain the top priority for Alcoa Corporation.

Our Strategies

As Alcoa Corporation, we intend to continue to be an industry leader in the production of bauxite, alumina, primary aluminum and aluminum cast and rolled products. We will remain focused on cost efficiency and

 



 

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profitability, while also seeking to develop operational and commercial innovations that will sharpen our competitive edge. Our management team has considerable experience in managing through tough market cycles, which we believe will enable us to profit through commodity down-swings. In upswings, we believe our low cost assets will be well positioned to deliver strong returns.

Alcoa Corporation will also remain focused on our core values. We will continue to hold ourselves to the highest standards of environmental and ethical practices, support our communities through Alcoa Foundation grants and employee volunteerism, and maintain transparency in our actions and ongoing dialogue with local stakeholders. We believe that this is essential to support our license to operate in the unique communities in which we do business, ensuring sustainability, and making us the partner of choice. Combined with our continued focus on operational excellence and rigorous management of our assets, we expect to create value for our shareholders and customers and attract and retain highly-qualified talent.

We intend to remain true to our heritage by focusing on the following core principles:

Solution-Oriented Customer Relationships and Programs.   We aim to succeed by helping our customers innovate and win in their markets. We will work to provide new and improved products and technical expertise that support our customers’ innovation, which we believe will help to strengthen the demand and consumption of aluminum across the globe for all segments of the value chain. We intend to continue prudently investing in our technical resources to both drive our own efficiencies and to help our customers develop solutions to their challenges.

Establishment of a Strong, Operator-Focused Culture.   We are proud of the 128 year history of the Alcoa Corporation business and the culture of innovation and operational excellence upon which we are built. We intend to build a culture for Alcoa Corporation that is true to this heritage and focuses our management, operational processes and decision-making on the critical success of our mines and facilities. To support this effort, we will work to have an overhead structure that is appropriately scaled for our business, and will use our deep industry and operational expertise to navigate an ever-changing and volatile industry.

Operational reliability and excellence . We are committed to the development, maintenance and use of our reliability excellence program, which is designed to optimize the operational availability and integrity of our assets, while driving lower costs. We will also continue to build on our “Center of Excellence (COE)” model, which leverages central research and development and technical expertise within each business to facilitate the transfer of best practices, while also providing rapid response to plant level disruptions.

Aggressive asset portfolio management . Alcoa Corporation will continue to review our portfolio of assets and opportunities to maximize value creation. Having delinked the aluminum value chain by restructuring our upstream businesses into standalone units (Bauxite, Alumina, Aluminum, Cast Products, Rolled Products and Energy), we believe we are well-positioned to pursue opportunities to reduce costs and grow revenue and margins across our portfolio. Examples of these opportunities include the growth of our third party bauxite sales, the ability, in some cases, to flex energy between aluminum production and power sales, the increase in our value-added cast products as a percentage of aluminum sales and the combination of the state-of-the-art rolling mill in Saudi Arabia and our Warrick rolling mill’s current products and customer relationships. We will also continue to monitor our assets relative to market conditions, industry trends and the position of those assets in their life cycle, and we will curtail, sell or close assets that do not meet our value-generation standards.

Efficient use of available capital . In seeking to allocate our capital efficiently, we expect that our near-term priorities will be to sustain valuable assets in the most cost-effective manner while de-levering our balance sheet by managing debt and long term liabilities. We intend to effectively deploy excess cash to maximize long-term shareholder value, with incremental growth opportunities and other value-creating uses of capital evaluated against return of capital to shareholders. We expect that return on capital (ROC) will be the primary metric we use to drive capital allocation decisions.

 



 

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Disciplined Execution of High-Return Growth Projects . We expect to continue to look for and implement incremental growth projects that meet our rigorous ROC standards, while working to ensure that those projects are completed on time and within budget.

Continuous pursuit of improvements in productivity . A strong focus on productivity will remain a critical component of Alcoa Corporation’s continued success. We believe that our multi-phased approach, consisting of reliability excellence programs, strong procurement strategies across our businesses, and a continuous focus on technical efficiencies, will allow us to continue to drive productivity improvements.

Attracting and Retaining the Best Employees Globally . Our people-processes and career development programs are designed to attract and retain the best employees, whether it be as operators from the local communities in which we work, or senior management with experiences that can strengthen our ability to execute. We will strive to harness the collective creativity and diversity of thought of our workforce to drive better outcomes and to design, build and implement improvements to our processes and products.

Each of Alcoa Corporation’s six businesses provides a solid foundation upon which to grow.

Premier bauxite position . Alcoa Corporation is the world’s largest bauxite miner, with 45.3 million bone dry metric tons (bdmt) of production in 2015, enjoying a first-quartile cost curve position. We have access to large bauxite deposit areas with mining rights that extend in most cases more than 20 years. We have ownership in seven active bauxite mines globally, four of which we operate, that are strategically located near key Atlantic and Pacific markets, including the Huntly mine in Australia, the second largest bauxite mine in the world. In addition to supplying bauxite to our own alumina refining system, we are seeking to grow our newly developed third-party bauxite sales business. For example, during the third quarter of 2015, Alcoa Corporation’s affiliate, Alcoa of Australia Limited, received permission from the Government of Western Australia to export trial shipments from its Western Australia mines. In addition, we have secured multiple bauxite supply contracts valued at more than $410 million of revenue over 2016 and 2017. We intend to selectively grow our industry-leading assets, continue to build upon our solid operational strengths and develop new ore reserves. We intend to maintain our focus on mine reclamation and rehabilitation, which we believe not only benefits our current operations, but can facilitate access to new projects in diverse communities and ecosystems globally.

Attractive alumina portfolio . We are also the world’s largest alumina producer, with a highly competitive first-quartile cost curve position. Alcoa Corporation has nine refineries on five continents, including one of the world’s largest alumina production facilities, the Pinjarra refinery in Western Australia. In addition to supplying our aluminum smelters with high quality feedstock, we also have significant alumina sales to third parties, with almost 70% of 2015 production being sold externally. Our operations are strategically located for access to growing markets in Asia, the Middle East and Latin America. We are improving our alumina margins by continuing to shift the pricing of our third party smelter-grade alumina sales from the historical London Metal Exchange (LME) aluminum-based pricing to API pricing which better reflects alumina production cost and market fundamentals. In 2015, we grew the percentage of third-party smelter grade alumina shipments that were API or spot-priced to 75%, up from 68% in 2014 and up from 5% in 2010. In 2016, we expect that approximately 85% of our third-party alumina shipments will be based on API or spot pricing. We have also steadily increased our system-wide capacity over the past decade through a combination of operational improvements and incremental capacity projects, effectively adding capacity equivalent to a new refinery. We intend to maintain our first quartile global cost position for Alcoa Corporation’s Alumina business while incrementally growing capacity and continuously striving for sustained operational excellence.

Smelting portfolio positioned to benefit as aluminum demand increases . As a global aluminum producer with a second-quartile cost curve portfolio, we believe that Alcoa Corporation is well positioned to benefit from robust growth in aluminum demand. We estimate record global aluminum demand in 2016 of 59.7 million metric

 



 

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tons, up 5% over 2015. Global aluminum demand was expected to double between 2010 and 2020 and, through the first half of the decade, demand growth tracked ahead of the projection. We expect that our proximity to major markets—with over 50% of our capacity located in Canada, Iceland and Norway, close to the large North American and European markets—will give us a strategic advantage in capitalizing on growth in aluminum demand. In addition, our 25.1% ownership stake in the low-cost aluminum complex in Saudi Arabia, as well as our proven track record of taking actions to optimize our operations, makes us well-positioned to benefit from improved market conditions in the future. Furthermore, with approximately 75% of our smelter power needs contractually secured through 2022, we believe that Alcoa Corporation is well positioned to manage that important dimension of our cost base. Our Aluminum business intends to continue its pursuit of operating efficiencies and incremental capacity expansion projects. We intend to react quickly to market cycles to curtail unprofitable facilities, if necessary, but also maintain optionality to profit from higher metal price environments through the restart of idled capacity.

Global network of casthouses . Alcoa Corporation currently operates 15 casthouses providing value-added products to customers in growing markets. We also have three casthouses that are currently curtailed. In our Cast Products business, our aim is to partner with our customers to develop solutions that support their success by providing them with superior quality products, customer service and technical support. Our network of casthouses has enabled us to steadily grow our cast products business by offering differentiated, value-added aluminum products that are cast into specific shapes to meet customer demand. We intend to continue to improve the value of our installed capacity through productivity and technology gains, and will look for opportunities to add new capacity and develop new product lines in markets where we believe superior returns can be realized. Value-added products grew to 67% of total Cast Products shipments in 2015, compared to 65% in 2014 and 57% in 2010. Our value-added product portfolio has been profitable throughout the primary aluminum market cycle and, from 2010 to 2015, our casting business realized $1.6 billion in incremental margins through value-added sales when compared to selling unalloyed commodity grade ingot. We have also introduced EZCAST™, VERSACAST™, SUPRACAST™ and EVERCAST™ advanced alloys with improved thermal performance and corrosion resistance that have already been qualified with top-tier original equipment manufacturers. Additional trials are underway and more are planned in 2016.

 

LOGO

Efficient and focused rolling mills . Alcoa Corporation has rolling operations in Warrick, Indiana, and Saudi Arabia which, together, serve the North American aluminum can sheet market. The Warrick Rolling Mill is focused on packaging, producing can body stock, can end and tab stock, bottle stock and food can stock, and industrial sheet and lithographic sheet. The Ma’aden Rolling Mill currently produces can body stock, can end and tab stock, and hot-rolled strip for finishing into automotive sheet. Following the separation, it is anticipated that the facilities manufacturing products for the North American can packaging market will be located only at the Warrick and Ma’aden Rolling Mills, and that the Arconic rolling mills will not compete in this market. As the packaging market in North America has become highly commoditized, we believe that our experience in, and

 



 

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focus on, operational excellence and continuous productivity improvements will be key competitive advantages. We intend to lower costs through productivity improvements, improved capacity utilization and targeted capital deployment.

Substantial energy assets . Our Energy portfolio will continue to be focused on value creation by seeking to lower overall operational costs and maintaining flexibility to sell power or consume it internally. Alcoa Corporation has a valuable portfolio of energy assets with power production capacity of approximately 1,685 megawatts, of which approximately 61% is low-cost hydroelectric power. We believe that our energy assets provide us with operational flexibility to profit from market cyclicality. In continuously assessing the energy market environment, we strive to meet in-house energy requirements at the lowest possible cost and also sell power to external customers at attractive profit margins. With approximately 55% of Alcoa Corporation-generated power being sold externally in 2015, we achieved significant earnings from power sales globally. In addition, our team of Energy employees has considerable expertise in managing our external sourcing of energy for our operations, which has enabled us to achieve favorable commercial outcomes. For example, in 2015, we secured an attractive 12-year gas supply agreement (starting in 2020) to power our extensive alumina refinery operations in Western Australia.

Summary of Risk Factors

An investment in our company is subject to a number of risks, including risks relating to our business, risks related to the separation, risks related to our common stock and risks related to our indebtedness. Set forth below is a high-level summary of some, but not all, of these risks. Please read the information in the section captioned “Risk Factors,” beginning on page 23 of this information statement, for a more thorough description of these and other risks.

Risks Related to Our Business

 

    The aluminum industry and aluminum end-use markets are highly cyclical and are influenced by a number of factors, including global economic conditions.

 

    We could be materially adversely affected by declines in aluminum prices, including global, regional and product-specific prices.

 

    We may not be able to realize the expected benefits from our strategy of creating a lower cost, competitive commodity business by optimizing our portfolio.

 

    Our operations consume substantial amounts of energy; profitability may decline if energy costs rise or if energy supplies are interrupted.

 

    Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend operations with respect to those industries, which could result in our recording asset impairment charges or taking other measures that may adversely affect our results of operations and profitability.

 

    Deterioration in our credit profile could increase our costs of borrowing money and limit our access to the capital markets and commercial credit.

 

    Our profitability could be adversely affected by increases in the cost of raw materials or by significant lag effects of decreases in commodity or LME-linked costs.

 

    We may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state or foreign law, regulation or policy.

 



 

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Risks Related to the Separation

 

    We have no recent history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

 

    We may not achieve some or all of the expected benefits of the separation, and the separation may materially adversely affect our business.

 

    Our plan to separate into two independent publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

 

    The combined post-separation value of three shares of Arconic common stock and one share of Alcoa Corporation common stock may not equal or exceed the pre-distribution value of one share of ParentCo common stock.

 

    In connection with our separation from ParentCo, ParentCo will indemnify us for certain liabilities and we will indemnify ParentCo for certain liabilities. If we are required to pay under these indemnities to ParentCo, our financial results could be negatively impacted. The ParentCo indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which ParentCo will be allocated responsibility, and ParentCo may not be able to satisfy its indemnification obligations in the future.

 

    If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, ParentCo, Alcoa Corporation and ParentCo shareholders could be subject to significant tax liabilities and, in certain circumstances, Alcoa Corporation could be required to indemnify ParentCo for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

 

    The transfer to us of certain contracts and other assets may require the consents of, or provide other rights to, third parties. If such consents are not obtained, we may not be entitled to the benefit of such contracts and other assets, which could increase our expenses or otherwise harm our business and financial performance.

Risks Related to Our Common Stock

 

    We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation and, following the separation, our stock price may fluctuate significantly.

 

    A significant number of shares of our common stock may be sold following the distribution, including the sale by Arconic of the shares of our common stock that it may retain after the distribution, which may cause our stock price to decline.

 

    We cannot guarantee the timing, amount or payment of dividends on our common stock.

Risks Related to Our Indebtedness

 

    Our indebtedness, including the notes, restricts our current and future operations, which could adversely affect our ability to respond to changes in our business and manage our operations.

 

    Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our business, financial condition, results of operations or cash flows.

 



 

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The Separation and Distribution

On September 28, 2015, ParentCo announced its intent to separate its Alcoa Corporation Business from its Arconic Business. The separation will occur by means of a pro rata distribution to the ParentCo shareholders of at least 80.1% of the outstanding shares of common stock of Alcoa Corporation. Alcoa Corporation was formed to hold ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses, ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia. Following the separation, Alcoa Corporation will hold the assets and liabilities of ParentCo relating to those businesses and the direct and indirect subsidiary entities that currently operate the Alcoa Corporation Business, subject to certain exceptions. After the separation, Arconic will hold ParentCo’s Engineered Products and Solutions, Global Rolled Products (other than the rolling mill operations in Warrick, Indiana, and the 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia) and Transportation and Construction Solutions businesses, including those assets and liabilities of ParentCo and its direct and indirect subsidiary entities that currently operate the Arconic Business, subject to certain exceptions.

Following the distribution, ParentCo shareholders will own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation will be a separate company from Arconic. Arconic will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution. Arconic intends to dispose of any Alcoa Corporation common stock that it retains after the distribution, which may include dispositions through one or more subsequent exchanges for debt or equity or a sale of its shares for cash, following a 60-day lock-up period and within the 18-month period following the distribution, subject to market conditions. Any shares not disposed of by Arconic during such 18-month period will be sold or otherwise disposed of by Arconic consistent with the business reasons for the retention of those shares, but in no event later than five years after the distribution.

On September 29, 2016, the ParentCo Board of Directors approved the distribution of Alcoa Corporation’s issued and outstanding shares of common stock on the basis of one share of Alcoa Corporation common stock for every three shares of ParentCo common stock held as of the close of business on October 20, 2016, the record date for the distribution, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date, or one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock held as of the close of business on such date, if the previously-announced reverse stock split is not effected.

Alcoa Corporation’s Post-Separation Relationship with Arconic

Alcoa Corporation will enter into a separation and distribution agreement with ParentCo (the “separation agreement”). In connection with the separation, we will also enter into various other agreements to effect the separation and provide a framework for our relationship with Arconic after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, a stockholder and registration rights agreement with respect to Arconic’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement relating to North American packaging business. These agreements will provide for the allocation between Alcoa Corporation and Arconic of ParentCo’s assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after our separation from ParentCo and will govern certain relationships between us and Arconic after the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections entitled “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Party Transactions.” For additional information regarding the internal reorganization, see the section entitled, “The Separation and Distribution—Internal Reorganization.”

 



 

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Reasons for the Separation

The ParentCo Board of Directors believes that separating its Alcoa Corporation Business from its Arconic Business is in the best interests of ParentCo and its shareholders for a number of reasons, including:

 

    Management Focus on Core Business and Distinct Opportunities . The separation will permit each company to more effectively pursue its own distinct operating priorities and strategies, and will enable the management teams of each company to focus on strengthening its core business, unique operating and other needs, and pursue distinct and targeted opportunities for long-term growth and profitability.

 

    Allocation of Financial Resources and Separate Capital Structures.  The separation will permit each company to allocate its financial resources to meet the unique needs of its own business, which will allow each company to intensify its focus on its distinct strategic priorities. The separation will also allow each business to more effectively pursue its own distinct capital structures and capital allocation strategies.

 

    Targeted Investment Opportunity.  The separation will allow each company to more effectively articulate a clear investment thesis to attract a long-term investor base suited to its business, and will facilitate each company’s access to capital by providing investors with two distinct and targeted investment opportunities.

 

    Creation of Independent Equity Currencies.   The separation will create two independent equity securities, affording Alcoa Corporation and Arconic direct access to the capital markets and enabling each company to use its own industry-focused stock to consummate future acquisitions or other restructuring transactions. As a result, each company will have more flexibility to capitalize on its unique strategic opportunities.

 

    Employee Incentives, Recruitment and Retention.  The separation will allow each company to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely reflects and aligns management and employee incentives with specific growth objectives, financial goals and business performance. In addition, the separation will allow incentive structures and targets at each company to be better aligned with each underlying business. Similarly, recruitment and retention will be enhanced by more consistent talent requirements across the businesses, allowing both recruiters and applicants greater clarity and understanding of talent needs and opportunities associated with the core business activities, principles and risks of each company.

 

    Other Business Rationale.  The separation will separate and simplify the structures currently required to manage two distinct and differing underlying businesses. These differences include exposure to industry cycles, manufacturing and procurement methods, customer base, research and development activities, and overhead structures.

The ParentCo Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:

 

    Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; and following the separation, we may be more susceptible to market fluctuations, including fluctuations in commodities prices, and other adverse events than if we were still a part of ParentCo because our business will be less diversified than ParentCo’s business prior to the completion of the separation.

 

   

Loss of Scale and Increased Administrative Costs. As a current part of ParentCo, Alcoa Corporation takes advantage of ParentCo’s size and purchasing power in procuring certain goods and services.

 



 

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After the separation, as a standalone company, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those ParentCo obtained prior to completion of the separation. In addition, as a part of ParentCo, Alcoa Corporation benefits from certain functions performed by ParentCo, such as accounting, tax, legal, human resources and other general and administrative functions. After the separation, Arconic will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.

 

    Disruptions and Costs Related to the Separation. The actions required to separate Arconic’s and Alcoa Corporation’s respective businesses could disrupt our operations.   In addition, we will incur substantial costs in connection with the separation and the transition to being a standalone public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Alcoa Corporation, tax costs and costs to separate information systems.

 

    Limitations on Strategic Transactions.  Under the terms of the tax matters agreement that we will enter into with ParentCo, we will be restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.

 

    Uncertainty Regarding Stock Prices.   We cannot predict the effect of the separation on the trading prices of Alcoa Corporation or Arconic common stock or know with certainty whether the combined market value of one share of our common stock and three shares of Arconic common stock (assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date) will be less than, equal to or greater than the market value of one share of ParentCo common stock prior to the distribution.

In determining to pursue the separation, the ParentCo Board of Directors concluded the potential benefits of the separation outweighed the foregoing factors. See the sections entitled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Reasons for Arconic’s Retention of Up to 19.9% of Alcoa Corporation Shares

In considering the appropriate structure for the separation, ParentCo determined that, immediately after the distribution becomes effective, Arconic will own no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation. In light of recent volatile commodity market conditions and conditions in the high-yield debt market, Arconic’s retention of Alcoa Corporation shares positions both companies with appropriate capital structures, liquidity, and financial flexibility and resources that support their individual business strategies. The retention enables Alcoa Corporation to be separated with low leverage, and thus significant flexibility to manage through future market cycles. At the same time, the retention reduces Arconic’s reliance on Alcoa Corporation raising debt in the current high-yield market environment to fund payments to Arconic to optimize its own capital structure. The retention of Alcoa Corporation shares strengthens Arconic’s balance sheet by providing Arconic a liquid security that can be monetized or exchanged to accelerate debt reduction and/or fund future growth initiatives, thereby facilitating an appropriate capital structure and financial flexibility necessary for Arconic to execute its growth strategy. Arconic’s retained interest shows confidence in the future of Alcoa Corporation and will allow Arconic’s balance sheet to benefit from any near-term improvements in commodity markets. Arconic intends to responsibly dispose of any Alcoa Corporation common stock that it retains after the distribution, which may include dispositions through one or more subsequent exchanges for debt or equity or a sale of its shares for cash, after a 60-day lock-up period and within the 18-month period following the

 



 

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distribution, subject to market conditions. Any shares not disposed of by Arconic during such 18-month period will be sold or otherwise disposed of by Arconic consistent with the business reasons for the retention of those shares, but in no event later than five years after the distribution. ParentCo intends to continue to monitor market conditions in the commodity and high-yield debt market, and to assess the impact of each on the ultimate structure of the separation.

Corporate Information

Alcoa Corporation was incorporated in Delaware for the purpose of holding ParentCo’s Alcoa Corporation Business in connection with the separation and distribution described herein. Prior to the transfer of these businesses to us by ParentCo, which will occur prior to the distribution, Alcoa Corporation will have no operations. The address of our principal executive offices will be 390 Park Avenue, New York, New York 10022-4608. Our telephone number after the distribution will be [            ]. We will maintain an Internet site at www. alcoa.com Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to ParentCo shareholders who will receive shares of Alcoa Corporation common stock in the distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of Alcoa Corporation’s securities. The information contained in this information statement is believed by Alcoa Corporation to be accurate as of the date set forth on its cover. Changes may occur after that date and neither ParentCo nor Alcoa Corporation will update the information except as may be required in the normal course of their respective disclosure obligations and practices.

 



 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA

COMBINED FINANCIAL DATA

The following summary financial data reflects the combined operations of Alcoa Corporation. We derived the summary combined income statement data for the years ended December 31, 2015, 2014, and 2013, and summary combined balance sheet data as of December 31, 2015 and 2014, as set forth below, from our audited Combined Financial Statements, which are included in the “Index to Financial Statements” section of this information statement. We derived the summary combined income statement data for the six months ended June 30, 2016 and 2015, and summary combined balance sheet data as of June 30, 2016, as set forth below, from our unaudited Combined Financial Statements, included elsewhere in this information statement. The historical results do not necessarily indicate the results expected for any future period.

The summary unaudited pro forma combined financial data for the year ended December 31, 2015, and for the six months ended June 30, 2016 has been prepared to reflect the separation, including the incurrence by a subsidiary of Alcoa Corporation of indebtedness of approximately $1,250 million. The outstanding indebtedness of Alcoa Corporation and its combined subsidiaries is expected to total $1,463 million. The Unaudited Pro Forma Statement of Combined Operations Data presented for the year ended December 31, 2015 and the six months ended June 30, 2016, assumes the separation occurred on January 1, 2015. The Unaudited Pro Forma Combined Balance Sheet as of June 30, 2016, assumes the separation occurred on June 30, 2016. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.

The Unaudited Pro Forma Combined Condensed Financial Statements are not necessarily indicative of our results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. They may not reflect the results of operations or financial condition that would have resulted had we been operating as a standalone, publicly traded company during such periods. In addition, they are not necessarily indicative of our future results of operations or financial condition.

You should read this summary financial data together with “Unaudited Pro Forma Combined Condensed Financial Statements,” “Capitalization,” “Selected Historical Combined Financial Data of Alcoa Corporation,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Combined Financial Statements and accompanying notes included elsewhere in this information statement.

 

    As of and for the six months
ended June 30,
    As of and for the year ended December 31,  
    Pro forma
2016
    2016     2015     Pro forma
2015
    2015     2014     2013  
(dollars in millions, except realized prices;
shipments in thousands of metric tons (kmt))
                                         

Sales

  $ 4,452      $ 4,452      $ 6,069      $ 11,199      $ 11,199      $ 13,147      $ 12,573   

Amounts attributable to Alcoa Corporation:

             

Net (loss) income

  $ (147   $ (265   $ 69      $ (600   $ (863   $ (256   $ (2,909
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shipments of alumina (kmt)

    4,434        4,434        5,244        10,755        10,755        10,652        9,966   

Shipments of aluminum (kmt)

    1,534        1,534        1,612        3,227        3,227        3,518        3,742   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Alcoa Corporation’s average realized price per metric ton of primary aluminum

  $ 1,835      $ 1,835      $ 2,331      $ 2,092      $ 2,092      $ 2,396      $ 2,280   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 16,674      $ 16,374      $ 17,969        N/A      $ 16,413      $ 18,680      $ 21,126   

Total debt

  $ 1,463      $ 255      $ 282        N/A      $ 225      $ 342      $ 420   

 



 

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RISK FACTORS

You should carefully consider the following risks and other information in this information statement in evaluating Alcoa Corporation and its common stock. Any of the following risks and uncertainties could materially adversely affect our business, financial condition or results of operations. The risk factors generally have been separated into four groups: risks related to our business, risks related to the separation, risks related to our common stock and risks related to our indebtedness.

Risks Related to Our Business

The aluminum industry and aluminum end-use markets are highly cyclical and are influenced by a number of factors, including global economic conditions.

The aluminum industry generally is highly cyclical, and we are subject to cyclical fluctuations in global economic conditions and aluminum end-use markets. The demand for aluminum is sensitive to, and quickly impacted by, demand for the finished goods manufactured by our customers in industries that are cyclical, such as the commercial construction and transportation, automotive, and aerospace industries, which may change as a result of changes in the global economy, currency exchange rates, energy prices or other factors beyond our control. The demand for aluminum is highly correlated to economic growth. For example, the European sovereign debt crisis that began in late 2009 had an adverse effect on European demand for aluminum and aluminum products. The Chinese market is a significant source of global demand for, and supply of, commodities, including aluminum. A sustained slowdown in China’s economic growth and aluminum demand, or a significant slowdown in other markets, that is not offset by decreases in supply of aluminum or increased aluminum demand in emerging economies, such as India, Brazil, and several South East Asian countries, could have an adverse effect on the global supply and demand for aluminum and aluminum prices.

While we believe the long-term prospects for aluminum and aluminum products are positive, we are unable to predict the future course of industry variables or the strength of the global economy and the effects of government intervention. Negative economic conditions, such as a major economic downturn, a prolonged recovery period, a downturn in the commodity sector, or disruptions in the financial markets, could have a material adverse effect on our business, financial condition or results of operations.

While the aluminum market is often the leading cause of changes in the alumina and bauxite markets, those markets also have industry-specific risks including, but not limited to, global freight markets, energy markets, and regional supply-demand imbalances. The aluminum industry specific risks can have a material effect on profitability for the alumina and bauxite markets.

We could be materially adversely affected by declines in aluminum prices, including global, regional and product-specific prices.

The overall price of primary aluminum consists of several components: (i) the underlying base metal component, which is typically based on quoted prices from the London Metal Exchange (the “LME”); (ii) the regional premium, which comprises the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and (iii) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., coil, billet, slab, rod, etc.) or alloy. Each of the above three components has its own drivers of variability. The LME price is typically driven by macroeconomic factors, global supply and demand of aluminum (including expectations for growth and contraction and the level of global inventories), and trading activity of financial investors. An imbalance in global supply and demand of aluminum, such as decreasing demand without corresponding supply declines, could have a negative impact on aluminum pricing. Speculative trading in aluminum and the influence of hedge funds and other financial institutions participating in commodity markets have also increased in recent years, contributing to higher levels of price volatility. In 2015, the cash

 

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LME price of aluminum reached a high of $1,919 per metric ton and a low of $1,424 per metric ton. High LME inventories, or the release of substantial inventories into the market, could lead to a reduction in the price of aluminum. Declines in the LME price have had a negative impact on our results of operations. Additionally, our results could be adversely affected by decreases in regional premiums that participants in the physical metal market pay for immediate delivery of aluminum. Regional premiums tend to vary based on the supply of and demand for metal in a particular region and associated transportation costs. LME warehousing rules and surpluses have caused regional premiums to decrease, which would have a negative impact on our results of operations. Product premiums generally are a function of supply and demand for a given primary aluminum shape and alloy combination in a particular region. A sustained weak LME aluminum pricing environment, deterioration in LME aluminum prices, or a decrease in regional premiums or product premiums could have a material adverse effect on our business, financial condition, and results of operations or cash flow.

Most of our alumina contracts contain two pricing components: (1) the API price basis and (2) a negotiated adjustment basis that takes into account various factors, including freight, quality, customer location and market conditions. Because the API component can exhibit significant volatility due to market exposure, revenue associated with our alumina operations are exposed to market pricing. Our bauxite-related contracts are typically one to two-year contracts with very little, if any, market exposure; however, we intend to enter into long-term bauxite contracts and therefore, our revenue associated with our bauxite operations may become further exposed to market pricing.

Changes to LME warehousing rules could cause aluminum prices to decrease.

Since 2013, the LME has been engaged in a program aimed at reforming the rules under which registered warehouses in its global network operate. The initial rule changes took effect on February 1, 2015, and the LME has announced additional changes that will be implemented in 2016. These rule changes, and any subsequent changes the exchange chooses to make, could impact the supply/demand balance in the primary aluminum physical market and may impact regional delivery premiums and LME aluminum prices. Decreases in regional delivery premiums and/or decreases in LME aluminum prices could have a material adverse effect on our business, financial condition, and results of operations or cash flow.

We may not be able to realize the expected benefits from our strategy of creating a lower cost, competitive commodity business by optimizing our portfolio.

We are continuing to execute a strategy of creating a lower cost, competitive integrated aluminum production business by optimizing our portfolio. We are creating a competitive standalone business by taking decisive actions to lower the cost base of our upstream operations, including closing, selling or curtailing high-cost global smelting capacity, optimizing alumina refining capacity, and pursuing the sale of our interest in certain other operations.

We have made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow or streamline our portfolio. There is no assurance that anticipated benefits of our strategic actions will be realized. With respect to portfolio optimization actions such as divestitures, curtailments and closures, we may face barriers to exit from unprofitable businesses or operations, including high exit costs or objections from various stakeholders. In addition, we may incur unforeseen liabilities for divested entities if a buyer fails to honor all commitments. Our business operations are capital intensive, and curtailment or closure of operations or facilities may include significant charges, including employee separation costs, asset impairment charges and other measures. There can be no assurance that divestitures or closures will be undertaken or completed in their entirety as planned or that they will be beneficial to the company.

Market-driven balancing of global aluminum supply and demand may be disrupted by non-market forces or other impediments to production closures.

In response to market-driven factors relating to the global supply and demand of aluminum and alumina, we have curtailed or closed portions of our aluminum and alumina production capacity. Certain other industry producers have independently undertaken to reduce production as well. Reductions in production may be delayed or impaired by the terms of long-term contracts to buy power or raw materials.

 

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The existence of non-market forces on global aluminum industry capacity, such as political pressures in certain countries to keep jobs or to maintain or further develop industry self-sufficiency, may prevent or delay the closure or curtailment of certain producers’ smelters, irrespective of their position on the industry cost curve. For example, continued Chinese excess capacity overhanging the market and increased exports from China of heavily subsidized aluminum products may continue to materially disrupt world aluminum markets causing continued pricing deterioration.

If industry overcapacity persists due to the disruption by such non-market forces on the market-driven balancing of the global supply and demand of aluminum, the resulting weak pricing environment and margin compression may adversely affect the operating results of the company.

Our operations consume substantial amounts of energy; profitability may decline if energy costs rise or if energy supplies are interrupted.

Our operations consume substantial amounts of energy. Although we generally expect to meet the energy requirements for our alumina refineries and primary aluminum smelters from internal sources or from long-term contracts, certain conditions could negatively affect our results of operations, including the following:

 

    significant increases in electricity costs rendering smelter operations uneconomic;

 

    significant increases in fuel oil or natural gas prices;

 

    unavailability of electrical power or other energy sources due to droughts, hurricanes or other natural causes;

 

    unavailability of energy due to local or regional energy shortages resulting in insufficient supplies to serve consumers;

 

    interruptions in energy supply or unplanned outages due to equipment failure or other causes;

 

    curtailment of one or more refineries or smelters due to the inability to extend energy contracts upon expiration or to negotiate new arrangements on cost-effective terms or due to the unavailability of energy at competitive rates; or

 

    curtailment of one or more smelters due to discontinuation of power supply interruptibility rights granted to us under an interruptibility regime in place under the laws of the country in which the smelter is located, or due to a determination that such arrangements do not comply with applicable laws, thus rendering the smelter operations that had been relying on such country’s interruptibility regime uneconomic.

If events such as those listed above were to occur, the resulting high energy costs or the disruption of an energy source or the requirement to repay all or a portion of the benefit we received under a power supply interruptibility regime could have a material adverse effect on our business and results of operations.

Our global operations expose us to risks that could adversely affect our business, financial condition, operating results or cash flows.

We have operations or activities in numerous countries and regions outside the United States, including Australia, Brazil, Canada, Europe, Guinea, and the Kingdom of Saudi Arabia. The company’s global operations are subject to a number of risks, including:

 

    economic and commercial instability risks, including those caused by sovereign and private debt default, corruption, and changes in local government laws, regulations and policies, such as those related to tariffs and trade barriers, taxation, exchange controls, employment regulations and repatriation of earnings;

 

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    geopolitical risks, such as political instability, civil unrest, expropriation, nationalization of properties by a government, imposition of sanctions, changes to import or export regulations and fees, renegotiation or nullification of existing agreements, mining leases and permits;

 

    war or terrorist activities;

 

    major public health issues, such as an outbreak of a pandemic or epidemic (such as Sudden Acute Respiratory Syndrome, Avian Influenza, H7N9 virus, the Ebola virus or the Zika virus), which could cause disruptions in our operations or workforce;

 

    difficulties enforcing intellectual property and contractual rights in certain jurisdictions; and

 

    unexpected events, including fires or explosions at facilities, and natural disasters.

While the impact of any of the foregoing factors is difficult to predict, any one or more of them could adversely affect our business, financial condition, operating results or cash flows. Existing insurance arrangements may not provide protection for the costs that may arise from such events.

Our global operations expose us to various legal and regulatory systems, and changes in conditions beyond our control in foreign countries.

In addition to the business risks inherent in operating outside the United States, legal and regulatory systems may be less developed and predictable and the possibility of various types of adverse governmental action more pronounced. For example, we have several state agreements with the government of Western Australia that establish and govern our alumina refining activities in Western Australia. Unexpected or uncontrollable events or circumstances in any of these foreign markets, including actions by foreign governments such as changes in fiscal regimes, termination of our agreements with foreign governments or increased government regulation could materially and adversely affect our business, financial condition, results of operations or cash flows.

We face significant competition, which may have an adverse effect on profitability.

Alcoa Corporation competes with a variety of both U.S. and non-U.S. aluminum industry competitors. Alcoa Corporation’s metals also compete with other materials, such as steel, titanium, plastics, composites, ceramics, and glass, among others. Technological advancements or other developments by or affecting Alcoa Corporation’s competitors or customers could affect Alcoa Corporation’s results of operations. In addition, Alcoa Corporation’s competitive position depends, in part, on its ability to leverage its innovation expertise across its businesses and key end markets and having access to an economical power supply to sustain its operations in various countries. See “Business—Competition.”

Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend operations with respect to those industries, which could result in our recording asset impairment charges or taking other measures that may adversely affect our results of operations and profitability.

Our business operations are capital intensive, and we devote a significant amount of capital to certain industries. If there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend our operations with respect to those industries, including laying-off employees, recording asset impairment charges and other measures. In addition, we may not realize the benefits or expected returns from announced plans, programs, initiatives and capital investments. Any of these events could adversely affect our results of operations and profitability.

 

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Our business and growth prospects may be negatively impacted by limits in our capital expenditures.

We require substantial capital to invest in growth opportunities and to maintain and prolong the life and capacity of our existing facilities. Insufficient cash generation or capital project overruns may negatively impact our ability to fund as planned our sustaining and return-seeking capital projects. We may also need to address commercial and political issues in relation to reductions in capital expenditures in certain of the jurisdictions in which we operate. If our interest in our joint ventures is diluted or we lose key concessions, our growth could be constrained. Any of the foregoing could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our capital resources may not be adequate to provide for all of our cash requirements, and we are exposed to risks associated with financial, credit, capital and banking markets.

In the ordinary course of business, we expect to seek to access competitive financial, credit, capital and/or banking markets. Currently, we believe we have adequate access to these markets to meet our reasonably anticipated business needs based on our historic financial performance, as well as our expected continued strong financial position. To the extent our access to competitive financial, credit, capital and/or banking markets was to be impaired, our operations, financial results and cash flows could be adversely impacted.

Deterioration in our credit profile could increase our costs of borrowing money and limit our access to the capital markets and commercial credit.

We expect to request that the major credit rating agencies evaluate our creditworthiness and give us specified credit ratings. These ratings would be based on a number of factors, including our financial strength and financial policies as well as our strategies, operations and execution. These credit ratings are limited in scope, and do not address all material risks related to investment in us, but rather reflect only the view of each rating agency at the time the rating is issued. Nonetheless, the credit ratings we receive will impact our borrowing costs as well as our access to sources of capital on terms that will be advantageous to our business. Failure to obtain sufficiently high credit ratings could adversely affect the interest rate in future financings, our liquidity or our competitive position and could also restrict our access to capital markets. In addition, our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. If a rating agency were to downgrade our rating, our borrowing costs would increase, and our funding sources could decrease. As a result of these factors, a downgrade of our credit ratings could have a materially adverse impact on our future operations and financial position.

We may not realize expected benefits from our productivity and cost-reduction initiatives.

We have undertaken, and may continue to undertake, productivity and cost-reduction initiatives to improve performance and conserve cash, including procurement strategies for raw materials, labor productivity, improving operating performance, deployment of company-wide business process models, such as our degrees of implementation process in which ideas are executed in a disciplined manner to generate savings, and overhead cost reductions. There is no assurance that these initiatives will be successful or beneficial to us or that estimated cost savings from such activities will be realized.

Cyber attacks and security breaches may threaten the integrity of our intellectual property and other sensitive information, disrupt our business operations, and result in reputational harm and other negative consequences that could have a material adverse effect on our financial condition and results of operations.

We face global cybersecurity threats, which may range from uncoordinated individual attempts to sophisticated and targeted measures, known as advanced persistent threats, directed at the company. Cyber attacks and security breaches may include, but are not limited to, attempts to access information, computer viruses, denial of service and other electronic security breaches.

 

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We believe that we face a heightened threat of cyber attacks due to the industries we serve and the locations of our operations. We have experienced cybersecurity attacks in the past, including breaches of our information technology systems in which information was taken, and may experience them in the future, potentially with more frequency or sophistication. Based on information known to date, past attacks have not had a material impact on our financial condition or results of operations. However, due to the evolving nature of cybersecurity threats, the scope and impact of any future incident cannot be predicted. While the company continually works to safeguard our systems and mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyber attacks or security breaches that manipulate or improperly use our systems or networks, compromise confidential or otherwise protected information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business, potential liability and increased remediation costs, any of which could have a material adverse effect on our financial condition and results of operations. In addition, such attacks or breaches could require significant management attention and resources, and result in the diminution of the value of our investment in research and development.

Our profitability could be adversely affected by increases in the cost of raw materials, by significant lag effects of decreases in commodity or LME-linked costs or by large or sudden shifts in the global inventory of aluminum and the resulting market price impacts.

Our results of operations are affected by changes in the cost of raw materials, including energy, carbon products, caustic soda and other key inputs, as well as freight costs associated with transportation of raw materials to refining and smelting locations. We may not be able to fully offset the effects of higher raw material costs or energy costs through price increases, productivity improvements or cost reduction programs. Similarly, our operating results are affected by significant lag effects of declines in key costs of production that are commodity or LME-linked. For example, declines in the costs of alumina and power during a particular period may not be adequate to offset sharp declines in metal price in that period. We could also be adversely affected by large or sudden shifts in the global inventory of aluminum and the resulting market price impacts. Increases in the cost of raw materials or decreases in input costs that are disproportionate to concurrent sharper decreases in the price of aluminum, or shifts in global inventory of aluminum that result in changes to market prices, could have a material adverse effect on our operating results.

Joint ventures and other strategic alliances may not be successful.

We participate in joint ventures and have formed strategic alliances and may enter into other similar arrangements in the future. For example, Alcoa World Alumina and Chemicals (AWAC) is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited. AWAC consists of a number of affiliated entities, which own, operate or have an interest in, bauxite mines and alumina refineries, as well as certain aluminum smelters, in seven countries. In addition, Alcoa Corporation is party to a joint venture with Ma’aden, the Saudi Arabian Mining Company, to develop a fully integrated aluminum complex (including a bauxite mine, alumina refinery, aluminum smelter and rolling mill) in the Kingdom of Saudi Arabia. Although the company has, in connection with these and our other existing joint ventures and strategic alliances, sought to protect our interests, joint ventures and strategic alliances inherently involve special risks. Whether or not the company holds majority interests or maintains operational control in such arrangements, our partners may:

 

    have economic or business interests or goals that are inconsistent with or opposed to those of the company;

 

    exercise veto rights so as to block actions that we believe to be in our or the joint venture’s or strategic alliance’s best interests;

 

    take action contrary to our policies or objectives with respect to our investments; or

 

    as a result of financial or other difficulties, be unable or unwilling to fulfill their obligations under the joint venture, strategic alliance or other agreements, such as contributing capital to expansion or maintenance projects.

 

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There can be no assurance that our joint ventures or strategic alliances will be beneficial to us, whether due to the above-described risks, unfavorable global economic conditions, increases in construction costs, currency fluctuations, political risks, or other factors.

We could be adversely affected by changes in the business or financial condition of a significant customer or joint venture partner.

A significant downturn or deterioration in the business or financial condition of a key customer or joint venture partner could affect our results of operations in a particular period. Our customers may experience delays in the launch of new products, labor strikes, diminished liquidity or credit unavailability, weak demand for their products or other difficulties in their businesses. If we are not successful in replacing business lost from such customers, profitability may be adversely affected. Our joint venture partners could be rendered unable to contribute their share of operating or capital costs, having an adverse impact on our business.

Customer concentration and supplier capacity in the Rolled Products segment could adversely impact margins.

Our Rolled Products segment primarily serves the North American aluminum food and beverage can and bottle markets. Four aluminum can and bottle manufacturers comprise over 90% of the aluminum beverage can and bottle market; Rolled Products competes with both domestic and foreign sheet rolling mills to supply these manufacturers. In this segment, customers tend to sign multiple year supply contracts for the vast majority of their requirements. Our customer mix reflects industry concentrations and norms; loss of existing customers or renegotiated pricing on new contracts could adversely affect both operating levels and profitability.

An adverse decline in the liability discount rate, lower-than-expected investment return on pension assets and other factors could affect our results of operations or amount of pension funding contributions in future periods.

Our results of operations may be negatively affected by the amount of expense we record for our pension and other post-retirement benefit plans, reductions in the fair value of plan assets and other factors. U.S. generally accepted accounting principles (“GAAP”) require that we calculate income or expense for our plans using actuarial valuations.

These valuations reflect assumptions about financial market and other economic conditions, which may change based on changes in key economic indicators. The most significant year-end assumptions used by the company to estimate pension or other postretirement benefit income or expense for the following year are the discount rate applied to plan liabilities and the expected long-term rate of return on plan assets. In addition, the company is required to make an annual measurement of plan assets and liabilities, which may result in a significant charge to shareholders’ equity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Pension and Other Postretirement Benefits” and Note W to the Combined Financial Statements under the caption “Pension and Other Postretirement Benefits.” Although GAAP expense and pension funding contributions are impacted by different regulations and requirements, the key economic factors that affect GAAP expense would also likely affect the amount of cash or securities we would contribute to the pension plans.

Potential pension contributions include both mandatory amounts required under federal law and discretionary contributions to improve the plans’ funded status. The Moving Ahead for Progress in the 21st Century Act (“MAP-21”), enacted in 2012, provided temporary relief for employers like the company who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974 by allowing the use of a 25-year average discount rate within an upper and lower range for purposes of determining minimum funding obligations. In 2014, the Highway and Transportation Funding Act (“HATFA”) was signed into law. HATFA extended the relief provided by MAP-21 and modified the interest

 

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rates that had been set by MAP-21. In 2015, the Bipartisan Budget Act of 2015 (BBA 2015) was enacted, which extends the relief period provided by HAFTA. We believe that the relief provided by BBA 2015 will moderately reduce the cash flow sensitivity of the company’s U.S. pension plans’ funded status to potential declines in discount rates over the next several years. However, higher than expected pension contributions due to a decline in the plans’ funded status as a result of declines in the discount rate or lower-than-expected investment returns on plan assets could have a material negative effect on our cash flows. Adverse capital market conditions could result in reductions in the fair value of plan assets and increase our liabilities related to such plans, adversely affecting our liquidity and results of operations.

We are exposed to fluctuations in foreign currency exchange rates and interest rates, as well as inflation, and other economic factors in the countries in which we operate.

Economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, competitive factors in the countries in which we operate, and continued volatility or deterioration in the global economic and financial environment could affect our revenues, expenses and results of operations. Changes in the valuation of the U.S. dollar against other currencies, particularly the Australian dollar, Brazilian real, Canadian dollar, Euro and Norwegian kroner, may affect our profitability as some important inputs are purchased in other currencies, while our products are generally sold in U.S. dollars. In addition, although a strong U.S. dollar generally has a positive impact on our near-term profitability, over a longer term, a strong U.S. dollar may have an unfavorable impact on our position on the global aluminum cost curve due to the company’s U.S. smelting portfolio. As the U.S. dollar strengthens, the cost curve shifts down for smelters outside the United States but costs for our U.S. smelting portfolio may not decline.

Weakness in global economic conditions or in any of the industries or geographic regions in which we or our customers operate, as well as the cyclical nature of our customers’ businesses generally or sustained uncertainty in financial markets, could adversely impact our revenues and profitability by reducing demand and margins.

Our results of operations may be materially affected by the conditions in the global economy generally and in global capital markets. There has been extreme volatility in the capital markets and in the end markets and geographic regions in which we or our customers operate, which has negatively affected our revenues. Many of the markets in which our customers participate are also cyclical in nature and experience significant fluctuations in demand for our products based on economic conditions, consumer demand, raw material and energy costs, and government actions. Many of these factors are beyond our control.

A decline in consumer and business confidence and spending, together with severe reductions in the availability and cost of credit, as well as volatility in the capital and credit markets, could adversely affect the business and economic environment in which we operate and the profitability of our business. We are also exposed to risks associated with the creditworthiness of our suppliers and customers. If the availability of credit to fund or support the continuation and expansion of our customers’ business operations is curtailed or if the cost of that credit is increased, the resulting inability of our customers or of their customers to either access credit or absorb the increased cost of that credit could adversely affect our business by reducing our sales or by increasing our exposure to losses from uncollectible customer accounts. These conditions and a disruption of the credit markets could also result in financial instability of some of our suppliers and customers. The consequences of such adverse effects could include the interruption of production at the facilities of our customers, the reduction, delay or cancellation of customer orders, delays or interruptions of the supply of raw materials we purchase, and bankruptcy of customers, suppliers or other creditors. Any of these events could adversely affect our profitability, cash flow and financial condition.

 

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Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our future profitability.

We are subject to income taxes in both the United States and various non-U.S. jurisdictions. Our domestic and international tax liabilities are dependent upon the distribution of income among these different jurisdictions. Changes in applicable domestic or foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect the company’s tax expense and profitability. Our tax expense includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions. The assumptions include assessments of future earnings of the company that could impact the valuation of our deferred tax assets. Our future results of operations could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the company, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, the results of tax audits and examinations of previously filed tax returns or related litigation and continuing assessments of our tax exposures. Corporate tax reform and tax law changes continue to be analyzed in the United States and in many other jurisdictions. Significant changes to the U.S. corporate tax system in particular could have a substantial impact, positive or negative, on our effective tax rate, cash tax expenditures and deferred tax assets and liabilities.

We may be exposed to significant legal proceedings, investigations or changes in U.S. federal, state or foreign law, regulation or policy.

Our results of operations or liquidity in a particular period could be affected by new or increasingly stringent laws, regulatory requirements or interpretations, or outcomes of significant legal proceedings or investigations adverse to the company. We may experience a change in effective tax rates or become subject to unexpected or rising costs associated with business operations or provision of health or welfare benefits to employees due to changes in laws, regulations or policies. We are also subject to a variety of legal compliance risks. These risks include, among other things, potential claims relating to product liability, health and safety, environmental matters, intellectual property rights, government contracts, taxes and compliance with U.S. and foreign export laws, anti-bribery laws, competition laws and sales and trading practices. We could be subject to fines, penalties, damages (in certain cases, treble damages), or suspension or debarment from government contracts. In addition, if we violate the terms of our agreements with governmental authorities, we may face additional monetary sanctions and such other remedies as a court deems appropriate.

While we believe we have adopted appropriate risk management and compliance programs to address and reduce these risks, the global and diverse nature of our operations means that these risks will continue to exist, and additional legal proceedings and contingencies may arise from time to time. In addition, various factors or developments can lead the company to change current estimates of liabilities or make such estimates for matters previously not susceptible of reasonable estimates, such as a significant judicial ruling or judgment, a significant settlement, significant regulatory developments or changes in applicable law. A future adverse ruling or settlement or unfavorable changes in laws, regulations or policies, or other contingencies that the company cannot predict with certainty could have a material adverse effect on our results of operations or cash flows in a particular period. See “Business—Legal Proceedings” and Note A under the caption “Litigation Matters” and Note N under the caption “Contingencies and Commitments—Contingencies—Litigation” to the Combined Financial Statements.

We are subject to a broad range of health, safety and environmental laws and regulations in the jurisdictions in which we operate and may be exposed to substantial costs and liabilities associated with such laws and regulations.

Our operations worldwide are subject to numerous complex and increasingly stringent health, safety and environmental laws and regulations. The costs of complying with such laws and regulations, including

 

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participation in assessments and cleanups of sites, as well as internal voluntary programs, are significant and will continue to be so for the foreseeable future. Environmental laws may impose cleanup liability on owners and occupiers of contaminated property, including past or divested properties, regardless of whether the owners and occupiers caused the contamination or whether the activity that caused the contamination was lawful at the time it was conducted. Environmental matters for which we may be liable may arise in the future at our present sites, where no problem is currently known, at previously owned sites, at sites previously operated by the company, at sites owned by our predecessors or at sites that we may acquire in the future. Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. Our results of operations or liquidity in a particular period could be affected by certain health, safety or environmental matters, including remediation costs and damages related to certain sites. Additionally, evolving regulatory standards and expectations can result in increased litigation and/or increased costs, all of which can have a material and adverse effect on earnings and cash flows.

Climate change, climate change legislation or regulations and greenhouse effects may adversely impact our operations and markets.

Energy is a significant input in a number of our operations. There is growing recognition that consumption of energy derived from fossil fuels is a contributor to global warming.

A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change. There is also current and emerging regulation, such as the mandatory renewable energy target in Australia, Québec’s transition to a “cap and trade” system, the European Union Emissions Trading Scheme and the United States’ clean power plan, which became effective on December 22, 2015. We will likely see changes in the margins of greenhouse gas-intensive assets and energy-intensive assets as a result of regulatory impacts in the countries in which we operate. These regulatory mechanisms may be either voluntary or legislated and may impact our operations directly or indirectly through customers or our supply chain. Inconsistency of regulations may also change the attractiveness of the locations of some of the company’s assets. Assessments of the potential impact of future climate change legislation, regulation and international treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which we operate. We may realize increased capital expenditures resulting from required compliance with revised or new legislation or regulations, costs to purchase or profits from sales of, allowances or credits under a “cap and trade” system, increased insurance premiums and deductibles as new actuarial tables are developed to reshape coverage, a change in competitive position relative to industry peers and changes to profit or loss arising from increased or decreased demand for goods produced by the company and, indirectly, from changes in costs of goods sold.

The potential physical impacts of climate change on the company’s operations are highly uncertain, and will be particular to the geographic circumstances. These may include changes in rainfall patterns, shortages of water or other natural resources, changing sea levels, changing storm patterns and intensities, and changing temperature levels. These effects may adversely impact the cost, production and financial performance of our operations.

Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us.

We may be subject to claims under federal and state statutes and/or common law doctrines for toxic torts and other damages as well as for natural resource damages and the investigation and clean-up of soil, surface water, groundwater, and other media under laws such as the federal Comprehensive Environmental Response, Compensation and Liabilities Act (CERCLA, commonly known as Superfund). Such claims may arise, for example, out of current or former conditions at sites that we own or operate currently, as well as at sites that we and companies we acquired owned or operated in the past, and at contaminated sites that have always been owned or operated by third parties. Liability may be without regard to fault and may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share.

 

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These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us.

Loss of key personnel may adversely affect our business.

Our success greatly depends on the performance of our executive management team. The loss of the services of any member of our executive management team or other key persons could have a material adverse effect on our business, results of operations and financial condition.

Union disputes and other employee relations issues could adversely affect our financial results.

A significant portion of our employees are represented by labor unions in a number of countries under various collective bargaining agreements with varying durations and expiration dates. See “Business—Employees.” We may not be able to satisfactorily renegotiate collective bargaining agreements when they expire. In addition, existing collective bargaining agreements may not prevent a strike or work stoppage at our facilities in the future. We may also be subject to general country strikes or work stoppages unrelated to our business or collective bargaining agreements. Any such work stoppages (or potential work stoppages) could have a material adverse effect on our financial results.

Risks Related to the Separation

We have no recent history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.

The historical information about Alcoa Corporation in this information statement refers to Alcoa Corporation’s businesses as operated by and integrated with ParentCo. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of ParentCo. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:

 

    Generally, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, have historically been satisfied as part of the corporate-wide cash management policies of ParentCo. Following the completion of the separation, our results of operations and cash flows are likely to be more volatile and we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.

 

    Prior to the separation, our business has been operated by ParentCo as part of its broader corporate organization, rather than as an independent company. ParentCo or one of its affiliates performed various corporate functions for us, such as legal, treasury, accounting, auditing, human resources, investor relations, and finance. Our historical and pro forma financial results reflect allocations of corporate expenses from ParentCo for such functions, which are likely to be less than the expenses we would have incurred had we operated as a separate publicly traded company.

 

    Currently, our business is integrated with the other businesses of ParentCo. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. While we have sought to separate these arrangements with minimal impact on Alcoa Corporation, there is no guarantee these arrangements will continue to capture these benefits in the future.

 

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    As a current part of ParentCo, we take advantage of ParentCo’s overall size and scope to procure more advantageous distribution arrangements, including shipping costs and arrangements. After the separation, as a standalone company, we may be unable to obtain similar arrangements to the same extent as ParentCo did, or on terms as favorable as those ParentCo obtained, prior to completion of the separation.

 

    After the completion of the separation, the cost of capital for our business may be higher than ParentCo’s cost of capital prior to the separation.

 

    Our historical financial information does not reflect the debt that we have incurred as part of the separation and distribution.

Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from ParentCo. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the Unaudited Pro Forma Combined Condensed Financial Statements of our business, see “Unaudited Pro Forma Combined Condensed Financial Statements,” “Selected Historical Combined Financial Data of Alcoa Corporation,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.

We may not achieve some or all of the expected benefits of the separation, and the separation may materially adversely affect our business.

We may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation is expected to provide the following benefits, among others: (i) enabling the management of each company to more effectively pursue its own distinct operating priorities and strategies, and enable the management of each company to focus on strengthening its core business and its unique needs, and pursue distinct and targeted opportunities for long-term growth and profitability; (ii) permitting each company to allocate its financial resources to meet the unique needs of its own business, which will allow each company to intensify its focus on its distinct strategic priorities and to more effectively pursue its own distinct capital structures and capital allocation strategies; (iii) allowing each company to more effectively articulate a clear investment thesis to attract a long-term investor base suited to its business and providing investors with two distinct and targeted investment opportunities; (iv) creating an independent equity currency tracking each company’s underlying business, affording Alcoa Corporation and Arconic direct access to the capital markets and facilitating each company’s ability to consummate future acquisitions or other restructuring transactions utilizing its common stock; (v) allowing each company more consistent application of incentive structures and targets, due to the common nature of the underlying businesses; and (vi) separating and simplifying the structures currently required to manage two distinct and differing underlying businesses.

We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (i) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) following the separation, we may be more susceptible to market fluctuations, including fluctuations in commodities prices, and other adverse events than if we were still a part of ParentCo because our business will be less diversified than ParentCo’s business prior to the completion of the separation; (iii) after the separation, as a standalone company, we may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those ParentCo obtained prior to completion of the separation; (iv) the separation may require Alcoa Corporation to pay costs that could be substantial and material to our financial resources, including accounting, tax, legal, and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to Alcoa Corporation, and tax costs; and (v) the separation will entail changes to our information technology systems, reporting systems, supply chain and other operations that may require significant expense and may not be implemented in an as timely and effective fashion as we expect. If we fail to achieve some or all of the

 

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benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

Our plan to separate into two independent publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

On September 28, 2015, ParentCo announced plans to separate into two independent publicly traded companies. The separation is subject to approval by the ParentCo Board of Directors of the final terms of the separation and market and certain other conditions. Unanticipated developments, including changes in the competitive conditions of ParentCo’s markets, regulatory approvals or clearances, the uncertainty of the financial markets and challenges in executing the separation, could delay or prevent the completion of the proposed separation, or cause the separation to occur on terms or conditions that are different or less favorable than expected.

The process of completing the proposed separation has been and is expected to continue to be time-consuming and involves significant costs and expenses. For example, during the six months ended June 30, 2016, ParentCo recorded nonrecurring separation costs of $63 million, which were primarily related to third-party consulting, contractor fees and other incremental costs directly associated with the separation process. The separation costs may be significantly higher than what we currently anticipate and may not yield a discernible benefit if the separation is not completed or is not well executed, or the expected benefits of the separation are not realized. Executing the proposed separation will also require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business. Other challenges associated with effectively executing the separation include attracting, retaining and motivating employees during the pendency of the separation and following its completion; addressing disruptions to our supply chain, manufacturing and other operations resulting from separating ParentCo into two large but independent companies; separating ParentCo’s information systems; and establishing a new brand identity in the marketplace.

The combined post-separation value of three shares of Arconic common stock and one share (assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date) of Alcoa Corporation common stock may not equal or exceed the pre-distribution value of one share of ParentCo common stock.

As a result of the distribution, ParentCo expects the trading price of shares of Arconic common stock immediately following the distribution to be different from the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Alcoa Corporation Business held by Alcoa Corporation. There can be no assurance that the aggregate market value of three shares of Arconic common stock and one of Alcoa Corporation common stock following the separation will be higher or lower than the market value of a share of ParentCo common stock if the separation did not occur.

Challenges in the commercial and credit environment may adversely affect our ability to complete the separation and our future access to capital.

Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or other significantly unfavorable changes in economic conditions. Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. These conditions may adversely affect our ability to obtain and maintain investment grade credit ratings prior to and following the separation.

 

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We expect to incur both one-time and ongoing material costs and expenses as a result of our separation from ParentCo, which could adversely affect our profitability.

We expect to incur, as a result of our separation from ParentCo, both one-time and ongoing costs and expenses that are greater than those we currently incur. These increased costs and expenses may arise from various factors, including financial reporting, costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”)), tax administration, and legal and human resources related functions, and it is possible that these costs will be material to our business.

We could experience temporary interruptions in business operations and incur additional costs as we build our information technology infrastructure and transition our data to our own systems.

We are in the process of creating our own, or engaging third parties to provide, information technology infrastructure and systems to support our critical business functions, including accounting and reporting, in order to replace many of the systems ParentCo currently provides to us. We may incur temporary interruptions in business operations if we cannot transition effectively from ParentCo’s existing operating systems, databases and programming languages that support these functions to our own systems. Our failure to implement the new systems and transition our data successfully and cost-effectively could disrupt our business operations and have a material adverse effect on our profitability. In addition, our costs for the operation of these systems may be higher than the amounts reflected in our historical combined financial statements.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject as a standalone publicly traded company following the distribution.

Our financial results previously were included within the consolidated results of ParentCo, and we believe that our reporting and control systems were appropriate for those of subsidiaries of a public company. However, we were not directly subject to the reporting and other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act, including 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 addressing these assessments. These reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources. We may not have sufficient time following the separation to meet these obligations by the applicable deadlines.

Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flows.

In connection with our separation from ParentCo, ParentCo will indemnify us for certain liabilities and we will indemnify ParentCo for certain liabilities. If we are required to pay under these indemnities to ParentCo, our financial results could be negatively impacted. The ParentCo indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which ParentCo will be allocated responsibility, and ParentCo may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation agreement and certain other agreements with ParentCo, ParentCo will agree to indemnify us for certain liabilities, and we will agree to indemnify ParentCo for certain liabilities, in each case

 

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for uncapped amounts, as discussed further in “Certain Relationships and Related Party Transactions.” Indemnities that we may be required to provide ParentCo are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that ParentCo has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from ParentCo may not be sufficient to protect us against the full amount of such liabilities, and ParentCo may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from ParentCo any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

We may be held liable to ParentCo if we fail to perform certain services under the transition services agreement, and the performance of such services may negatively impact our business and operations.

Alcoa Corporation and ParentCo will enter into a transition services agreement in connection with the separation pursuant to which Alcoa Corporation and ParentCo will provide each other, on an interim, transitional basis, various services, including, but not limited to, employee benefits administration, specialized technical and training services and access to certain industrial equipment, information technology services, regulatory services, continued industrial site remediation and closure services on discrete projects, project management services for certain equipment installation and decommissioning projects, general administrative services and other support services. If we do not satisfactorily perform our obligations under the agreement, we may be held liable for any resulting losses suffered by ParentCo, subject to certain limits. In addition, during the transition services periods, our management and employees may be required to divert their attention away from our business in order to provide services to ParentCo, which could adversely affect our business.

ParentCo may fail to perform under various transaction agreements that will be executed as part of the separation or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

In connection with the separation, Alcoa Corporation and ParentCo will enter into a separation and distribution agreement and will also enter into various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement, a stockholder and registration rights agreement with respect to Arconic’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement relating to the North American packaging business. The separation agreement, the tax matters agreement and the employee matters agreement, together with the documents and agreements by which the internal reorganization will be effected, will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The separation agreement also provides that Alcoa Corporation will pay over to ParentCo the proceeds in respect of the pending sale of ParentCo’s Yadkin hydroelectric project following the effective time of the distribution. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. Alcoa Corporation will rely on ParentCo to satisfy its performance and payment obligations under these agreements. If ParentCo is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our business effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that ParentCo currently provides to us. However, we may not be successful in implementing these systems and services, we may incur additional costs in connection with, or following, the implementation of these systems and services, and we may not be successful in transitioning data from ParentCo’s systems to ours.

 

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We may not be able to engage in desirable capital-raising or strategic transactions following the separation.

Under current U.S. federal income tax law, a spin-off that otherwise qualifies for tax-free treatment can be rendered taxable to the parent corporation and its shareholders as a result of certain post-spin-off transactions, including certain acquisitions of shares or assets of the spun-off corporation. To preserve the tax-free treatment of the separation and the distribution, and in addition to Alcoa Corporation’s indemnity obligation described above, the tax matters agreement will restrict Alcoa Corporation, for the two-year period following the distribution, except in specific circumstances, from: (i) entering into any transaction pursuant to which all or a portion of Alcoa Corporation stock would be acquired, whether by merger or otherwise, (ii) issuing equity securities beyond certain thresholds, (iii) repurchasing shares of Alcoa Corporation stock other than in certain open-market transactions, (iv) ceasing to actively conduct certain of its businesses or (v) taking or failing to take any other action that prevents the distribution and certain related transactions from qualifying as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. These restrictions may limit Alcoa Corporation’s ability to pursue certain equity issuances, strategic transactions or other transactions that may maximize the value of Alcoa Corporation’s business. For more information, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement” and “Material U.S. Federal Income Tax Consequences.”

The terms we will receive in our agreements with ParentCo could be less beneficial than the terms we may have otherwise received from unaffiliated third parties.

The agreements we will enter into with ParentCo in connection with the separation, including a separation and distribution agreement, a transition services agreement, a tax matters agreement, an employee matters agreement, a stockholder and registration rights agreement with respect to ParentCo’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement relating to the North American packaging business were prepared in the context of the separation while Alcoa Corporation was still a wholly owned subsidiary of ParentCo. Accordingly, during the period in which the terms of those agreements were prepared, Alcoa Corporation did not have an independent Board of Directors or a management team that was independent of ParentCo. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. See “Certain Relationships and Related Party Transactions.”

If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, ParentCo, Alcoa Corporation, and ParentCo shareholders could be subject to significant tax liabilities and, in certain circumstances, Alcoa Corporation could be required to indemnify ParentCo for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

It is a condition to the distribution that (i) the private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the separation and the distribution received by ParentCo remain valid and be satisfactory to the ParentCo Board of Directors and (ii) ParentCo receive an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. The IRS private letter ruling is and the opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of ParentCo and Alcoa Corporation, including those relating to the past and future conduct of ParentCo and Alcoa Corporation. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if ParentCo or Alcoa Corporation breaches any of its representations or covenants contained in any of the separation–related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of counsel, the IRS private letter ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.

 

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Notwithstanding receipt of the IRS private letter ruling and the opinion of counsel, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS private letter ruling or the opinion of counsel was based are false or have been violated. In addition, the IRS private letter ruling does not address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes, and the opinion of counsel will represent the judgment of such counsel and will not be binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, ParentCo, Alcoa Corporation and ParentCo shareholders could be subject to significant U.S. federal income tax liability.

If the distribution, together with certain related transactions, fails to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, ParentCo would recognize taxable gain as if it had sold the Alcoa Corporation common stock in a taxable sale for its fair market value and ParentCo shareholders who receive Alcoa Corporation shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. For more information, see “Material U.S. Federal Income Tax Consequences.”

Under the tax matters agreement that ParentCo will enter into with Alcoa Corporation, Alcoa Corporation may be required to indemnify ParentCo against any additional taxes and related amounts resulting from (i) an acquisition of all or a portion of the equity securities or assets of Alcoa Corporation, whether by merger or otherwise (and regardless of whether Alcoa Corporation participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by Alcoa Corporation or (iii) any of Alcoa Corporation’s representations, covenants or undertakings contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of counsel being incorrect or violated. Any such indemnity obligations could be material. For a more detailed discussion, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.” In addition, ParentCo, Alcoa Corporation and their respective subsidiaries may incur certain tax costs in connection with the separation, including non-U.S. tax costs resulting from separations in non-U.S. jurisdictions, which may be material.

Certain contingent liabilities allocated to Alcoa Corporation following the separation may mature, resulting in material adverse impacts to our business.

After the separation, there will be several significant areas where the liabilities of ParentCo may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the ParentCo consolidated U.S. federal income tax return group during a taxable period or portion of a taxable period ending on or before the effective date of the distribution is severally liable for the U.S. federal income tax liability of the ParentCo consolidated U.S. federal income tax return group for that taxable period. Consequently, if ParentCo is unable to pay the consolidated U.S. federal income tax liability for a pre-separation period, we could be required to pay the amount of such tax, which could be substantial and in excess of the amount allocated to us under the tax matters agreement. For a discussion of the tax matters agreement, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.” Other provisions of federal law establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.

 

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The transfer to us of certain contracts, permits and other assets and rights may require the consents or approvals of, or provide other rights to, third parties and governmental authorities. If such consents or approvals are not obtained, we may not be entitled to the benefit of such contracts, permits and other assets and rights, which could increase our expenses or otherwise harm our business and financial performance.

The separation agreement will provide that certain contracts, permits and other assets and rights are to be transferred from ParentCo or its subsidiaries to Alcoa Corporation or its subsidiaries in connection with the separation. The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or governmental authorities or provide other rights to third parties. In addition, in some circumstances, we and ParentCo are joint beneficiaries of contracts, and we and ParentCo may need the consents of third parties in order to split or bifurcate the existing contracts or the relevant portion of the existing contracts to us or ParentCo.

Some parties may use consent requirements or other rights to seek to terminate contracts or obtain more favorable contractual terms from us, which, for example, could take the form of price increases, require us to expend additional resources in order to obtain the services or assets previously provided under the contract, or require us to seek arrangements with new third parties or obtain letters of credit or other forms of credit support. If we are unable to obtain required consents or approvals, we may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to us as part of our separation from ParentCo, and we may be required to seek alternative arrangements to obtain services and assets which may be more costly and/or of lower quality. The termination or modification of these contracts or permits or the failure to timely complete the transfer or bifurcation of these contracts or permits could negatively impact our business, financial condition, results of operations and cash flows.

Until the separation occurs, ParentCo has sole discretion to change the terms of the separation in ways which may be unfavorable to us.

Until the separation occurs, Alcoa Corporation will be a wholly owned subsidiary of ParentCo. Accordingly, ParentCo will have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date, as well as to reduce the amount of outstanding shares of common stock of Alcoa Corporation that it will retain, if any, following the distribution. These changes could be unfavorable to us. In addition, ParentCo may decide at any time not to proceed with the separation and distribution.

No vote of ParentCo shareholders is required in connection with the distribution. As a result, if the distribution occurs and you do not want to receive Alcoa Corporation common stock in the distribution, your sole recourse will be to divest yourself of your ParentCo common stock prior to the record date.

No vote of ParentCo shareholders is required in connection with the distribution. Accordingly, if the distribution occurs and you do not want to receive Alcoa Corporation common stock in the distribution, your only recourse will be to divest yourself of your ParentCo common stock prior to the record date for the distribution.

Risks Related to Our Common Stock

We cannot be certain that an active trading market for our common stock will develop or be sustained after the separation and, following the separation, our stock price may fluctuate significantly.

A public market for our common stock does not currently exist. We anticipate that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a “when-issued” basis and will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the separation, nor can we predict the prices at which shares of our common stock may trade after the separation. Similarly, we cannot predict the effect of the separation on the

 

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trading prices of our common stock or whether the combined market value of one share of our common stock and three shares of Arconic common stock will be less than, equal to or greater than the market value of one share of ParentCo common stock prior to the distribution.

The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

 

    actual or anticipated fluctuations in our operating results;

 

    changes in earnings estimated by securities analysts or our ability to meet those estimates;

 

    the operating and stock price performance of comparable companies;

 

    actual or anticipated fluctuations in commodities prices;

 

    changes to the regulatory and legal environment under which we operate; and

 

    domestic and worldwide economic conditions.

A significant number of shares of our common stock may be sold following the distribution, including the sale by Arconic of the shares of our common stock that it may retain after the distribution, which may cause our stock price to decline.

Any sales of substantial amounts of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. Upon completion of the distribution, we expect that we will have an aggregate of approximately [            ] shares of our common stock issued and outstanding. Shares distributed to ParentCo shareholders in the separation will generally be freely tradeable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), except for shares owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.

Following the distribution, Arconic will retain approximately 19.9% of our outstanding shares of our common stock. Pursuant to the IRS private letter ruling, Arconic will be required to dispose of such shares of our common stock that it owns as soon as practicable and consistent with its reasons for retaining such shares, but in no event later than five years after the distribution. We will agree that, following the 60-day period commencing immediately after the effective time of the distribution, upon the request of Arconic, we will use commercially reasonable efforts to effect a registration under applicable federal and state securities laws of any shares of our common stock retained by Arconic. See “Certain Relationships and Related Person Transactions—Stockholder and Registration Rights Agreement.” Any disposition by Arconic, or any significant stockholder, of our common stock in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices for our common stock.

We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers of our common stock to meet the demand to sell shares of our common stock at attractive prices would exist at that time.

Your percentage of ownership in Alcoa Corporation may be diluted in the future.

In the future, your percentage ownership in Alcoa Corporation may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors, officers and employees. Our employees will have stock-based awards that correspond to shares of our common stock after the distribution as a result of conversion of their ParentCo stock-based awards. We anticipate that our compensation committee will grant additional stock-based awards to our employees after the distribution. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional stock-based awards to our employees under our employee benefits plans.

 

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Anti-takeover provisions could enable our management to resist a takeover attempt by a third party and limit the power of our stockholders.

Alcoa Corporation’s amended and restated certificate of incorporation and bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with Alcoa Corporation’s Board of Directors rather than to attempt a hostile takeover. These provisions are expected to include, among others:

 

    the inability of our stockholders to act by written consent unless such written consent is unanimous;

 

    the ability of our remaining directors to fill vacancies on our Board of Directors;

 

    limitations on stockholders’ ability to call a special stockholder meeting;

 

    rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings; and

 

    the right of our Board of Directors to issue preferred stock without stockholder approval.

In addition, we expect to be subject to Section 203 of the Delaware General Corporation Law (“DGCL”), which could have the effect of delaying or preventing a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make Alcoa Corporation immune from takeovers; however, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of Alcoa Corporation’s and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. See “Description of Alcoa Corporation Capital Stock—Anti-Takeover Effects of Various Provisions of Delaware Law and our Certificate of Incorporation and Bylaws.”

In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see “Material U.S. Federal Income Tax Consequences.” Under the tax matters agreement, Alcoa Corporation would be required to indemnify ParentCo for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that our stockholders may consider favorable.

We cannot guarantee the timing, amount or payment of dividends on our common stock.

The timing, declaration, amount and payment of future dividends to our stockholders will fall within the discretion of our Board of Directors. The Board of Directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, covenants associated with certain of our debt service obligations, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. For more information, see “Dividend Policy.” Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividend at the same rate or at all if we commence paying dividends.

 

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Our amended and restated certificate of incorporation will designate the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against Alcoa Corporation and our directors and officers.

Our amended and restated certificate of incorporation will provide that unless the Board of Directors otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Alcoa Corporation, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer of Alcoa Corporation to Alcoa Corporation or to Alcoa Corporation stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against Alcoa Corporation or any current or former director or officer of Alcoa Corporation arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or bylaws, any action asserting a claim relating to or involving Alcoa Corporation governed by the internal affairs doctrine, or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. However, if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, the action may be brought in the federal court for the District of Delaware.

Although our amended and restated certificate of incorporation will include this exclusive forum provision, it is possible that a court could rule that this provision is inapplicable or unenforceable. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Alcoa Corporation or our directors or officers, which may discourage such lawsuits against Alcoa Corporation and our directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.

Risks Related to Our Indebtedness

Our indebtedness, including the notes, restricts our current and future operations, which could adversely affect our ability to respond to changes in our business and manage our operations.

The terms of the Revolving Credit Agreement and the indenture governing the notes include a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

 

    make investments, loans, advances, guarantees and acquisitions;

 

    dispose of assets;

 

    incur or guarantee additional debt and issue certain disqualified equity interests and preferred stock;

 

    make certain restricted payments, including a limit on dividends on equity securities or payments to redeem, repurchase or retire equity securities or other indebtedness;

 

    engage in transactions with affiliates;

 

    materially alter the business we conduct;

 

    enter into certain restrictive agreements;

 

    create liens on assets to secure debt;

 

    consolidate, merge, sell or otherwise dispose of all or substantially all of Alcoa Corporation’s, the Issuer’s or a subsidiary guarantor’s assets; and

 

    take any actions that would reduce our ownership of AWAC entities below an agreed level.

In addition, the Revolving Credit Agreement requires us to comply with financial covenants. The Revolving Credit Agreement requires that we maintain a leverage ratio no greater than 2.25 to 1.00 and an interest expense coverage ratio no less than 5.00 to 1.00, in each case, for any period of four consecutive fiscal quarters of Alcoa Corporation.

 

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For more information on the restrictive covenants in the Revolving Credit Agreement, see “Description of Material Indebtedness.”

Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other opportunities. The breach of any of these covenants or restrictions could result in a default under the Revolving Credit Agreement or the indenture governing the notes.

Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our business, financial condition, results of operations or cash flows.

If there were an event of default under any of the agreements relating to our outstanding indebtedness, including the Revolving Credit Agreement and the indenture governing the notes, we may not be able to incur additional indebtedness under the Revolving Credit Agreement and the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, which could have a material adverse effect on our ability to continue to operate as a going concern. Further, if we are unable to repay, refinance or restructure our secured indebtedness, the holders of such indebtedness could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument also could result in an event of default under one or more of our other debt instruments.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement and other materials ParentCo and Alcoa Corporation have filed or will file with the SEC contain or incorporate by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” or other words of similar meaning. All statements that reflect Alcoa Corporation’s expectations, assumptions, or projections about the future other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding the separation and distribution, including the timing and expected benefits thereof; forecasts concerning global demand growth for aluminum, end market conditions, supply/demand balances, and growth opportunities for aluminum in automotive, aerospace, and other applications; targeted financial results or operating performance; and statements about Alcoa Corporation’s strategies, outlook, and business and financial prospects. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. Forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors and are not guarantees of future performance. Actual results, performance, or outcomes may differ materially from those expressed in or implied by those forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others:

 

    whether the separation is completed, as expected or at all, and the timing of the separation and the distribution;

 

    whether the conditions to the distribution are satisfied;

 

    whether the operational, strategic and other benefits of the separation can be achieved;

 

    whether the costs and expenses of the separation can be controlled within expectations;

 

    material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in LME-based prices, and premiums, as applicable, for primary aluminum, alumina, and other products, and fluctuations in index-based and spot prices for alumina;

 

    deterioration in global economic and financial market conditions generally;

 

    unfavorable changes in the markets served by Alcoa Corporation or ParentCo, including aerospace, automotive, commercial transportation, building and construction, packaging, defense, and industrial gas turbine;

 

    the impact on costs and results of changes in foreign currency exchange rates, particularly the Australian dollar, Brazilian real, Canadian dollar, Euro, and Norwegian kroner;

 

    increases in energy costs or the unavailability or interruption of energy supplies;

 

    increases in the costs of other raw materials;

 

    Alcoa Corporation’s inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations (including moving its alumina refining and aluminum smelting businesses down on the industry cost curves) anticipated from its restructuring programs and productivity improvement, cash sustainability, technology, and other initiatives;

 

    Alcoa Corporation’s inability to realize expected benefits, in each case as planned and by targeted completion dates, from sales of assets, closures or curtailments of facilities, newly constructed, expanded, or acquired facilities, or international joint ventures, including our joint venture with Alumina Limited and our joint venture in Saudi Arabia;

 

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    risks relating to operating globally, including geopolitical, economic, and regulatory risks and unexpected events beyond Alcoa Corporation’s control, such as unfavorable changes in laws and governmental policies, civil unrest, imposition of sanctions, expropriation of assets, major public health issues, and terrorism;

 

    the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation;

 

    adverse changes in discount rates or investment returns on pension assets;

 

    the impact of cyber attacks and potential information technology or data security breaches;

 

    unexpected events, unplanned outages, supply disruptions or failure of equipment or processes to meet specifications;

 

    the loss of customers, suppliers and other business relationships as a result of competitive developments, or other factors;

 

    the potential failure to retain key employees of Alcoa Corporation; and

 

    compliance with debt covenants and maintenance of credit ratings as well as the impact of interest and principal repayment of our existing and any future debt.

The above list of factors is not exhaustive or necessarily in order of importance. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include those discussed under “Risk Factors” in this information statement and in our publicly filed documents referred to in “Where You Can Find More Information.” Alcoa Corporation disclaims any intention or obligation to update publicly any forward-looking statements, whether in response to new information, future events, or otherwise, except as required by applicable law.

 

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THE SEPARATION AND DISTRIBUTION

Overview

On September 28, 2015, ParentCo announced its intention to separate its Alcoa Corporation Business from its Arconic Business. The separation will occur by means of a pro rata distribution to ParentCo shareholders of at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, which was formed to hold ParentCo’s Bauxite, Alumina, Aluminum, Cast Products and Energy businesses ParentCo’s rolling mill operations in Warrick, Indiana, and ParentCo’s 25.1% interest in the Ma’aden Rolling Company in Saudi Arabia. Following the distribution, ParentCo shareholders will own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation will be a separate company from ParentCo. ParentCo will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution. Prior to completing the separation, ParentCo may adjust the percentage of Alcoa Corporation shares to be distributed to ParentCo shareholders and retained by ParentCo in response to market and other factors, and it will amend this information statement to reflect any such adjustment. The number of shares of ParentCo common stock you own will not change as a result of the separation.

In connection with such distribution, Alcoa Corporation has incurred approximately $1,250 million of indebtedness, and we expect that:

 

    ParentCo will complete an internal reorganization, which we refer to as the “internal reorganization,” as a result of which Alcoa Corporation will become the parent company of the ParentCo operations comprising, and the entities that will conduct, the Alcoa Corporation Business;

 

    ParentCo will change its name to “Arconic Inc.”; and

 

    “Alcoa Upstream Corporation” will change its name to “Alcoa Corporation”.

On September 29, 2016, the ParentCo Board of Directors approved the distribution of approximately 80.1% of Alcoa Corporation’s issued and outstanding shares of common stock on the basis of one share of Alcoa Corporation common stock for every three shares of ParentCo common stock held as of the close of business on October 20, 2016, the record date for the distribution, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date, or one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock held as of the close of business on such date, if the previously-announced reverse stock split is not effected. Arconic currently plans to dispose of all of the Alcoa Corporation common stock that it retains after the distribution, which may include dispositions through one or more subsequent exchanges for debt or equity or a sale of its shares for cash, following a 60-day lock-up period and within the 18-month period following the distribution, subject to market conditions. Any shares not disposed of by Arconic during such 18-month period will be sold or otherwise disposed of by Arconic consistent with the business reasons for the retention of those shares, but in no event later than five years after the distribution.

At 12:01 a.m., Eastern Time, on November 1, 2016, the distribution date, each ParentCo shareholder will receive one share of Alcoa Corporation common stock for every three shares of ParentCo common stock held at the close of business on the record date for the distribution, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date, or one share of Alcoa Corporation common stock for every nine shares of ParentCo common stock held at the close of business on such date if the reverse stock split is not effected, in each case as described below. ParentCo shareholders will receive cash in lieu of any fractional shares of Alcoa Corporation common stock that they would have received after application of this ratio. Upon completion of the separation, each ParentCo shareholder as of the record date will continue to own shares of ParentCo (which, as a result of ParentCo’s name change to Arconic, will be Arconic shares) and will own a proportionate share of the outstanding common stock of Alcoa Corporation to be distributed. You will not be required to make any payment, surrender or exchange your ParentCo common stock or take any other action to receive your shares of Alcoa Corporation common stock in the distribution. The distribution of Alcoa Corporation common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “—Conditions to the Distribution.”

 

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Reasons for the Separation

The ParentCo Board of Directors believes that separating its Alcoa Corporation Business from its Arconic Business is in the best interests of ParentCo and its shareholders for a number of reasons, including:

 

    Management Focus on Core Business and Distinct Opportunities . The separation will permit each company to more effectively pursue its own distinct operating priorities and strategies, and will enable the management teams of each company to focus on strengthening its core business, unique operating and other needs, and pursue distinct and targeted opportunities for long-term growth and profitability.

 

    Allocation of Financial Resources and Separate Capital Structures.  The separation will permit each company to allocate its financial resources to meet the unique needs of its own business, which will allow each company to intensify its focus on its distinct strategic priorities. The separation will also allow each business to more effectively pursue its own distinct capital structures and capital allocation strategies.

 

    Targeted Investment Opportunity.  The separation will allow each company to more effectively articulate a clear investment thesis to attract a long-term investor base suited to its business, and will facilitate each company’s access to capital by providing investors with two distinct and targeted investment opportunities.

 

    Creation of Independent Equity Currencies.   The separation will create two independent equity securities, affording Alcoa Corporation and Arconic direct access to the capital markets and enabling each company to use its own industry-focused stock to consummate future acquisitions or other restructuring transactions. As a result, each company will have more flexibility to capitalize on its unique strategic opportunities.

 

    Employee Incentives, Recruitment and Retention.  The separation will allow each company to more effectively recruit, retain and motivate employees through the use of stock-based compensation that more closely reflects and aligns management and employee incentives with specific growth objectives, financial goals and business performance. In addition, the separation will allow incentive structures and targets at each company to be better aligned with each underlying business. Similarly, recruitment and retention will be enhanced by more consistent talent requirements across the businesses, allowing both recruiters and applicants greater clarity and understanding of talent needs and opportunities associated with the core business activities, principles and risks of each company.

 

    Other Business Rationale.  The separation will separate and simplify the structures currently required to manage two distinct and differing underlying businesses. These differences include exposure to industry cycles, manufacturing and procurement methods, customer base, research and development activities, and overhead structures.

The ParentCo Board of Directors also considered a number of potentially negative factors in evaluating the separation, including:

 

    Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; and following the separation, we may be more susceptible to market fluctuations, including fluctuations in commodities prices, and other adverse events than if we were still a part of ParentCo because our business will be less diversified than ParentCo’s business prior to the completion of the separation.

 

   

Loss of Scale and Increased Administrative Costs. As a current part of ParentCo, Alcoa Corporation takes advantage of ParentCo’s size and purchasing power in procuring certain goods and services. After the separation, as a standalone company, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those ParentCo obtained prior to completion of the

 

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separation. In addition, as a part of ParentCo, Alcoa Corporation benefits from certain functions performed by ParentCo, such as accounting, tax, legal, human resources and other general and administrative functions. After the separation, Arconic will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.

 

    Disruptions and Costs Related to the Separation. The actions required to separate Arconic’s and Alcoa Corporation’s respective businesses could disrupt our operations.   In addition, we will incur substantial costs in connection with the separation and the transition to being a standalone public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Alcoa Corporation, tax costs and costs to separate information systems.

 

    Limitations on Strategic Transactions.  Under the terms of the tax matters agreement that we will enter into with ParentCo, we will be restricted from taking certain actions that could cause the distribution or certain related transactions to fail to qualify as tax-free transactions under applicable law. These restrictions may limit for a period of time our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.

 

    Uncertainty Regarding Stock Prices.   We cannot predict the effect of the separation on the trading prices of Alcoa Corporation or Arconic common stock or know with certainty whether the combined market value of one share of our common stock and three shares of Arconic common stock (assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to the record date) will be less than, equal to or greater than the market value of one share of ParentCo common stock prior to the distribution.

In determining to pursue the separation, the ParentCo Board of Directors concluded the potential benefits of the separation outweighed the foregoing factors. See the sections entitled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Reasons for Arconic’s Retention of Up to 19.9% of Alcoa Corporation Shares

In considering the appropriate structure for the separation, ParentCo determined that, immediately after the distribution becomes effective, Arconic will own no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation. In light of recent volatile commodity market conditions and conditions in the high-yield debt market, Arconic’s retention of Alcoa Corporation shares positions both companies with appropriate capital structures, liquidity, and financial flexibility and resources that support their individual business strategies. The retention enables Alcoa Corporation to be separated with low leverage, and thus significant flexibility to manage through future market cycles. At the same time, the retention reduces Arconic’s reliance on Alcoa Corporation raising debt in the current high-yield market environment to fund payments to Arconic to optimize its own capital structure. The retention of Alcoa Corporation shares strengthens Arconic’s balance sheet by providing Arconic a liquid security that can be monetized or exchanged to accelerate debt reduction and/or fund future growth initiatives, thereby facilitating an appropriate capital structure and financial flexibility necessary for Arconic to execute its growth strategy. Arconic’s retained interest shows confidence in the future of Alcoa Corporation and will allow Arconic’s balance sheet to benefit from any near-term improvements in commodity markets. Arconic intends to responsibly dispose of any Alcoa Corporation common stock that it retains after the distribution, which may include dispositions through one or more subsequent exchanges for debt or equity or a sale of its shares for cash, following a 60-day lock-up period and within the 18-month period following the distribution, subject to market conditions. Any shares not disposed of by Arconic during such 18-month period will be sold or otherwise disposed of by Arconic consistent with the business reasons for the retention of those shares, but in no event later than five years after the distribution. ParentCo intends to continue to monitor market conditions in the commodity and high-yield debt market, and to assess the impact of each on the ultimate structure of the separation.

 

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Formation of Alcoa Corporation

Alcoa Upstream Corporation was formed in Delaware on March 10, 2016 for the purpose of holding ParentCo’s Alcoa Corporation Business, and it will be renamed Alcoa Corporation in connection with the separation and distribution. As part of the plan to separate the Alcoa Corporation Business from the remainder of its businesses, in connection with the internal reorganization, ParentCo plans to transfer, or otherwise ensure the transfer of, the equity interests of certain entities that are expected to operate the Alcoa Corporation Business and the assets and liabilities of the Alcoa Corporation Business to Alcoa Corporation prior to the distribution.

When and How You Will Receive the Distribution

With the assistance of Computershare Trust Company, N.A., the distribution agent for the distribution, (the “distribution agent” or “Computershare”), ParentCo expects to distribute Alcoa Corporation common stock at 12:01 a.m., Eastern Time, on November 1, 2016, the distribution date, to all holders of outstanding ParentCo common stock as of the close of business on October 20, 2016, the record date for the distribution. Computershare, which currently serves as the transfer agent and registrar for ParentCo common stock, will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Alcoa Corporation common stock.

If you own ParentCo common stock as of the close of business on the record date for the distribution, Alcoa Corporation common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, Computershare will then mail you a direct registration account statement that reflects your shares of Alcoa Corporation common stock. If you hold your ParentCo shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Alcoa Corporation shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this distribution. If you sell ParentCo common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Alcoa Corporation common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your ParentCo common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Alcoa Corporation common stock that have been registered in book-entry form in your name.

Most ParentCo shareholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your ParentCo common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Alcoa Corporation common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Transferability of Shares You Receive

Shares of Alcoa Corporation common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers, directors or principal shareholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act. We will agree that, following the 60-day period commencing immediately after the effective time of the distribution, upon the request of Arconic, we will use commercially reasonable efforts to effect a registration under applicable federal and state securities laws of any shares of our common stock retained by Arconic.

 

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Number of Shares of Alcoa Corporation Common Stock You Will Receive

For every three shares of ParentCo common stock that you own at the close of business on November 1, 2016, the record date for the distribution, you will receive one of Alcoa Corporation common stock on the distribution date, assuming the previously-announced reverse stock split of ParentCo common stock is effected prior to that date. If the reverse stock split is not effected, then for every nine shares of ParentCo common stock that you own at the close of business on the record date, you will receive one share of Alcoa corporation common stock on the distribution date. ParentCo will not distribute any fractional shares of Alcoa Corporation common stock to its shareholders. Instead, if you are a registered holder, Computershare will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by ParentCo or Alcoa Corporation, will determine when, how, and through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either ParentCo or Alcoa Corporation and the distribution agent is not an affiliate of either ParentCo or Alcoa Corporation. Neither Alcoa Corporation nor ParentCo will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

The net cash proceeds of these sales of fractional shares will be taxable for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” for an explanation of the material U.S. federal income tax consequences of the distribution. If you hold physical certificates for shares of ParentCo common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the net cash proceeds of the sales. We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the net cash proceeds. If you hold your shares of ParentCo common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

Treatment of Equity-Based Compensation

In connection with the separation, equity-based awards granted by ParentCo prior to the separation are expected to be treated as described below. As of the separation, these awards will be held by (i) current and former employees of Alcoa Corporation and its subsidiaries and certain other former employees classified as former employees of Alcoa Corporation for purposes of post-separation compensation and benefits matters (collectively, the “Alcoa Corporation Employees and Alcoa Corporation Former Employees”) and (ii) current and former employees of Arconic and its subsidiaries and certain other former employees classified as former employees of Arconic for purposes of post-separation compensation and benefits matters (collectively, the “Arconic Employees and Arconic Former Employees”).

Stock Options

Stock Options Held by Alcoa Corporation Employees and Alcoa Corporation Former Employees. Each award of ParentCo stock options held by an Alcoa Corporation Employee or Alcoa Corporation Former Employee will be converted into an award of stock options with respect to Alcoa Corporation common stock. The exercise price of, and number of shares subject to, each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Stock Options Held by Arconic Employees and Former Arconic Employees.   Each award of ParentCo stock options held by an Arconic Employee or Former Arconic Employee will continue to relate to ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be Arconic common stock after the separation), provided that the exercise price of, and number of shares subject to, each such award will be adjusted

 

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in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Restricted Share Units

Restricted ShareStock Units Held by Alcoa Corporation Employees and Alcoa Corporation Former Employees.   Each award of ParentCo restricted share units held by an Alcoa Corporation Employee or Alcoa Corporation Former Employee will be converted into an award of restricted share units with respect to Alcoa Corporation common stock. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Restricted Stock Units Held by Arconic Employees and Former Arconic Employees.   Each award of ParentCo restricted share units held by an Arconic Employee or Former Arconic Employee will continue to relate to ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be Arconic common stock after the separation), provided that the number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Performance-Based Restricted Share Units

Performance-Based Restricted Share Units Held by Alcoa Corporation Employees and Alcoa Corporation Former Employees.   Each award of ParentCo performance-based restricted share units held by an Alcoa Corporation Employee or Alcoa Corporation Former Employee will be converted into an award of performance-based restricted share units with respect to Alcoa Corporation common stock. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Performance-Based Restricted Share Units Held by Arconic Employees and Former Arconic Employees. Each award of ParentCo performance-based restricted share units held by an Arconic Employee or Former Arconic Employee will continue to relate to ParentCo common stock (which, as a result of ParentCo’s name change to Arconic, will be Arconic common stock after the separation), provided that the number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original ParentCo award as measured immediately before and immediately after the separation, subject to rounding. Such adjusted award will otherwise continue to have the same terms and conditions that applied to the original ParentCo award immediately prior to the separation.

Internal Reorganization

As part of the separation, and prior to the distribution, ParentCo and its subsidiaries expect to complete an internal reorganization in order to transfer to Alcoa Corporation the Alcoa Corporation Business that it will hold following the separation. Among other things and subject to limited exceptions, the internal reorganization is expected to result in Alcoa Corporation owning, directly or indirectly, the operations comprising, and the entities that conduct, the Alcoa Corporation Business.

 

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The internal reorganization is expected to include various restructuring transactions pursuant to which (i) the operations, assets and liabilities of ParentCo and its subsidiaries used to conduct the Alcoa Corporation Business will be separated from the operations, assets and liabilities of ParentCo and its subsidiaries used to conduct the Arconic Business and (ii) such Alcoa Corporation Business operations, assets and liabilities and investments will be contributed, transferred, allocated through the Pennsylvania division statute (Section 361 et seq. of the Pennsylvania Business Corporation Law) or otherwise allocated to Alcoa Corporation or one of its direct or indirect subsidiaries. Such restructuring transactions may take the form of asset transfers, mergers, demergers, divisions, dividends, contributions and similar transactions, and may involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate the Alcoa Corporation Business or the Arconic Business in such jurisdictions.

As part of this internal reorganization, ParentCo will contribute to Alcoa Corporation certain assets, including equity interests in entities that are expected to conduct the Alcoa Corporation Business.

Following the completion of the internal reorganization and immediately prior to the distribution, Alcoa Corporation will be the parent company of the entities that will conduct the Alcoa Corporation Business, and ParentCo (through subsidiaries other than Alcoa Corporation and its subsidiaries) will remain the parent company of the entities that are expected to conduct the Arconic Business.

Results of the Distribution

After the distribution, Alcoa Corporation will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on [                    ], 2016, the record date for the distribution, and will reflect any exercise of ParentCo options between the date the ParentCo Board of Directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of ParentCo common stock or any rights of ParentCo shareholders. ParentCo will not distribute any fractional shares of Alcoa Corporation common stock.

We will enter into a separation agreement and other related agreements with ParentCo before the distribution to effect the separation and provide a framework for our relationship with Arconic after the separation. These agreements will provide for the allocation between Arconic and Alcoa Corporation of ParentCo’s assets, liabilities and obligations (including employee benefits, intellectual property, equipment sharing, and tax-related assets and liabilities) attributable to periods prior to Alcoa Corporation’s separation from ParentCo and will govern the relationship between Arconic and Alcoa Corporation after the separation. For a more detailed description of these agreements, see “Certain Relationships and Related Party Transactions.”

Market for Alcoa Corporation Common Stock

There is currently no public trading market for Alcoa Corporation common stock. Alcoa Corporation intends to apply to list its common stock on the NYSE under the symbol “AA.” Alcoa Corporation has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

We cannot predict the price at which Alcoa Corporation common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the shares of Alcoa Corporation common stock that each ParentCo shareholder will receive in the distribution and the ParentCo common stock held at the record date for the distribution may not equal the “regular-way” trading price of the ParentCo common stock immediately prior to the distribution. The price at which Alcoa Corporation common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Alcoa Corporation common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Our Common Stock.”

 

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Incurrence of Debt

A subsidiary of Alcoa Corporation has incurred certain indebtedness, including (i) a secured revolving credit agreement providing for revolving loans in an aggregate principal amount of up to $1.5 billion and (ii) $1.25 billion of senior notes. Upon release of the senior notes from escrow, Alcoa Corporation intends to pay a substantial portion of the proceeds of the senior notes to Arconic. ParentCo’s existing senior notes are expected to remain an obligation of Arconic after the separation, except to the extent that Arconic uses funds received by it from Alcoa Corporation to repay existing indebtedness. For more information, see “Description of Material Indebtedness.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, ParentCo expects that there will be two markets in ParentCo common stock: a “regular-way” market and an “ex-distribution” market. ParentCo common stock that trades on the “regular-way” market will trade with an entitlement to Alcoa Corporation common stock distributed in the distribution. ParentCo common stock that trades on the “ex-distribution” market will trade without an entitlement to Alcoa Corporation common stock distributed in the distribution. Therefore, if you sell shares of ParentCo common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of Alcoa Corporation common stock in the distribution. If you own ParentCo common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of Alcoa Corporation common stock that you are entitled to receive pursuant to your ownership of shares of ParentCo common stock as of the record date.

Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, Alcoa Corporation expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for Alcoa Corporation common stock that will be distributed to holders of ParentCo common stock on the distribution date. If you owned ParentCo common stock at the close of business on the record date for the distribution, you would be entitled to Alcoa Corporation common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Alcoa Corporation common stock, without trading the ParentCo common stock you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to Alcoa Corporation common stock will end, and “regular-way” trading will begin.

Conditions to the Distribution

The distribution will be effective at 12:01 a.m., Eastern Time, on November 1, 2016, which is the distribution date, provided that the conditions set forth in the separation agreement have been satisfied (or waived by ParentCo in its sole and absolute discretion), including, among others:

 

    the SEC declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement in effect; and no proceedings for such purposes having been instituted or threatened by the SEC;

 

    the mailing of this information statement to ParentCo shareholders;

 

    (i) the private letter ruling from the IRS received by ParentCo regarding certain U.S. federal income tax matters relating to the separation and distribution being satisfactory to the Board of Directors and remaining valid, and (ii) the receipt by ParentCo of an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code;

 

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    the internal reorganization having been completed and the transfer of assets and liabilities of the Alcoa Corporation Business from ParentCo to Alcoa Corporation, and the transfer of assets and liabilities of the Arconic Business from Alcoa Corporation to ParentCo, having been completed in accordance with the separation and distribution agreement;

 

    the receipt of one or more opinions from an independent appraisal firm to the ParentCo Board of Directors as to the solvency of ParentCo and Alcoa Corporation after the completion of the distribution, in each case in a form and substance acceptable to the ParentCo Board of Directors in its sole and absolute discretion;

 

    all actions necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rule and regulations thereunder having been taken or made and, where applicable, having become effective or been accepted;

 

    the execution of certain agreements contemplated by the separation and distribution agreement;

 

    no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;

 

    the shares of Alcoa Corporation common stock to be distributed having been accepted for listing on the NYSE, subject to official notice of distribution;

 

    ParentCo having received certain proceeds from the financing arrangements described under “Description of Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements; and

 

    no other event or development existing or having occurred that, in the judgment of ParentCo’s Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution and the other related transactions.

ParentCo will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution and the distribution date, and the distribution ratio, as well as to reduce the amount of outstanding shares of common stock of Alcoa Corporation that it will retain, if any, following the distribution. ParentCo will also have sole and absolute discretion to waive any of the conditions to the distribution. ParentCo does not intend to notify its shareholders of any modifications to the terms of the separation or distribution that, in the judgment of its Board of Directors, are not material. For example, the ParentCo Board of Directors might consider material such matters as significant changes to the distribution ratio and the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the ParentCo Board of Directors determines that any modifications by ParentCo materially change the material terms of the distribution, ParentCo will notify ParentCo shareholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.

 

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DIVIDEND POLICY

The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of Alcoa Corporation’s Board of Directors. The Board of Directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints and other factors that our Board of Directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.

 

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2016 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in our unaudited pro forma financial information. The information below is not necessarily indicative of what our capitalization would have been had the separation, distribution and related financing transactions been completed as of June 30, 2016. In addition, it is not indicative of our future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Condensed Financial Statements,” “Selected Historical Combined Financial Data of Alcoa Corporation,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and notes included in the “Index to Financial Statements” section of this information statement.

 

     June 30, 2016  
(amounts in millions)    Actual      Pro Forma  
     (Unaudited)  

Cash

     

Cash and cash equivalents

   $ 332       $ 632   
  

 

 

    

 

 

 

Capitalization:

     

Debt Outstanding

     

Long-term debt, including amount due within one year

   $ 255       $ 1,463   
  

 

 

    

 

 

 

Equity

     

Common stock, par value

   $ —         $ 182   

Additional paid-in capital

     —           10,165   

Net parent investment

     11,137         —     

Accumulated other comprehensive loss

     (1,456      (4,160
  

 

 

    

 

 

 

Total net parent investment and accumulated other comprehensive loss

     9,681         6,187   
  

 

 

    

 

 

 

Noncontrolling interest

     2,180         2,180   
  

 

 

    

 

 

 

Total equity

     11,861         8,367   
  

 

 

    

 

 

 

Total capitalization

   $ 12,116       $ 9,830   
  

 

 

    

 

 

 

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA OF ALCOA CORPORATION

The following table presents the selected historical combined financial data for Alcoa Corporation. We derived the selected statement of combined operations data for the six months ended June 30, 2016 and 2015 and the selected combined balance sheet data as of June 30, 2016 from our unaudited Combined Financial Statements included in this information statement. We derived the selected statement of combined operations data for the years ended December 31, 2015, 2014, and 2013, and the selected combined balance sheet data as of December 31, 2015 and 2014, as set forth below, from our audited Combined Financial Statements, which are included in the “Index to Financial Statements” section of this information statement. We derived the selected statement of combined operations data for the years ended December 31, 2012 and 2011 and the selected combined balance sheet data as of December 31, 2013, 2012, and 2011 from Alcoa Corporation’s unaudited underlying financial records, which were derived from the financial records of ParentCo and are not included in this information statement.

The historical results do not necessarily indicate the results expected for any future period. To ensure a full understanding, you should read the selected historical combined financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statements and accompanying notes included elsewhere in this information statement.

 

     As of and for the
six months ended
June 30,
     As of and for the year ended December 31,  
     2016     2015      2015     2014     2013     2012     2011  
(dollars in millions, except realized prices;
shipments in thousands of metric tons (kmt))
                                           

Sales

   $ 4,452      $ 6,069       $ 11,199      $ 13,147      $ 12,573      $ 13,060      $ 14,709   

Amounts attributable to Alcoa Corporation:

               

Net (loss) income

   $ (265   $ 69       $ (863   $ (256   $ (2,909   $ (219   $ 129   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shipments of alumina (kmt)

     4,434        5,244         10,755        10,652        9,966        9,295        9,218   

Shipments of aluminum (kmt)

     1,534        1,612         3,227        3,518        3,742        3,933        3,932   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Alcoa Corporation’s average realized price per metric ton of primary aluminum

   $ 1,835      $ 2,331       $ 2,092      $ 2,396      $ 2,280      $ 2,353      $ 2,669   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 16,374      $ 17,969       $ 16,413      $ 18,680      $ 21,126      $ 24,777      $ 24,772   

Total debt

   $ 255      $ 282       $ 225      $ 342      $ 420      $ 507      $ 759   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The Unaudited Pro Forma Combined Condensed Financial Statements presented below have been derived from Alcoa Corporation’s historical combined financial statements included in this information statement. While the historical combined financial statements reflect the past financial results of the Alcoa Corporation Business, these pro forma statements give effect to the separation of that business into a standalone, publicly traded company. The pro forma adjustments to reflect the separation include:

 

    the effect of our post-separation capital structure, which includes the incurrence by a subsidiary of Alcoa corporation of $1,250 million of indebtedness as described in this information statement;

 

    the expected transfer to Alcoa Corporation, upon completion of the separation transaction, of certain pension and postretirement benefit plan liabilities that were not included in the historical combined balance sheet;

 

    the distribution of at least 80.1% of our issued and outstanding common stock by ParentCo in connection with the separation; and

 

    the impact of, and transactions contemplated by, the separation and distribution agreement, including the transition services agreement and tax matters agreement, between us and ParentCo and the provisions contained therein.

The pro forma adjustments are based on available information and assumptions our management believes are reasonable; however, such adjustments are subject to change as the costs of operating as a standalone company are determined. In addition, such adjustments are estimates and may not prove to be accurate. The Unaudited Pro Forma Combined Condensed Financial Statements have been derived from our historical combined financial statements included in this information statement and include certain adjustments to give effect to events that are (i) directly attributable to the distribution and related transaction agreements, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on Alcoa Corporation. Any change in costs or expenses associated with operating as a standalone company would constitute projected amounts based on estimates and, therefore, are not factually supportable; as such, the Unaudited Pro Forma Combined Condensed Financial Statements have not been adjusted for any such estimated changes.

The Unaudited Pro Forma Statement of Combined Operations for the fiscal year ended December 31, 2015 and the six months ended June 30, 2016 has been prepared as though the separation occurred on January 1, 2015. The Unaudited Pro Forma Combined Balance Sheet at June 30, 2016 has been prepared as though the separation occurred on June 30, 2016. The Unaudited Pro Forma Combined Condensed Financial Statements are for illustrative purposes only, and do not reflect what our financial position and results of operations would have been had the separation occurred on the dates indicated and are not necessarily indicative of our future financial position and future results of operations.

The Unaudited Pro Forma Combined Condensed Financial Statements should be read in conjunction with our historical combined financial statements, “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement. The Unaudited Pro Forma Combined Condensed Financial Statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Statement Concerning Forward-Looking Statements” included elsewhere in this information statement.

 

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Alcoa Corporation

Unaudited Pro Forma Statement of Combined Operations

(in millions, except per share data)

 

For the six months ended June 30, 2016

   As Reported     Pro Forma
Adjustments
           Pro Forma        

Total sales

   $ 4,452           $ 4,452     
  

 

 

        

 

 

   

Cost of goods sold (exclusive of expenses below)

     3,797        (15     (a)         3,782     

Selling, general administrative, and other expenses

     175        (31     (b)         144     

Research and development expenses

     28             28     

Provision for depreciation, depletion, and amortization

     355             355     

Restructuring and other charges

     92             92     

Interest expense

     130        (72     (c)         58     

Other expenses, net

     16             16     
  

 

 

        

 

 

   

Total costs and expenses

     4,593             4,475     
  

 

 

        

 

 

   

Loss before income taxes

     (141          (23  

Provision for income taxes

     86        —          (d)         86     
  

 

 

        

 

 

   

Net loss

     (227          (109  

Less: Net income attributable to noncontrolling interests

     38             38     
  

 

 

        

 

 

   

Net loss attributable to Alcoa Corporation

   $ (265        $ (147  

Unaudited pro forma earnings per share:

           

Basic

          $ (0.81     (e)   

Diluted

          $ (0.81     (e)   

Weighted-average shares outstanding:

           

Basic

            182.4        (e)   

Diluted

            182.4        (e)   

 

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Alcoa Corporation

Unaudited Pro Forma Statement of Combined Operations

(in millions, except per share data)

 

For the year ended December 31, 2015 

   As Reported     Pro Forma
Adjustments
           Pro Forma        

Total sales

   $ 11,199           $ 11,199     
  

 

 

        

 

 

   

Cost of goods sold (exclusive of expenses below)

     9,039        (98     (a)         8,941     

Selling, general administrative, and other expenses

     353        (12     (b)         341     

Research and development expenses

     69             69     

Provision for depreciation, depletion, and amortization

     780             780     

Restructuring and other charges

     983             983     

Interest expense

     270        (153     (c)         117     

Other expenses, net

     42             42     
  

 

 

        

 

 

   

Total costs and expenses

     11,536             11,273     
  

 

 

        

 

 

   

Loss before income taxes

     (337          (74  

Provision for income taxes

     402        —          (d)         402     
  

 

 

        

 

 

   

Net loss

     (739          (476  

Less: Net income attributable to noncontrolling interests

     124             124     
  

 

 

        

 

 

   

Net loss attributable to Alcoa Corporation

   $ (863        $ (600  

Unaudited pro forma earnings per share:

           

Basic

          $ (3.30     (e)   

Diluted

          $ (3.30     (e)   

Weighted-average shares outstanding:

           

Basic

            181.7        (e)   

Diluted

            181.7        (e)   

 

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Alcoa Corporation

Unaudited Pro Forma Condensed Combined Balance Sheet

(in millions)

 

June 30, 2016

   As Reported     Pro Forma
Adjustments
           Pro Forma  

Assets

         

Current assets:

         

Cash and cash equivalents

   $ 332        300        (f)       $ 632   

Receivables from customers

     426             426   

Inventories

     1,166             1,166   

Other current assets

     462             462   
  

 

 

        

 

 

 

Total current assets

     2,386             2,686   

Properties, plants, and equipment, net

     9,569             9,569   

Other noncurrent assets

     4,419             4,419   
  

 

 

        

 

 

 

Total Assets

   $ 16,374           $ 16,674   
  

 

 

        

 

 

 

Liabilities

         

Current liabilities:

         

Accounts payable, trade

   $ 1,277           $ 1,277   

Other current liabilities

     832        143        (g)(h)         975   

Long-term debt due within one year

     22             22   
  

 

 

        

 

 

 

Total current liabilities

     2,131             2,274   

Long-term debt, less amount due within one year

     233        1,208        (f)         1,441   

Accrued pension and other postretirement benefits

     424        2,389        (g)         2,813   

Environmental remediation

     206        54        (h)         260   

Asset retirement obligations

     553             553   

Other noncurrent liabilities

     966             966   
  

 

 

        

 

 

 

Total liabilities

     4,513             8,307   
  

 

 

        

 

 

 

Contingencies and commitments

         

Equity

         

Common stock

     —         182        (i)         182   

Additional paid-in capital

     —         10,165        (i)         10,165   

Net parent investment

     11,137        (790     (j)         —    
       (10,347     (i)      

Accumulated other comprehensive loss

     (1,456     (2,704     (g)         (4,160
  

 

 

   

 

 

      

 

 

 

Total net parent investment and accumulated other comprehensive loss

     9,681             6,187   
  

 

 

        

 

 

 

Noncontrolling interest

     2,180             2,180   
  

 

 

        

 

 

 

Total equity

     11,861             8,367   
  

 

 

        

 

 

 

Total Liabilities and Equity

   $ 16,374           $ 16,674   
  

 

 

        

 

 

 

 

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Alcoa Corporation

Notes to Unaudited Pro Forma Combined Financial Statements

(dollars in millions)

 

(a) Reflects the favorable pro forma adjustment of $15 for the six months ended June 30, 2016, and $98 for year ended December 31, 2015, relating to the defined benefit pension and other post-retirement employee benefit (OPEB) plans that were legally separated and created as new plans to be assumed by Alcoa Corporation, had the separation occurred at the beginning of the period presented. On a carve-out basis, the ParentCo plans were accounted for on a multi-employer basis, with related expenses allocated to Alcoa Corporation based primarily on: a) pensionable compensation with respect to active participants; and b) Alcoa Corporation’s revenues as a percentage of ParentCo.’s total segment revenues with respect to ParentCo.’s general corporate participants and closed or sold operations. These historical allocated expenses are higher than the expense that would have been recognized had the new pension and OPEB plans been recorded as direct plans of Alcoa Corporation as of the beginning of the period presented. The new plans have a low ratio of active participants as compared to retired participants for Alcoa Corporation. As such, the amortization period for unrecognized gains and losses was based on the average remaining life expectancy of plan participants (ParentCo shared plans used average remaining service period of active employees).

 

     The plan assumptions used to measure pro forma pension and OPEB expense for the six months ended June 30, 2016, were also used for purposes of measuring pro forma expense for the year ended December 31, 2015.

The calculation of the pro forma adjustment is as follows:

 

     Year ended
December 31, 2015
     Six months ended
June 30, 2016
 

Expense for Shared Plans in historical financial statements

   $ 191       $ 62   

Estimated expense for new separated plans

     93         47   
  

 

 

    

 

 

 

Pro forma adjustment

   $ (98    $ (15
  

 

 

    

 

 

 

 

(b) Reflects the removal of costs related to the separation that were incurred during the historical periods that will not continue to be incurred post-separation. These costs were primarily for legal, tax, and accounting, and other professional fees.

 

(c) Reflects a net adjustment to interest expense resulting from the incurrence by a subsidiary of Alcoa Corporation of third-party indebtedness (see note (f) below) as part of the capital structure to be established at the time of separation and the removal of certain historical interest expense. The interest rate of the incremental $1,250 third-party indebtedness is fixed at 6.75% for $750 and 7.00% for $500, resulting in incremental expense of $46 and $91 (includes amortization of deferred financing costs) for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively. The incremental interest expense from the issuance of additional third-party indebtedness is offset by the elimination of $118 and $244 in interest expense for the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, which represents an allocation of the cost of ParentCo’s debt included in the historical combined financial statements that will not be an obligation of Alcoa Corporation following the separation.

 

(d) Alcoa Corporation does not anticipate any income tax impact related to the pro forma adjustments described in notes (a), (b), and (c) above.

 

(e)

Pro forma earnings per share and pro forma weighted-average shares outstanding are based on the number of shares of ParentCo outstanding as of June 30, 2016, and December 31, 2015, respectively, adjusted for: a) the proposed 1-for-3 reverse stock split for ParentCo’s common stock that is subject to ParentCo shareholder vote scheduled to be held on October 5, 2016; b) an assumed distribution ratio of one share of Alcoa Corporation common stock for every three shares of ParentCo common stock (giving effect to the

 

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  proposed 1-for-3 reverse split mentioned above) held on the record date; and c) approximately 36 million additional shares to be retained by ParentCo. While the actual future impact of potential dilution from shares of common stock related to equity awards granted to our employees under ParentCo’s equity plans will depend on various factors, including employees who may change employment from one company to another, we do not currently estimate that the future dilutive impact is material. For the periods presented, the impact of such equity awards would have been anti-dilutive.

 

(f) Reflects the incurrence by a subsidiary of Alcoa Corporation of $1,250 in third-party indebtedness (of which $750 has an eight-year term and $500 has a ten-year term) as part of the capital structure to be established at the time of separation, of which Alcoa Corporation will retain approximately $300 in cash and the remainder will be distributed to ParentCo. Additionally, Alcoa Corporation will have access to a senior secured $1,500 revolving credit facility (estimated 5-year term), which is expected to be undrawn at the time of separation. Total deferred financing costs associated with these instruments are $42, which will be amortized to interest expense over the terms of the respective instruments, and are reflected as a reduction to long-term debt.

 

(g) Reflects the addition of estimated net benefit plan liabilities that will be transferred to Alcoa Corporation in connection with the planned separation. These net benefit plan liabilities have not been included in the historical combined balance sheet of Alcoa Corporation. A full valuation allowance is expected to be recorded against the deferred tax asset associated with the net benefit plan liabilities.

 

(h) Reflects the net addition of $61 (of which $7 is current) in environmental remediation liabilities associated with certain former operating locations of ParentCo, including those related to retained obligations from operating locations previously divested, that will be assumed by Alcoa Corporation in accordance with the terms of the separation and distribution agreement.

 

(i) On the distribution date, ParentCo’s net investment in Alcoa Corporation (after reflecting the impact of the pro forma adjustment described in notes (g), (h), and (j)) will be re-designated as Alcoa Corporation’s shareholders’ equity and will be allocated between common stock and additional paid in capital based on the number of shares of Alcoa Corporation common stock outstanding at the distribution date.

 

(j) Reflects a net adjustment for the distribution of net proceeds for additional third-party indebtedness described in note (f) above and the establishment of both defined benefit plan and environmental remediation liabilities described in notes (g) and (h) above.

 

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BUSINESS

All amounts discussed in this section are in millions of U.S. dollars, unless otherwise indicated. This section discusses Alcoa Corporation’s business assuming the completion of all of the transactions described in this information statement, including the separation.

Our Company

Alcoa Corporation is a global industry leader in the production of bauxite, alumina and aluminum, enhanced by a strong portfolio of value-added cast and rolled products and substantial energy assets. Alcoa Corporation draws on the innovation culture, customer relationships and strong brand of ParentCo. Previously known as the Aluminum Company of America, ParentCo pioneered the aluminum industry 128 years ago with the discovery of the first commercial process for the affordable production of aluminum. Since the discovery, Alcoa aluminum was used in the Wright brothers’ first flight (1903), ParentCo helped produce the first aluminum-sheathed skyscraper (1952), the first all-aluminum vehicle frame (1994) and the first aluminum beer bottle (2004). Today, Alcoa Corporation extends this heritage of product and process innovation as it strives to continuously redefine world-class operational performance at its locations, while partnering with its customers across its range of global products. We believe that the lightweight capabilities and enhanced performance attributes that aluminum offers across a number of end markets are in increasingly high demand and underpin strong growth prospects for Alcoa Corporation.

Alcoa Corporation’s operations encompass all major production processes in the primary aluminum industry value chain, which we believe provides Alcoa Corporation with a strong platform from which to serve our customers in each critical segment. Our portfolio is well-positioned to take advantage of a projected 5% growth in global aluminum demand in 2016 and to be globally cost competitive throughout all phases of the aluminum commodity price cycle.

 

LOGO

Our Strengths

Alcoa Corporation’s significant competitive advantages distinguish us from our peers.

World-class aluminum assets. Alcoa Corporation has an industry-leading, cost-competitive portfolio comprising six businesses—Bauxite, Alumina, Aluminum, Cast Products, Rolled Products and Energy. These assets include the largest bauxite mining portfolio in the world; a first quartile low cost, globally diverse alumina refining system; and a newly optimized aluminum smelting portfolio. With our innovative network of casthouses, we can customize the majority of our primary aluminum production to the precise specifications of our customers and we believe that our rolling mills provide us with a cost competitive and efficient platform to serve the North American packaging market. Our portfolio of energy assets provides third-party sales opportunities, and in some cases, the operational flexibility to either support metal production or capture earnings through third-party power sales. In

 

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addition, the expertise within each business supports the next step in our value chain by providing optimized products and process knowledge.

Our fully integrated Saudi Arabian joint venture, formed in 2009 with the Saudi Arabian Mining Company (Ma’aden), showcases those synergies. Through our Ma’aden joint venture, we have developed the lowest cost aluminum production complex within the worldwide Alcoa Corporation system. The complex includes a bauxite mine, an alumina refinery, an aluminum smelter and a rolling mill. The complex, which relies on low-cost and clean power generation, is an integral part of Alcoa Corporation’s strategy to lower its overall production cost base. By establishing a strong footprint in the growing Middle East region, Alcoa Corporation is also well-positioned to capitalize on growth and new market opportunities in the region. Ma’aden owns a 74.9% interest in the joint venture. Alcoa Corporation owns a 25.1% interest in the smelter and rolling mill; and Alcoa World Alumina and Chemicals (which is owned 60% by Alcoa Corporation) holds a 25.1% interest in the mine and refinery.

Customer relationships across the industry spectrum and around the world. As a well-established world leader in the production of bauxite, alumina and aluminum products, Alcoa Corporation has the scale, global reach and proximity to major markets to deliver our products to our customers and their supply chains all over the world. We believe Alcoa Corporation’s global network, broad product portfolio and extensive technical expertise position us to be the supplier of choice for a range of customers across the entire aluminum value chain. Our global reach also provides portfolio diversity that can enable us to benefit from local or regional economic cycles. Every Alcoa Corporation business segment operates in multiple countries and both hemispheres.

Alcoa Corporation Global Footprint

 

LOGO

Access to key strategic markets. As illustrated by our bauxite mining operations in the Brazilian Amazon rainforest, and our participation in the first fully integrated aluminum complex in Saudi Arabia, our ability to operate successfully and sustainably has allowed us to forge partnerships in new markets, enter markets more efficiently, gain local knowledge, develop local capacity and reduce risk. We believe that these attributes also make us a preferred strategic partner of our current host countries and of those looking to evaluate and build future opportunities in our industry.

Experienced management team with substantial industry expertise. Our management team has a strong track record of performance and execution. Roy C. Harvey, who has served as President of ParentCo’s Global

 

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Primary Products business, will be Alcoa Corporation’s Chief Executive Officer. Mr. Harvey has served more than 14 years in various capacities at ParentCo, including as ParentCo’s Executive Vice President of Human Resources and Environment, Health, Safety and Sustainability and Vice President of Investor Relations. In addition, William F. Oplinger, ParentCo’s Executive Vice President and Chief Financial Officer, will become Alcoa Corporation’s Chief Financial Officer. Tómas Már Sigurdsson, the Chief Operating Officer of ParentCo’s Global Primary Products business, will become Alcoa Corporation’s Chief Operating Officer. Our senior management team collectively has more than 110 years of experience in the metals and mining, commodities and aluminum industries.

History of operational excellence and continuous productivity improvements. Alcoa Corporation’s dedication to operational excellence has enabled us to withstand unfavorable market conditions. In addition, our productivity program has allowed us to capture cost savings and, by focusing on continuously improving our manufacturing and procurement processes, we seek to produce ongoing cost benefits through the efficient use of raw materials, resources and other inputs. We believe that Alcoa Corporation is positioned to be resilient against market down-swings and to capitalize on the upswings throughout the market cycle.

Positioned for future market scenarios. Since 2010, we have reshaped our portfolio and implemented other changes to our business model in order to make Alcoa Corporation more resilient in times of market volatility. We believe these changes will continue to drive value-creation opportunities in years ahead. Among other disciplined actions, we have:

 

    closed, divested or curtailed 35% of total smelting operating capacity and 25% of total operating refining capacity, enabling us to become more cost competitive;

 

    enhanced our portfolio through our 25.1% investment in the Alcoa Corporation-Ma’aden joint venture in Saudi Arabia, the lowest-cost integrated aluminum complex within the worldwide Alcoa Corporation system, which is now fully operational;

 

    revolutionized the way we sell smelter-grade alumina by shifting our pricing model to an Alumina Price Index (API) or spot pricing, which reflects alumina supply and demand fundamentals;

 

    grown our portfolio of value-added cast product offerings, and increased the percentage of value-added products we sell;

 

    transitioned our non-rolling assets from a regional operating structure to five separate business units focused on Bauxite, Alumina, Aluminum, Cast Products and Energy, and taken significant steps to position each business unit for greater efficiency, profitability and value-creation at each stage of the value chain; and

 

    reduced costs in our Rolled Products operations, and intensified our focus on innovation and value-added products, including aluminum bottle and specialty coatings.

Through our actions, we have improved the position of our alumina refining system on the global alumina cost curve from the 30 th percentile in 2010, to a first quartile 23 rd percentile in 2015, with a target to reach the 21 st percentile by the end of 2016. We have also improved eight points on the global aluminum cost curve since 2010, to the 43 rd percentile in 2015, while targeting the 38 th percentile by the end of 2016. In addition, we have maintained a first quartile 19 th percentile position on the global bauxite cost curve.

The combined effect of these actions has been to enhance our business position in a recovering macroeconomic environment for bauxite, alumina, aluminum and aluminum products, which we believe will allow us to weather the market downturns today while preparing to capitalize on upswings in the future.

 

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Dedication to environmental excellence and safety . We regularly review our strategy and performance with a view toward maximizing our efficient use of resources and our effective control of emissions, waste and land use, and to improve our environmental performance. For example, in order to lessen the impact of our mining activities, we have targeted minimum environmental footprints for each mine to achieve by 2020. Three of our mines that were active in 2015 have already achieved their minimum environmental footprint. During 2015, we disturbed a total of 2,988 acres of mine lands worldwide and rehabilitated 3,233 acres. Alcoa Corporation’s business lowered its CO2 intensity by more than 12% between 2010 and 2015, achieving its target of 30% reduction in CO2 intensity from a 2005 baseline, a full five years ahead of target. Alcoa Corporation is also committed to a world-class health and safety culture that has consistently delivered incident rates below industry averages. As part of ParentCo, the Alcoa Corporation business improved its Days Away, Restricted, and Transfer (DART) rate—a measure of days away from work or job transfer due to injury or illnesses—by 62% between 2010 and 2015. Alcoa Corporation intends to continue to intensify our fatality prevention efforts and the safety and well-being of our employees will remain the top priority for Alcoa Corporation.

Our Strategies

As Alcoa Corporation, we intend to continue to be an industry leader in the production of bauxite, alumina, primary aluminum and aluminum cast and rolled products. We will remain focused on cost efficiency and profitability, while also seeking to develop operational and commercial innovations that will sharpen our competitive edge. Our management team has considerable experience in managing through tough market cycles, which we believe will enable us to profit through commodity down-swings. In upswings, we believe our low cost assets will be well positioned to deliver strong returns.

Alcoa Corporation will also remain focused on our core values. We will continue to hold ourselves to the highest standards of environmental and ethical practices, support our communities through Alcoa Foundation grants and employee volunteerism, and maintain transparency in our actions and ongoing dialogue with local stakeholders. We believe that this is essential to support our license to operate in the unique communities in which we do business, ensuring sustainability, and making us the partner of choice. Combined with our continued focus on operational excellence and rigorous management of our assets, we expect to create value for our shareholders and customers and attract and retain highly-qualified talent.

We intend to remain true to our heritage by focusing on the following core principles:

Solution-Oriented Customer Relationships and Programs.   We aim to succeed by helping our customers innovate and win in their markets. We will work to provide new and improved products and technical expertise that support our customers’ innovation, which we believe will help to strengthen the demand and consumption of aluminum across the globe for all segments of the value chain. We intend to continue prudently investing in our technical resources to both drive our own efficiencies and to help our customers develop solutions to their challenges.

Establishment of a Strong, Operator-Focused Culture.   We are proud of the 128 year history of the Alcoa Corporation business and the culture of innovation and operational excellence upon which we are built. We intend to build a culture for Alcoa Corporation that is true to this heritage and focuses our management, operational processes and decision-making on the critical success of our mines and facilities. To support this effort, we will work to have an overhead structure that is appropriately scaled for our business, and will use our deep industry and operational expertise to navigate an ever-changing and volatile industry.

Operational reliability and excellence . We are committed to the development, maintenance and use of our reliability excellence program, which is designed to optimize the operational availability and integrity of our assets, while driving lower costs. We will also continue to build on our “Center of Excellence (COE)” model, which leverages central research and development and technical expertise within each business to facilitate the transfer of best practices, while also providing rapid response to plant level disruptions.

 

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Aggressive asset portfolio management . Alcoa Corporation will continue to review our portfolio of assets and opportunities to maximize value creation. Having delinked the aluminum value chain by restructuring our upstream businesses into standalone units (Bauxite, Alumina, Aluminum, Cast Products, Rolled Products and Energy), we believe we are well-positioned to pursue opportunities to reduce costs and grow revenue and margins across our portfolio. Examples of these opportunities include the growth of our third party bauxite sales, the ability, in some cases, to flex energy between aluminum production and power sales, the increase in our value-added cast products as a percentage of aluminum sales and the combination of the state-of-the-art rolling mill in Saudi Arabia and our Warrick rolling mill’s current products and customer relationships. We will also continue to monitor our assets relative to market conditions, industry trends and the position of those assets in their life cycle, and we will curtail, sell or close assets that do not meet our value-generation standards.

Efficient use of available capital . In seeking to allocate our capital efficiently, we expect that our near-term priorities will be to sustain valuable assets in the most cost-effective manner while de-levering our balance sheet by managing debt and long term liabilities. We intend to effectively deploy excess cash to maximize long-term shareholder value, with incremental growth opportunities and other value-creating uses of capital evaluated against return of capital to shareholders. We expect that return on capital (ROC) will be the primary metric we use to drive capital allocation decisions.

Disciplined Execution of High-Return Growth Projects . We expect to continue to look for and implement incremental growth projects that meet our rigorous ROC standards, while working to ensure that those projects are completed on time and within budget.

Continuous pursuit of improvements in productivity . A strong focus on productivity will remain a critical component of Alcoa Corporation’s continued success. We believe that our multi-phased approach, consisting of reliability excellence programs, strong procurement strategies across our businesses, and a continuous focus on technical efficiencies, will allow us to continue to drive productivity improvements.

Attracting and Retaining the Best Employees Globally . Our people-processes and career development programs are designed to attract and retain the best employees, whether it be as operators from the local communities in which we work, or senior management with experiences that can strengthen our ability to execute. We will strive to harness the collective creativity and diversity of thought of our workforce to drive better outcomes and to design, build and implement improvements to our processes and products.

Each of Alcoa Corporation’s six businesses provides a solid foundation upon which to grow.

Premier bauxite position . Alcoa Corporation is the world’s largest bauxite miner, with 45.3 million bone dry metric tons of production in 2015, enjoying a first-quartile cost curve position. We have access to large bauxite deposit areas with mining rights that extend in most cases more than 20 years. We have ownership in seven active bauxite mines globally, four of which we operate, that are strategically located near key Atlantic and Pacific markets, including the Huntly mine in Australia, the second largest bauxite mine in the world. In addition to supplying bauxite to our own alumina refining system, we are seeking to grow our newly developed third-party bauxite sales business. For example, during the third quarter of 2015, Alcoa Corporation’s affiliate, Alcoa of Australia Limited, received permission from the Government of Western Australia to export trial shipments from its Western Australia mines. In addition, we have secured multiple bauxite supply contracts valued at more than $410 million of revenue over 2016 and 2017. We intend to selectively grow our industry-leading assets, continue to build upon our solid operational strengths and develop new ore reserves. We intend to maintain our focus on mine reclamation and rehabilitation, which we believe not only benefits our current operations, but can facilitate access to new projects in diverse communities and ecosystems globally.

Attractive alumina portfolio . We are also the world’s largest alumina producer, with a highly competitive first-quartile cost curve position. Alcoa Corporation has nine refineries on five continents, including one of the world’s largest alumina production facilities, the Pinjarra refinery in Western Australia. In addition to supplying

 

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our aluminum smelters with high quality feedstock, we also have significant alumina sales to third parties, with almost 70% of 2015 production being sold externally. Our operations are strategically located for access to growing markets in Asia, the Middle East and Latin America. We are improving our alumina margins by continuing to shift the pricing of our third party smelter-grade alumina sales from the historical London Metal Exchange (LME) aluminum-based pricing to API pricing which better reflects alumina production cost and market fundamentals. In 2015, we grew the percentage of third-party smelter grade alumina shipments that were API or spot-priced to 75%, up from 68% in 2014 and up from 5% in 2010. In 2016, we expect that approximately 85% of our third-party alumina shipments will be based on API or spot pricing. We have also steadily increased our system-wide capacity over the past decade through a combination of operational improvements and incremental capacity projects, effectively adding capacity equivalent to a new refinery. We intend to maintain our first quartile global cost position for Alcoa Corporation’s Alumina business while incrementally growing capacity and continuously striving for sustained operational excellence.

Smelting portfolio positioned to benefit as aluminum demand increases . As a global aluminum producer with a second-quartile cost curve portfolio, we believe that Alcoa Corporation is well positioned to benefit from robust growth in aluminum demand. We estimate record global aluminum demand in 2016 of 59.7 million metric tons, up 5% over 2015. Global aluminum demand was expected to double between 2010 and 2020 and, through the first half of the decade, demand growth tracked ahead of the projection. We expect that our proximity to major markets—with over 50% of our capacity located in Canada, Iceland and Norway, close to the large North American and European markets—will give us a strategic advantage in capitalizing on growth in aluminum demand. In addition, our 25.1% ownership stake in the low-cost aluminum complex in Saudi Arabia, as well as our proven track record of taking actions to optimize our operations, makes us well-positioned to benefit from improved market conditions in the future. Furthermore, with approximately 75% of our smelter power needs contractually secured through 2022, we believe that Alcoa Corporation is well positioned to manage that important dimension of our cost base. Our Aluminum business intends to continue its pursuit of operating efficiencies and incremental capacity expansion projects. We intend to react quickly to market cycles to curtail unprofitable facilities, if necessary, but also maintain optionality to profit from higher metal price environments through the restart of idled capacity.

 

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Global network of casthouses . Alcoa Corporation currently operates 15 casthouses providing value-added products to customers in growing markets. We also have three casthouses that are currently curtailed. In our Cast Products business, our aim is to partner with our customers to develop solutions that support their success by providing them with superior quality products, customer service and technical support. Our network of casthouses has enabled us to steadily grow our cast products business by offering differentiated, value-added aluminum products that are cast into specific shapes to meet customer demand. We intend to continue to improve the value of our installed capacity through productivity and technology gains, and will look for opportunities to add new capacity and develop new product lines in markets where we believe superior returns can be realized. Value-added products grew to 67% of total Cast Products shipments in 2015, compared to 65% in 2014 and 57% in 2010. Our value-added product portfolio has been profitable throughout the primary aluminum market cycle and, from 2010 to 2015, our casting business realized $1.6 billion in incremental margins through value-added sales when compared to selling unalloyed commodity grade ingot. We have also introduced EZCAST™, VERSACAST™, SUPRACAST™ and EVERCAST™ advanced alloys with improved thermal performance and corrosion resistance that have already been qualified with top-tier original equipment manufacturers. Additional trials are underway and more are planned in 2016.

 

LOGO

Efficient and focused rolling mills . Alcoa Corporation has rolling operations in Warrick, Indiana and Saudi Arabia which, together, serve the North American aluminum can sheet market. The Warrick Rolling Mill is focused on packaging, producing can body stock, can end and tab stock, bottle stock and food can stock, and industrial sheet and lithographic sheet. The Ma’aden Rolling Mill currently produces can body stock, can end and tab stock, and hot-rolled strip for finishing into automotive sheet. Following the separation, it is anticipated that the facilities manufacturing products for the North American can packaging market will be located only at the Warrick and Ma’aden Rolling Mills, and that the Arconic rolling mills will not compete in this market. As the packaging market in North America has become highly commoditized, we believe that our experience in, and focus on, operational excellence and continuous productivity improvements will be key competitive advantages. We intend to lower costs through productivity improvements, improved capacity utilization and targeted capital deployment.

Substantial energy assets . Our Energy portfolio will continue to be focused on value creation by seeking to lower overall operational costs and maintaining flexibility to sell power or consume it internally. Alcoa Corporation has a valuable portfolio of energy assets with power production capacity of approximately 1,685 megawatts, of which approximately 61% is low-cost hydroelectric power. We believe that our energy assets provide us with operational flexibility to profit from market cyclicality. In continuously assessing the energy market environment, we strive to meet in-house energy requirements at the lowest possible cost and also sell power to external customers at attractive profit margins. With approximately 55% of Alcoa Corporation-generated power being sold externally in 2015, we achieved significant earnings from power sales globally. In addition, our team of Energy employees has considerable expertise in managing our external sourcing of energy for our operations, which has enabled us to achieve favorable commercial outcomes. For example, in 2015, we secured an attractive 12-year gas supply agreement (starting in 2020) to power our extensive alumina refinery operations in Western Australia.

 

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Certain Joint Ventures

AWAC

Alcoa World Alumina and Chemicals (AWAC) is an unincorporated global joint venture between Alcoa Corporation and Alumina Limited, a company incorporated under the laws of the Commonwealth of Australia and listed on the Australian Securities Exchange. AWAC consists of a number of affiliated entities that own, operate or have an interest in, bauxite mines and alumina refineries, as well as certain aluminum smelters, in seven countries. Alcoa Corporation owns 60% and Alumina Limited owns 40% of these entities, directly or indirectly, with such entities being consolidated by Alcoa Corporation for financial reporting purposes.

The scope of AWAC generally includes:

 

    Bauxite and Alumina : The mining of bauxite and other aluminous ores as well as the refining and other processing of these ores into alumina and other ancillary operations;

 

    Non-Metallurgical Alumina : The production and sale of non-metallurgical alumina and other alumina-based chemicals; and

 

    Integrated Operations : Ownership and operation of certain primary aluminum smelting, aluminum fabricating and other ancillary facilities.

Alcoa Corporation is the industrial leader of AWAC and provides the operating management for all of the operating entities forming AWAC. The operating management is subject to direction provided by the Strategic Council of AWAC, which is the principal forum for Alcoa Corporation and Alumina Limited to provide direction and counsel to the AWAC companies regarding strategic and policy matters. The Strategic Council consists of five members, three of whom are appointed by Alcoa Corporation (of which one is the Chairman of the Strategic Council), and two of whom are appointed by Alumina Limited (of which one is the Deputy Chairman of the Strategic Council).

All matters before the Strategic Council are decided by a majority vote of the members, except for certain matters which require approval by at least 80% of the members. Following completion of the separation, such matters will include changes to the scope of AWAC; changes in the dividend policy; equity calls in aggregate greater than $1 billion in any year; sales of all or a majority of the AWAC assets; loans from AWAC companies to Alcoa or Alumina Limited; certain acquisitions, divestitures, expansions, curtailments or closures; certain related-party transactions; financial derivatives, hedges or swap transactions; a decision by AWAC companies to file for insolvency; and changes to pricing formula in certain offtake agreements which may be entered into between AWAC companies and Alcoa Corporation or Alumina Limited.

AWAC Operations

AWAC entities’ assets include the following interests:

 

    100% of the bauxite mining, alumina refining, and aluminium smelting operations of AofA;

 

    100% of the refinery assets at Point Comfort, Texas, United States (“Point Comfort”);

 

    100% interest in various mining and refining assets and the Hydro-electric facilities in Suriname;

 

    a 39% interest in the São Luis refinery in Brazil;

 

    a 8.58% interest in the bauxite mining operations of Mineraçāo Rio Do Norte, an international mining consortium;

 

    100% of the Juruti bauxite deposit and mine in Brazil;

 

    100% of the refinery and alumina-based chemicals assets at San Ciprian, Spain;

 

    a 45% interest in Halco (Mining) Inc., a bauxite consortium that owns a 51% interest in Compagnie des Bauxites de Guinée, a bauxite mine in Guinea;

 

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    100% of Alcoa Steamship Company Inc.; and

 

    a 25.1% interest in the mine and refinery in Saudi Arabia.

 

    a 55% interest in the Portland smelter AWAC manages on behalf of the joint venture partners.

Exclusivity

Under the terms of their joint venture agreements, Alcoa Corporation and Alumina Limited have agreed that, subject to certain exceptions, AWAC is their exclusive vehicle for their investments, operations or participation in the bauxite and alumina business, and they will not compete with AWAC in those businesses. In the event of a change of control of either Alcoa Corporation or Alumina Limited, this exclusivity and non-compete restriction will terminate, and the partners will then have opportunities to unilaterally pursue bauxite or alumina projects outside of or within AWAC, subject to certain conditions provided in the Amended and Restated Charter of the Strategic Council.

Equity Calls

The cash flow of AWAC and borrowings are the preferred sources of funding for the needs of AWAC. Should the aggregate annual capital budget of AWAC require an equity contribution from Alcoa Corporation and Alumina Limited, an equity call can be made on 30 days’ notice, subject to certain limitations.

Dividend Policy

Effective on completion of the separation, AWAC will generally be required to distribute at least 50% of the prior calendar quarter’s net income of each AWAC company, and certain AWAC companies will also be required to pay a distribution every three months equal to the amount of available cash above specified thresholds and subject to the forecast cash needs of the company. Alcoa Corporation has also agreed that, after the separation, it will obtain a limited amount of debt funding for the AWAC companies to fund growth projects, subject to certain restrictions.

Leveraging Policy

Debt of AWAC is subject to a limit of 30% of total capital (defined as the sum of debt (net of cash) plus any minority interest plus shareholder equity). The AWAC joint venture will raise a limited amount of debt to fund growth projects within 12 months of it becoming permissible under Alcoa Corporation’s revolving credit line, provided that the amount of debt does not trigger a credit rating downgrade for Alcoa Corporation.

Other Joint Ventures

In December 2009, ParentCo and Saudi Arabian Mining Company (Ma’aden), which was formed by the government of Saudi Arabia to develop its mineral resources and is listed on the Saudi Stock Exchange (Tadawul), entered into a joint venture to develop a fully integrated aluminum complex in the Kingdom of Saudi Arabia. This project is the lowest-cost aluminum production complex within the worldwide Alcoa Corporation system. In its initial phases, the complex includes a bauxite mine with an initial capacity of 4 million bone dry metric tons per year; an alumina refinery with an initial capacity of 1.8 million metric tons per year (mtpy); an aluminum smelter with an initial capacity of ingot, slab and billet of 740,000 mtpy; and a rolling mill with initial capacity of 380,000 mtpy. The smelter, refinery and mine are fully operational. Ma’aden owns a 74.9% interest in the joint venture. Alcoa Corporation owns a 25.1% interest in the smelter and in the rolling mill; and AWAC holds a 25.1% interest in the mine and refinery.

The ABI smelter is a joint venture between Alcoa Corporation and Rio Tinto. Alcoa Corporation is the operating partner and owns 74.95% of the joint venture.

 

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The Machadinho Hydro Power Plant (HPP): Machadinho HPP is a consortium between Alcoa Alumínio (25.8%), Votorantim Energia (33.1%), Tractebel (19.,3%), Vale (8.3%) and other partners (CEEE, InterCement and DME Energetica) located in the Pelotas river, southern Brazil.

Barra Grande Hydro Power Plant (HPP): Barra Grande HPP is a joint venture between Alcoa Alumínio (42.2%), CPFL Energia (25%), Votorantim Energia (15%), InterCement (9%) and DME Energetica (8.8%) located in the Pelotas river, southern Brazil.

Estreito Hydro Power Plant (HPP): Estreito HPP is a consortium between Alcoa Alumínio (25.5%), Tractebel (40.1%), Vale (30%) and InterCement (4.4%) located in the Tocantins river, northern Brazil.

Serra do Facão Hydro Power Plant (HPP): Serra do Facão HPP is a consortium between Alcoa Alumínio (34.9%), Furnas (49.4%), Dme Energetica (10%) and Camargo Correa Energia (5.4%) located in the Sao Marcos river, central-Brazil.

Manicouagan Power Limited Partnership (Manicouagan) is a joint venture between Alcoa Corporation and Hydro Quebec. Manicouagan owns and operates the 335 megawatt McCormick hydroelectric project, which is located on the Manicouagan River in the Province of Quebec. Manicouagan supplies approximately 27% of the electricity requirements of Alcoa Corporation’s Baie-Comeau, Quebec, smelter. Alcoa Corporation owns 40% of the joint venture.

The Strathcona calciner is a joint venture between Alcoa Corporation and Rio Tinto. The calciner purchases green coke from the petroleum industry and converts it into calcined coke. The calcined coke is then used as a raw material in an aluminum smelter. Alcoa Corporation owns 39% of the joint venture.

The Alcoa Corporation Business

Bauxite

Bauxite is one of Alcoa Corporation’s basic raw materials and is also a product sold into the third-party marketplace. Aluminum is one of the most abundant elements in the earth’s crust. Aluminum metal is produced by smelting alumina. Alumina is produced primarily from refining bauxite. Bauxite contains various aluminum hydroxide minerals, the most important of which are gibbsite and boehmite. Alcoa Corporation processes most of the bauxite that it mines into alumina and sells the remainder to third parties. The company obtains bauxite from its own resources and from those belonging to the AWAC enterprise, located in the countries listed in the table below, as well as pursuant to both long-term and short-term contracts and mining leases. Tons of bauxite are reported as bone dry metric tons (“bdmt”) unless otherwise stated. See the glossary of bauxite mining-related terms at the end of this section.

During 2015, mines operated by Alcoa Corporation (owned by Alcoa Corporation and AWAC) produced 38.3 million bdmt and separately mines operated by third parties (with Alcoa Corporation and AWAC equity interests) produced 7.0 million bdmt on a proportional equity basis for a total bauxite production of 45.3 million bdmt.

Based on the terms of its bauxite supply contracts, AWAC bauxite purchases from Mineração Rio do Norte S.A. (“MRN”) and Compagnie des Bauxites de Guinée (“CBG”) differ from its proportional equity in those mines. Therefore during 2015, including those purchases, AWAC had access to 47.8 million bdmt of production from its portfolio of mines.

During 2015, AWAC sold 1.5 million bdmt of bauxite to third parties and purchased 0.2 million bdmt from third parties. The bauxite delivered to Alcoa Corporation and AWAC refineries amounted to 46.8 million bdmt during 2015.

The company is growing its third-party bauxite sales business. For example, during the third quarter of 2015, ParentCo received permission from the Government of Western Australia to export trial shipments from its Western Australia mines.

 

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The company has access to large bauxite deposit areas with mining rights that extend in most cases more than 20 years from the date of this information statement. For purposes of evaluating the amount of bauxite that will be available to supply as feedstock to its refineries, the company considers both estimates of bauxite resources as well as calculated bauxite reserves. Bauxite resources represent deposits for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence based on the amount of exploration sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. Bauxite reserves represent the economically mineable part of resource deposits, and include diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out to define the reserves, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. Alcoa Corporation employs a conventional approach (including additional drilling with successive tightening of the drilling grid) with customized techniques to define and characterize its various bauxite deposit types allowing Alcoa Corporation to confidently establish the extent of its bauxite resources and their ultimate conversion to reserves.

The following table only includes the amount of proven and probable reserves controlled by the company. While the level of reserves may appear low in relation to annual production levels, they are consistent with historical levels of reserves for the company’s mining locations and consistent with the company reserves strategy. Given the company’s extensive bauxite resources, the abundant supply of bauxite globally and the length of the company’s rights to bauxite, it is not cost-effective to invest the significant funds and efforts necessary to establish bauxite reserves that reflect the total size of the bauxite resources available to the company. Rather, bauxite resources are upgraded annually to reserves as needed by the location. Detailed assessments are progressively undertaken within a proposed mining area and mine activity is then planned to achieve a uniform quality in the supply of blended feedstock to the relevant refinery. Alcoa Corporation believes its present sources of bauxite on a global basis are sufficient to meet the forecasted requirements of its alumina refining operations for the foreseeable future.

Bauxite Resource Development Guidelines

Alcoa Corporation has adopted best practice guidelines for bauxite reserve and resource classification at its operating bauxite mines. Alcoa Corporation’s reserves are declared in accordance with Alcoa Corporation’s internal guidelines as administered by the Alcoa Ore Reserves Committee (“AORC”). The reported ore reserves set forth in the table below are those that Alcoa Corporation estimates could be extracted economically with current technology and in current market conditions. Alcoa Corporation does not use a price for bauxite, alumina or aluminum to determine its bauxite reserves. The primary criteria for determining bauxite reserves are the feed specifications required by the customer alumina refinery. More specifically, reserves are set based on the chemical specifications of the bauxite in order to minimize bauxite processing cost and maximize refinery economics for each individual refinery. The primary specifications that are important to this analysis are the “available alumina” and “reactive silica” content of the bauxite. Each alumina refinery will have a target specification for these parameters, but may receive bauxite within a range that allows blending in stockpiles to achieve the refinery target.

In addition to these chemical specifications, a number of other ore reserve design factors have been applied to differentiate bauxite reserves from other mineralized material. The contours of the bauxite reserves are designed using additional parameters such as available alumina content cutoff grade, reactive silica cutoff grade, ore density, overburden thickness, ore thickness and mine access considerations. These parameters are generally determined by using infill drilling or geological modeling.

Further, Alcoa Corporation mining locations utilize annual in-fill drilling or geological modeling programs designed to progressively upgrade the reserve and resource classification of their bauxite based on the above-described factors.

 

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Alcoa Corporation Bauxite Interests, Share of Reserves and Annual Production 1

 

Country

  Project   Owners’
Mining Rights
(% Entitlement)
  Expiration
Date of
Mining
Rights
  Probable
Reserves
(million
bdmt)
  Proven
Reserves
(million
bdmt)
  Available
Alumina
Content
(%)
AvA1 2 0 3
  Reactive
Silica
Content
(%)
RxSi0 2
  2015
Annual
Production
(million
bdmt)
  Ore Reserve Design
Factors

Australia

  Darling

Range

Mines

ML1SA

  Alcoa of
Australia
Limited
(AofA) 2
(100%)
  2024   28.5   150.0   33.0
Range:
31.0-
34.0
  0.9
Max:
1.4
  31.7   •AvA1 2 0 3   ³ 27.5%

•RxSi0 2   £  3.5%

•Minimum mineable
  thickness 2m

•Minimum bench
  widths of 45m

Brazil

  Poços de
Caldas
  Alcoa
Alumínio S.A.
(Alumínio) 3
(100%)
  2020 4   0.9   1.3   39.6
Range:
39.5-
41.5
  4.4
Range:
3.5-4.5
  0.3   •AvA1 2 0 3   ³  30%

•RxSi0 2   £  7%

  Juruti 4
RN101,
RN102,
RN103,
RN104, #34
  Alcoa World
Alumina
Brasil Ltda.
(AWA Brasil) 2
(100%)
  2100 4   8.7   26.5   47.7
Range:
46.5-
48.5
  4.1
Range:
3.3-4.3
  4.7   •AvA1 2 0 3   ³  35%

•RxSi0 2   £  10%

•Wash Recovery:
   ³  30%

•Overburden/Ore
  (m/m) = 10/1

Suriname

  Coermotibo and
Onverdacht
  Suriname
Aluminum
Company,
L.L.C.
(Suralco) 2
(55%) N.V.
Alcoa
Minerals of
Suriname
(AMS) 5  (45%)
  2033 6   0.0   0.0   N/A   N/A   1.6   N/A

Equity Interests :

 

Brazil

  Trombetas   Mineração Rio
do Norte S.A.
(MRN) 7
(18.2%)
  2046 4   3.7   10.4   49.5

Range:

49.0-

50.5

  4.5

Range:

4.0-

4.8

  3.0   •AvA1 2 0 3   ³  46%

•RxSi02 £ 7%

•Wash Recovery:

   ³ 30%

Guinea

  Boké   Compagnie
des Bauxites
de Guinée
(CBG) 8
(22.95%)
  2038 9   59.5   23.2   TAl 2 O 3 10

48.5

Range:

48.5-

52.4

  TSiO 2 10

1.7

Range:

1.2-

2.1

  3.4   •AvA1 2 0 3 ³  44%

•RxSi0 2 £ 10%

•Minimum mineable
  thickness 2m

•Smallest Mining
  Unit size (SMU)

  50m x 50m

Kingdom
of Saudi Arabia

  Al Ba’itha   Ma’aden
Bauxite &
Alumina
Company
(25.1%) 11
  2037   33.8   19.3   TAA 12

49.4

  TSiO2 12

8.6

  0.6   •AvA1 2 0 3 ³  40%

•Mining dilution
  modelled as a
  skin of 12.5cm
  around the ore

•Mining recovery
  applied as a skin
  loss of 7.5 cm on
  each side of the
  mineralisation

•Mineralisation
  less than 1m thick
  excluded

 

1

This table shows only the AWAC and/or Alcoa Corporation share (proportion) of reserve and annual production tonnage.

 

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2 This entity is part of the AWAC group of companies and is owned 60% by Alcoa Corporation and 40% by Alumina Limited.
3 Alumínio is owned 100% by Alcoa Corporation.
4 Brazilian mineral legislation does not establish the duration of mining concessions. The concession remains in force until the exhaustion of the deposit. The company estimates that (i) the concessions at Poços de Caldas will last at least until 2020, (ii) the concessions at Trombetas will last until 2046 and (iii) the concessions at Juruti will last until 2100. Depending, however, on actual and future needs, the rate at which the deposits are exploited and government approval is obtained, the concessions may be extended to (or expire at) a later (or an earlier) date.
5 Alcoa World Alumina LLC (“AWA LLC”) owns 100% of N.V. Alcoa Minerals of Suriname (“AMS”). Suralco and AMS are parts of the AWAC group of companies which are owned 60% by Alcoa Corporation and 40% by Alumina Limited.
6 At the end of 2015, AWAC’s bauxite mineral and mining rights remained valid until 2033. The AWAC mines in Suriname were curtailed in the fourth quarter of 2015. There are no plans for AWAC to restart these mines and there are no reserves to declare.
7 Alumínio holds an 8.58% total interest, AWA Brasil holds a 4.62% total interest and AWA LLC holds a 5% total interest in MRN. MRN is jointly owned with affiliates of Rio Tinto Alcan Inc., Companhia Brasileira de Alumínio, Companhia Vale do Rio Doce, BHP Billiton Plc (“BHP Billiton”) and Norsk Hydro. Alumínio, AWA Brasil, and AWA LLC purchase bauxite from MRN under long-term supply contracts.
8 AWA LLC owns a 45% interest in Halco (Mining), Inc. (“Halco”). Halco owns 100% of Boké Investment Company, a Delaware company, which owns 51% of CBG. The Guinean Government owns 49% of CBG, which has the exclusive right through 2038 to develop and mine bauxite in certain areas within an approximately 2939 square-kilometer concession in northwestern Guinea.
9 AWA LLC and Alũmina Española, S.A. have bauxite purchase contracts with CBG that expire in 2033. Before that expiration date, AWA LLC and Alũmina Española, S.A expect to negotiate extensions of their contracts as CBG will have concession rights until 2038. The CBG concession can be renewed beyond 2038 by agreement of the Government of Guinea and CBG should more time be required to commercialize the remaining economic bauxite within the concession.
10 Guinea—Boké: CBG prices bauxite and plans the mine based on the bauxite qualities of total alumina (TAl2O3) and total silica (TSiO2).
11 Ma’aden Bauxite & Alumina Company is a joint venture owned by Saudi Arabian Mining Company (“Ma’aden”) (74.9%) and AWA Saudi Limited (25.1%). AWA Saudi Limited is part of the AWAC group of companies and is owned 60% by Alcoa Corporation and 40% by Alumina Limited.
12 Kingdom of Saudi Arabia—Al Ba’itha: Bauxite reserves and mine plans are based on the bauxite qualities of total available alumina (TAA) and total silica (TSiO2).

Qualifying statements relating to the table above:

Australia—Darling Range Mines: Huntly and Willowdale are the two AWAC active mines in the Darling Range of Western Australia. The mineral lease issued by the State of Western Australia to Alcoa Corporation’s majority owned subsidiary, Alcoa of Australia Limited (AofA) is known as ML1SA and encompasses a gross area of 712,881 hectares (including private land holdings, state forests, national parks and conservation areas) in the Darling Range and extends from east of Perth to east of Bunbury (the “ML1SA Area”). The ML1SA provides AofA with various rights, including certain exclusivity rights to explore for and mine bauxite, rights to deny third party mining tenements in limited circumstances, rights to mining leases for other minerals in the ML1SA Area, and the right to prevent certain governmental actions from interfering with or prejudicially affecting Alcoa Corporation’s rights. The ML1SA term extends to 2024, however it can be renewed for an additional 21 year period to 2045. The declared reserves are as for December 31, 2015. The amount of reserves reflects the total AWAC share. Additional resources are routinely upgraded by additional exploration and development drilling to reserve status. The Huntly and Willowdale mines supply bauxite to three local AWAC alumina refineries.

Brazil—Poços de Caldas: Declared reserves are as for December 31, 2015. Tonnage is total Alcoa share. Additional resources are being upgraded to reserves as needed.

Brazil—Juruti RN101, RN102, RN103, RN104, #34: Declared reserves are as for December 31, 2015. All reserves are on Capiranga Plateau. Declared reserves are total AWAC share. Declared reserve tonnages and the annual production tonnage are washed product tonnages. The Juruti mine’s operating license is periodically renewed.

 

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Suriname—Suralco: The AWAC mines in Suriname were curtailed in the fourth quarter of 2015. AWAC has no plans to restart these mines and there are no reserves to declare.

Brazil—Trombetas-MRN: Declared reserves are as for December 31, 2015. The CP Report for December 31, 2015 was issued on February 25, 2016. Declared and annual production tonnages reflect the total for Alumínio and AWAC shares (18.2%). Declared tonnages are washed product tonnages.

Guinea—Boké-CBG: Declared reserves are based on export quality bauxite reserves and are as for December 31, 2015. The CP Report for December 31, 2015 reserves was issued on February 29, 2016. Declared tonnages reflect only the AWAC share of CBG’s reserves. Annual production tonnage is reported based on AWAC’s 22.95% share. Declared reserves quality is reported based on total alumina (TAl 2 O 3 ) and total silica (TSiO 2 ) because CBG export bauxite is sold on this basis. Additional resources are being routinely drilled and modeled to upgrade to reserves as needed.

Kingdom of Saudi Arabia—Al Ba’itha: The Al Ba’itha Mine began production during 2014 and production was increased in 2015. Declared reserves are as for December 31, 2015. The CP Report for December 31, 2015 reserves was issued on January 17, 2016. The proven reserves have been decremented for 2015 mine production. The declared reserves are located in the South Zone of the Az Zabirah Bauxite Deposit. The reserve tonnage in this declaration is AWAC share only (25.1%).

The following table provides additional information regarding the company’s bauxite mines:

 

Mine & Location

 

Means of Access

 

Operator

 

Title, Lease or
Options

 

History

 

Type of Mine
Mineralization Style

 

Power Source

 

Facilities, Use &
Condition

Australia—Darling Range; Huntly and Willowdale.  

Mine locations accessed by roads.

 

Ore is transported to refineries by long distance conveyor and rail.

  Alcoa Corporation   Mining lease from the Western Australia Government. ML1SA. Expires in 2024.   Mining began in 1963.  

Open-cut mines.

 

Bauxite is derived from the weathering of Archean granites and gneisses and Precambrian dolerite.

  Electrical energy from natural gas is supplied by the refinery.  

Infrastructure includes buildings for administration and services; workshops; power distribution; water supply; crushers; long distance conveyors.

 

Mines and facilities are operating.

Brazil—Poços de Caldas. Closest town is Poços de Caldas, MG, Brazil.  

Mine locations are accessed by road.

 

Ore transport to the refinery is by road.

  Alcoa Corporation   Mining licenses from the Government of Brazil and Minas Gerais. Company claims and third-party leases. Expires in 2020.   Mining began in 1965.  

Open-cut mines.

 

Bauxite derived from the weathering of nepheline syenite and phonolite.

  Commercial grid power.  

Mining offices and services are located at the refinery.

 

Numerous small deposits are mined by contract miners and the ore is trucked to either the refinery stockpile or intermediate stockpile area.

 

Mines and facilities are operating.

 

Mine production has been reduced to align with the reduced production of the Poços refinery which is now producing specialty alumina.

 

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Table of Contents

Mine & Location

 

Means of Access

 

Operator

 

Title, Lease or
Options

 

History

 

Type of Mine
Mineralization Style

 

Power Source

 

Facilities, Use &
Condition

Brazil—Juruti Closest town is Juruti located on the Amazon River.  

The mine’s port at Juruti is located on the Amazon River and accessed by ship.

 

Ore is transported from the mine site to the port by company owned rail.

  Alcoa Corporation  

Mining licenses from the Government of Brazil and Pará. Mining rights do not have a legal expiration date. See footnote 4 to the table above.

 

Operating licenses for the mine, washing plant and RR have been renewed with validity until 2018.

 

Operating license for the port remains valid until the government agency formalizes the renewal.

 

The Juruti deposit was systematically evaluated by Reynolds Metals Company beginning in 1974.

 

ParentCo merged Reynolds into the Company in 2000. ParentCo then executed a due diligence program and expanded the exploration area. Mining began in 2009.

 

Open-cut mines.

 

Bauxite derived from weathering during the Tertiary of Cretaceous fine to medium grained feldspathic sandstones.

 

The deposits are covered by the Belterra clays.

  Electrical energy from fuel oil is generated at the mine site. Commercial grid power at the port.  

At the mine site: Fixed plant facilities for crushing and washing the ore; mine services offices and workshops; power generation; water supply; stockpiles; rail sidings.

 

At the port: Mine and rail administrative offices and services; port control facilities with stockpiles and ship loader.

 

Mine and port facilities are operating.

Suriname— Coermotibo and Onverdacht. Mines are located in the districts of Para and Marowijne.   The mines are accessed by road. Ore is delivered to the refinery by road from the Onverdacht area and by river barge from the Coermotibo area.   Alcoa Corporation  

Brokopondo Concession from the Government of Suriname.

 

Concessions formerly owned by a BHP Billiton (BHP) subsidiary that was a 45% joint venture partner in the Surinamese bauxite mining and alumina refining joint ventures. AWA LLC acquired that subsidiary in 2009.

 

After the acquisition of the subsidiary, its name was changed to N.V. Alcoa Minerals of Suriname.

Expires in 2033.

 

ParentCo became active in Suriname in 1916 with the founding of the Suriname Bauxite Company.

 

Bauxite was first exported in 1922.

 

The Brokopondo Agreement was signed in 1958.

 

As noted, Suralco bought the bauxite and alumina interests of a BHP subsidiary from BHP in 2009.

 

Open-cut mines.

 

At one of the mines, the overburden is dredged and mining progresses with conventional open-cut methods.

 

The protoliths of the bauxite have been completely weathered. The bauxite deposits are mostly derived from the weathering of Tertiary Paleogene arkosic sediments. In some places, the bauxite overlies Precambrian granitic and gneissic rocks which have been deeply weathered to saprolite. Bauxitization likely occurred during the middle to late Eocene Epoch.

  Commercial grid power.  

In the Onverdacht mining areas, the bauxite is mined and transported to the refinery by truck. In the Coermotibo mining areas, the bauxite is mined, stockpiled and then transported to the refinery by barge. Some of the ore is washed in a small beneficiation plant located in the Coermotibo area. The main mining administrative offices, services, workshops and laboratory are located at the refinery in Paranam. The ore is crushed at Paranam and fed into the refining process.

 

The Suralco mines were curtailed in the fourth quarter of 2015. There are no plans for AWAC to restart these mines.

 

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Table of Contents

Mine & Location

 

Means of Access

 

Operator

 

Title, Lease or
Options

 

History

 

Type of Mine
Mineralization Style

 

Power Source

 

Facilities, Use &
Condition

Brazil—MRN Closest town is Trombetas in the State of Pará, Brazil.  

The mine and port areas are connected by sealed road and company owned rail.

 

Washed ore is transported to Porto Trombetas by rail.

 

Trombetas is accessed by river and by air at the airport.

  MRN  

Mining rights and licenses from the Government of Brazil.

 

Concession rights expire in 2046.

 

Mining began in 1979.

 

Major expansion in 2003.

 

Open-cut mines.

 

Bauxite derived from weathering during the Tertiary of Cretaceous fine to medium grained feldspathic sandstones.

 

The deposits are covered by the Belterra clays.

  MRN generates its own electricity from fuel oil.  

Ore mined from several plateaus is crushed and transported to the washing plant by long-distance conveyors.

 

The washing plant is located in the mining zone.

 

Washed ore is transported to the port area by company-owned and operated rail.

 

At Porto Trombetas the ore is loaded onto customer ships berthed in the Trombetas River. Some ore is dried and the drying facilities are located in the port area.

 

Mine planning and services and mining equipment workshops are located in the mine zone.

 

The main administrative, rail and port control offices and various workshops are located in the port area.

 

MRN’s main housing facilities, “the city”, are located near the port.

 

The mines, port and all facilities are operating.

 

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Mine & Location

 

Means of Access

 

Operator

 

Title, Lease or
Options

 

History

 

Type of Mine
Mineralization Style

 

Power Source

 

Facilities, Use &
Condition

Guinea—CBG Closest town to the mine is Sangaredi.

 

Closest town to the port is Kamsar. The CBG Lease is located within the Boké, Telimele and Gaoual administrative regions.

  The mine and port areas are connected by sealed road and company-operated rail. Ore is transported to the port at Kamsar by rail. There are air strips near both the mine and port. These are not operated by the company.   CBG   CBG Lease expires in 2038. The lease is renewable in 25-year increments. CBG’s rights are specified within the Basic Agreement and Amendment 1 to the Basic Agreement with the Government of Guinea.  

Construction began in 1969.

 

First export ore shipment was in 1973.

 

Open-cut mines.

 

The bauxite deposits within the CBG lease are of two general types.

 

TYPE 1: In-situ laterization of Ordovician and Devonian plateau sediments locally intruded by dolerite dikes and sills.

 

TYPE 2: Sangaredi type deposits are derived from clastic deposition of material eroded from the Type 1 laterite deposits and possibly some of the proliths from the TYPE 1 plateaus deposits.

  The company generates its own electricity from fuel oil at both Kamsar and Sangaredi.  

Mine offices, workshops, power generation and water supply for the mine and company mine city are located at Sangaredi.

 

The main administrative offices, port control, railroad control, workshops, power generation and water supply are located in Kamsar. Ore is crushed, dried and exported from Kamsar. CBG has company cities within both Kamsar and Sangaredi.

 

The mines, railroad, driers, port and other facilities are operating.

Kingdom of Saudi Arabia—Al Ba’itha Mine. Qibah is the closest regional centre to the mine, located in the Qassim province.   The mine and refinery are connected by road and rail. Ore is transported to the refinery at Ras Al Khair by rail.   Ma’aden Bauxite & Alumina Company   The current mining lease will expire in 2037.  

The initial discovery and delineation of bauxite resources was carried out between 1979 and 1984.

 

The southern zone of the Az Zabirah deposit was granted to Ma’aden in 1999.

 

Mine construction was completed in the second quarter of 2015, and the mining operations continued at planned levels.

 

Open-cut mine.

 

Bauxite occurs as a paleolaterite profile developed at an angular unconformity between underlying late Triassic to early Cretaceous sediments (parent rock sequence Biyadh Formation) and the overlying late Cretaceous Wasia Formation (overburden sequence).

  The company generates electricity at the mine site from fuel oil.  

The mine includes fixed plants for crushing and train loading; workshops and ancillary services; power plant; and water supply.

 

There is a company village with supporting facilities. Mining operations commenced in 2014.

 

Mine construction was completed in the second quarter of 2015 and the mining operations continued at planned levels.

 

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Table of Contents

Glossary of Bauxite Mining Related Terms

 

Term

  

Abbreviation

  

Definition

Alcoa Ore Reserves Committee    AORC    The ParentCo group that will be within Alcoa Corporation following the completion of the separation, which is comprised of Alcoa Corporation geologists and engineers, that specifies the guidelines by which bauxite reserves and resources are classified. These guidelines are used by ParentCo managed mines and will be used by Alcoa Corporation managed mines.
Alumina    Al 2 O 3    A compound of aluminum and oxygen. Alumina is extracted from bauxite using the Bayer Process. Alumina is a raw material for smelters to produce aluminum metal.
AORC Guidelines       The ParentCo guidelines that are used by ParentCo managed mines, and will be used by Alcoa Corporation managed mines, to classify reserves and resources. These guidelines are issued by the Alcoa Ore Reserves Committee.
Available alumina content    AvAl 2 O 3    The amount of alumina extractable from bauxite using the Bayer Process.
Bauxite       The principal raw material (rock) used to produce alumina. Bauxite is refined using the Bayer Process to extract alumina.
Bayer Process       The principal industrial means of refining bauxite to produce alumina.
Bone dry metric ton    bdmt    Tonnage reported on a zero moisture basis.
Coermotibo       The mining area in Suriname containing the deposits of Bushman Hill, CBO Explo, Lost Hill and Remnant. These mines have been curtailed.
Competent Persons Report    CP Report    Joiny Ore Reserves Committee (JORC) Code compliant Reserves and Resources Report.

Juruti RN101, RN102, RN103, RN104, #34

     

 

Mineral claim areas in Brazil associated with the Juruti mine, within which Alcoa Corporation will have mining operating licenses issued by the state.

ML1SA       The Mineral lease issued by the State of Western Australia to ParentCo’s majority owned subsidiary (which will become Alcoa Corporation’s majority owned subsidiary in connection with the separation), Alcoa of Australia (AofA). AofA mines located at Huntly and Willowdale operate within ML1SA.
Onverdacht       The mining area in Suriname containing the deposits of Kaaimangrasi, Klaverblad, Lelydorp1 and Sumau 1. These mines have been curtailed.
Open-cut mine       The type of mine in which an excavation is made at the surface to extract mineral ore (bauxite). The mine is not underground and the sky is viewable from the mine floor.

 

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Table of Contents

Term

  

Abbreviation

  

Definition

Probable reserve       That portion of a reserve, i.e. bauxite reserve, where the physical and chemical characteristics and limits are known with sufficient confidence for mining and to which various mining modifying factors have been applied. Probable reserves are at a lower confidence level than proven reserves.
Proven reserve       That portion of a reserve, i. e. bauxite reserve, where the physical and chemical characteristics and limits are known with high confidence and to which various mining modifying factors have been applied.
Reactive silica    RxSiO 2    The amount of silica contained in the bauxite that is reactive within the Bayer Process.
Reserve       That portion of mineralized material, i.e. bauxite, that Alcoa Corporation has determined to be economically feasible to mine and supply to an alumina refinery.
Resources       Resources are bauxite occurrences and/or concentrations of economic interest that are in such form, quality and quantity that are reasonable prospects for economic extraction.
Silica    SiO 2    A compound of silicon and oxygen.
Total alumina content    TAl 2 O 3    The total amount of alumina in bauxite. Not all of this alumina is extractable or available in the Bayer Process.
Total available alumina    TAA    The total amount of alumina extractable from bauxite by the Bayer Process. This term is commonly used when there is a hybrid or variant Bayer Process that will refine the bauxite.
Total silica    TSiO 2    The total amount of silica contained in the bauxite.

 

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Alumina

Alcoa Corporation is the world’s leading producer of alumina. Alcoa Corporation’s alumina refining facilities and its worldwide alumina capacity are shown in the following table:

 

Country

 

Facility

 

Owners

(% of Ownership)

  Nameplate
Capacity 1
(000 MTPY)
    Alcoa
Corporation
Consolidated
Capacity 2

(000 MTPY)
 

Australia

  Kwinana   AofA 3 (100%)     2,190        2,190   
  Pinjarra   AofA (100%)     4,234        4,234   
  Wagerup   AofA (100%)     2,555        2,555   

Brazil

  Poços de Caldas   Alumínio 4 (100%)     390 5       390   
  São Luís (Alumar)  

AWA Brasil 3 (39%)

Rio Tinto Alcan Inc. 6 (10%)

Alumínio (15%)

BHP Billiton 6 (36%)

    3,500        1,890   

Spain

  San Ciprián   Alúmina Española, S.A. 3 (100%)     1,500 7       1,500   

Suriname

  Suralco   Suralco 3 (55%) AMS 8 (45%)     2,207 9       2,207   

United States

  Point Comfort, TX   AWA LLC 3 (100%)     2,305 10       2,305   
     

 

 

   

 

 

 

TOTAL

        18,881        17,271   
     

 

 

   

 

 

 

Equity Interests:

  

Country

 

Facility

 

Owners

(% of Ownership)

  Nameplate
Capacity 1
(000 MTPY)
       

Kingdom of Saudi Arabia

  Ras Al Khair   Ma’aden Bauxite & Alumina Company (100%) 11     1,800     

 

 

1 Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production.

 

2 The figures in this column reflect Alcoa Corporation’s share of production from these facilities. For facilities wholly-owned by AWAC entities, Alcoa Corporation takes 100% of the production.
3 This entity is part of the AWAC group of companies and is owned 60% by Alcoa Corporation and 40% by Alumina Limited.
4 This entity is owned 100% by Alcoa Corporation.
5 As a result of the decision to fully curtail the Poços de Caldas smelter, management initiated a reduction in alumina production at this refinery. The capacity that is operating at this refinery is producing at an approximately 45% output level.
6 The named company or an affiliate holds this interest.
7 The capacity that is operating at this refinery is producing at an approximately 95% output level.
8 AWA LLC owns 100% of N.V. Alcoa Minerals of Suriname (“AMS”). AWA LLC is part of the AWAC group of companies and is owned 60% by Alcoa Corporation and 40% by Alumina Limited.
9 The Suralco alumina refinery has been fully curtailed (see below).
10 The Point Comfort alumina refinery will be fully curtailed (see below).
11. Ma’aden Bauxite & Alumina Company is a joint venture owned by Saudi Arabian Mining Company (“Ma’aden”) (74.9%) and AWA Saudi Limited (25.1%). AWA Saudi Limited is part of the AWAC group of companies and is owned 60% by Alcoa Corporation and 40% by Alumina Limited.

As of December 31, 2015, Alcoa Corporation had approximately 2,801,000 mtpy of idle capacity against total Alcoa Corporation Consolidated Capacity of 17,271,000 mtpy. As noted above, Alcoa Corporation and

 

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Ma’aden developed an alumina refinery in the Kingdom of Saudi Arabia. Initial capacity of the refinery is 1.8 million mtpy, and it produced approximately 1.0 million mt in 2015. For additional information regarding the joint venture, see See Note I to the Combined Financial Statements under the caption “Investments.”

In March 2015, the company initiated a 12-month review of 2,800,000 mtpy in refining capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of the company’s target to lower Alcoa Corporation’s refining operations on the global alumina cost curve to the 21st percentile (currently 23rd) by the end of 2016. The review resulted in the curtailment of the remaining capacity at the Suriname refinery (1,330,000 mtpy) in 2015 and the commencement of the curtailment of the remaining capacity of the Point Comfort, TX refinery (2,010,000 mtpy), which was completed by the end of June 2016. For additional information regarding the curtailments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Information—Alumina.”

Aluminum

Alcoa Corporation’s primary aluminum smelters and their respective capacities are shown in the following table:

 

Country

  

Facility

 

Owners

(% Of Ownership)

  Nameplate
Capacity (000
MTPY)
    Alcoa
Corporation
Consolidated
Capacity 2
(000 MTPY)
 

Australia

   Portland  

AofA (55%)

CITIC 3 (22.5%)

Marubeni 3 (22.5%)

    358        197 4,5  

Brazil

   São Luís (Alumar)  

Alumínio (60%)

BHP Billiton 3 (40%)

    447        268 6  

Canada

   Baie Comeau, Québec   Alcoa Corporation (100%)     280        280   
   Bécancour, Québec  

Alcoa Corporation (74.95%)

Rio Tinto Alcan Inc. 7  (25.05%)

    413        310   
   Deschambault, Québec   Alcoa Corporation (100%)     260        260   

Iceland

   Fjarðaál   Alcoa Corporation (100%)     344        344   

Norway

   Lista   Alcoa Corporation (100%)     94        94   
   Mosjøen   Alcoa Corporation (100%)     188        188   

Spain

   Avilés   Alcoa Corporation (100%)     93 8       93   
   La Coruña   Alcoa Corporation (100%)     87 8       87   
   San Ciprián   Alcoa Corporation (100%)     228        228   

United States

   Evansville, IN (Warrick)   Alcoa Corporation (100%)     269 9       269   
   Massena West, NY   Alcoa Corporation (100%)     130        130   
   Rockdale, TX   Alcoa Corporation (100%)     191 10       191   
   Ferndale, WA (Intalco)   Alcoa Corporation (100%)     279 11       279   
   Wenatchee, WA   Alcoa Corporation (100%)     184 12       184   

TOTAL

         3,845        3,401   

Equity Interests:

        

Country

  

Facility

 

Owners

(% of Ownership)

  Nameplate
Capacity 1
(000 MTPY)
       

Kingdom of Saudi Arabia

  

Ras Al Khair

 

Alcoa Corporation (25.1%)

    740     

 

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1 Nameplate Capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily represent maximum possible production.
2 The figures in this column reflect Alcoa Corporation’s share of production from these facilities.
3 The named company or an affiliate holds this interest.
4 This figure includes the minority interest of Alumina Limited in the Portland facility, which is owned by AofA. From this facility, Alcoa Corporation takes 100% of the production allocated to AofA.
5 The Portland smelter has approximately 30,000 mtpy of idle capacity.
6 The Alumar smelter has been fully curtailed since April 2015 (see below).
7 Owned through Rio Tinto Alcan Inc.’s interest in Pechiney Reynolds Québec, Inc., which is owned by Rio Tinto Alcan Inc. and Alcoa Corporation.
8 The Avilés and La Coruña smelters have approximately 56,000 mtpy of idle capacity combined.
9 On March 24, 2016, ParentCo permanently stopped production at the Warrick smelter.
10 The Rockdale smelter has been fully curtailed since the end of 2008.
11 The Intalco smelter has had approximately 49,000 mtpy of idle capacity. In November 2015, ParentCo announced that it would idle the remaining 230,000 mtpy capacity by the end of the first quarter of 2016. In January 2016, ParentCo announced that it will delay this further curtailment of the smelter until the end of the second quarter of 2016. On May 2, 2016, ParentCo announced that it would not curtail the Intalco smelter at the end of the second quarter as previously announced, as a result of an agreement with the Bonneville Power Administration.
12 The Wenatchee smelter has had approximately 41,000 mtpy of idle capacity. Alcoa Corporation idled the remaining 143,000 mtpy of capacity by the end of December 2015.

As of December 31, 2015, Alcoa Corporation had approximately 778,000 mtpy of idle capacity against total Alcoa Corporation Consolidated Capacity of 3,401,000 mtpy. As noted above, Alcoa Corporation and Ma’aden have developed an aluminum smelter in the Kingdom of Saudi Arabia. The smelter has an initial nameplate capacity of 740,000 mtpy. Since mid-2014, the smelter has been operating at full capacity, and it produced 757,833 mt in 2015.

In March 2015, ParentCo initiated a 12-month review of 500,000 mtpy of smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of ParentCo’s target to lower Alcoa Corporation’s smelting operations on the global aluminum cost curve to the 38th percentile (currently 43 rd ) by 2016. As a result of this review, the decision was made to curtail the remaining capacity (74,000 mtpy) at the São Luís smelter in Brazil and the Wenatchee, WA smelter (143,000 mtpy); and undertake permanent closures of the capacity at the Warrick, IN smelter (269,000 mtpy) (includes the closure of a related coal mine) and the infrastructure of the Massena East, NY smelter (potlines were previously shut down in both 2013 and 2014). On March 24, 2016, the Warrick smelter was permanently closed.

Separate from the smelting capacity review described above, in June 2015, ParentCo decided to permanently close the Poços de Caldas smelter (96,000 mtpy) in Brazil, which had been temporarily idle since May 2014 due to challenging global market conditions for primary aluminum and higher operating costs, which made the smelter uncompetitive. The decision to permanently close the Poços de Caldas smelter was based on the fact that these underlying conditions had not improved.

For additional information regarding the curtailments and closures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business—2015 Actions.”

 

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Cast Products

Our cast products business offer differentiated, value-added aluminum products that are cast into specific shapes to meet customer demand. Alcoa Corporation has 18 casthouses capable of providing value-added products to customers in growing markets, with 15 currently operating, as shown in the following table:

 

Country

  

Facility

  

Owners

(% Of Ownership)

Australia

   Portland   

AofA (55%)

CITIC 1 (22.5%)

Marubeni 1 (22.5%)

Brazil

   Poços de Caldas    Alcoa Alumínio S.A. (Alumínio) 1 (100%)
   São Luís (Alumar) 2   

Alumínio (60%)

BHP Billiton 1 (40%)

Canada

   Baie Comeau, Québec    Alcoa Corporation (100%)
   Bécancour, Québec   

Alcoa Corporation (74.95%)

Rio Tinto Alcan Inc. 3 (25.05%)

   Deschambault, Québec    Alcoa Corporation (100%)

Iceland

   Fjarðaál    Alcoa Corporation (100%)

Norway

   Lista    Alcoa Corporation (100%)
   Mosjøen    Alcoa Corporation (100%)

Spain

   Avilés    Alcoa Corporation (100%)
   La Coruña    Alcoa Corporation (100%)
   San Ciprián    Alcoa Corporation (100%)

United States

   Massena, NY    Alcoa Corporation (100%)
   Ferndale, WA (Intalco)    Alcoa Corporation (100%)
   Warrick, IN    Alcoa Corporation (100%)
   Rockdale, TX 4    Alcoa Corporation (100%)
   Wenatchee, WA 5    Alcoa Corporation (100%)
EQUITY INTERESTS:      

Country

  

Facility

  

Owners

(% of Ownership)

Kingdom of Saudi Arabia

  

Ras Al Khair

  

Alcoa Corporation (25.1%)

 

1 The named company or an affiliate holds this interest.
2 The Alumar casthouse has been fully curtailed since April 2015.
3 Owned through Rio Tinto Alcan Inc.’s interest in Pechiney Reynolds Québec, Inc., which is owned by Rio Tinto Alcan Inc. and Alcoa Corporation.
4 The Rockdale casthouse has been fully curtailed since the end of 2008.
5 The Wenatchee casthouse has been fully idled since the end of December 2015.

Energy

Employing the Bayer Process, Alcoa Corporation refines alumina from bauxite ore. Alcoa Corporation then produces aluminum from the alumina by an electrolytic process requiring substantial amounts of electric power. Energy accounts for approximately 19% of the company’s total alumina refining production costs. Electric power accounts for approximately 23% of the company’s primary aluminum production costs. In 2015, Alcoa Corporation generated approximately 14% of the power used at its smelters worldwide and generally purchased the remainder under long-term arrangements. The sections below provide an overview of Alcoa Corporation’s energy facilities and summarize the sources of power and natural gas for Alcoa Corporation’s smelters and refineries.

 

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Energy Facilities

The following table sets forth the electricity generation capacity and 2015 generation of facilities in which Alcoa Corporation has an ownership interest (other than the Anglesea facility, which was permanently closed on August 31, 2015):

 

Country

  

Facility

   Alcoa
Corporation
Consolidated
Capacity
(MW) 1
     2015
Generation
(MWh)
 

Brazil

   Barra Grande      156         1,562,663   
   Estreito      157         1,088,018   
   Machadinho      119         1,780,924   
   Serra do Facão      60         171,294   

Canada

   Manicouagan      132         1,161,994   

Suriname

   Afobaka      189         673,950   

United States

   Warrick 2      657         4,538,257   
   Yadkin      215         661,214   

TOTAL

        1,685         11,638,314   

 

1 The Consolidated Capacity of the Brazilian energy facilities is the assured energy that is approximately 55% of hydropower plant nominal capacity.
2 On March 24, 2016, ParentCo permanently stopped production at the Warrick smelter.

In 2015, AofA permanently closed the Anglesea power station and associated coal mine in Victoria. The power station had previously provided electricity to the Point Henry smelter which closed in 2014. Since the Point Henry smelter closure, electricity was sold into the National Electricity Market (“NEM”); however a combination of low electricity prices and significant future capital expenditure meant the facility was no longer viable.

Alumínio owns a 25.74% stake in Consórcio Machadinho, which is the owner of the Machadinho hydroelectric power plant located in southern Brazil. Alumínio also has a 42.18% interest in Energética Barra Grande S.A. (“BAESA”), which built the Barra Grande hydroelectric power plant in southern Brazil. In addition, Alumínio also has a 34.97% share in Serra do Facão Energia S.A., which built the Serra do Facão hydroelectric power plant in the southeast of Brazil. Alumínio is also participating in the Estreito hydropower project in northern Brazil, through Estreito Energia S.A. (an Alumínio wholly owned company) holding a 25.49% stake in Consórcio Estreito Energia, which is the owner of the hydroelectric power plant. A consortium in which Alumínio participates and that had received concessions for the Pai Querê hydropower project in southern Brazil (Alumínio’s share is 35%) decided not to pursue the development of this concession which will be returned to the Federal Government.

Since May 2015 (after full curtailment of Poços de Caldas and São Luís (Alumar) smelters), the excess generation capacity from the above Brazil hydroelectric projects of around 480MW has been sold into the market.

Power generated from Afobaka is primarily sold to the Government of Suriname under a bilateral contract.

Alcoa Corporation’s wholly-owned subsidiary, Alcoa Power Generating Inc. (“APGI”) owns and operates the Yadkin hydroelectric project, consisting of four dams in North Carolina, and the Warrick coal-fired power plant located in Indiana. Power generated from APGI’s Yadkin system is largely being sold to an affiliate, Alcoa Power Marketing LLC, and then to the wholesale market. After the March 2016 closure of the Warrick smelter, approximately 36% of the capacity from the Warrick coal-fired power plant can be sold into the market under its current operating permits. APGI also owns certain FERC-regulated transmission assets in Indiana, North Carolina, Tennessee, New York, and Washington.

 

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Energy Sources

North America—Electricity

The Deschambault, Baie Comeau, and Bécancour smelters in Québec purchase all or a majority of their electricity under contracts with Hydro-Québec that expire on December 31, 2029. Upon expiration, Alcoa Corporation will have the option of extending the term of the Baie Comeau contract to February 23, 2036. The smelter located in Baie Comeau, Québec purchases approximately 73% of its power needs under the Hydro-Québec contract, and the remainder from a 40% owned hydroelectric generating company, Manicouagan Power Limited Partnership.

In the State of Washington, Alcoa Corporation’s Wenatchee smelter is served by a contract with Chelan County Public Utility District No. 1 (“Chelan PUD”) under which Alcoa Corporation receives approximately 26% of the hydropower output of Chelan PUD’s Rocky Reach and Rock Island dams. In November 2015, ParentCo announced the curtailment of the Wenatchee smelter which was completed by the end of December 2015.

Starting on January 1, 2013, the Intalco smelter began receiving physical power from the Bonneville Power Administration (“BPA”), under which the company receives physical power at the Northwest Power Act mandated industrial firm power (“IP”) rate through September 30, 2022. In May 2015, the contract was amended to reduce the amount of physical power received from BPA and allow for additional purchases of market power. In February and April 2016, the contract was amended again to reduce the contractual amount through February 2018.

Luminant Generation Company LLC (formerly TXU Generation Company LP) (“Luminant”) supplies all of the Rockdale smelter’s electricity requirements under a long-term power contract that does not expire until at least the end of 2038, with the parties having the right to terminate the contract after 2013 if there has been an unfavorable change in law or after 2025 if the cost of the electricity exceeds the market price. On April 29, 2014, Luminant Generation LLC, Luminant Mining Company LLC, Sandow Power Company LLC and their affiliated debtors filed petitions under Chapter 11 of the U.S. Bankruptcy Code. The Bankruptcy Court has confirmed the debtors’ amended plan of reorganization and has entered an order approving the debtor’s assumption of the Sandow Unit 4 agreement and certain other related agreements with Alcoa Corporation.

In the Northeast, the Massena West smelter in New York receives physical power from the New York Power Authority (“NYPA”) pursuant to a contract between Alcoa and NYPA that will expire in 2019.

Australia—Electricity

The Portland smelter continues to purchase electricity from the State Electricity Commission of Victoria (“SECV”) under a contract with Alcoa Portland Aluminium Pty Ltd, a wholly-owned subsidiary of AofA, that extends to October 2016. Upon the expiration of this contract, the Portland smelter will purchase power from the NEM variable spot market. In March 2010, AofA and Eastern Aluminium (Portland) Pty Ltd separately entered into fixed for floating swap contracts with Loy Yang (now AGL) in order to manage their exposure to the variable energy rates from the NEM. The fixed for floating swap contract with AGL for the Point Henry smelter was terminated in 2013. The fixed for floating swap contract with AGL for the Portland smelter operates from the date of expiration of the current contract with the SECV and continues until December 2036.

Europe—Electricity

Alcoa Corporation’s smelters at San Ciprián, La Coruña and Avilés, Spain purchase electricity under bilateral power contracts that expire December 31, 2016.

A competitive bidding mechanism to allocate interruptibility rights in Spain was settled during 2014 to be applied starting from January 1, 2015. The first auction process to allocate rights took place in November 2014,

 

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where ParentCo secured 275MW of interruptibility rights for the 2015 period for the San Ciprián smelter. A second auction process took place in December 2014, where ParentCo secured an additional 100MW of interruptibility rights for the 2015 period for the San Ciprián smelter (20x5MW), 120MW for the La Coruña smelter (24x5MW) and 110MW for the Avilés smelter (22x5MW). The auction process to allocate the rights for the following period took place in the first week of September 2015, where ParentCo secured interruptibility rights for 2016 in the amount of 375MW for San Ciprián Smelter (3x90MW + 21x5MW), 115MW for Avilés Smelter (23x5MW) and 120MW for La Coruña smelter (24x5MW).

Alcoa Corporation owns two smelters in Norway, Lista and Mosjøen, which have long-term power arrangements in place that continue until the end of 2019. Financial compensation of the indirect carbon emissions costs passed through in the electricity bill is received in accordance with EU Commission Guidelines and Norwegian compensation regime.

Iceland—Electricity

Landsvirkjun, the Icelandic national power company, supplies competitively priced electricity to Alcoa Corporation’s Fjarðaál smelter in eastern Iceland under a 40-year power contract.

Spain—Natural Gas

In order to facilitate the full conversion of the San Ciprian, Spain alumina refinery from fuel oil to natural gas, in October 2013, Alumina Española SA (AE) and Gas Natural Transporte SDG SL (GN) signed a take or pay gas pipeline utilization agreement. Pursuant to that agreement, the ultimate shareholders of AE, ParentCo and Alumina Limited, agreed to guarantee the payment of AE’s contracted gas pipeline utilization over the four years of the commitment period; in the event AE fails to do so, each shareholder being responsible for its respective proportionate share (i.e., 60/40). Such commitment came into force six months after the gas pipeline was put into operation by GN. The gas pipeline was completed in January 2015 and the refinery has switched to natural gas consumption for 100% of its needs.

Natural gas is supplied to the San Ciprián, Spain alumina refinery pursuant to supply contracts with Endesa, BP, Gas Natural Fenosa, expiring in June 2017, December 2016 and December 2016, respectively. Pursuant to those agreements, Alcoa Inversiones España, S.L. and Alumina Limited agreed to guarantee the payment of AE’s obligations under the Endesa contract, each shareholder being responsible for its respective proportionate share (i.e., 60/40). Similarly, Alcoa Inespal S.A. and Alumina Limited have agreed to guarantee the payment of AE’s obligations under the Gas Natural Fenosa contract over its respective length, with each entity being responsible for its proportionate share (i.e., 60/40).

North America—Natural Gas

In order to supply its refinery and smelters in the U.S. and Canada, Alcoa Corporation generally procures natural gas on a competitive bid basis from a variety of sources including producers in the gas production areas and independent gas marketers. For Alcoa Corporation’s larger consuming locations in Canada and the U.S., the gas commodity and the interstate pipeline transportation are procured (directly or via the local distribution companies) to provide increased flexibility and reliability. Contract pricing for gas is typically based on a published industry index or New York Mercantile Exchange (“NYMEX”) price. The company may choose to reduce its exposure to NYMEX pricing by hedging a portion of required natural gas consumption.

Australia—Natural Gas

AofA uses gas to co-generate steam and electricity for its alumina refining processes at the Kwinana, Pinjarra and Wagerup refineries. More than 90% of AofA’s gas requirements for the remainder of the decade are secured under long-term contracts. In 2015, AofA entered into a number of long-term gas supply agreements

 

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which secured a significant portion of AofA’s gas supplies to 2030. AofA is actively involved with projects aimed at developing cost-based gas supply opportunities. In April 2016, Alcoa Energy Holdings Australia Pty Ltd (a wholly owned subsidiary of AofA) sold its 20% equity interest in the Dampier-to-Bunbury natural gas pipeline, which transports gas from the northwest gas fields to AofA’s alumina refineries and other users in the Southwest of Western Australia, to DUET Investment Holdings Limited. Our alumina refining activities in Western Australia are provided pursuant to agreements between AofA and the State of Western Australia. These agreements govern AofA’s Western Australian operations and permitted AofA to establish the Kwinana, Pinjarra and Wagerup refineries and associated facilities.

Warrick and Ma’aden Rolling Mills

Alcoa Corporation’s 100%-owned Warrick rolling mill is located near Evansville, Indiana and has the capacity to produce more than 360,000 mtpy of aluminum sheet. In addition, Alcoa Corporation owns a 25.1% interest in the Ma’aden Rolling Company. As noted above, ParentCo and Ma’aden entered into a joint venture in December 2009 to develop a fully integrated aluminum complex in the Kingdom of Saudi Arabia. It includes, in addition to a bauxite mine, smelter and refinery, the Ma’aden Rolling Company, which owns a rolling mill with capacity to produce 380,000 mtpy and is 74 acres under roof.

The Warrick rolling mill operations are focused almost exclusively on packaging, producing narrow width can body stock, can end and tab stock, can bottle stock and food can stock, and to a lesser extent, industrial sheet and lithographic sheet. The Ma’aden rolling mill currently produces can body stock, can end and tab stock, and hot-rolled strip for finishing into automotive sheet. ParentCo’s rolling mill operations in Tennessee currently produce wide can body sheet for the packaging business, but also products for automotive applications. ParentCo plans to shift the production of the wide can body sheet for packaging applications from its Tennessee operations to the Ma’aden Rolling Mill. Accordingly, following the separation, it is expected that the Warrick and Ma’aden Rolling Mills will only be manufacturing products for the North American aluminum can packaging market. However, before the Ma’aden facilities can begin production of the wide can body sheet, product from the facilities must be qualified by existing customers as an acceptable source of supply. During a transition period expected to take approximately 18 months following the separation, pursuant to a transition supply agreement, Arconic will continue producing the wide can body sheet at Tennessee to permit Alcoa Corporation to continue supplying its customers without interruption. Arconic will also provide technical services and support with respect to rolling mill operations to Alcoa Corporation for a transitional period not to exceed 24 months. See “Certain Relationships and Related Party Transactions—Agreements with Arconic—Can Body Sheet Supply Agreement.”

Sources and Availability of Raw Materials

Generally, materials are purchased from third-party suppliers under competitively priced supply contracts or bidding arrangements. The company believes that the raw materials necessary to its business are and will continue to be available.

For each metric ton of alumina produced, Alcoa Corporation consumes the following amounts of the identified raw material inputs (approximate range across relevant facilities):

 

Raw Material

  

Units

   

Consumption per MT of Alumina

Bauxite

     mt      2.2 – 3.7

Caustic soda

     kg      60 – 150

Electricity

     kWh      200 – 260 total consumed (0 to
210 imported)

Fuel oil and natural gas

     GJ      6.3 – 11.9

Lime (CaO)

     kg      6 – 58

 

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For each metric ton of aluminum produced, Alcoa Corporation consumes the following amounts of the identified raw material inputs (approximate range across relevant facilities):

 

Raw Material

  

Units

  

Consumption per MT of Aluminum

Alumina

   mt    1.92 ± 0.02

Aluminum fluoride

   kg    16.5 ± 6.5

Calcined petroleum coke

   mt    0.37 ± 0.02

Cathode blocks

   mt    0.006 ± 0.002

Electricity

   kWh    12900 – 17000

Liquid pitch

   mt    0.10 ± 0.03

Natural gas

   mcf    3.5 ± 1.5

Certain aluminum produced by Alcoa Corporation also includes alloying materials. Because of the number of different types of elements that can be used to produce Alcoa Corporation’s various alloys, providing a range of such elements would not be meaningful. With the exception of a very small number of internally used products, Alcoa Corporation produces its alloys in adherence to an Aluminum Association standard. The Aluminum Association, of which ParentCo is an active member and Alcoa Corporation expects to be an active member, uses a specific designation system to identify alloy types. In general, each alloy type has a major alloying element other than aluminum but will also have other constituents as well, but of lesser amounts.

Patents, Trade Secrets and Trademarks

The company believes that its domestic and international patent, trade secret and trademark assets provide it with a significant competitive advantage. The company’s rights under its patents, as well as the products made and sold under them, are important to the company as a whole and, to varying degrees, important to each business segment. Alcoa Corporation’s business as a whole is not, however, materially dependent on any single patent, trade secret or trademark. As a result of product development and technological advancement, the company continues to pursue patent protection in jurisdictions throughout the world. As of August 2016, Alcoa Corporation’s worldwide patent portfolio consisted of approximately 570 granted patents and 325 pending patent applications.

The company also has a number of domestic and international registered trademarks that have significant recognition within the markets that are served, including the name “Alcoa” and the Alcoa symbol for aluminum products. Alcoa Corporation’s rights under its trademarks are important to the company as a whole and, to varying degrees, important to each business segment.

Alcoa Corporation and ParentCo will enter into an agreement in connection with the separation, pursuant to which Alcoa Corporation will permit Arconic to use and display certain Alcoa Corporation trademarks (including the Alcoa name) in connection with, among other things, entity names, inventory for sale, facilities, buildings, signage, documents and other identifiers, for a transitional period following the separation. In addition, two Arconic businesses, Alcoa Wheels and Spectrochemical Standards, will have ongoing rights to use the Alcoa name following the separation. See “Certain Relationships and Related Party Transactions—Agreements with Arconic—Intellectual Property License Agreements.”

Competition

Bauxite:

The third-party market for metallurgical grade bauxite is relatively new and growing quickly as global demand for bauxite increases—particularly in China. The majority of bauxite mined globally is converted to alumina for the production of aluminum metal. While Alcoa Corporation has historically mined bauxite for internal consumption by our alumina refineries, we are focused on building our third-party bauxite business to

 

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meet growing demand. We sold two million tons of bauxite to a diverse third-party customer base in 2015 and also sent trial quantities to numerous alumina refineries worldwide for purposes of metallurgical testing.

Competitors in the third-party bauxite market include Rio Tinto Alcan, Norsk Hydro and multiple suppliers from Malaysia, India and other countries. We compete largely based on bauxite quality, price and proximity to end markets. Alcoa Corporation has a strong competitive position in this market for the following reasons:

 

    Low Cost Production: Alcoa Corporation is the world’s largest bauxite miner, holding a strong first quartile global cost curve position, with best practices in efficient mining operations and sustainability.

 

    Reliable, Long-Term Bauxite Resources: Alcoa Corporation’s strategic bauxite mine locations include Australia and Brazil as well as Guinea, which is home to the world’s largest reserves of high-quality metallurgical grade bauxite. Alcoa Corporation has a long history of stable operations in these countries and has access to large bauxite deposits with mining rights that extend in most cases more than 20 years from the date of this information statement.

 

    Access to Markets: Alcoa Corporation’s Australian bauxite mines are located in close proximity to the largest third-party customer base in China and our facilities are also accessible to a significant and growing alumina refining base in the Middle East.

Contracts for bauxite have generally been short-term contracts (two years or less in duration) with spot pricing and adjustments for quality and logistics, although Alcoa Corporation is currently pursuing long-term contracts with potential customers. The primary customer base for third-party bauxite is located in Asia—particularly China—as well as the Middle East.

Alumina:

The alumina market is global and highly competitive, with many active suppliers including producers as well as commodity traders. Alcoa Corporation faces competition from a number of companies in all of the regions in which we operate, including Aluminum Corporation of China Limited, China Hongqiao Group Limited, China Power Investment Corporation, Hindalco Industries Ltd., Hangzhou Jinjiang Group, National Aluminium Company Limited (NALCO), Noranda Aluminum Holding Corporation, Norsk Hydro ASA, Rio Tinto Alcan Inc., Sherwin Alumina Company, LLC, South32 Limited, United Company RUSAL Plc, and Chiping Xinfa Alumina Product Co., Ltd. In recent years, there has been significant growth in alumina refining in China and India. The majority of Alcoa Corporation’s product is sold in the form of smelter grade alumina, with 5% to 10% of total global alumina production being produced for non-metallurgical applications.

Key factors influencing competition in the alumina market include: cost position, price, reliability of bauxite supply, quality and proximity to customers and end markets. While we face competition from many industry players, we have several competitive advantages:

 

    Proximity to Bauxite: Alcoa Corporation’s refineries are strategically located next to low cost, upstream bauxite mines, and our alumina refineries are tuned to maximize efficiency with the exact bauxite qualities from these internal mines. In addition to refining efficiencies, vertical integration affords a stable and consistent long-term supply of bauxite to our refining portfolio.

 

    Low Cost Production: As the world’s largest alumina producer, Alcoa Corporation has competitive, efficient assets across its refining portfolio, with a 2015 average cost position in the first quartile of global alumina production. Contributing to this cost position is our experienced workforce and sophistication in refining technology and process automation.

 

    Access to Markets: Alcoa Corporation is a global supplier of alumina with refining operations in the key markets of North America, South America, Europe, the Middle East, and Australia, enabling us to meet customer demand in the Atlantic and Pacific basins, including China.

 

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Contracts for smelter grade alumina are often multi-year, although contract structures have evolved from primarily long-term contracts with fixed or LME-based pricing to shorter-term contracts with more frequent pricing adjustment. A significant development occurred in the pricing structure for alumina beginning in 2010. Traditionally, most alumina outside of China had been sold to third party smelters with the price calculated as a percentage of the LME aluminum price. In recent years however there has been a low correlation between LME aluminum prices and alumina input costs (principally energy, caustic soda and bauxite/freight). This disparity led to alumina prices becoming disconnected from the underlying economics of producing and selling alumina.

In 2010, a number of key commodity information service providers began publishing daily and weekly alumina (spot) pricing assessments or indices. Since that time, Alcoa Corporation has been systematically moving its third-party alumina sales contracts away from LME aluminum-based pricing to published alumina spot or index pricing, thus de-linking the price for alumina from the aluminum price to better reflect alumina’s distinct fundamentals. In 2015, approximately 75% of Alcoa Corporation’s smelter grade alumina shipments to third parties were sold at published spot/index prices, compared to 54% in 2013 and 37% in 2012. In 2016, we forecast that approximately 85% of our third-party alumina shipments will be based on API or spot pricing.

Alcoa Corporation’s largest customer for smelter grade alumina is its own aluminum smelters, which in 2015 accounted for approximately 34% of its total alumina sales. Remaining sales are made to customers all over the world and are typically priced by reference to published spot market prices.

Primary Aluminum / Cast Products

The market for primary aluminum is global, and demand for aluminum varies widely from region to region. We compete with commodity traders and aluminum producers such as Aluminum Corporation of China Limited, China Hongqiao Group Limited, East Hope Group Co. Ltd., Emirates Global Aluminum, Norsk Hydro, Rio Tinto Alcan Inc., Shandong Xinfa Aluminum & Power Group, State Power Investment Co. (SPIC), United Company RUSAL Plc as well as with alternative materials such as steel, titanium, copper, carbon fiber, composites, plastic and glass, each of which may be substituted for aluminum in certain applications.

The aluminum industry itself is highly competitive; some of the most critical competitive factors in our industry are product quality, production costs (including source and cost of energy), price, proximity to customers and end markets, timeliness of delivery, customer service (including technical support), and product innovation and breadth of offerings. Where aluminum products compete with other materials, the diverse characteristics of aluminum are also a significant factor, particularly its light weight and recyclability.

In addition, in some end-use markets, competition is also affected by customer requirements that suppliers complete a qualification process to supply their plants. This process can be rigorous and may take many months to complete. However, the ability to obtain and maintain these qualifications can represent a competitive advantage.

In recent years, we have seen increasing trade flows between regions despite shipping costs, import duties and the lack of localized customer support. There is a growing trade in higher value-added products, with recent trade patterns seeing more flow toward the deficit regions. However, suppliers in emerging markets may export lower value-added or even commodity aluminum products to larger, more mature markets, as we have seen recently with China.

The strength of our position in the primary aluminum market is largely attributable to the following factors:

 

    Value-Added Product Portfolio: Alcoa Corporation has 15 casthouses supplying global customers with a diverse product portfolio, both in terms of shapes and alloys. We have steadily grown our cast products business by offering differentiated, value-added aluminum products that are cast into specific shapes to meet customer demand, with 67% of 2015 smelter shipments representing value-added products, compared to 57% in 2010.

 

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    Low Cost Production: As the world’s fourth largest aluminum producer in 2015, Alcoa Corporation leverages significant economies of scale in order to continuously reduce costs. As a result, Alcoa operates competitive, efficient assets across its aluminum smelting and casting portfolios, with its 2015 average smelting cost position in the second quartile of global aluminum smelters. This cost position is supported by long-term energy arrangements at many locations; Alcoa Corporation has secured approximately 75% of its smelter power needs through 2022.

 

    Access to Markets: Alcoa Corporation is a global supplier of aluminum with smelting and casting operations in the key markets of North America, Europe, the Middle East, and Australia, enabling us to access a broad customer base with competitive logistics costs.

 

    Sustainability: As of June 30, 2016, approximately 70% of our aluminum smelting portfolio runs on clean hydroelectric power, lessening our demand for fossil fuels and potentially mitigating the risk to the company from future carbon tax legislation.

Contracts for primary aluminum vary widely in duration, from multi-year supply contracts to monthly or weekly spot purchases. Pricing for primary aluminum products is typically comprised of three components: (i) the published LME aluminum price for commodity grade P1020 aluminum, (ii) the published regional premium applicable to the delivery locale and (iii) a negotiated product premium which accounts for factors such as shape and alloy.

Alcoa Corporation’s largest customer for primary aluminum has historically been internal ParentCo downstream fabricating facilities (including the Warrick Rolling Mill), which in 2015 accounted for approximately 25% of total primary aluminum sales. Remaining sales were made to customers all over the world under contracts with varying terms and duration.

Rolled Products

The Warrick Rolling Mill leads our participation in several segments, including beverage can sheet, food can sheet, lithographic sheet, aluminum bottle sheet, and industrial products. The term “RCS” or Rigid Container Sheet is commonly used for both beverage and food can sheet. This includes the material used to produce the body of beverage containers (bodystock), the lid of beverage containers (endstock and tabstock), the material to produce food can body and lids (food stock) and the material to produce aluminum bottles (bottlestock) and bottle closures (closure sheet). The U.S. aluminum can business comprises approximately 96% beverage can sheet and approximately 4% food can sheet. Alcoa Corporation is the largest food can sheet producer.

The Warrick Rolling Mill competes with other North American producers of RCS products, namely Novelis Corp, Tri-Arrows Aluminum, and Constellium NV.

Buyers of RCS products in North America are large and concentrated and have significant market power. There are essentially five buyers of all the U.S. can sheet sold in the beverage industry (three can makers and the two beverage companies). In 2016, we estimate the North American (Canada/U.S./Mexico) aluminum can buyers and their share of the industry are: AB-Inbev (>35%), Coke (>20%), Ball (>15%), Crown (>15%), Rexam (>5%) and others (2%). The purchase of Rexam by Ball on June 30, 2016, including the divestitures of several U.S. plants to Ardagh Group will change these shares. Buyers traditionally buy RCS in proportions that represent the full aluminum can (80% body stock, 20% end and tab stock). In addition, as the aluminum can sheet represents approximately 60% of their manufacturing costs, there is a heavy focus on cost.

In 2015, our Warrick facility produced and sold 266 kMT of RCS and industrial products, of which 91% was sold to customers in North America. The majority of its sales were coated RCS products (food stock, beverage end and tab stock). Following the separation, both Warrick and Ma’aden will supply body stock material, temporarily supplemented by Arconic’s Tennessee Operations under a transition supply agreement.

Can sheet demand is a function of consumer demand for beverages in aluminum packaging. Aluminum cans have a number of functional advantages for beverage companies, including product shelf life, carbonation retention, and logistics/distribution efficiency. Demand is mostly affected by overall demand for carbonated soft

 

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drinks (CSDs) and beer. CSDs and beer compose approximately 60% and 40%, respectively, of overall aluminum can demand. In recent years, CSDs sales have been declining 1% to 4% year over year. At the same time, the aluminum can’s share of the beer segment has grown, nearly offsetting the drop in CSDs sales. In 2015, the U.S./Canada aluminum can shipments reached 93.2 billion cans, a 0.1% decline over 2014. Alcoholic can shipments reached 36.9 billion cans, growing 2.3% year over year, while non-alcoholic can shipments reached 56.3 billion, declining 1.7% year over year.

We also compete with competitive package types including PET bottles, glass bottles, steel tin plate and other materials. In the U.S., aluminum cans, PET bottles and glass bottles represent approximately 69%, 29% and 2%, respectively, of the CSDs segment. In the beer segment, aluminum cans, glass bottles, and aluminum bottles represent approximately 73-74%, 21-22% and 5%, respectively, of the business. In the food can segment, steel tin plate cans and aluminum food cans represent approximately 83% and 17%, respectively, with aluminum cans representing approximately 52% of the pet food segment.

We compete on cost, quality, and service. Alcoa Corporation intends to continue to improve our cost position by increasing recycled aluminum content in our metal feedstock as well as continuing to focus on capacity utilization. We believe our team of technical and operational resources provides distinctive quality and customer service. The Warrick Rolling Mill will also be the sole domestic supplier of lithographic sheet, focusing on quality, reduced lead-times and delivery performance.

Energy

Unlike bauxite, alumina and aluminum, electricity markets are regional. They are limited in size by physical and regulatory constraints, including the physical inability to transport electricity efficiently over long distances, the design of the electric grid, including interconnections, and by the regulatory structure imposed by various federal and state entities. Alcoa Corporation owns generation and transmission assets that produce and sell electric energy and ancillary services in the United States and Brazilian wholesale energy markets. Our competitors include integrated electric utilities that may be owned by governments (either fully or partially), cooperatives or investors, independent power producers and energy brokers and traders.

Competition factors in open power markets include fuel supply, production costs, operational reliability, access to the power grid, and environmental attributes (e.g., green power and renewable energy credits). As electricity is difficult and cost prohibitive to store, there are no electricity inventories to cushion the impact of supply and demand factors and the resultant pricing in electricity markets may be volatile. Demand for power varies greatly both seasonally and by time of day. Supply may be impacted in the short term by unplanned generator outages or transmission congestion and longer term by planned generator outages, droughts, high precipitation levels and fuel pricing (coal and/or natural gas).

Electricity contracts may be very short term (real-time), short term (day ahead) or years in duration, and contracts can be executed for immediate delivery or years in advance. Pricing may be fixed, indexed to an underlying fuel source or other index such as LME, cost-based or based on regional market pricing. Pricing may be all inclusive on a per energy unit delivered basis (e.g., dollars per megawatt hour) or the components may be separated and include a demand or capacity charge, an energy charge, an ancillary services charge and a transmission charge to make the delivered energy conform to customer requirements.

Alcoa Corporation’s energy assets enjoy several competitive advantages, when compared to other power suppliers:

 

    Reliability: In the United States, we have operated our thermal energy assets for over 50 years and our hydro energy assets for over 95 years with a high degree of reliability and expect to continue this level of performance. In Brazil, our ownership provides for assured energy from hydroelectric operations through 2032 to 2037.

 

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    Low cost production: Our thermal energy assets’ cost advantages include a captive fuel supply and efficiently managed capital and maintenance programs conducted by a highly skilled and experienced work force.

 

    Access and proximity to markets: Our U.S. assets are positioned to take advantage of sales into some of the more liquid power markets, including sales of both energy and capacity.

 

    Sustainable (green) energy sources: A majority of our generating assets use renewable (hydroelectric) sources of fuel for generation. In addition, our U.S. assets have been upgraded to allow for sales of renewable energy credits.

Research and Development

Expenditures for research and development (“R&D”) activities were $69 million in 2015, $95 million in 2014 and $86 million in 2013.

Environmental Matters

Alcoa Corporation is subject to extensive federal, state and local environmental laws and regulations, including those relating to the release or discharge of materials into the air, water and soil, waste management, pollution prevention measures, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to hazardous materials, greenhouse gas emissions, and the health and safety of our employees. Alcoa Corporation participates in environmental assessments and cleanups at 39 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)) sites. Approved capital expenditures for new or expanded facilities for environmental control are approximately $80 million for 2016 and approximately $130 million for 2017. Additional information relating to environmental matters is included in Note N to the Combined Financial Statements under the caption “Contingencies and Commitments—Environmental Matters.”

Employees

Alcoa Corporation’s total worldwide employment at the end of 2015 was approximately 16,000 employees in 15 countries. Approximately 11,000 of these employees are represented by labor unions. The company believes that relations with its employees and any applicable union representatives generally are good.

In the U.S., approximately 2,500 employees are represented by various labor unions. The largest collective bargaining agreement is the master collective bargaining agreement with the United Steelworkers (“USW”). The USW master agreement covers approximately 1,950 employees at six U.S. locations. There are three other collective bargaining agreements in the U.S. with varying expiration dates. On a regional basis, collective bargaining agreements with varying expiration dates cover approximately 2,200 employees in Europe, 2,100 employees in Canada, 1,200 employees in Central and South America, and 2,900 employees in Australia.

Legal Proceedings

Italian Energy Matter

Before 2002, ParentCo purchased power in Italy in the regulated energy market and received a drawback of a portion of the price of power under a special tariff in an amount calculated in accordance with a published resolution of the Italian Energy Authority, Energy Authority Resolution n. 204/1999 (“204/1999”). In 2001, the Energy Authority published another resolution, which clarified that the drawback would be calculated in the same manner, and in the same amount, in either the regulated or unregulated market. At the beginning of 2002,

 

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ParentCo left the regulated energy market to purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority introduced regulation no. 148/2004 which set forth a different method for calculating the special tariff that would result in a different drawback for the regulated and unregulated markets. ParentCo challenged the new regulation in the Administrative Court of Milan and received a favorable judgment in 2006. Following this ruling, ParentCo continued to receive the power price drawback in accordance with the original calculation method, through 2009, when the European Commission declared all such special tariffs to be impermissible “state aid.” In 2010, the Energy Authority appealed the 2006 ruling to the Consiglio di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato ruled in favor of the Energy Authority and against ParentCo, thus presenting the opportunity for the energy regulators to seek reimbursement from ParentCo of an amount equal to the difference between the actual drawback amounts received over the relevant time period, and the drawback as it would have been calculated in accordance with regulation 148/2004. On February 23, 2012, ParentCo filed its appeal of the decision of the Consiglio di Stato (this appeal was subsequently withdrawn in March 2013). On March 26, 2012, ParentCo received a letter from the agency (Cassa Conguaglio per il Settore Eletrico (CCSE)) responsible for making and collecting payments on behalf of the Energy Authority demanding payment in the amount of approximately $110 million (€85 million), including interest. By letter dated April 5, 2012, ParentCo informed CCSE that it disputes the payment demand of CCSE since (i) CCSE was not authorized by the Consiglio di Stato decisions to seek payment of any amount, (ii) the decision of the Consiglio di Stato has been appealed (see above), and (iii) in any event, no interest should be payable. On April 29, 2012, Law No. 44 of 2012 (“44/2012”) came into effect, changing the method to calculate the drawback. On February 21, 2013, ParentCo received a revised request letter from CCSE demanding ParentCo’s subsidiary, Alcoa Trasformazioni S.r.l., make a payment in the amount of $97 million (€76 million), including interest, which reflects a revised calculation methodology by CCSE and represents the high end of the range of reasonably possible loss associated with this matter of $0 to $97 million (€76 million). ParentCo rejected that demand and formally challenged it through an appeal before the Administrative Court on April 5, 2013. The Administrative Court scheduled a hearing for December 19, 2013, which was subsequently postponed until April 17, 2014, and further postponed until June 19, 2014. On that date, the Administrative Court listened to ParentCo’s oral argument, and on September 2, 2014, rendered its decision. The Administrative Court declared the payment request of CCSE and the Energy Authority to ParentCo to be unsubstantiated based on the 148/2004 resolution with respect to the January 19, 2007 through November 19, 2009 timeframe. On December 18, 2014, the CCSE and the Energy Authority appealed the Administrative Court’s September 2, 2014 decision; however, a date for the hearing has not been scheduled. ParentCo management recorded a partial reserve for this matter of $37 million (€34 million) during the quarter ended December 31, 2015 (see Note N to the Combined Financial Statements under the caption “Contingencies and Commitments—Agreement with Alumina Limited”). At this time, we are unable to reasonably predict an outcome for this matter.

Environmental Matters

ParentCo is involved in proceedings under the Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund (CERCLA) or analogous state provisions regarding the usage, disposal, storage or treatment of hazardous substances at a number of sites in the U.S. ParentCo has committed to participate, or is engaged in negotiations with federal or state authorities relative to its alleged liability for participation, in clean-up efforts at several such sites. The most significant of these matters are discussed in the Environmental Matters section of Note N to the Combined Financial Statements under the caption “Contingencies and Commitments—Environmental Matters.”

In August 2005, Dany Lavoie, a resident of Baie Comeau in the Canadian Province of Québec, filed a Motion for Authorization to Institute a Class Action and for Designation of a Class Representative against Alcoa Canada Ltd., Alcoa Limitée, Societe Canadienne de Metaux Reynolds Limitée and Canadian British Aluminum in the Superior Court of Québec in the District of Baie Comeau. Plaintiff seeks to institute the class action on behalf of a putative class consisting of all past, present and future owners, tenants and residents of Baie Comeau’s St. Georges neighborhood. He alleges that defendants, as the present and past owners and operators of an aluminum smelter in Baie Comeau, have negligently allowed the emission of certain contaminants from the

 

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smelter, specifically Polycyclic Aromatic Hydrocarbons or “PAHs,” that have been deposited on the lands and houses of the St. Georges neighborhood and its environs causing damage to the property of the putative class and causing health concerns for those who inhabit that neighborhood. Plaintiff originally moved to certify a class action, sought to compel additional remediation to be conducted by the defendants beyond that already undertaken by them voluntarily, sought an injunction against further emissions in excess of a limit to be determined by the court in consultation with an independent expert, and sought money damages on behalf of all class members. In May 2007, the court authorized a class action suit to include only people who suffered property damage or personal injury damages caused by the emission of PAHs from the smelter. In September 2007, plaintiffs filed the claim against the original defendants, which the court had authorized in May. ParentCo filed its Statement of Defense and plaintiffs filed an Answer to that Statement. ParentCo also filed a Motion for Particulars with respect to certain paragraphs of plaintiffs’ Answer and a Motion to Strike with respect to certain paragraphs of plaintiffs’ Answer. In late 2010, the court denied these motions. The Soderberg smelting process that plaintiffs allege to be the source of emissions of concern has ceased operations and has been dismantled. Plaintiffs filed a motion seeking appointment of an expert to advise the court on matters of sampling of homes and standards for interior home remediation. ParentCo opposed the motion. After a March 25, 2016 hearing on the motion, the court granted, in a ruling dated April 8, 2016, the motion and directed the parties to confer on potential experts and protocols for sampling of residences. The court has identified a sampling expert. The parties are advising the expert on their respective views on the appropriate protocol for sampling. Further proceedings in the case will await the independent expert’s report. At this stage of the proceeding, we are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss.

In October 2006, in Barnett, et al. v. Alcoa and Alcoa Fuels, Inc., Warrick Circuit Court, County of Warrick, Indiana; 87-C01-0601-PL-499, forty-one plaintiffs sued ParentCo and one of its subsidiary, asserting claims similar to those asserted in Musgrave v. Alcoa, et al., Warrick Circuit Court, County of Warrick, Indiana; 87-C01-0601-CT-006. In November 2007, ParentCo and its subsidiary filed a motion to dismiss the Barnett cases. In October 2008, the Warrick County Circuit Court granted ParentCo’s motions to dismiss, dismissing all claims arising out of alleged occupational exposure to wastes at the Squaw Creek Mine, but in November 2008, the trial court clarified its ruling, indicating that the order does not dispose of plaintiffs’ personal injury claims based upon alleged “recreational” or non-occupational exposure. Plaintiffs also filed a “second amended complaint” in response to the court’s orders granting ParentCo’s motion to dismiss. On July 7, 2010, the court granted the parties’ joint motions for a general continuance of trial settings. Discovery in this matter remains stayed. We are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss because plaintiffs have merely alleged that their medical condition is attributable to exposure to materials at the Squaw Creek Mine but no further information is available due to the discovery stay.

In 1996, ParentCo acquired the Fusina, Italy smelter and rolling operations and the Portovesme, Italy smelter (both of which are owned by ParentCo’s subsidiary, Alcoa Trasformazioni S.r.l.) from Alumix, an entity owned by the Italian Government. ParentCo also acquired the extrusion plants located in Feltre and Bolzano, Italy. At the time of the acquisition, Alumix indemnified ParentCo for pre-existing environmental contamination at the sites. In 2004, the Italian Ministry of Environment (MOE) issued orders to Alcoa Trasformazioni S.r.l. and Alumix for the development of a clean-up plan related to soil contamination in excess of allowable limits under legislative decree and to institute emergency actions and pay natural resource damages. On April 5, 2006, Alcoa Trasformazioni S.r.l.’s Fusina site was also sued by the MOE and Minister of Public Works (MOPW) in the Civil Court of Venice for an alleged liability for environmental damages, in parallel with the orders already issued by the MOE. Alcoa Trasformazioni S.r.l. appealed the orders, defended the civil case for environmental damages and filed suit against Alumix, as discussed below. Similar issues also existed with respect to the Bolzano and Feltre plants, based on orders issued by local authorities in 2006. Most, if not all, of the underlying activities occurred during the ownership of Alumix, the governmental entity that sold the Italian plants to ParentCo.

As noted above, in response to the 2006 civil suit by the MOE and MOPW, Alcoa Trasformazioni S.r.l. filed suit against Alumix claiming indemnification under the original acquisition agreement, but brought that suit in the

 

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Court of Rome due to jurisdictional rules. In June 2008, the parties (ParentCo and now Ligestra S.r.l. (Ligestra), the successor to Alumix) signed a preliminary agreement by which they have committed to pursue a settlement. The Court of Rome accepted the request, and postponed the Court’s expert technical assessment, reserving its ability to fix the deadline depending on the development of negotiations. ParentCo and Ligestra agreed to a settlement in December 2008 with respect to the Feltre site. Ligestra paid the sum of 1.08 million Euros and ParentCo committed to clean up the site. Further postponements were granted by the Court of Rome, and the next hearing is fixed for December 20, 2016. In the meantime, Alcoa Trasformazioni S.r.l. and Ligestra reached a preliminary agreement for settlement of the liabilities related to Fusina, allocating 80% and 20% of the remediation costs to Ligestra and ParentCo, respectively. In January 2014, a final agreement with Ligestra was signed, and on February 5, 2014, ParentCo signed a final agreement with the MOE and MOPW settling all environmental issues at the Fusina site. As set out in the agreement between ParentCo and Ligestra, those two parties will share the remediation costs and environmental damages claimed by the MOE and MOPW. The remediation project filed by ParentCo and Ligestra has been approved by the MOE. See Note N to the Combined Financial Statements under the caption “Fusina and Portovesme, Italy.” To provide time for settlement with Ligestra, the MOE and ParentCo jointly requested and the Civil Court of Venice has granted a series of postponements of hearings in the Venice trial, assuming that the case will be closed. Following the settlement, the parties caused the Court to dismiss the proceedings. The proceedings were, however, restarted in April 2015 by the MOE and MOPW because the Ministers had not ratified the settlement of February 5, 2014. The Ministers announced in December 2015 that they will ratify the settlement in the following months.

ParentCo and Ligestra have signed a similar agreement relating to the Portovesme site. However, that agreement is contingent upon final acceptance of the proposed soil remediation project for Portovesme that was rejected by the MOE in the fourth quarter of 2013. ParentCo submitted a revised proposal in May 2014 and a further revised proposal in February 2015, in agreement with Ligestra. The MOE issued a Ministerial Decree approving the final project in October 2015. Work on the soil remediation project will commence in 2016 and is expected to be completed in 2019. ParentCo and Ligestra are now working on a final groundwater remediation project which is expected to be submitted to the MOE for review during 2016. While the issuance of the decree for the soil remediation project has provided reasonable certainty regarding liability for the soil remediation, with respect to the groundwater remediation project ParentCo is unable to reasonably predict an outcome or to estimate a range of reasonably possible loss beyond what is described in Footnote N to the Combined Financial Statements for several reasons. First, certain costs relating to the groundwater remediation are not yet fixed. In connection with any proposed groundwater remediation plan for Portovesme, ParentCo understands that the MOE has substantial discretion in defining what must be managed under Italian law, as well as the extent and duration of that remediation program. As a result, the scope and cost of the final groundwater remediation plan remain uncertain for Portovesme; ParentCo and Ligestra are still negotiating a final settlement for groundwater remediation at Portovesme, for an allocation of the cost based on the new remediation project approved by the MOE. In addition, once a groundwater remediation project is submitted, should a final settlement with Ligestra not be reached, we should be held responsible only for ParentCo’s share of pollution. However, the area is impacted by many sources of pollution, as well as historical pollution. Consequently, the allocation of liabilities would need a very complex technical evaluation by the authorities that has not yet been performed.

On November 30, 2010, Alcoa World Alumina Brasil Ltda. (AWAB) received notice of a lawsuit that had been filed by the public prosecutors of the State of Pará in Brazil in November 2009. The suit names AWAB and the State of Pará, which, through its Environmental Agency, had issued the operating license for ParentCo’s new bauxite mine in Juruti. The suit concerns the impact of the project on the region’s water system and alleges that certain conditions of the original installation license were not met by AWAB. In the lawsuit, plaintiffs requested a preliminary injunction suspending the operating license and ordering payment of compensation. On April 14, 2010, the court denied plaintiffs’ request. AWAB presented its defense in March 2011, on grounds that it was in compliance with the terms and conditions of its operating license, which included plans to mitigate the impact of the project on the region’s water system. In April 2011, the State of Pará defended itself in the case asserting that the operating license contains the necessary plans to mitigate such impact, that the State monitors the performance of AWAB’s obligations arising out of such license, that the licensing process is valid and legal, and

 

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that the suit is meritless. ParentCo’s position is that any impact from the project had been fully repaired when the suit was filed. ParentCo also believes that Jará Lake has not been affected by any project activity and any evidence of pollution from the project would be unreliable. Following the preliminary injunction request, the plaintiffs took no further action until October 2014, when in response to the court’s request and as required by statute, they restated the original allegations in the lawsuit. We are not certain whether or when the action will proceed. Given that this proceeding is in its preliminary stage and the current uncertainty in this case, we are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss.

St. Croix Proceedings

Abednego and Abraham cases. On January 14, 2010, ParentCo was served with a multi-plaintiff action complaint involving several thousand individual persons claiming to be residents of St. Croix who are alleged to have suffered personal injury or property damage from Hurricane Georges or winds blowing material from the St. Croix Alumina, L.L.C. (“SCA”) facility on the island of St. Croix (U.S. Virgin Islands) since the time of the hurricane. This complaint, Abednego, et al. v. Alcoa, et al. was filed in the Superior Court of the Virgin Islands, St. Croix Division. Following an unsuccessful attempt by ParentCo and SCA to remove the case to federal court, the case has been lodged in the Superior Court. The complaint names as defendants the same entities that were sued in a February 1999 action arising out of the impact of Hurricane Georges on the island and added as a defendant the current owner of the alumina facility property.

On March 1, 2012, ParentCo was served with a separate multi-plaintiff action complaint involving approximately 200 individual persons alleging claims essentially identical to those set forth in the Abednego v. Alcoa complaint. This complaint, Abraham, et al. v. Alcoa, et al., was filed on behalf of plaintiffs previously dismissed in the federal court proceeding involving the original litigation over Hurricane Georges impacts. The matter was originally filed in the Superior Court of the Virgin Islands, St. Croix Division, on March 30, 2011.

ParentCo and other defendants in the Abraham and Abednego cases filed or renewed motions to dismiss each case in March 2012 and August 2012 following service of the Abraham complaint on ParentCo and remand of the Abednego complaint to Superior Court, respectively. By order dated August 10, 2015, the Superior Court dismissed plaintiffs’ complaints without prejudice to re-file the complaints individually, rather than as a multi-plaintiff filing. The order also preserves the defendants’ grounds for dismissal if new, individual complaints are filed. As of June 10, 2016, approximately 100 separate complaints had been filed in Superior Court, which alleged claims by about 400 individuals. On June 1, 2016, counsel representing plaintiffs filed a motion seeking additional time to file new complaints. The court has not ruled on that request. No further proceedings have been scheduled, and we are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss.

Glencore Contractual Indemnity Claim. On June 5, 2015, Alcoa World Alumina LLC (“AWA”) and St. Croix Alumina, L.L.C. (“SCA”) filed a complaint in Delaware Chancery Court for a declaratory judgment and injunctive relief to resolve a dispute between ParentCo and Glencore Ltd. (“Glencore”) with respect to claimed obligations under a 1995 asset purchase agreement between ParentCo and Glencore. The dispute arose from Glencore’s demand that ParentCo indemnify it for liabilities it may have to pay to Lockheed Martin (“Lockheed”) related to the St. Croix alumina refinery. Lockheed had earlier filed suit against Glencore in federal court in New York seeking indemnity for liabilities it had incurred and would incur to the U.S. Virgin Islands to remediate certain properties at the refinery property and claimed that Glencore was required by an earlier, 1989 purchase agreement to indemnify it. Glencore had demanded that ParentCo indemnify and defend it in the Lockheed case and threatened to claim against ParentCo in the New York action despite exclusive jurisdiction for resolution of disputes under the 1995 purchase agreement being in Delaware. After Glencore conceded that it was not seeking to add ParentCo to the New York action, AWA and SCA dismissed their complaint in the Chancery Court case and on August 6, 2015 filed a complaint for declaratory judgment in Delaware Superior Court. AWA and SCA filed a motion for judgment on the pleadings on September 16, 2015. Glencore answered AWA’s and SCA’s complaint and asserted counterclaims on August 27, 2015, and on October 2, 2015 filed its own motion for judgment on the pleadings. Argument on the parties’ motions was held by the court on

 

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December 7, 2015, and by order dated February 8, 2016, the court granted ParentCo’s motion and denied Glencore’s motion, resulting in ParentCo not being liable to indemnify Glencore for the Lockheed action. The decision also leaves for pretrial discovery and possible summary judgment or trial Glencore’s claims for costs and fees it incurred in defending and settling an earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On February 17, 2016, Glencore filed notice of its application for interlocutory appeal of the February 8 ruling. AWA and SCA filed an opposition to that application on February 29, 2016. On March 10, 2016, the court denied Glencore’s motion for interlocutory appeal and on the same day entered judgment on claims other than Glencore’s claims for costs and fees it incurred in defending and settling the earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On March 29, 2016, Glencore filed a withdrawal of its notice of interlocutory appeal and also noted its intent to appeal the court’s March 10, 2016 judgment. Briefing is complete; however, the court has not set a date for argument. At this time, we are unable to reasonably predict an outcome for this matter.

Other Matters

Some of ParentCo’s subsidiaries as premises owners are defendants in active lawsuits filed on behalf of persons alleging injury as a result of occupational exposure to asbestos at various facilities. A former affiliate of a ParentCo subsidiary has been named, along with a large common group of industrial companies, in a pattern complaint where ParentCo’s involvement is not evident. Since 1999, several thousand such complaints have been filed. To date, the former affiliate has been dismissed from almost every case that was actually placed in line for trial. ParentCo’s subsidiaries and acquired companies, all have had numerous insurance policies over the years that provide coverage for asbestos based claims. Many of these policies provide layers of coverage for varying periods of time and for varying locations. ParentCo has significant insurance coverage and believes that its reserves are adequate for its known asbestos exposure related liabilities. The costs of defense and settlement have not been and are not expected to be material to the results of operations, cash flows, and financial position of Alcoa Corporation.

On August 2, 2013, the State of North Carolina, by and through its agency, the North Carolina Department of Administration, filed a lawsuit against Alcoa Power Generating Inc. (APGI) in Superior Court, Wake County, North Carolina (Docket No. 13-CVS-10477). The lawsuit asserts ownership of certain submerged lands and hydropower generating structures situated at ParentCo’s Yadkin Hydroelectric Project (the “Yadkin Project”), including the submerged riverbed of the Yadkin River throughout the Yadkin Project and a portion of the hydroelectric dams that APGI owns and operates pursuant to a license from the Federal Energy Regulatory Commission. The suit seeks declaratory relief regarding North Carolina’s alleged ownership interests in the riverbed and the dams and further declaration that APGI has no right, license or permission from North Carolina to operate the Yadkin Project. By notice filed on September 3, 2013, APGI removed the matter to the U.S. District Court for the Eastern District of North Carolina (Docket No. Civil Action No. 5: 13-cv-633). By motion filed September 3, 2013, the Yadkin Riverkeeper sought permission to intervene in the case. On September 25, 2013, APGI filed its answer in the case and also filed its opposition to the motion to intervene by the Yadkin Riverkeeper. The Court denied the State’s Motion to Remand and initially permitted the Riverkeeper to intervene although the Riverkeeper has now voluntarily withdrawn as an intervening party and will participate as amicus.

On July 21, 2014, the parties each filed a motion for summary judgment. On November 20, 2014, the Court denied APGI’s motion for summary judgment and denied in part and granted in part the State of North Carolina’s motions for summary judgment. The Court held that under North Carolina law, the burden of proof as to title to property is shifted to a private party opposing a state claim of property ownership. The court conducted a trial on navigability on April 21-22, 2015, and, after ruling orally from the bench on April 22, 2015, on May 5, 2015, entered Findings of Fact and Conclusions of Law as to Navigability, ruling in APGI’s favor that the state “failed to meet its burden to prove that the Relevant Segment, as stipulated by the parties, was navigable for commerce at statehood.” Subsequently, APGI filed a motion for summary judgment as to title; the state filed opposition papers. On September 28, 2015, the Court granted summary judgment in APGI’s favor and found that the evidence demonstrates that APGI holds title to the riverbed. The Court further directed judgment to be entered in APGI’s favor and closed the case. The court has set argument for October 27, 2016.

 

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On October 19, 2015, a subsidiary, Alúmina Española S.A., received a request by the Court of Vivero, Spain to provide the names of the “manager,” as well as those of the “environmental managers,” of the San Ciprián alumina refinery from 2009 to the present date. Upon reviewing the documents filed with the Court, ParentCo learned for the first time that the request is the result of a criminal proceeding that began in 2010 after the filing of a claim by two San Ciprián neighbors alleging that the plant’s activities had adverse effects on vegetation, crops and human health. In 2011 and 2012, some neighbors claimed individually in the criminal court for caustic spill damages to vehicles, and the judge decided to administer all issues in the court proceeding (865/2011). Currently, that court proceeding is in its first phase (preliminary investigation phase) led by the judge. The purpose of that investigation is to determine whether there has been a criminal offense for actions against natural resources and the environment. The Spanish public prosecutor is also involved in the case, having requested technical reports. To date, only “Alcoa-Alúmina Española S.A.” has been identified as a potential defendant and no ParentCo representative has yet been required to appear before the judge. No other material step has been taken during this preliminary investigation phase. Monetary sanctions for an offense in the form of a fine could range from 30 to 5,000 euros per day, for a maximum period of three years. Given that this proceeding is in its preliminary stage and the current uncertainty in the case, we are unable to reasonably predict an outcome or to estimate a range of reasonably possible loss.

Tax

Between 2000 and 2002, Alcoa Alumínio (Alumínio) sold approximately 2,000 metric tons of metal per month from its Poços de Caldas facility, located in the State of Minas Gerais (the “State”), to Alfio, a customer also located in the State. Sales in the State were exempted from value-added tax (VAT) requirements. Alfio subsequently sold metal to customers outside of the State, but did not pay the required VAT on those transactions. In July 2002, Alumínio received an assessment from State auditors on the theory that Alumínio should be jointly and severally liable with Alfio for the unpaid VAT. In June 2003, the administrative tribunal found Alumínio liable, and Alumínio filed a judicial case in the State in February 2004 contesting the finding. In May 2005, the Court of First Instance found Alumínio solely liable, and a panel of a State appeals court confirmed this finding in April 2006. Alumínio filed a special appeal to the Superior Tribunal of Justice (STJ) in Brasilia (the federal capital of Brazil) later in 2006. In 2011, the STJ (through one of its judges) reversed the judgment of the lower courts, finding that Alumínio should neither be solely nor jointly and severally liable with Alfio for the VAT, which ruling was then appealed by the State. In August 2012, the STJ agreed to have the case reheard before a five-judge panel. A decision from this panel is pending, but additional appeals are likely. At December 31, 2015, the assessment totaled $35 million (R$135 million), including penalties and interest. While we believe we have meritorious defenses, we are unable to reasonably predict an outcome.

Alumina Limited Litigation

On May 27, 2016, ParentCo filed a complaint in the Delaware Court of Chancery seeking a declaratory judgment on an expedited basis to forestall what the complaint alleges are continuing threats by Alumina Limited and certain related parties to attempt to interfere with the separation and distribution. Alumina Limited has claimed that it has certain consent and other rights under certain agreements governing Alcoa World Alumina and Chemicals (AWAC), a global joint venture between Alcoa Corporation and Alumina Limited, in connection with the separation and distribution.

On September 1, 2016, ParentCo, Alumina Limited, Alcoa Corporation and certain of their respective subsidiaries entered into a settlement and release agreement (the “settlement agreement”) providing for a full settlement and release by each party of claims arising from or relating to the Delaware litigation. The settlement agreement also provides for certain changes to the governance and financial policies of the AWAC joint venture effective upon the completion of the separation, as well as certain additional changes to their AWAC agreements that become effective only in the event of a change in control of Alumina Limited or Alcoa Corporation. The settlement agreement is not expected to have a material effect, adverse or otherwise, on the future operating results of Alcoa Corporation. See “Business—Certain Joint Ventures—AWAC.”

 

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Other Contingencies

In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against ParentCo and/or Alcoa Corporation, including those pertaining to environmental, product liability, safety and health, and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that our liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of Alcoa Corporation.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with the audited Combined Financial Statements and corresponding notes and the Unaudited Pro Forma Combined Condensed Financial Statements and corresponding notes included elsewhere in this information statement. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

All amounts discussed are in millions of U.S. dollars, unless otherwise indicated.

Overview

The Separation

The Proposed Separation. On September 28, 2015, ParentCo announced that its Board of Directors approved a plan (the “separation”) to separate into two independent, publicly-traded companies: Alcoa Upstream Corporation (“Alcoa Corporation”), which will primarily comprise the historical bauxite mining, alumina refining, aluminum production and energy operations of ParentCo, as well as the rolling mill at the Warrick, Indiana, operations and ParentCo’s 25.1% stake in the Ma’aden Rolling Company in Saudi Arabia; and a value-add company, that will principally include the Global Rolled Products (other than the Warrick and Ma’aden rolling mills), Engineered Products and Solutions, and Transportation and Construction Solutions segments (collectively, the “Value-Add Businesses”) of ParentCo.

The separation will occur by means of a pro rata distribution by ParentCo of at least 80.1% of the outstanding shares of Alcoa Corporation. ParentCo, the existing publicly traded company, will continue to own the Value-Add Businesses, and will become the value-add company. In conjunction with the Separation, ParentCo will change its name to Arconic Inc. (“Arconic”) and Alcoa Upstream Corporation will change its name to Alcoa Corporation.

The separation transaction, which is expected to be completed in the second half of 2016, is subject to a number of conditions, including, but not limited to: final approval by ParentCo’s Board of Directors; the continuing validity of the private letter ruling from the Internal Revenue Service regarding certain U.S. federal income tax matters relating to the transaction; receipt of an opinion of legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes; and the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this information statement forms a part. Upon completion of the separation, ParentCo shareholders will own at least 80.1% of the outstanding shares of Alcoa Corporation, and Alcoa Corporation will be a separate company from Arconic. Arconic will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution.

Alcoa Corporation and Arconic will enter into an agreement (the “Separation Agreement”) that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of Alcoa Corporation and Aronic as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur.

ParentCo may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.

For purposes of the following sections of the MD&A, we use the terms “Alcoa Corporation,” “we,” “us,” and “our,” when referring to periods prior to the distribution, to refer to the Alcoa Corporation Business of ParentCo.

 

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Our Business

Alcoa Corporation is the world leader in the production and management of primary aluminum and alumina combined, through its active participation in all major aspects of the industry: technology, mining, refining, smelting, and recycling. Aluminum is a commodity that is traded on the London Metal Exchange (LME) and priced daily. The price of aluminum influences the operating results of Alcoa Corporation.

Alcoa Corporation is a global company operating in ten countries. Based upon the country where the point of sale occurred, the United States and Europe generated 48% and 26%, respectively, of Alcoa Corporation’s sales in 2015. In addition, Alcoa Corporation has investments and operating activities in, among others, Australia, Canada, Brazil, Guinea, and Saudi Arabia. Governmental policies, laws and regulations, and other economic factors, including inflation and fluctuations in foreign currency exchange rates and interest rates, affect the results of operations in these countries.

Results of Operations

Earnings Summary

Net loss attributable to Alcoa Corporation for 2015 was $863 compared with Net loss attributable to Alcoa Corporation of $256, in 2014. The increased loss of $607 was primarily due to a lower average realized price for both aluminum and alumina, a charge for legal matters in Italy, discrete income tax charge for valuation allowances on certain deferred tax assets and nondeductible items, lower energy sales, and higher costs. These negative impacts were partially offset by net favorable foreign currency movements, net productivity improvements, and lower charges and expenses related to a number of portfolio actions (such as capacity reductions and divestitures).

Net loss attributable to Alcoa Corporation for 2014 was $256, compared with a Net loss of $2,909, in 2013. The improvement in results of $2,653 was primarily due to the absence of an impairment of goodwill and charges for the resolution of a legal matter. Other significant changes in results included the following: higher energy sales, a higher average realized price for primary aluminum, net productivity improvements, and net favorable foreign currency movements. These other changes were mostly offset by higher charges related to a number of portfolio actions (such as capacity reductions and divestitures), and higher overall input costs.

Sales— Sales for 2015 were $11,199 compared with sales of $13,147 in 2014, a reduction of $1,948, or 14.8%. The decrease was primarily due to the absence of sales related to capacity that was closed, sold or curtailed (see Primary Metals in Segment Information below), a lower average realized price for aluminum and alumina, and lower energy sales (as a result of lower pricing and unfavorable foreign currency movements). These negative impacts were partially offset by higher volumes of alumina and rolled products.

Sales for 2014 were $13,147 compared with sales of $12,573 in 2013, an improvement of $574, or 4.6%. The increase was mainly the result of higher volumes of alumina, higher energy sales resulting from excess power due to curtailed smelter capacity, and a higher average realized price for primary aluminum. These positive impacts were partially offset by lower primary aluminum volumes, including those related to curtailed and shutdown smelter capacity.

Cost of Goods Sold— COGS as a percentage of Sales was 80.7% in 2015 compared with 80.2% in 2014. The percentage was negatively impacted by a lower average realized price for both aluminum and alumina, lower energy sales, higher inventory write-downs related to the decisions to permanently shut down and/or curtail capacity (difference of $35 – see Restructuring and Other Charges below), and higher costs. These negative impacts were mostly offset by net favorable foreign currency movements due to a stronger U.S. dollar, net productivity improvements, a favorable last in, first out (LIFO) adjustment (difference of $103) due to lower prices for aluminum and alumina, and the absence of costs related to a new labor agreement that covers employees at seven locations in the United States (see below).

 

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COGS as a percentage of Sales was 80.2% in 2014 compared with 87.8% in 2013. The percentage was positively impacted by net productivity improvements across all segments, both the previously mentioned higher energy sales and higher average realized price for primary aluminum, net favorable foreign currency movements due to a stronger U.S. dollar, lower costs for caustic and carbon, and the absence of costs related to a planned maintenance outage in 2013 at a power plant in Australia. These positive impacts were partially offset by higher costs for bauxite, energy, and labor; higher inventory write-downs related to the decisions to permanently shut down and/or curtail capacity (difference of $47 – see Restructuring and Other Charges below); less favorable LIFO adjustment (difference of $15); and costs related to a new labor agreement that covers employees at seven locations in the United States (see below).

On June 6, 2014, the United Steelworkers ratified a new five-year labor agreement covering approximately 6,100 employees at 10 U.S. locations of ParentCo (of which seven are part of Alcoa Corporation); the previous labor agreement expired on May 15, 2014. In 2014, as a result of the preparation for and ratification of the new agreement, Alcoa Corporation recognized $7 in COGS for, among other items, business contingency costs and a one-time signing bonus for employees.

Selling, General Administrative, and Other Expenses— SG&A expenses were $353, or 3.2% of Sales, in 2015 compared with $383, or 2.9% of Sales, in 2014. The decline of $30 was principally the result of favorable foreign currency movements due to a stronger U.S. dollar and the absence of SG&A ($15) related to closed and sold locations, partially offset by expenses for professional and consulting services related to the planned separation discussed above ($12).

SG&A expenses were $383, or 2.9% of Sales, in 2014 compared with $406, or 3.2% of Sales, in 2013. The decline of $23 was attributable to favorable foreign currency movements and decreases in various expenses, including legal and consulting fees and contract services, partially offset by higher stock-based compensation expense ($6).

Research and Development Expenses— R&D expenses were $69 in 2015 compared with $95 in 2014 and $86 in 2013. The decrease in 2015 as compared to 2014 primarily resulted from lower spending associated with inert anode and carbothermic technology for the Primary Metals segment. The increase in 2014 as compared to 2013 was primarily caused by additional spending related to inert anode and carbothermic technology for the Primary Metals segment.

Provision for Depreciation, Depletion, and Amortization — The provision for DD&A was $780 in 2015 compared with $954 in 2014. The decrease of $174, or 18.2%, was mostly due to favorable foreign currency movements due to a stronger U.S. dollar, particularly against the Australian dollar and Brazilian real, and the absence of DD&A ($55) related to the divestiture and/or permanent closure of five smelters, one refinery, and one rod mill (see Alumina and Primary Metals in Segment Information below), all of which occurred from March 2014 through June 2015.

The provision for DD&A was $954 in 2014 compared with $1,026 in 2013. The decrease of $72, or 7.0%, was principally the result of favorable foreign currency movements due to a stronger U.S. dollar, particularly against the Australian dollar and Brazilian real, and a reduction in expense ($20) related to the permanent shutdown of smelter capacity in Australia, Canada, the United States, and Italy that occurred at different points during both 2013 and 2014 (see Primary Metals in Segment Information below).

Impairment of Goodwill— In 2013, Alcoa Corporation recognized an impairment of goodwill in the amount of $1,731 ($1,719 after noncontrolling interest) related to the annual impairment review of the Primary Metals reporting unit (see Goodwill in Critical Accounting Policies and Estimates below).

 

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Restructuring and Other Charges —Restructuring and other charges for each year in the three-year period ended December 31, 2015 were comprised of the following:

 

     2015      2014      2013  

Asset impairments

   $ 311       $ 328       $ 100   

Layoff costs

     199         157         152   

Legal matters in Italy

     201         —           —     

Net loss on divestitures of businesses

     25         214         —     

Resolution of a legal matter

     —           —           391   

Other*

     254         181         73   

Reversals of previously recorded layoff and other exit costs

     (7      (17      (4
  

 

 

    

 

 

    

 

 

 

Total Restructuring and other charges

   $ 983       $ 863       $ 712   
  

 

 

    

 

 

    

 

 

 

 

* Includes $32, $23, and $14 in 2015, 2014, and 2013, respectively, related to the allocation of restructuring charges to Alcoa Corporation based on segment revenue.

Layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements, and the expected timetable for completion of the plans.

2015 Actions. In 2015, Alcoa Corporation recorded Restructuring and other charges of $983, which were comprised of the following components: $418 for exit costs related to decisions to permanently shut down and demolish three smelters and a power station (see below); $238 for the curtailment of two refineries and two smelters (see below); $201 related to legal matters in Italy (see Note N to the Combined Financial Statements); a $24 net loss primarily related to post-closing adjustments associated with two December 2014 divestitures (see Note F to the Combined Financial Statements); $45 for layoff costs, including the separation of approximately 465 employees; $33 for asset impairments related to prior capitalized costs for an expansion project at a refinery in Australia that is no longer being pursued; a net credit of $1 for other miscellaneous items; $7 for the reversal of a number of small layoff reserves related to prior periods; and $32 related to Corporate restructuring allocated to Alcoa Corporation.

During 2015, management initiated various alumina refining and aluminum smelting capacity curtailments and/or closures. The curtailments were composed of the remaining capacity at all of the following: the São Luís smelter in Brazil (74 kmt-per-year); the Suriname refinery (1,330 kmt-per-year); the Point Comfort, TX refinery (2,010 kmt-per-year); and the Wenatchee, WA smelter (143 kmt-per-year). All of the curtailments were completed in 2015 except for 1,635 kmt-per-year at the Point Comfort refinery, which is expected to be completed by the end of June 2016. The permanent closures were composed of the capacity at the Warrick, IN smelter (269 kmt-per-year) (includes the closure of a related coal mine) and the infrastructure of the Massena East, NY smelter (potlines were previously shut down in both 2013 and 2014 – see 2013 Actions and 2014 Actions below), as the modernization of this smelter is no longer being pursued. The shutdown of the Warrick smelter is expected to be completed by the end of March 2016.

The decisions on the above actions were part of a separate 12-month review in refining (2,800 kmt-per-year) and smelting (500 kmt-per-year) capacity initiated by management in March 2015 for possible curtailment (partial or full), permanent closure or divestiture. While many factors contributed to each decision, in general, these actions were initiated to maintain competitiveness amid prevailing market conditions for both alumina and aluminum. Demolition and remediation activities related to the Warrick smelter and the Massena East location will begin in 2016 and are expected to be completed by the end of 2020.

Separate from the actions initiated under the reviews described above, in mid-2015, management approved the permanent shutdown and demolition of the Poços de Caldas smelter (capacity of 96 kmt-per-year) in Brazil and the Anglesea power station (includes the closure of a related coal mine) in Australia. The entire capacity at

 

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Poços de Caldas had been temporarily idled since May 2014 and the Anglesea power station was shut down at the end of August 2015. Demolition and remediation activities related to the Poços de Caldas smelter and the Anglesea power station began in late 2015 and are expected to be completed by the end of 2026 and 2020, respectively.

The decision on the Poços de Caldas smelter was due to management’s conclusion that the smelter was no longer competitive as a result of challenging global market conditions for primary aluminum, which led to the initial curtailment, that have not dissipated and higher costs. For the Anglesea power station, the decision was made because a sale process did not result in a sale and there would have been imminent operating costs and financial constraints related to this site in the remainder of 2015 and beyond, including significant costs to source coal from available resources, necessary maintenance costs, and a depressed outlook for forward electricity prices. The Anglesea power station previously supplied approximately 40 percent of the power needs for the Point Henry smelter, which was closed in August 2014 (see 2014 Actions below).

In 2015, costs related to the shutdown and curtailment actions included asset impairments of $226, representing the write-off of the remaining book value of all related properties, plants, and equipment; $154 for the layoff of approximately 3,100 employees (1,800 in the Primary Metals segment and 1,300 in the Alumina segment), including $30 in pension costs (see Note W to the Combined Financial Statements); accelerated depreciation of $85 related to certain facilities as they continued to operate during 2015; and $222 in other exit costs. Additionally in 2015, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $90, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $222 represent $72 in asset retirement obligations and $85 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in the United States, Brazil, and Australia (includes the rehabilitation of a related coal mine in each of Australia and the United States), and $65 in supplier and customer contract-related costs.

As of December 31, 2015, approximately 740 of the 3,600 employees were separated. The remaining separations for 2015 restructuring programs are expected to be completed by the end of 2016. In 2015, cash payments of $26 were made against layoff reserves related to 2015 restructuring programs.

2014 Actions. In 2014, Alcoa Corporation recorded Restructuring and other charges of $863, which were comprised of the following components: $526 for exit costs related to decisions to permanently shut down and demolish three smelters (see below); a $216 net loss for the divestitures of three operations (see Note F to the Combined Financial Statements); $61 for the temporary curtailment of two smelters and a related production slowdown at one refinery (see below); $33 for asset impairments related to prior capitalized costs for a modernization project at a smelter in Canada that is no longer being pursued; $9 for layoff costs, including the separation of approximately 60 employees; a net charge of $4 for an environmental charge at a previously shut down refinery; $9 primarily for the reversal of a number of layoff reserves related to prior periods; and $23 related to Corporate restructuring allocated to Alcoa Corporation.

In early 2014, management approved the permanent shutdown and demolition of the remaining capacity (84 kmt-per-year) at the Massena East, NY smelter and the full capacity (190 kmt-per-year) at the Point Henry smelter in Australia. The capacity at Massena East was fully shut down by the end of March 2014 and the Point Henry smelter was fully shut down in August 2014. Demolition and remediation activities related to both the Massena East and Point Henry smelters began in late 2014 and are expected to be completed by the end of 2020 and 2018, respectively.

The decisions on the Massena East and Point Henry smelters were part of a 15-month review of 460 kmt of smelting capacity initiated by management in May 2013 (see 2013 Actions below) for possible curtailment. Through this review, management determined that the remaining capacity of the Massena East smelter was no longer competitive and the Point Henry smelter had no prospect of becoming financially viable. Management

 

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also initiated the temporary curtailment of the remaining capacity (62 kmt-per-year) at the Poços de Caldas smelter and additional capacity (85 kmt-per-year) at the São Luís smelter, both in Brazil. These curtailments were completed by the end of May 2014. As a result of these curtailments, 200 kmt-per-year of production at the Poços de Caldas refinery was reduced by the end of June 2014.

Additionally, in August 2014, management approved the permanent shutdown and demolition of the capacity (150 kmt-per-year) at the Portovesme smelter in Italy, which had been idle since November 2012. This decision was made because the fundamental reasons that made the Portovesme smelter uncompetitive remained unchanged, including the lack of a viable long-term power solution. Demolition and remediation activities related to the Portovesme smelter will begin in 2016 and are expected to be completed by the end of 2020 (delayed due to discussions with the Italian government and other stakeholders).

In 2014, costs related to the shutdown and curtailment actions included $149 for the layoff of approximately 1,290 employees, including $24 in pension costs (see Note W to the Combined Financial Statements); accelerated depreciation of $146 related to the Point Henry smelter in Australia as they continued to operate during 2014; asset impairments of $150 representing the write-off of the remaining book value of all related properties, plants, and equipment; and $152 in other exit costs. Additionally in 2014, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $55, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $152 represent $87 in asset retirement obligations and $24 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Australia, Italy, and the United States, and $41 in other related costs, including supplier and customer contract-related costs.

As of December 31, 2015, the separations associated with 2014 restructuring programs were essentially complete. In 2015 and 2014, cash payments of $34 and $87, respectively, were made against layoff reserves related to 2014 restructuring programs.

2013 Actions. In 2013, Alcoa Corporation recorded Restructuring and other charges of $712, which were comprised of the following components: $391 related to the resolution of a legal matter (see Government Investigations under Litigation in Note N to the Combined Financial Statements); $244 for exit costs related to the permanent shutdown and demolition of certain structures at three smelter locations (see below); $38 for layoff costs, including the separation of approximately 370 employees, of which 280 relates to a global overhead reduction program; $23 for asset impairments related to the write-off of capitalized costs for projects no longer being pursued due to the market environment; a net charge of $2 for other miscellaneous items; and $14 related to Corporate restructuring allocated to Alcoa Corporation.

In May 2013, management approved the permanent shutdown and demolition of two potlines (capacity of 105 kmt-per-year) that utilize Soderberg technology at the Baie Comeau smelter in Québec, Canada (remaining capacity of 280 kmt-per-year composed of two prebake potlines) and the full capacity (44 kmt-per-year) at the Fusina smelter in Italy. Additionally, in August 2013, management approved the permanent shutdown and demolition of one potline (capacity of 41 kmt-per-year) that utilizes Soderberg technology at the Massena East, NY smelter (remaining capacity of 84 kmt-per-year composed of two Soderberg potlines). The aforementioned Soderberg lines at Baie Comeau and Massena East were fully shut down by the end of September 2013 while the Fusina smelter was previously temporarily idled in 2010. Demolition and remediation activities related to all three facilities began in late 2013 and are expected to be completed by the end of 2016 for Massena East and by the end of 2017 for both Baie Comeau and Fusina.

The decisions on the Soderberg lines for Baie Comeau and Massena East were part of a 15-month review of 460 kmt of smelting capacity initiated by management in May 2013 for possible curtailment, while the decision on the Fusina smelter was in addition to the capacity being reviewed. Factors leading to all three decisions were in general focused on achieving sustained competitiveness and included, among others: lack of an economically viable, long-term power solution (Italy); changed market fundamentals; other existing idle capacity; and restart costs.

 

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In 2013, exit costs related to the shutdown actions included $113 for the layoff of approximately 550 employees (Primary Metals segment), including $78 in pension costs (see Note W to the Combined Financial Statements); accelerated depreciation of $58 (Baie Comeau) and asset impairments of $19 (Fusina and Massena East) representing the write-off of the remaining book value of all related properties, plants, and equipment; and $54 in other exit costs. Additionally in 2013, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value resulting in a charge of $8, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $54 represent $47 in asset retirement obligations and $5 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish these structures, and $2 in other related costs.

As of December 31, 2015, the separations associated with 2013 restructuring programs were essentially complete. In 2015, 2014, and 2013, cash payments of $6, $24, and $23, respectively, were made against layoff reserves related to 2013 restructuring programs.

Alcoa Corporation does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of allocating such charges to segment results would have been as follows:

 

     2015      2014      2013  

Bauxite

   $ 16       $ —         $ —     

Alumina

     212         283         10   

Aluminum

     610         559         296   

Cast Products

     2         (2      —     

Energy

     84         —           —     

Rolled Products

     9         —           —     
  

 

 

    

 

 

    

 

 

 

Segment total

     933         840         306   
  

 

 

    

 

 

    

 

 

 

Corporate

     50         23         406   
  

 

 

    

 

 

    

 

 

 

Total restructuring and other charges

   $ 983       $ 863       $ 712   
  

 

 

    

 

 

    

 

 

 

Interest Expense— Interest expense was $270 in 2015 compared with $309 in 2014. The decrease of $39, or 12.6%, was largely due to a lower allocation to Alcoa Corporation of ParentCo’s interest expense, which is primarily a function of the lower ratio in 2015 (as compared to 2014) of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, partially offset by higher interest expense at ParentCo subject to allocation.

Interest expense was $309 in 2014 compared with $305 in 2013. The increase of $4, or 1.3%, was primarily driven by a higher allocation to Alcoa Corporation of ParentCo’s interest expense, due mainly to higher interest expense at ParentCo subject to allocation.

Other Expenses (Income), net— Other expenses, net was $42 in 2015 compared with $58 in 2014. The decrease of $16 was mainly the result of net favorable foreign currency movements ($23) and lower equity losses ($5), partially offset by an unfavorable change in mark-to-market derivative contracts ($13).

Other expenses, net was $58 in 2014 compared with $14 in 2013. The change of $44 was mostly due to an unfavorable change in mark-to-market derivative aluminum contracts ($49) and a higher equity loss related to Alcoa Corporation’s share of the joint venture in Saudi Arabia due to start-up costs of the entire complex, including restart costs for one of the smelter potlines that was previously shut down due to a period of instability. These items were partially offset by a gain on the sale of a mining interest in Suriname ($28).

Income Taxes — Alcoa Corporation’s effective tax rate was 119% (provision on a loss) in 2015 compared with the U.S. federal statutory rate of 35%. The effective tax rate differs from the U.S. federal statutory rate mainly due to U.S. losses and tax credits with no tax benefit realizable in Alcoa Corporation, a $141 discrete

 

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income tax charge ($107 after noncontrolling interest) for valuation allowances on certain deferred tax assets in Iceland and Suriname (see Income Taxes in Critical Accounting Policies and Estimates below) and a $201 charge for legal matters in Italy (see Restructuring and Other Charges above) that are nondeductible for income tax purposes, and restructuring charges related to the curtailment of a refinery in Suriname (see Restructuring and Other Charges above), a portion for which no tax benefit was recognized.

Alcoa Corporation’s effective tax rate was 451% (provision on a loss) in 2014 compared with the U.S. federal statutory rate of 35%. The effective tax rate differs from the U.S. federal statutory rate mainly due to U.S. losses and tax credits with no tax benefit realizable in Alcoa Corporation, restructuring charges related to operations in Italy (no tax benefit) and Australia (benefit at a lower tax rate) (see Restructuring and Other Charges above), a $52 ($31 after noncontrolling interest) discrete income tax charge related to a tax rate change in Brazil (see below), and a $27 ($16 after noncontrolling interest) discrete income tax charge for the remeasurement of certain deferred tax assets of a subsidiary in Spain due to a November 2014 enacted tax rate change (from 30% in 2014 to 28% in 2015, and from 28% to 25% in 2016). These items were somewhat offset by foreign income taxed in lower-rate jurisdictions.

In December 2011, one of Alcoa Corporation’s subsidiaries in Brazil applied for a tax holiday related to its expanded mining and refining operations. During 2013, the application was amended and re-filed and, separately, a similar application was filed for another one of ParentCo’s subsidiaries in Brazil that has significant operations of Alcoa Corporation. The deadline for the Brazilian government to deny the application was July 11, 2014. Since Alcoa Corporation did not receive notice that its applications were denied, the tax holiday took effect automatically on July 12, 2014. As a result, the tax rate for these entities decreased significantly (from 34% to 15.25%), resulting in future cash tax savings over the 10-year holiday period (retroactively effective as of January 1, 2013). Additionally, a portion of the Alcoa Corporation subsidiary’s net deferred tax asset that reverses within the holiday period was remeasured at the new tax rate (the net deferred tax asset of the other entity was not remeasured since it could still be utilized against the subsidiary’s future earnings not subject to the tax holiday). This remeasurement resulted in a decrease to that entity’s net deferred tax asset and a noncash charge to earnings in Alcoa Corporation’s combined statement of operations of $52 ($31 after noncontrolling interest).

Alcoa Corporation’s effective tax rate was 4% in 2013 (provision on a loss) compared with the U.S. federal statutory rate of 35%. The effective tax rate differs from the U.S. federal statutory rate primarily due to a $1,731 impairment of goodwill (see Impairment of Goodwill above), U.S. losses and tax credits with no tax benefit realizable in Alcoa Corporation and a $209 charge for a legal matter (see Restructuring and Other Charges above) that are nondeductible for income tax purposes, a $128 discrete income tax charge for valuation allowances on certain deferred tax assets in Spain (see Income Taxes in Critical Accounting Policies and Estimates below), restructuring charges related to operations in Canada (benefit at a lower tax rate) and Italy (no tax benefit) (see Restructuring and Other Charges above).

Management anticipates that the effective tax rate in 2016 will be approximately 60% (provision on a loss). However, changes in the current economic environment, tax legislation or rate changes, currency fluctuations, ability to realize deferred tax assets, and the results of operations in certain taxing jurisdictions may cause this estimated rate to fluctuate.

Noncontrolling Interests— Net income attributable to noncontrolling interests was $124 in 2015 compared with Net loss attributable to noncontrolling interests of $91 in 2014 and Net income attributable to noncontrolling interests of $39 in 2013. These amounts are related to Alumina Limited’s 40% ownership interest in AWAC. In 2015, AWAC generated income compared to a loss in both 2014 and 2013.

In 2015, the change in AWAC’s results was principally due to improved operating results, the absence of restructuring and other charges related to both the permanent shutdown of the Point Henry smelter in Australia (see Restructuring and Other Charges above) and the divestiture of an ownership interest in a mining and refining

 

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joint venture in Jamaica (see Alumina in Segment Information below), and the absence of a combined $79 ($32 was noncontrolling interest’s share) discrete income tax charge related to a respective tax rate change in both Brazil and Spain (see Income Taxes above). These positive impacts were somewhat offset by restructuring charges related to the curtailment of both the refinery in Suriname and in Point Comfort, TX and the permanent closure of the Anglesea power station and coal mine (see Restructuring and Other Charges above), an $85 ($34 was noncontrolling interest’s share) discrete income tax charge for a valuation allowance on certain deferred tax assets (see Income Taxes above), and the absence of a $28 gain ($11 was noncontrolling interest’s share) on the sale of a mining interest in Suriname. The improvement in AWAC’s operating results was largely attributable to net favorable foreign currency movements, net productivity improvements, and lower input costs, slightly offset by a lower average realized price (see Alumina in Segment Information below).

In 2014, AWAC generated a smaller loss compared to 2013 mainly driven by the absence of a $384 charge for a legal matter (see below), improved operating results, and a $28 gain ($11 was noncontrolling interest’s share) on the sale of a mining interest in Suriname. These positive impacts were mostly offset by restructuring and other charges associated with both the decision to permanently shut down the Point Henry smelter in Australia (see Restructuring and Other Charges above) and the divestiture of an ownership interest in a mining and refining joint venture in Jamaica (see Alumina in Segment Information below) and a combined $79 ($32 was noncontrolling interest’s share) discrete income tax charge related to a tax rate change in both Brazil and Spain (see Income Taxes above). The improvement in AWAC’s operating results was principally due to net favorable foreign currency movements and net productivity improvements, partially offset by an increase in input costs. Even though AWAC generated an overall loss in both 2014 and 2013, the noncontrolling interest’s share resulted in income in 2013 due to the manner in which the charges and costs related to a legal matter were allocated, as discussed below.

The noncontrolling interest’s share of AWAC’s charge for a legal matter in 2013 and 2012 was $58 (related to the aforementioned $384) and $34 (an $85 charge related to the civil portion of the same legal matter), respectively. In 2012, the $34 was based on the 40% ownership interest of Alumina Limited, while, in 2013, the $58 was based on 15%. The application of a different percentage was due to the criteria in a 2012 allocation agreement between ParentCo and Alumina Limited related to this legal matter being met. Additionally, the $34 charge, as well as costs related to this legal matter, was retroactively adjusted to reflect the terms of the allocation agreement, resulting in a credit to Noncontrolling interests of $41 in 2013. In summary, Noncontrolling interests included a charge of $17 and $34 related to this legal matter in 2013 and 2012, respectively.

Segment Information

Alcoa Corporation is primarily a producer of bauxite, alumina, aluminum ingot, and aluminum sheet. Alcoa Corporation’s segments are organized by product on a worldwide basis. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating income (ATOI) of each segment. Certain items such as the impact of LIFO inventory accounting; metal price lag; interest expense; non-controlling interests; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit elimination; the impact of discrete tax items, any deferred tax valuation allowance adjustments and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income are excluded from segment ATOI.

Effective January 1, 2015, Alcoa Corporation redefined its operating segments concurrent with an internal reorganization for certain of its businesses. Following this reorganization, Alcoa Corporation’s operations consist of six segments: Bauxite, Alumina, Aluminum, Cast Products, Energy and Rolled Products. Under the applicable reporting guidance, when a Company changes its organizational structure, it should generally prepare its segment information based on the new segments and provide comparative information for related periods. However, in

 

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certain instances, changes to the structure of an internal organization could change the composition of its reportable segments and it may not be practical to retrospectively revise prior periods. In connection with the January 1, 2015 reorganization, Alcoa Corporation fundamentally altered the commercial nature of how certain internal businesses transact with each other, moving from a cost-based transfer pricing model to one based on estimated market pricing. As a result, certain operations (such as bauxite mining, aluminum smelting and casting) that had previously been measured and evaluated primarily based on costs incurred were transformed into separate businesses with full profit and loss information. In addition, this reorganization involved converting regional-based management responsibility to global responsibility for each business, which had a further impact on overall cost structures of the segments.

As a result of the significant changes associated with the reorganization (including substantial information system modifications), which were implemented on a prospective basis only, Alcoa Corporation does not have all of the information that would be necessary to present certain segment data, specifically ATOI, income taxes and total assets, for periods prior to 2015. This information is not available to Alcoa Corporation management for its own internal use, and it is impracticable to obtain or generate this information, as underlying commercial transactions between the segments, which are necessary to determine these income-based and asset-based segment measures, did not take place prior to 2015.

The following discussion includes amounts for 2015 related to Alcoa Corporation’s current six segments. In addition, comparative information for 2015, 2014 and 2013 is provided on a supplemental basis for the segments that were in effect for periods prior to 2015: Alumina, Primary Metals and Rolled Products.

ATOI for all segments under the current segment reporting totaled $1,010 in 2015. The following information provides shipments (where appropriate), sales, and ATOI data for each segment, as well as certain production, realized price, and average cost data, for the period ended December 31, 2015. See Note Q to the Consolidated Financial Statements of this information statement for additional information.

Bauxite

 

     2015  

Bauxite production (bone dry metric tons, or bdmt), in millions

     45.3   

Alcoa Corporation’s average cost per bdmt of bauxite*

   $ 19   

Third-party sales

   $ 71   

Intersegment sales

     1,160   
  

 

 

 

Total sales

   $ 1,231   
  

 

 

 

ATOI

   $ 258   
  

 

 

 

 

* Includes all production-related costs, including conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

During 2015, mines operated by Alcoa Corporation (owned by Alcoa Corporation and AWAC) produced 38.3 million bdmt and separately mines operated by third parties (with Alcoa Corporation and AWAC equity interests) produced 7.0 million bdmt on a proportional equity basis for a total bauxite production of 45.3 million bdmt.

Based on the terms of its bauxite supply contracts, AWAC bauxite purchases from Mineração Rio do Norte S.A. (MRN) and Compagnie des Bauxites de Guinée (CBG) differ from its proportional equity in those mines. Therefore during 2015, AWAC had access to 47.8 million bdmt of production from its portfolio of mines.

During 2015, AWAC sold 1.5 million bdmt of bauxite to third parties and purchased 0.2 million bdmt from third parties. The bauxite delivered to Alcoa Corporation and AWAC refineries amounted to 46.8 million bdmt during 2015.

 

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Alcoa Corporation is growing its third-party bauxite sales business. During the third quarter of 2015, Alcoa Corporation received permission from the Government of Western Australia to export trial shipments from its Western Australia mines.

In 2016, management will continue to focus on expanding its third-party bauxite business while also leveraging the strategic advantage of it close proximity to its owned refinery operations.

Alumina

 

     2015  

Alumina production (kmt)

     15,720   

Third-party alumina shipments (kmt)

     10,755   

Alcoa Corporation’s average realized price per metric ton of alumina

   $ 311   

Alcoa Corporation’s average cost per metric ton of alumina*

   $ 266   

Third-party sales

   $ 3,343   

Intersegment sales

     1,687   
  

 

 

 

Total sales

   $ 5,030   
  

 

 

 

ATOI

   $ 476   
  

 

 

 

 

* Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

In March 2015, Alcoa Corporation initiated a 12-month review of 2,800,000 mtpy in refining capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of Alcoa Corporation’s target to lower its refining operations on the global alumina cost curve to the 21st percentile (currently 23rd) by the end of 2016. As part of this review, in March 2015, Alcoa Corporation decided to curtail 443,000 mtpy (one digester) of capacity at the Suralco refinery; this action was completed by the end of April 2015.

Additionally, in September, Alcoa Corporation decided to curtail the remaining capacity (887,000 mtpy—two digesters) at Suralco; Alcoa Corporation completed it by the end of November 2015 (877,000 mtpy of capacity at Suralco had previously been curtailed). Alcoa Corporation is currently in discussions with the Suriname government to determine the best long-term solution for Suralco due to limited bauxite reserves and the absence of a long-term energy alternative.

During 2015, Alcoa Corporation undertook curtailment of the remaining 2,010,000 mtpy of capacity at the Point Comfort, Texas refinery (295,000 mtpy had previously been curtailed). This action is expected to be completed by the end of June 2016 (375,000 mtpy was completed by the end of December 2015).

In 2016, alumina production will be approximately 2,500 kmt lower, mostly due to the curtailment of the Point Comfort and Suralco refineries. Also, the continued shift towards alumina index and spot pricing is expected to average 85% of third-party smelter-grade alumina shipments. Additionally, net productivity improvements are anticipated.

Aluminum

 

     2015  

Aluminum production (kmt)

     2,811   

Alcoa Corporation’s average cost per metric ton of aluminum*

   $ 1,828   

Third-party sales

   $ 14   

Intersegment sales

     5,092   
  

 

 

 

Total sales

   $ 5,106   
  

 

 

 

ATOI

   $ 1   
  

 

 

 

 

* Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

 

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In March 2015, Alcoa Corporation initiated a 12-month review of 500,000 mtpy of smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of Alcoa Corporation’s target to lower its smelting operations on the global aluminum cost curve to the 38th percentile (currently 43rd) by 2016. As part of this review, in March 2015, Alcoa Corporation decided to curtail the remaining capacity (74,000 mtpy) at the Alumar smelter; this action was completed in April 2015.

Separate from the smelting capacity review described above, in June 2015, Alcoa Corporation decided to permanently close the Poços de Caldas smelter (96,000 mtpy) in Brazil effective immediately. The Poços de Caldas smelter had been temporarily idle since May 2014 due to challenging global market conditions for primary aluminum and higher operating costs, which made the smelter uncompetitive. The decision to permanently close the Poços de Caldas smelter was based on the fact that these underlying conditions had not improved.

In November 2015, Alcoa Corporation announced that it would curtail 503,000 mtpy of aluminum smelting capacity amid prevailing market conditions by idling capacity at the Massena West (130,000 mtpy), Intalco (230,000 mtpy) and Wenatchee (143,000 mtpy) smelters. The curtailment of the remaining capacity at Wenatchee was completed by the end of December 2015. Later in November 2015, Alcoa Corporation announced that it had entered into a three-and-a-half year agreement with New York State to increase the competitiveness of the Massena West smelter. As a result, the Massena West smelter will continue to operate.

In January 2016, Alcoa Corporation announced it would delay the curtailment (230,000 mtpy) of its Intalco smelter in Ferndale, Washington until the end of the second quarter of 2016. Recent decreases in energy and raw material costs had made it more cost effective in the near term to keep the smelter operating. In May 2016, Alcoa Corporation announced that it had entered into a one-and-a-half year agreement with the Bonneville Power Administration (BPA) that will help improve the competitiveness of the Intalco smelter. As a result, the smelter will not be curtailed at the end of the second quarter of 2016 as previously announced.

In January 2016, Alcoa Corporation announced that it will permanently close its 269,000 mtpy Warrick Operations smelter in Evansville, Indiana by the end of the first quarter of 2016. The rolling mill and power plant at Warrick Operations will continue to operate.

In 2016, aluminum production and third party sales in the Aluminum segment will be lower reflecting the 2015 curtailment and closure actions.

Cast Products

 

     2015  

Third-party aluminum shipments (kmt)

     2,957   

Alcoa Corporation’s average third party realized price per metric ton of aluminum*

   $ 2,092   

Alcoa Corporation’s average cost per metric ton of aluminum**

   $ 2,019   

Third-party sales

   $ 6,186   

Intersegment sales

     46   
  

 

 

 

Total sales

   $ 6,232   
  

 

 

 

ATOI

   $ 110   
  

 

 

 

 

* Average realized price per metric ton of aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (for example the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (such as billet, slab, rod, etc.) or alloy.

 

** Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

 

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In 2015, casting production was impacted by smelter curtailments (see Aluminum above). The casthouses associated with the 2015 smelter curtailments were also curtailed with the exception of the Massena West casthouse, which will continue to operate.

In 2016, casting production and third party sales will be lower due to the curtailment of the Wenatchee smelter (see Aluminum above) and lower product premiums and mix.

Energy

 

     2015  

Third-party sales (GWh)

     6,604   

Third-party sales

   $ 426   

Intersegment sales

     297   
  

 

 

 

Total sales

   $ 723   
  

 

 

 

ATOI

   $ 145   
  

 

 

 

In 2015, third party sales volume of electricity was principally comprised of the Brazil hydro facilities and the Warrick, IN power plant. During the year, management elected to permanently shut down the Anglesea power station and associated coal mine in Victoria, Australia. The power station previously provided electricity to the Pt. Henry smelter.

In 2016, energy sales in Brazil will be negatively impacted (as compared to 2015) by a decline in energy prices and net unfavorable foreign currency movements due to a stronger U.S. dollar against the Brazilian real. The sales volume at Warrick will decline by approximately 40% as a result of the closure of the Warrick smelter.

Rolled Products

 

     2015  

Third-party aluminum shipments (kmt)

     266   

Alcoa’s average realized price per metric ton of aluminum

   $ 3,728   

Third-party sales

   $ 993   

Intersegment sales

     18   
  

 

 

 

Total sales

   $ 1,011   
  

 

 

 

ATOI

   $ 20   
  

 

 

 

In 2015, third-party sales for the Rolled Products segment were impacted by unfavorable pricing, mostly due to a decrease in metal prices (both LME and regional premium components) as well as pricing pressure in the packaging end market.

In 2016, as a result of the planned closure of the Warrick smelter, additional costs are expected to secure alternative metal supply as the Warrick, IN rolling facility transitions to a cold metal rolling mill. Productivity improvements are anticipated to help offset some of these costs.

 

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Reconciliation of ATOI to Combined Net Income (Loss) Attributable to Alcoa Corporation

Items required to reconcile total segment ATOI to combined net income (loss) attributable to Alcoa Corporation include: the impact of LIFO inventory accounting; metal price lag; interest expense; non-controlling interests; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit elimination; the impact of any discrete tax items, deferred tax valuation allowance adjustments and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income.

The following table reconciles total segment ATOI to combined net (loss) income attributable to Alcoa Corporation:

 

     2015  

Net (loss) income attributable to Alcoa Corporation:

  

Total segment ATOI (1)

   $ 1,010   

Unallocated amounts:

  

Impact of LIFO

     107   

Metal price lag

     (30

Interest expense

     (270

Non-controlling interest (net of tax)

     (124

Corporate expense

     (180

Restructuring and other charges

     (983

Income taxes

     (41

Other

     (352
  

 

 

 

Combined net loss attributable to Alcoa Corporation

   $ (863
  

 

 

 

 

(1) Segment ATOI information is not available for periods prior to 2015 and it is impracticable to obtain.

Segments Prior to 2015

As discussed above, the following information regarding Alcoa Corporation’s segments in effect prior to January 2015 (Alumina, Primary Metals, and Rolled Products) is being provided on a supplemental basis.

ATOI for all segments in effect prior to January 2015 totaled $902 in 2015, $1,018 in 2014, and $275 in 2013. The following information provides shipments (where appropriate), sales, and ATOI data for each segment, as well as certain production, realized price, and average cost data, for each of the three years in the period ended December 31, 2015. See Note Q to the Consolidated Financial Statements included in this information statement for additional information.

Alumina

 

     2015      2014      2013  

Alumina production (kmt)

     15,720         16,606         16,618   

Third-party alumina shipments (kmt)

     10,755         10,652         9,966   

Alcoa Corporation’s average realized price per metric ton of alumina

   $ 317       $ 324       $ 328   

Alcoa Corporation’s average cost per metric ton of alumina*

   $ 237       $ 282       $ 295   

Third-party sales

   $ 3,455       $ 3,509       $ 3,326   

Intersegment sales

     1,687         1,941         2,235   
  

 

 

    

 

 

    

 

 

 

Total sales

   $ 5,142       $ 5,450       $ 5,561   
  

 

 

    

 

 

    

 

 

 

ATOI

   $ 746       $ 370       $ 259   
  

 

 

    

 

 

    

 

 

 

 

* Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

 

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This segment represents a portion of Alcoa Corporation’s upstream operations and consists of its worldwide refining system. Alumina mines bauxite, from which alumina is produced and then sold directly to external smelter customers, as well as to the Primary Metals segment (see Primary Metals below), or to customers who process it into industrial chemical products. More than half of Alumina’s production is sold under supply contracts to third parties worldwide, while the remainder is used internally by the Primary Metals segment. Alumina produced by this segment and used internally is transferred to the Primary Metals segment at prevailing market prices. A portion of this segment’s third-party sales are completed through the use of agents, alumina traders, and distributors. Generally, the sales of this segment are transacted in U.S. dollars while costs and expenses of this segment are transacted in the local currency of the respective operations, which are the Australian dollar, the Brazilian real, the U.S. dollar, and the euro.

AWAC is an unincorporated global joint venture between ParentCo and Alumina Limited and consists of a number of affiliated entities, which own, or have an interest in, or operate the bauxite mines and alumina refineries within the Alumina segment (except for the Poços de Caldas refinery in Brazil and a portion of the São Luís refinery in Brazil). ParentCo owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated for purposes of ParentCo’s and Alcoa Corporation’s financial statements and financial reporting. As such, the results and analysis presented for the Alumina segment are inclusive of Alumina Limited’s 40% interest.

In December 2014, AWAC completed the sale of its ownership stake in Jamalco, a bauxite mine and alumina refinery joint venture in Jamaica, to Noble Group Ltd. Jamalco was 55% owned by a subsidiary of AWAC, and, while owned by AWAC, 55% of both the operating results and assets and liabilities of this joint venture were included in the Alumina segment. As it relates to AWAC’s previous 55% ownership stake, the refinery (AWAC’s share of the capacity was 779 kmt-per-year) generated sales (third-party and intersegment) of approximately $200 in 2013, and the refinery and mine combined, at the time of divestiture, had approximately 500 employees. See Restructuring and Other Charges in Results of Operations above.

In 2015, alumina production decreased by 886 kmt compared to 2014. The decline was mostly the result of the absence of production at the Jamalco refinery (see above) and lower production at the Suralco (Suriname—see below) and Poços de Caldas (Brazil—see below) refineries, slightly offset by higher production at the San Ciprian (Spain) and Point Comfort (Texas) refineries.

In March 2015, management initiated a 12-month review of 2,800 kmt in refining capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of management’s target to lower Alcoa Corporation’s refining operations on the global alumina cost curve to the 21 st percentile (currently 23 rd ) by the end of 2016. As part of this review, in 2015, management decided to curtail all of the operating capacity at both the Suralco (1,330 kmt-per-year) and Point Comfort (2,010 kmt-per-year) refineries. The curtailment of the capacity at Suralco was completed by the end of November 2015. Management is currently in discussions with the Suriname government to determine the best long-term solution for Suralco due to limited bauxite reserves and the absence of a long-term energy alternative. The curtailment of the capacity at Point Comfort is expected to be completed by the end of June 2016 (375 kmt-per-year was completed by the end of December 2015). Suralco and Point Comfort have nameplate capacity of 2,207 kmt-per-year and 2,305 kmt-per-year, respectively, of which 877 kmt and 295 kmt, respectively was curtailed prior to the review. See Restructuring and Other Charges in Results of Operations above for a description of the associated charges related to these actions.

In 2014, alumina production decreased by 12 kmt compared to 2013. The decline was mainly driven by lower production at the Poços de Caldas, Jamalco, and San Ciprian refineries, mostly offset by higher production at every other refinery in the global system. The Poços de Caldas refinery started to reduce production in early 2014 in response to management’s decision to fully curtail the Poços de Caldas smelter by the end of May 2014 (see Primary Metals below). As a result, management reduced the alumina production at the Poços de Caldas refinery by approximately 200 kmt-per-year by mid-2014. This reduction was replaced by an increase in

 

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production at lower cost refineries within Alcoa’s global system. Additionally, the decrease at the refinery in Jamaica was due to the absence of production for one month as a result of the sale of the ownership stake in Jamalco (see above).

Third-party sales for the Alumina segment decreased 2% in 2015 compared with 2014, largely attributable to a 2% decline in average realized price, somewhat offset by a 1% increase in volume. The change in average realized price was mostly driven by a decrease in both the average alumina index/spot price and average LME-based price, somewhat offset by a higher percentage (75% compared to 68%) of smelter-grade alumina shipments linked to an alumina index/spot price instead of an LME-based price.

Third-party sales for this segment improved 6% in 2014 compared with 2013, primarily related to a 7% improvement in volume.

Intersegment sales for the Alumina segment declined 13% in both 2015 compared with 2014 and 2014 compared with 2013. The decrease in both periods was mostly the result of lower demand from the Primary Metals segment, as a result of the closure, curtailment or divestiture of a number of smelters (see Primary Metals below), and a lower average realized price.

ATOI for the Alumina segment increased $376 in 2015 compared with 2014, mainly caused by net favorable foreign currency movements due to a stronger U.S. dollar, especially against the Australian dollar and Brazilian real; net productivity improvements; and lower input costs, including natural gas, fuel oil, and transportation, all of which were slightly offset by higher labor and maintenance costs. These positive impacts were slightly offset by the previously mentioned lower average realized price and the absence of a gain on the sale of a mining interest in Suriname ($18).

ATOI for this segment improved $111 in 2014 compared with 2013, mostly due to net favorable foreign currency movements due to a stronger U.S. dollar, especially against the Australian dollar, net productivity improvements, and a gain on the sale of a mining interest in Suriname ($18). These positive impacts were partially offset by higher input costs, including natural gas (particularly higher prices in Australia), bauxite (mainly due to a new mining site in Suriname), and labor and maintenance, all of which were somewhat offset by lower costs for caustic; and a higher equity loss due to start-up costs of the bauxite mine and refinery in Saudi Arabia.

Primary Metals

 

     2015      2014      2013  

Aluminum production (kmt)

     2,811         3,125         3,550   

Third-party aluminum shipments (kmt)

     2,961         3,261         3,481   

Alcoa Corporation’s average realized price per metric ton of aluminum*

   $ 2,092       $ 2,396       $ 2,280   

Alcoa Corporation’s average cost per metric ton of aluminum**

   $ 2,064       $ 2,252       $ 2,201   

Third-party sales

   $ 6,737       $ 8,601       $ 8,191   

Intersegment sales

     532         614         610   
  

 

 

    

 

 

    

 

 

 

Total sales

   $ 7,269       $ 9,215       $ 8,801   
  

 

 

    

 

 

    

 

 

 

ATOI

   $ 136       $ 627       $ (36
  

 

 

    

 

 

    

 

 

 

 

* Average realized price per metric ton of aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (for example the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (such as billet, slab, rod, etc.) or alloy.

 

** Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses.

 

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This segment represents a portion of Alcoa Corporation’s upstream operations and consists of its worldwide smelting system. Primary Metals purchases alumina, mostly from the Alumina segment (see Alumina above), from which primary aluminum is produced and then sold directly to external customers and traders, as well as to Arconic. Results from the sale of aluminum powder, scrap, and excess energy are also included in this segment. Primary aluminum produced by Alcoa Corporation and sold to Arconic is sold at prevailing market prices. The sale of primary aluminum represents approximately 90% of this segment’s third-party sales. Generally, the sales of this segment are transacted in U.S. dollars while costs and expenses of this segment are transacted in the local currency of the respective operations, which are the U.S. dollar, the euro, the Norwegian kroner, Icelandic krona, the Canadian dollar, the Brazilian real, and the Australian dollar.

In November 2014, Alcoa Corporation completed the sale of an aluminum rod plant located in Bécancour, Québec, Canada to Sural Laminated Products. This facility takes molten aluminum and shapes it into the form of a rod, which is used by customers primarily for the transportation of electricity. While owned by Alcoa Corporation, the operating results and assets and liabilities of this plant were included in the Primary Metals segment. In conjunction with this transaction, Alcoa Corporation entered into a multi-year agreement with Sural Laminated Products to supply molten aluminum for the rod plant. The aluminum rod plant generated sales of approximately $200 in 2013 and, at the time of divestiture, had approximately 60 employees. See Restructuring and Other Charges in Results of Operations above.

In December 2014, Alcoa Corporation completed the sale of its 50.33% ownership stake in the Mt. Holly smelter located in Goose Creek, South Carolina to Century Aluminum Company. While owned by Alcoa Corporation, 50.33% of both the operating results and assets and liabilities related to the smelter were included in the Primary Metals segment. As it relates to Alcoa Corporation’s previous 50.33% ownership stake, the smelter (Alcoa Corporation’s share of the capacity was 115 kmt-per-year) generated sales of approximately $280 in 2013 and, at the time of divestiture, had approximately 250 employees. See Restructuring and Other Charges in Results of Operations above.

At December 31, 2015, Alcoa Corporation had 778 kmt of idle capacity on a base capacity of 3,401 kmt. In 2015, idle capacity increased 113 kmt compared to 2014, mostly due to the curtailment of 217 kmt combined at a smelter in each the United States and Brazil, partially offset by the permanent closure of the Poços de Caldas smelter in Brazil (96 kmt-per-year). Base capacity declined 96 kmt between December 31, 2015 and 2014 due to the previously mentioned permanent closure of the Poços de Caldas smelter. A detailed description of each of these actions follows below.

At December 31, 2014, Alcoa Corporation had 665 kmt of idle capacity on a base capacity of 3,497 kmt. In 2014, idle capacity increased 10 kmt compared to 2013 due to the curtailment of 159 kmt combined at two smelters in Brazil, mostly offset by the permanent closure of the Portovesme smelter in Italy (150 kmt-per-year). Base capacity declined 540 kmt between December 31, 2014 and 2013 due to the permanent closure of both a smelter in Australia and two remaining potlines at a smelter in the United States (274 kmt combined), the previously mentioned permanent closure of the Portovesme smelter, and the sale of Alcoa Corporation’s ownership stake in the Mt. Holly smelter (see above). A detailed description of each of these actions follows below.

In March 2015, Alcoa Corporation initiated a 12-month review of 500,000 mtpy of smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review is part of Alcoa Corporation’s target to lower its smelting operations on the global aluminum cost curve to the 38th percentile (currently 43rd) by 2016. As part of this review, in March 2015, Alcoa Corporation decided to curtail the remaining capacity (74,000 mtpy) at the Alumar smelter; this action was completed in April 2015.

In November 2015, Alcoa Corporation announced that it would curtail 503,000 mtpy of aluminum smelting capacity amid prevailing market conditions by idling capacity at the Massena West (130,000 mtpy), Intalco (230,000 mtpy) and Wenatchee (143,000 mtpy) smelters. The curtailment of the remaining capacity at

 

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Wenatchee was completed by the end of December 2015. Later in November 2015, Alcoa Corporation announced that it had entered into a three-and-a-half year agreement with New York State to increase the competitiveness of the Massena West smelter. As a result, the Massena West smelter will continue to operate.

In January 2016, Alcoa Corporation announced it would delay the curtailment (230,000 mtpy) of its Intalco smelter in Ferndale, Washington until the end of the second quarter of 2016. Recent decreases in energy and raw material costs had made it more cost effective in the near term to keep the smelter operating. In May 2016, Alcoa Corporation announced that it had entered into a one-and-a-half year agreement with the Bonneville Power Administration (BPA) that will help improve the competitiveness of the Intalco smelter. As a result, the smelter will not be curtailed at the end of the second quarter of 2016 as previously announced.

In January 2016, Alcoa Corporation announced that it will permanently close its 269,000 mtpy Warrick Operations smelter in Evansville, Indiana, which was completed by the end of the first quarter of 2016. The rolling mill and power plant at Warrick Operations will continue to operate.

Separate from the 2015 smelting capacity review described above, in June 2015, management approved the permanent closure of the Poços de Caldas smelter effective immediately. The Poços de Caldas smelter had been temporarily idle since May 2014 (see below) due to challenging global market conditions for primary aluminum and higher operating costs, which made the smelter uncompetitive. The decision to permanently close the Poços de Caldas smelter was based on the fact that these underlying conditions had not improved.

In May 2013, management initiated a 15-month review of 460 kmt in smelting capacity for possible curtailment. This review was aimed at maintaining Alcoa Corporation’s competitiveness despite falling aluminum prices and focused on the highest-cost smelting capacity and those plants that have long-term risk due to factors such as energy costs or regulatory uncertainty. In 2014, an additional 250 kmt of smelting capacity was included in the review. In summary, under this review, management approved the closure of 146 kmt-per-year and 274 kmt-per-year and the curtailment of 131 kmt-per-year and 159 kmt-per-year in 2013 and 2014, respectively. The following is a description of each action.

Also in May 2013, management approved the permanent closure of two potlines (105 kmt-per-year) that utilize Soderberg technology at the Baie Comeau smelter in Quebec, Canada. Additionally, in August 2013, management approved the permanent closure of one potline (41 kmt-per-year) that utilizes Soderberg technology at the Massena East, NY smelter. The shutdown of these three lines was completed by the end of September 2013. The Baie Comeau smelter has a remaining capacity of 280 kmt-per-year composed of two prebake potlines and the Massena East smelter had a remaining capacity of 84 kmt-per-year composed of two Soderberg potlines (see below).

Additionally, in August 2013, management decided to curtail 97 kmt-per-year at the São Luís smelter and 31 kmt-per-year at the Poços de Caldas smelter. This action was also completed by the end of September 2013. An additional 3 kmt-per-year was curtailed at the Poços de Caldas smelter by the end of 2013.

In January 2014, management approved the permanent closure of the remaining capacity (84 kmt-per-year) at the Massena East smelter, which represented two Soderberg potlines that were no longer competitive. This shutdown was completed by the end of March 2014. In February 2014, management approved the permanent closure of the Point Henry smelter (190 kmt-per-year) in Australia. This decision was made as management determined that the smelter had no prospect of becoming financially viable. The shutdown of the Point Henry smelter was completed in August 2014.

Also, in March 2014, management decided to curtail the remaining capacity (62 kmt-per-year) at the Poços de Caldas smelter and additional capacity (85 kmt-per-year) at the São Luís smelter. The curtailment of this capacity was completed by the end of May 2014. An additional 12 kmt-per-year was curtailed at the São Luís smelter during the remainder of 2014.

 

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Separate from the 2013-2014 smelting capacity review described above, in June 2013, management approved the permanent closure of the Fusina smelter (44 kmt-per-year) in Italy as the underlying conditions that led to the idling of the smelter in 2010 had not fundamentally changed, including low aluminum prices and the lack of an economically viable, long-term power solution. In August 2014, management approved the permanent closure of the Portovesme smelter, which had been idle since November 2012. This decision was made because the fundamental reasons that made the Portovesme smelter uncompetitive remained unchanged, including the lack of a viable long-term power solution.

See Restructuring and Other Charges in Results of Operations above for a description of the associated charges related to all of the above actions in 2015, 2014, and 2013.

In 2015, aluminum production declined by 314 kmt, mainly the result of the absence of and/or lower production at the combined four smelters (Point Henry, São Luís, Massena East, and Poços de Caldas) impacted by the 2014 and 2015 capacity reviews and at the smelter divested in 2014 (Mt. Holly), all of which is described above.

In 2014, aluminum production decreased by 425 kmt, mostly due to lower production at the five smelters (São Luís, Massena East, Point Henry, Baie Comeau, and Poços de Caldas) impacted by the 2013-2014 capacity review described above.

Third-party sales for the Primary Metals segment declined 22% in 2015 compared with 2014, primarily due to a 13% drop in average realized price; lower sales to Arconic locations (approximately $700) following the divestiture or closure of several rolling mills in December 2014; the absence of sales (approximately $585) from five smelters and a rod mill that were closed, curtailed or divested in 2014; and lower energy sales in Brazil, due to both a decrease in energy prices and a weaker Brazilian real. These negative impacts were slightly offset by higher volume in the remaining smelter portfolio. The change in average realized price was largely attributable to a 10% lower average LME price (on 15-day lag) and lower regional premiums, which dropped by an average of 39% in the United States and Canada and 44% in Europe.

Third-party sales for the Primary Metals segment increased 5% in 2014 compared with 2013, mainly due to higher energy sales in Brazil resulting from excess power due to curtailed smelter capacity, and a 8% increase in average realized price, mostly offset by lower volumes, including from the five smelters impacted by the 2013 and 2014 capacity reductions. The change in average realized price was driven by higher regional premiums, which increased by an average of 84% in the United States and Canada and 56% in Europe.

ATOI for the Primary Metals segment decreased $491 in 2015 compared with 2014, primarily caused by both the previously mentioned lower average realized aluminum price and lower energy sales, higher energy costs (mostly in Spain as the 2014 interruptibility rights were more favorable than the 2015 structure), and an unfavorable impact related to the curtailment of the São Luís smelter. These negative impacts were somewhat offset by net favorable foreign currency movements due to a stronger U.S. dollar against most major currencies, net productivity improvements, the absence of a write-off of inventory related to the permanent closure of the Portovesme, Point Henry, and Massena East smelters ($44), and a lower equity loss related to the joint venture in Saudi Arabia, including the absence of restart costs for one of the potlines that was previously shut down due to a period of instability.

ATOI for this segment climbed $663 in 2014 compared with 2013, principally related to a higher average realized aluminum price; the previously mentioned energy sales in Brazil; net productivity improvements; net favorable foreign currency movements due to a stronger U.S. dollar against all major currencies; lower costs for carbon and alumina; and the absence of costs related to a planned maintenance outage in 2013 at a power plant in Australia. These positive impacts were slightly offset by an unfavorable impact associated with the 2013 and 2014 capacity reductions described above, including a write-off of inventory related to the permanent closure of the Portovesme, Point Henry, and Massena East smelters ($44), and higher energy costs (particularly in Spain), labor, and maintenance.

 

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Rolled Products

 

     2015      2014      2013  

Third-party aluminum shipments (kmt)

     266         257         261   

Alcoa Corporation’s average realized price per metric ton of aluminum

   $ 3,728       $ 4,012       $ 4,043   

Third-party sales

   $ 993       $ 1,033       $ 1,055   

ATOI

   $ 20       $ 21       $ 52   

This segment represents Alcoa Corporations’s rolling operations in Warrick, Indiana and the investment in the Ma’aden rolling mill. Most of the third-party shipments in this segment consist of sheet sold directly to customers in the packaging end market for the production of aluminum cans (beverage, food, and pet food). Seasonal increases in can sheet sales are generally experienced in the second and third quarters of the year, and a significant amount of sales of sheet is to a relatively small number of customers. Generally, the sales and costs and expenses of this segment are transacted in the local currency of the respective operations, which are mostly the U.S. dollar.

Third-party sales for the Rolling segment declined 4% in 2015 compared with 2014, primarily driven by unfavorable pricing, mostly due to a decrease in metal prices (both LME and regional premium components).

Third-party sales for this segment decreased 2% in 2014 compared with 2013, principally by unfavorable price/product mix.

ATOI for the Rolling segment decreased $1 in 2015 compared with 2014, primarily attributable to unfavorable price/product mix, largely the result of overall pricing pressure in the global can sheet packaging end market.

ATOI for this segment declined $31 in 2014 compared with 2013, mainly the result of unfavorable price/product mix and a larger equity loss due to start-up costs related to the rolling mill at the joint venture in Saudi Arabia.

Reconciliation of ATOI to Combined Net Income (Loss) Attributable to Alcoa Corporation

Items required to reconcile total segment ATOI to combined net income (loss) attributable to Alcoa Corporation include: the impact of LIFO inventory accounting; metal price lag; interest expense; non-controlling interests; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit elimination; the impact of any discrete tax items, deferred tax valuation allowance adjustments and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income.

 

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The following table reconciles total segment ATOI to combined net (loss) income attributable to Alcoa Corporation:

 

     2015      2014      2013  

Net (loss) income attributable to Alcoa Corporation:

        

Total segment ATOI

   $ 902       $ 1,018       $ 275   

Unallocated amounts:

        

Impact of LIFO

     107         4         19   

Metal price lag

     (30      15         (5

Interest expense

     (270      (309      (305

Non-controlling interest (net of tax)

     (124      91         (39

Corporate expense

     (180      (208      (204

Impairment of goodwill

     —           —           (1,731

Restructuring and other charges

     (983      (863      (712

Income taxes

     (96      110         (108

Other

     (189      (114      (99
  

 

 

    

 

 

    

 

 

 

Combined net loss attributable to Alcoa Corporation

   $ (863    $ (256    $ (2,909
  

 

 

    

 

 

    

 

 

 

The significant changes in the reconciling items between total segment ATOI and combined net income (loss) attributable to Alcoa Corporation for 2015 compared with 2014 consisted of:

 

    a change in the Impact of LIFO, mostly due to lower prices for both aluminum, driven by both lower base metal prices (LME) and regional premiums, and alumina (decrease in price at December 31, 2015 indexed to December 31, 2014 compared to an increase in price at December 31, 2014 indexed to December 31, 2013);

 

    a change in Metal price lag, the result of lower prices for aluminum;

 

    a decrease in Interest expense, principally due to a lower allocation to Alcoa Corporation of ParentCo’s interest expense, which is primarily a function of the lower ratio in 2015 (as compared to 2014) of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, partially offset by higher interest expense at ParentCo;

 

    a change in Noncontrolling interests, due to the change in results of AWAC, primarily driven by improved operating results and lower restructuring and other charges related to a number of portfolio actions (e.g. capacity reductions and a divestiture), slightly offset by the absence of a gain on the sale of a mining interest in Suriname ($11 was noncontrolling interest’s share);

 

    a decline in Corporate expense, largely attributable to decreases in various expenses, partially offset by expenses related to the planned Separation ($12);

 

    an increase in Restructuring and other charges, mostly the result of a charge for legal matters in Italy, partially offset by lower restructuring and other charges associated with a number of portfolio actions (e.g. capacity reductions and divestitures);

 

    an unfavorable change in Income taxes, primarily due to the reversal in 2015 of the income tax benefit on U.S. operating losses reflected in ATOI (as compared to the reversal in 2014 of the income tax cost on U.S. operating income reflected in ATOI) and higher discrete tax charges ($62) as compared to 2014, primarily associated with valuation allowance adjustments on certain deferred tax assets in Suriname and Iceland that were higher than 2014’s discrete tax charges associated with tax rate changes in Brazil and Spain; and

 

    a change in Other, primarily due to write-downs of inventories related to various shutdown and curtailment actions ($90).

 

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The significant changes in the reconciling items between total segment ATOI and combined net (loss) income attributable to Alcoa Corporation for 2014 compared with 2013 consisted of:

 

    a change in the Impact of LIFO, mostly due to the absence in 2014 of a partial liquidation of lower-cost LIFO inventory base ($11) that happened in 2013;

 

    a change in Metal price lag, the result of higher prices for aluminum;

 

    a change in Noncontrolling interests, due to the change in results of AWAC, mainly driven by restructuring and other charges associated with both the decision to permanently shut down the Point Henry smelter in Australia and the divestiture of an ownership interest in a mining and refining joint venture in Jamaica and a discrete income tax charge related to a tax rate change in both Brazil and Spain ($32 combined was noncontrolling interest’s share), partially offset by improved operating results, the absence of a charge for a legal matter ($17 was noncontrolling interest’s share) and a gain on the sale of a mining interest in Suriname ($11 was noncontrolling interest’s share);

 

    an increase in Restructuring and other charges, principally caused by higher costs related to decisions to permanently divest, shut down and/or temporarily curtail refinery and smelter capacity, partially offset by the absence of a charge for a legal matter $391; and

 

    a favorable change in Income taxes, primarily due to the reversal in 2014 of the income tax cost on U.S. operating income reflected in ATOI (as compared to the reversal in 2013 of the income tax benefit on U.S. operating losses reflected in ATOI) and lower discrete tax charges ($49), primarily due to 2014 discrete tax charges associated with tax rate changes in Brazil and Spain being lower than the 2013 valuation allowance adjustments on certain deferred tax assets in Spain.

Environmental Matters

See the Environmental Matters section of Note N to the Combined Financial Statements of Alcoa Corporation in this information statement.

Liquidity and Capital Resources

Historically, ParentCo has provided capital, cash management and other treasury services to Alcoa Corporation. ParentCo will continue to provide these services to Alcoa Corporation until the separation is consummated. Only cash amounts specifically attributable to Alcoa Corporation are reflected in the Combined Financial Statements of Alcoa Corporation. Transfers of cash, both to and from ParentCo’s centralized cash management system, are reflected as a component of Net parent investment in the Combined Financial Statements of Alcoa Corporation.

Alcoa Corporation’s primary future cash needs will be centered on operating activities, including working capital, as well as recurring and strategic capital expenditures. Following the separation, Alcoa Corporation’s capital structure and sources of liquidity will change significantly from its historical capital structure. A subsidiary of Alcoa Corporation has incurred certain indebtedness in connection with the separation, including a secured revolving credit agreement providing for revolving loans in an aggregate principal amount of up to $1,500 and $1,250 of senior notes. Please refer to the “The Separation and Distribution”, “Capitalization” and “Unaudited Pro Forma Combined Condensed Financial Statements” sections included elsewhere in this information statement for additional information regarding the capital structure of Alcoa Corporation following the distribution.

Following the separation, Alcoa Corporation will no longer participate in capital management with ParentCo, rather Alcoa Corporation’s ability to fund its cash needs will depend on its ongoing ability to generate and raise cash in the future. Although we believe that our future cash from operations, together with our access to capital markets, will provide adequate resources to fund our operating and investing needs, our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) our credit rating; (ii) the

 

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liquidity of the overall capital markets; and (iii) the current state of the economy and commodity markets. There can be no assurances that we will continue to have access to capital markets on terms acceptable to us. See “Risk Factors” for a further discussion.

ParentCo has an arrangement with several financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed through the use of a bankruptcy-remote special-purpose entity, which is a consolidated subsidiary of ParentCo. In connection with this arrangement, certain of Alcoa Corporation’s customer receivables are sold on a revolving basis to this bankruptcy-remote subsidiary of ParentCo; these sales are reflected as a component of Net parent investment in the Combined Financial Statements of Alcoa Corporation.

In addition, ParentCo participates in several accounts payable settlement arrangements with certain vendors and third-party intermediaries. These arrangements provide that, at the vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an appropriate discount, before the scheduled payment date and ParentCo makes payment to the third-party intermediary on the date stipulated in accordance with the commercial terms negotiated with its vendors. In connection with these arrangements, certain of Alcoa Corporation’s accounts payable are settled, at the vendor’s request, before the scheduled payment date; these settlements are reflected as a component of Net parent investment in the Combined Financial Statements of Alcoa Corporation.

Management intends to seek similar arrangements for Alcoa Corporation regarding the potential sale of certain customer receivables and settlement of accounts payable upon separation. However, there can be no assurance that we will be able to establish such arrangements on terms acceptable to it.

Cash from Operations

Cash provided from operations in 2015 was $875 compared with $842 in 2014. The increase of $33 was due to a positive change associated with working capital of $500 and lower pension contributions of $85, mostly offset by a negative change in noncurrent assets of $324 (largely due to a pre-payment in connection with a gas supply agreement—see below) and lower operating results (net loss plus net add-back for noncash transactions in earnings),

The components of the positive change in working capital were as follows:

 

    a favorable change of $221 and $338 in receivables and inventory, respectively, mostly driven by lower alumina and aluminum prices, as well as the impact of closures and curtailments;

 

    a favorable change of $79 in prepaid expenses and other current assets;

 

    a negative change of $266 in accounts payable, trade, principally the result of timing of payments;

 

    a positive change of $93 in accrued expenses; and

 

    a positive change of $35 in taxes, including income taxes.

On April 8, 2015, Alcoa Corporation’s majority-owned subsidiary, Alcoa of Australia Limited (AofA), which is part of AWAC, secured a new 12-year gas supply agreement to power its three alumina refineries in Western Australia beginning in July 2020. This agreement was conditional on the completion of a third-party acquisition of the related energy assets from the then-current owner, which occurred in June 2015. The terms of AofA’s gas supply agreement require a prepayment of $500 to be made in two installments. The first installment of $300 was made at the time of the completion of the third-party acquisition and the second installment of $200 will be made in April 2016 (previously was scheduled in January 2016).

Cash provided from operations in 2014 was $842 compared with $452 in 2013. The increase of $390 was due primarily to higher operating results (net income plus net add-back for noncash transactions in earnings), partially offset by a negative change associated with working capital of $494 and higher pension contributions of $26.

 

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The components of the negative change in working capital were as follows:

 

    an unfavorable change of $29 in receivables, primarily related to higher customer sales;

 

    a negative change of $162 in inventories;

 

    an unfavorable change of $20 in prepaid expenses and other current assets;

 

    a negative change of $109 in accounts payable, trade, principally the result of timing of payments; and

 

    a negative change of $163 in taxes, including income taxes, mostly driven by higher pre-tax income.

The higher pension contributions of $26 were principally driven by special termination benefits for employees affected by the 2013 shutdown of capacity at a smelter in Canada.

In 2014, Alcoa World Alumina LLC, a majority-owned subsidiary of Alcoa Corporation, paid a combined $88 to the United States government due to the resolution of a legal matter (paid on January 22, 2014). Additionally, another $74 was paid in 2015 and will be paid in each of the three subsequent years, 2016 (paid in January 2016) through 2018.

Financing Activities

Cash used for financing activities was $162 in 2015 compared with $444 in 2014 and cash provided from financing activities of $429 in 2013, primarily reflecting net cash activity between Alcoa Corporation and ParentCo. Other financing activities during 2015, 2014 and 2013, included payments on debt of $24, $36 and $41, respectively, and net cash paid to the noncontrolling interest in AWAC, Alumina Limited, of $104, $77 and $98, respectively.

Investing Activities

Cash used for investing activities was $384 in 2015 compared with $338 in 2014 and $802 in 2013.

The use of cash in 2015 was mainly due to $391 in capital expenditures (includes costs related to environmental control in new and expanded facilities of $122), 7% of which related to growth projects and $63 in additions to investments, including $29 related to the aluminum complex joint venture in Saudi Arabia. These items were somewhat offset by $70 in proceeds from the sale of assets, including a land sale in the United States, plus post-closing adjustments related to an ownership stake in a smelter, and an ownership stake in a bauxite mine/alumina refinery divested in 2014.

The use of cash in 2014 was principally due to $444 capital expenditures (includes costs related to environmental control in new and expanded facilities of $120), 2% of which related to growth projects; and $145 in additions to investments, including equity contributions of $120 related to the aluminum complex joint venture in Saudi Arabia. These items were slightly offset by $223 in proceeds from the sale of assets and businesses, largely attributable to the sale of an ownership stake in a bauxite mine and refinery in Jamaica (see Alumina in Segment Information above), and an ownership stake in a smelter in the United States (see Primary Metals in Segment Information above); and $28 in sales of investments related to the sale of a mining interest in Suriname.

The use of cash in 2013 was primarily due to $567 in capital expenditures (includes costs related to environmental control in new and expanded facilities of $138), 12% of which related to growth projects, and $242 in additions to investments, including equity contributions of $171 related to the aluminum complex joint venture in Saudi Arabia.

Contractual Obligations and Off-Balance Sheet Arrangements

Following the separation, Alcoa Corporation’s capital structure and sources of liquidity will differ from our historical capital structure. A subsidiary of Alcoa Corporation has incurred certain indebtedness in connection

 

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with the separation, including a secured revolving credit agreement providing for revolving loans in an aggregate principal amount of up to $1,500 and $1,250 of senior notes. Please refer to the “The Separation and Distribution”, “Capitalization” and “Unaudited Pro Forma Combined Condensed Financial Statements” sections included elsewhere in this information statement for additional information regarding the capital structure of Alcoa Corporation following the distribution.

Following the separation, Alcoa Corporation will no longer participate in cash management and intercompany funding arrangements with ParentCo. Our ability to fund our operating and capital needs will depend on our ability to generate cash from operations and access capital markets. The following table and discussion summarize our contractual obligations as of December 31, 2015, that may have an impact on liquidity and cash flows in future periods.

Contractual Obligations. Alcoa Corporation is required to make future payments under various contracts, including long-term purchase obligations, financing arrangements, and lease agreements. Alcoa Corporation also has commitments to fund its pension plans, provide payments for other postretirement benefit plans, and fund capital projects. As of December 31, 2015, a summary of Alcoa Corporation’s outstanding contractual obligations is as follows (these contractual obligations are grouped in the same manner as they are classified in the Statement of Combined Cash Flows in order to provide a better understanding of the nature of the obligations and to provide a basis for comparison to historical information):

 

     Total      2016      2017-
2018
     2019-
2020
     Thereafter  

Operating activities:

              

Energy-related purchase obligations

   $ 16,497       $ 1,279       $ 2,105       $ 2,007       $ 11,106   

Raw material purchase obligations

     6,231         1,236         981         654         3,360   

Other purchase obligations

     1,278         159         313         314         492   

Operating leases

     389         107         133         93         56   

Interest related to total debt

     114         15         27         22         50   

Estimated minimum required pension funding

     262         51         105         106           

Other postretirement benefit payments

     47         5         8         10         24   

Layoff and other restructuring payments

     152         138         14                   

Deferred revenue arrangements

     92         8         16         16         52   

Uncertain tax positions

     29                                 29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financing activities:

              

Total debt

     225         18         33         30         144   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investing activities:

              

Capital projects

     394         222         135         37           

Equity contributions

     10         10                           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 25,720       $ 3,248       $ 3,870       $ 3,289       $ 15,313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Obligations for Operating Activities

Energy-related purchase obligations consist primarily of electricity and natural gas contracts with expiration dates ranging from 1 year to 32 years. Raw material obligations consist mostly of bauxite (relates to Alcoa Corporation’s bauxite mine interests in Guinea and Brazil), caustic soda, alumina, aluminum fluoride, calcined petroleum coke, and cathode blocks with expiration dates ranging from less than 1 year to 18 years. Other purchase obligations consist principally of freight for bauxite and alumina with expiration dates ranging from 1 to 16 years. Many of these purchase obligations contain variable pricing components, and, as a result, actual cash payments may differ from the estimates provided in the preceding table. Operating leases represent multi-year obligations for certain land and buildings, alumina refinery process control technology, plant equipment, vehicles, and computer equipment.

 

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Interest related to total debt is based on interest rates in effect as of December 31, 2015 and is calculated on debt with maturities that extend to 2031. As the contractual interest rates for certain debt are variable, actual cash payments may differ from the estimates provided in the preceding table.

Estimated minimum required pension funding and postretirement benefit payments for the Direct Plans are based on actuarial estimates using current assumptions for discount rates, long-term rate of return on plan assets, rate of compensation increases, and health care cost trend rates, among others. The minimum required contributions for pension funding are estimated to be $51 for 2016, $52 for 2017, and $53 for each of 2018, 2019, and 2020. Other postretirement benefit payments are expected to approximate $5 annually for years 2016 through 2025. Alcoa Corporation has determined that it is not practicable to present pension funding and other postretirement benefit payments beyond 2020 and 2025, respectively.

In addition, in connection with the separation, the Shared Plans are being separated; Alcoa Corporation will be the sponsor of new defined benefit pension and other postretirement benefit plans and assume the associated unfunded obligations. For additional information, please refer to the “Unaudited Pro Forma Combined Condensed Financial Statements” section included elsewhere in this information statement.

Layoff and other restructuring payments expected to be paid within one year mostly relate to severance costs. Amounts scheduled to be paid beyond one year are related to ongoing site remediation work and special separation benefit payments.

Deferred revenue arrangements require Alcoa Corporation to deliver alumina to a certain customer over the specified contract period (through 2027). While this obligation is not expected to result in cash payments, it represents a contractual obligation for which Alcoa Corporation would be obligated if the specified product deliveries could not be made.

Uncertain tax positions taken or expected to be taken on an income tax return may result in additional payments to tax authorities. The amount in the preceding table includes interest and penalties accrued related to such positions as of December 31, 2015. The total amount of uncertain tax positions is included in the “Thereafter” column as ParentCo is not able to reasonably estimate the timing of potential future payments. If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

Obligations for Financing Activities

Total debt amounts in the preceding table represent the principal amounts of all outstanding debt, including short-term borrowings and long-term debt. Maturities for long-term debt extend to 2031.

A subsidiary of Alcoa Corporation has incurred certain indebtedness in connection with the separation, including a secured revolving credit agreement providing for revolving loans in an aggregate principal amount of up to $1,500 and $1,250 of senior notes. Please refer to “The Separation and Distribution”, “Capitalization” and “Unaudited Pro Forma Combined Condensed Financial Statements” sections included elsewhere in this information statement for additional information regarding the capital structure of Alcoa Corporation following the separation.

Obligations for Investing Activities

Capital projects in the preceding table only include amounts approved by management as of December 31, 2015. Funding levels may vary in future years based on anticipated construction schedules of the projects. It is expected that significant expansion projects will be funded through various sources, including cash provided from operations. Total capital expenditures are anticipated to be approximately $425 in 2016.

 

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Equity contributions represent Alcoa Corporation’s committed investment related to a joint venture in Saudi Arabia. Alcoa Corporation is a participant in a joint venture to develop a new aluminum complex in Saudi Arabia, comprised of a bauxite mine, alumina refinery, aluminum smelter, and rolling mill, which requires Alcoa Corporation to contribute approximately $1,100. As of December 31, 2015, Alcoa Corporation has made equity contributions of $981. Based on changes to both the project’s capital investment and equity and debt structure from the initial plans, the estimated $1,100 equity contribution may be reduced. The timing of the amounts included in the preceding table may vary based on changes in anticipated construction schedules of the project.

Off-Balance Sheet Arrangements . At December 31, 2015, Alcoa Corporation has maximum potential future payments for guarantees issued on behalf of a third party of $478. These guarantees expire at various times between 2017 and 2024 and relate to project financing for the aluminum complex in Saudi Arabia. Alcoa Corporation also has outstanding bank guarantees related to environmental obligations, workers compensation, tax matters, outstanding debt, and energy contracts, among others. The total amount committed under these guarantees, which expire at various dates between 2016 and 2017 was $190 at December 31, 2015.

Alcoa Corporation has outstanding letters of credit primarily related to energy contracts (including $200 related to an expected prepayment under a gas supply contract that was made in April 2016). The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2016, was $363 at December 31, 2015. Alcoa Corporation also has outstanding surety bonds primarily related to contract performance, workers compensation, environmental-related matters, and customs duties. The total amount committed under these bonds, which automatically renew or expire at various dates, mostly in 2016, was $43 at December 31, 2015.

Critical Accounting Policies and Estimates

Basis of Presentation. The preparation of the Combined Financial Statements of Alcoa Corporation in accordance with accounting principles generally accepted in the United States of America requires management to make certain judgments, estimates, and assumptions regarding uncertainties that affect the amounts reported in the Combined Financial Statements of Alcoa Corporation and disclosed in the accompanying Notes. Areas that require significant judgments, estimates, and assumptions include accounting for derivatives and hedging activities; environmental and litigation matters; asset retirement obligations; the testing of goodwill, equity investments, and properties, plants, and equipment for impairment; estimating fair value of businesses to be divested; pension plans and other postretirement benefits obligations; stock-based compensation; and income taxes. The Combined Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for on the cost method.

Management uses historical experience and all available information to make these judgments, estimates, and assumptions, and actual results may differ from those used to prepare the Combined Financial Statements of Alcoa Corporation at any given time. Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Combined Financial Statements of Alcoa Corporation and accompanying Notes provide a meaningful and fair perspective of Alcoa Corporation.

A summary of Alcoa Corporation’s significant accounting policies is included in Note A to the Combined Financial Statements of Alcoa Corporation in this information statement. Management believes that the application of these policies on a consistent basis enables Alcoa Corporation to provide the users of the Combined Financial Statements of Alcoa Corporation with useful and reliable information about Alcoa Corporation’s operating results and financial condition.

 

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Corporate Expense Allocation. The Combined Financial Statements of Alcoa Corporation include general corporate expenses of ParentCo that were not historically charged to Alcoa Corporation for certain support functions that are provided on a centralized basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance, facilities, employee benefits and compensation, and research and development (“R&D”) activities. These general corporate expenses are included in the combined statement of operations within Cost of goods sold, Research and development expenses, and Selling, general administrative and other expenses. These expenses have been allocated to Alcoa Corporation on the basis of direct usage when identifiable, with the remainder allocated based on Alcoa Corporation’s segment revenue as a percentage of ParentCo’s total segment revenue for both Alcoa Corporation and Arconic.

All external debt not directly attributable to Alcoa Corporation has been excluded from the combined balance sheet of Alcoa Corporation. Financing costs related to these debt obligations have been allocated to Alcoa Corporation based on the ratio of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, and are included in the Statement of Combined Operations within Interest expense.

The following table reflects the allocations of those detailed above:

 

     Amount allocated to
Alcoa Corporation
 
     2015      2014      2013  

Cost of goods sold (1)

   $ 93       $ 76       $ 109   

Selling, general administrative, and other expenses

     146         158         154   

Research and development expenses

     17         21         16   

Provision for depreciation, depletion, and amortization

     22         37         38   

Restructuring and other charges (2)

     32         23         14   

Interest expense

     245         278         272   

Other expenses (income), net

     12         5         (1

 

(1) Allocation relates to ParentCo’s retained pension and Other postemployment benefits expenses for closed and sold operations.
(2) Allocation primarily relates to layoff programs for ParentCo employees.

Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing costs are reasonable.

Nevertheless, the Combined Financial Statements of Alcoa Corporation may not reflect the actual expenses that would have been incurred and may not reflect Alcoa Corporation’s combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Alcoa Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between Alcoa Corporation and ParentCo, including sales to Arconic, have been included as related party transactions in these 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 transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheet as Net parent investment.

Derivatives and Hedging. Derivatives are held for purposes other than trading and are part of a formally documented risk management program. For derivatives designated as cash flow hedges, Alcoa Corporation measures hedge effectiveness by formally assessing, at least quarterly, the probable high correlation of the expected future cash flows of the hedged item and the derivative hedging instrument. The ineffective portions of both types of hedges are recorded in sales or other income or expense in the current period. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, future gains or losses on the derivative instrument are recorded in other income or expense.

 

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Alcoa Corporation accounts for certain forecasted transactions as cash flow hedges. The fair values of the derivatives are recorded in other current and noncurrent assets and liabilities in the Combined Balance Sheet. The effective portions of the changes in the fair values of these derivatives are recorded in other comprehensive income and are reclassified to sales, cost of goods sold, or other income or expense in the period in which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow hedge. These contracts cover the same periods as known or expected exposures, generally not exceeding five years.

If no hedging relationship is designated, the derivative is marked to market through earnings.

Cash flows from derivatives are recognized in the Statement of Combined Cash Flows in a manner consistent with the underlying transactions.

See the Derivatives section of Note X to the Combined Financial Statements of Alcoa Corporation in this information statement.

Environmental Matters. Expenditures and liabilities related to current or past Alcoa Corporation operations are reflected in the Combined Financial Statements of Alcoa Corporation. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed. Liabilities are recorded when remediation costs are probable and can be reasonably estimated. The liability may include costs such as site investigations, consultant fees, feasibility studies, outside contractors, and monitoring expenses. Estimates are generally not discounted or reduced by potential claims for recovery. Claims for recovery are recognized as agreements are reached with third parties. The estimates also include costs related to other potentially responsible parties to the extent that Alcoa Corporation has reason to believe such parties will not fully pay their proportionate share. The liability is continuously reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including changes in technology or regulations.

Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is deemed probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss.

Asset Retirement Obligations. Alcoa Corporation recognizes asset retirement obligations (AROs) related to legal obligations associated with the normal operation of Alcoa Corporation’s bauxite mining, alumina refining, and aluminum smelting facilities. These AROs consist primarily of costs associated with spent pot lining disposal, closure of bauxite residue areas, mine reclamation, and landfill closure. Alcoa Corporation also recognizes AROs for any significant lease restoration obligation, if required by a lease agreement, and for the disposal of regulated waste materials related to the demolition of certain power facilities. The fair values of these AROs are recorded on a discounted basis, at the time the obligation is incurred, and accreted over time for the change in present value. Additionally, Alcoa Corporation capitalizes asset retirement costs by increasing the carrying amount of the related long-lived assets and depreciating these assets over their remaining useful life.

Certain conditional asset retirement obligations (CAROs) related to alumina refineries, aluminum smelters, power and rolled products facilities have not been recorded in the Combined Financial Statements of Alcoa

 

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Corporation due to uncertainties surrounding the ultimate settlement date. A CARO is a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within Alcoa Corporation’s control. Such uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other factors. At the date a reasonable estimate of the ultimate settlement date can be made, Alcoa Corporation would record an ARO for the removal, treatment, transportation, storage and/or disposal of various regulated assets and hazardous materials such as asbestos, underground and aboveground storage tanks, polychlorinated biphenyls, various process residuals, solid wastes, electronic equipment waste, and various other materials. Such amounts may be material to the Combined Financial Statements of Alcoa Corporation in the period in which they are recorded. If Alcoa Corporation was required to demolish all such structures immediately, the estimated CARO as of December 31, 2015 ranges from less than $3 to $28 per structure (25 structures) in today’s dollars.

Goodwill. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For 2015, Alcoa Corporation has two reporting units that contain goodwill; Bauxite ($51) and Alumina ($101); and four reporting units that contain no goodwill: Aluminum, Cast Products, Energy, and Rolled Products. Prior to 2015, Alcoa Corporation had three reporting units which were Alumina (Bauxite, Alumina and a small portion of Energy) and Primary Metals (Aluminum, Cast Products and the majority of Energy), and Rolled Products. All goodwill related to Primary Metals was impaired in 2013—see below. The previous amounts mentioned related to Bauxite and Alumina include an allocation of corporate goodwill.

In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test (described below); otherwise, no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.

Alcoa Corporation’s policy for its annual review of goodwill is to perform the qualitative assessment for all reporting units not subjected directly to the two-step quantitative impairment test. Generally, management will proceed directly to the two-step quantitative impairment test for each of its two reporting units that contain goodwill at least once during every three-year period.

Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC) between the current and prior years for each reporting unit.

 

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During the 2015 annual review of goodwill, management performed the qualitative assessment for two reporting units, Bauxite and Alumina. Management concluded it was not more likely than not that the estimated fair values of the two reporting units were less than their carrying values. As such, no further analysis was required.

Under the two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. Alcoa Corporation uses a discounted cash flow (DCF) model to estimate the current fair value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, production costs, tax rates, capital spending, discount rate, and working capital changes. Certain of these assumptions can vary significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating plans for the early years and historical relationships in later years. The betas used in calculating the individual reporting units’ WACC rate are estimated for each business with the assistance of valuation experts.

In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required. The additional analysis would compare the carrying amount of the reporting unit’s goodwill with the implied fair value of that goodwill, which may involve the use of valuation experts. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported results of operations and shareholders’ equity.

Goodwill impairment tests in prior years indicated that goodwill was not impaired for any of Alcoa Corporation’s reporting units, except for the former Primary Metals segment in 2013 (see below), and there were no triggering events since that time that necessitated an impairment test.

In 2013, for the former Primary Metals reporting unit (see above), the estimated fair value as determined by the DCF model was lower than the associated carrying value. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of Primary Metals’ goodwill. The results of the second-step analysis showed that the implied fair value of goodwill was zero. Therefore, in the fourth quarter of 2013, Alcoa Corporation recorded a goodwill impairment of $1,731 ($1,719 after noncontrolling interest). As a result of the goodwill impairment, there is no goodwill remaining for the Primary Metals reporting unit.

The impairment of the Primary Metals goodwill resulted from several causes: the prolonged economic downturn; a disconnect between industry fundamentals and pricing that has resulted in lower metal prices; and the increased cost of alumina, a key raw material, resulting from expansion of the Alumina Price Index throughout the industry. All of these factors, exacerbated by increases in discount rates, continued to place significant downward pressure on metal prices and operating margins, and the resulting estimated fair value, of the Primary Metals business. As a result, management decreased the near-term and long-term estimates of the operating results and cash flows utilized in assessing Primary Metals’ goodwill for impairment. The valuation of goodwill for the second step of the goodwill impairment analysis is considered a level 3 fair value measurement, which means that the valuation of the assets and liabilities reflect management’s own judgments regarding the assumptions market participants would use in determining the fair value of the assets and liabilities.

Equity Investments. ParentCo invests in a number of privately-held companies, primarily through joint ventures and consortia, which are accounted for purposes of Alcoa Corporation’s combined financial statements on the equity method. The equity method is applied in situations where Alcoa Corporation has the ability to exercise significant influence, but not control, over the investee. Management reviews equity investments for

 

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impairment whenever certain indicators are present suggesting that the carrying value of an investment is not recoverable. This analysis requires a significant amount of judgment from management to identify events or circumstances indicating that an equity investment is impaired. The following items are examples of impairment indicators: significant, sustained declines in an investee’s revenue, earnings, and cash flow trends; adverse market conditions of the investee’s industry or geographic area; the investee’s ability to continue operations measured by several items, including liquidity; and other factors. Once an impairment indicator is identified, management uses considerable judgment to determine if the impairment is other than temporary, in which case the equity investment is written down to its estimated fair value. An impairment that is other than temporary could significantly and adversely impact reported results of operations.

Properties, Plants, and Equipment. Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group) exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the excess of the carrying value of the assets (asset group) over their fair value, with fair value determined using the best information available, which generally is a DCF model. The determination of what constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of assets require significant judgments.

Pension and Other Postretirement Benefits . Certain Alcoa Corporation employees participate in defined benefit pension and other postretirement benefit plans sponsored by ParentCo, which also includes Arconic participants. For purposes of these standalone financial statements, Alcoa Corporation accounts for these plans as multiemployer benefit plans. Accordingly, Alcoa Corporation does not record an asset or liability to recognize the funded status of these shared plans. However, the related expense allocated to Alcoa Corporation are based primarily on pensionable compensation and estimated interest costs attributable to Alcoa Corporation participants.

Certain plans are specific to Alcoa Corporation employees and are accounted for as defined benefit pension and other postretirement benefit plans for purpose of the Combined Financial Statements. Accordingly, the funded and unfunded position of each of these plans is recorded in the Combined Balance Sheet. Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income net of taxes, until they are amortized as a component of net periodic benefit cost. Liabilities and expenses for these pension and other postretirement benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated liability, the expected long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, health care cost trend rates, retirement age, and mortality).

The discount rates for the plans are primary determined by using yield curve models developed with the assistance of an external actuary. The cash flows of the plans’ projected benefit obligations are discounted using a single equivalent rate derived from yields on high-quality corporate bonds, which represent a broad diversification of issuers in various sectors. The yield curve model parallels the plans’ projected cash flows, which have an average duration ranging from 11 to 15 years. The underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy plans’ obligations multiple times. If a deep market of high quality corporate bonds does not exist in a country, then the yield on government bonds plus a corporate bond yield spread is used. In 2015, 2014, and 2013, the discount rate used to determine benefit obligations for pension and other postretirement benefit plans was 4.03%, 4.09%, and 5.14%, respectively. The impact on the liabilities of a change in the discount rate of one-fourth of 1% would be approximately $66 and either a charge or credit of approximately $1 to after-tax earnings in the following year.

In conjunction with the annual measurement of the funded status of Alcoa Corporation’s pension and other postretirement benefit plans at December 31, 2015, management elected to change the manner in which the

 

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interest cost component of net periodic benefit cost will be determined in 2016 and beyond. Previously, the interest cost component was determined by multiplying the single equivalent rate described above and the aggregate discounted cash flows of the plans’ projected benefit obligations. Under the new methodology, the interest cost component will be determined by aggregating the product of the discounted cash flows of the plans’ projected benefit obligations for each year and an individual spot rate (referred to as the “spot rate” approach). This change will result in a lower interest cost component of net periodic benefit cost under the new methodology compared to the previous methodology of approximately $11 in 2016. Management believes this new methodology, which represents a change in an accounting estimate, is a better measure of the interest cost as each year’s cash flows are specifically linked to the interest rates of bond payments in the same respective year.

The expected long-term rate of return on plan assets is generally applied to a four-year or five-year average value of plan assets for certain plans, or the fair value at the plan measurement date. The process used by management to develop this assumption is one that relies on forward-looking returns by asset class. Management incorporates expected future returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment. For 2015, 2014, and 2013, management used 6.91%, 6.91% and 6.98%, respectively, as its expected long-term rate of return. For 2016, management anticipates that 6.92% will be the expected long-term rate of return.

A change in the assumption for the expected long-term rate of return on plan assets of one-fourth of 1% would impact after-tax earnings by approximately $3 for 2015.

Stock-based Compensation. Alcoa Corporation employees have historically participated in ParentCo’s equity-based compensation plans. Until consummation of the distribution, Alcoa Corporation will continue to participate in ParentCo’s stock-based compensation plans and record compensation expense based on the awards granted to Alcoa Corporation employees. ParentCo recognizes compensation expense for employee equity grants using the non-substantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the requisite service period based on the grant date fair value. The fair value of new stock options is estimated on the date of grant using a lattice-pricing model. Determining the fair value of stock options at the grant date requires judgment, including estimates for the average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, and exercise behavior. These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time.

Equity grants are issued in January each year. As part of ParentCo’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. As a result, a larger portion of expense will be recognized in the first half of each year for these retirement-eligible employees. Compensation expense recorded in 2015, 2014, and 2013 was $35, $39, and $33, respectively. Alcoa Corporation did not recognize any tax benefit associated with this expense. Of this amount, $3, $4, and $4 in 2015, 2014, and 2013, respectively, pertains to the acceleration of expense related to retirement-eligible employees. The portion of this expense related to corporate employees, allocated based on segment revenue, was $21, $21, and $16 in 2015, 2014, and 2013, respectively

Most plan participants can choose whether to receive their award in the form of stock options, stock awards, or a combination of both. This choice is made before the grant is issued and is irrevocable.

Income Taxes.   The provision for income taxes in Alcoa Corporation’s combined statement of operations is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if Alcoa Corporation was a standalone taxpayer filing hypothetical income tax returns where applicable. Any additional accrued tax liability or refund arising as a result of this approach is assumed to be immediately settled with ParentCo as a component of Net parent investment. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid, and result from differences between the

 

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financial and tax bases of Alcoa Corporation’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted. Deferred tax assets are reflected in the combined balance sheet for net operating losses, credits or other attributes to the extent that such attributes are expected to transfer to Alcoa Corporation upon the Separation. Any difference from attributes generated in a hypothetical return on a separate return basis is adjusted as a component of Net parent investment.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Alcoa Corporation’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.

In 2013, Alcoa Corporation recognized a $128 discrete income tax charge for a valuation allowance on the full value of the deferred tax assets related to a Spanish consolidated tax group. These deferred tax assets have an expiration period ranging from 2016 (for certain credits) to an unlimited life (for operating losses). After weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that Alcoa Corporation will realize the tax benefit of these deferred tax assets. This was mainly driven by a decline in the outlook of the Primary Metals business (2013 realized prices were the lowest since 2009) combined with prior year cumulative losses of the Spanish consolidated tax group. During 2014, the underlying value of the deferred tax assets decreased due to a remeasurement as a result of the enactment of new tax rates in Spain beginning in 2016 (see Income Taxes in Earnings Summary under Results of Operations above), and a change in foreign currency exchange rates. As a result, the valuation allowance decreased by the same amount. At December 31, 2015, the amount of the valuation allowance was $91. This valuation allowance was reevaluated as of December 31, 2015, and no change to the allowance was deemed necessary based on all available evidence. The need for this valuation allowance will be assessed on a continuous basis in future periods and, as a result, a portion or all of the allowance may be reversed based on changes in facts and circumstances.

In 2015, Alcoa Corporation recognized an additional $141 discrete income tax charge for valuation allowances on certain deferred tax assets in Iceland and Suriname. Of this amount, an $85 valuation allowance was established on the full value of the deferred tax assets in Suriname, which were related mostly to employee benefits and tax loss carryforwards. These deferred tax assets have an expiration period ranging from 2016 to 2022. The remaining $56 charge relates to a valuation allowance established on a portion of the deferred tax assets recorded in Iceland. These deferred tax assets have an expiration period ranging from 2017 to 2023. After weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that Alcoa Corporation will realize the tax benefit of either of these deferred tax assets. This was mainly driven by a decline in the outlook of the Primary Metals business, combined with prior year cumulative losses and a short expiration period. The need for this valuation allowance will be assessed on a continuous basis in future periods and, as a result, a portion or all of the allowance may be reversed based on changes in facts and circumstances.

 

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Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

Related Party Transactions

Alcoa Corporation buys products from and sells products to various related companies, including entities in which Alcoa Corporation retains a 50% or less equity interest, at negotiated prices between the two parties. Transactions between Alcoa Corporation and Arconic have been presented as related party transactions in the Combined Financial Statements of Alcoa Corporation. See Note T to the Combined Financial Statements of Alcoa Corporation in this information statement.

Recently Adopted Accounting Guidance

See the Recently Adopted Accounting Guidance section of Note A to the Combined Financial Statements of Alcoa Corporation in this information statement.

Recently Issued Accounting Guidance

See the Recently Issued Accounting Guidance section of Note A to the Combined Financial Statements of Alcoa Corporation in this information statement.

Six Months Ended June 30, 2016 and 2015

Results of Operations

Net loss attributable to Alcoa Corporation was $265 in the 2016 six-month period compared with Net income of $69 in the 2015 six-month period. The decrease in results of $334 was primarily the result of lower pricing in all operations, partially offset by net productivity improvements, lower restructuring-related charges, a lower income tax provision, and net favorable foreign currency movements.

Sales declined $1,617, or 27%, in the 2016 six-month period compared to the same period in 2015. The decrease was largely attributable to a lower average realized price for both aluminum and alumina; lower volume in the Alumina segment; the absence of sales related to capacity that was closed or curtailed (see Aluminum and Cast Products in Segment Information below); and lower energy sales. These negative impacts were slightly offset by higher bauxite sales.

Cost of goods sold (COGS) as a percentage of Sales was 85.3% in the 2016 six-month period compared with 76.5% in the 2015 six-month period. The percentage was negatively impacted by a lower average realized price for both aluminum and alumina, partially offset by net productivity improvements across all segments and net favorable foreign currency movements due to a stronger U.S. dollar.

Selling, general administrative, and other expenses (SG&A) increased $9 in the 2016 six-month period compared to the corresponding period in 2015. The increase was principally due to costs related to the planned separation of ParentCo ($31), partially offset by a decrease in corporate overhead expenses and favorable foreign currency movements due to a stronger U.S. dollar.

Research and development expenses (R&D) declined $30, or 52%, in the 2016 six-month period compared with the same period in 2015. The decrease was primarily driven by lower spending related to the inert anode and carbothermic technology for the Aluminum segment.

 

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Depreciation, depletion, and amortization (DD&A) declined $49, or 12%, in the 2016 six-month period compared to the corresponding period in 2015. The decrease was mainly caused by favorable foreign currency movements due to a stronger U.S. dollar and the absence of DD&A ($11) related to capacity reductions at a refinery and smelter in South America that occurred at different points during 2015 and a smelter in the United States that occurred in March 2016.

Restructuring and other charges in the 2016 six-month period were $92, which were comprised of the following components: $86 for additional net costs related to decisions made in the fourth quarter of 2015 to permanently close and demolish the Warrick (Indiana) smelter and to curtail the Wenatchee (Washington) smelter and Point Comfort (Texas) refinery (see below); $11 for layoff costs related to cost reduction initiatives and the planned separation of ParentCo, including the separation of approximately 30 employees in the Aluminum segment; and $5 for the reversal of a number of small layoff reserves related to prior periods.

In the 2016 six-month period, costs related to the closure and curtailment actions included accelerated depreciation of $70 related to the Warrick smelter as it continued to operate during the 2016 first quarter; $20 for the reversal of severance costs initially recorded in the 2015 fourth quarter; and $36 in other costs. Additionally in the 2016 six-month period, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $5, which was recorded in COGS. The other costs of $36 represent $27 for contract termination, $7 in asset retirement obligations for the rehabilitation of a coal mine related to the Warrick smelter, and $2 in other related costs. Additional charges may be recognized in future periods related to these actions.

Restructuring and other charges in the 2015 six-month period were $243, which were comprised of the following components: $179 for exit costs related to decisions to permanently shut down and demolish a smelter and a power station (see below); $24 related to post-closing adjustments associated with two December 2014 divestitures; $34 for the separation of approximately 800 employees (680 in the Aluminum segment and 120 combined in the Alumina and Bauxite segments), supplier contract-related costs, and other charges associated with the decisions to temporarily curtail certain capacity at the São Luís smelter and the refinery in Suriname; $11 for layoff costs, including the separation of approximately 150 employees in the Aluminum segment; $4 for the reversal of a number of small layoff reserves related to prior periods; and a net credit of $1 related to Corporate restructuring allocated to Alcoa Corporation.

In the second quarter of 2015, management approved the permanent shutdown and demolition of the Poços de Caldas smelter (capacity of 96 kmt-per-year) in Brazil and the Anglesea power station (includes the closure of a related coal mine) in Australia. The entire capacity at Poços de Caldas has been temporarily idled since May 2014 and the Anglesea power station was shut down at the end of August 2015. Demolition and remediation activities related to the Poços de Caldas smelter and the Anglesea power station began in late 2015 and are expected to be completed by the end of 2026 and 2020, respectively.

The decision on the Poços de Caldas smelter was due to management’s conclusion that the smelter was no longer competitive as a result of challenging global market conditions for primary aluminum that have not dissipated, which led to the initial curtailment, and higher costs. For the Anglesea power station, the decision was made because a sale process did not result in a sale and there would be imminent operating costs and financial constraints related to this site in the remainder of 2015 and beyond, including significant costs to source coal from available resources, necessary maintenance costs, and a depressed outlook for forward electricity prices. The Anglesea power station previously supplied approximately 40 percent of the power needs for the Point Henry smelter, which was closed in August 2014.

In the 2015 six-month period, costs related to the shutdown actions included asset impairments of $86, representing the write-off of the remaining book value of all related properties, plants, and equipment; $11 for the layoff of approximately 100 employees (80 in the Aluminum segment and 20 in the Energy segment); and $82 in other exit costs. Additionally in the 2015 six-month period, remaining inventories, mostly operating

 

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supplies and raw materials, were written down to their net realizable value, resulting in a charge of $4, which was recorded in COGS. The other exit costs of $82 represent $45 in asset retirement obligations and $29 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Brazil and Australia (includes the rehabilitation of a related coal mine), and $8 in supplier and customer contract-related costs.

Alcoa Corporation does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of allocating such charges to segment results would have been as follows:

 

Six months ended June 30,

   2016      2015  

Bauxite

   $ —         $ 2   

Alumina

     2         13   

Aluminum

     68         147   

Cast Products

     —           —     

Energy

     22         52   

Rolled Products

     —           —     
  

 

 

    

 

 

 

Total segment

     92         214   
  

 

 

    

 

 

 

Corporate

     —           29   
  

 

 

    

 

 

 

Total restructuring and other charges

   $ 92       $ 243   
  

 

 

    

 

 

 

As of June 30, 2016, approximately 26 of the 30 employees associated with 2016 restructuring programs and approximately 2,400 of the 2,700 employees associated with 2015 restructuring programs were separated. As of March 31, 2016, the separations associated with the 2014 restructuring programs were essentially complete. Most of the remaining separations for the 2016 restructuring programs and all of the remaining separations for the 2015 restructuring programs are expected to be completed by the end of 2016.

In the 2016 six-month period, cash payments of $3, $51, and $1 were made against the layoff reserves related to 2016, 2015, and 2014, respectively, restructuring programs.

Interest expense decreased $9, or 6%, in the 2016 six-month period compared to the corresponding period in 2015. The decrease was largely due to a lower allocation to Alcoa Corporation of ParentCo’s interest expense, which is primarily a function of the lower ratio in the 2016 six-month period (as compared to the 2015 six-month period) of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic.

Other expenses, net was $16 in the 2016 six-month period compared with Other income, net of $13 in the 2015 six-month period. The change of $29 was mainly the result of net unfavorable foreign currency movements ($40) and the absence of a gain on the sale of land around the Lake Charles anode facility ($29), partially offset by a gain on the sale of an equity interest in a natural gas pipeline in Australia ($27) and a benefit for an arbitration recovery related to a 2010 fire at the Iceland smelter ($14).

The effective tax rate for the 2016 and 2015 six-month periods was 61% (provision on a loss) and 54% (provision on income), respectively.

The rate for the 2016 six-month period differs (by (96) percentage points) from the U.S. federal statutory rate of 35% primarily due to U.S. losses and tax credits with no tax benefit realizable in Alcoa Corporation, a $5 discrete income tax charge for valuation allowances of certain deferred tax assets in Australia, somewhat offset by foreign income taxed in lower rate jurisdictions.

The rate for the 2015 six-month period differs from the U.S. federal statutory rate of 35% primarily due to an $85 discrete income tax charge ($51 after noncontrolling interest) for a valuation allowance on certain deferred tax assets in Suriname, which were mostly related to employee benefits and tax loss carryforwards.

 

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Net income attributable to noncontrolling interest was $38 in the 2016 six-month period compared with $127 in the 2015 six-month period. These amounts were related to Alumina Limited of Australia’s 40% ownership interest in AWAC. In the 2016 six-month period, AWAC generated lower income compared to the same period in 2015.

The change in AWAC’s results was mainly driven by a decline in operating results (see below), partially offset by the absence of restructuring charges related to the permanent closure of the Anglesea power station and coal mine (see Restructuring and other charges above), a $27 ($8 was noncontrolling interest’s share) gain on the sale of an equity interest in a natural gas pipeline in Australia, and the absence of an $85 ($34 was noncontrolling interest’s share) discrete income tax charge for a valuation allowance on certain deferred tax assets (see Income taxes above).

The decrease in AWAC’s operating results was largely due to a lower average realized alumina price and an unfavorable impact related to the curtailment of the Point Comfort refinery, somewhat offset by net productivity improvements and net favorable foreign currency movements (see Alumina in Segment Information below).

Segment Information

Bauxite

 

     Six months ended June 30,  
         2016              2015      

Bauxite production (bone dry metric tons, or bdmt), in millions

     22.1         22.2   

Alcoa Corporation’s average cost per bdmt of bauxite*

   $ 15       $ 19   

Third-party sales

   $ 131       $ 29   

Intersegment sales

     357         570   
  

 

 

    

 

 

 

Total sales

   $ 488       $ 599   
  

 

 

    

 

 

 

ATOI

   $ 101       $ 106   
  

 

 

    

 

 

 

 

* Includes all production-related costs, including conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

Bauxite production decreased slightly in the 2016 six-month period compared with the corresponding period in 2015. The decrease was largely attributable to the curtailment of the Suralco mine and refinery (see Alumina below), partially offset by higher production across the remaining mining portfolio.

Total sales for the Bauxite segment declined 19% in the 2016 six-month period compared to the same period in 2015. The decrease was primarily due to a lower bauxite price and a decrease in internal demand from the Alumina segment due to curtailments (see Alumina below). These negative impacts were partially offset by higher third-party shipments as Alcoa Corporation continues to expand its third-party bauxite business.

ATOI for this segment decreased $5 in the 2016 six-month period compared to the same period in 2015. This decrease was principally driven by the decline in bauxite prices. These negative impacts were partially offset by net favorable foreign currency movements due to a stronger U.S. dollar, especially against the Australian dollar and Brazilian real, net productivity improvements, and higher equity earnings from a jointly-owned mine in Brazil.

In the 2016 third quarter (comparison with the 2015 third quarter), third-party bauxite shipments are expected to increase and productivity improvements are anticipated to continue.

 

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Alumina

 

     Six months ended June 30,  
         2016              2015      

Alumina production (kmt)

     6,646         7,910   

Third-party alumina shipments (kmt)

     4,434         5,244   

Alcoa Corporation’s average realized price per metric ton of alumina

   $ 247       $ 335   

Alcoa Corporation’s average cost per metric ton of alumina*

   $ 243       $ 272   

Third-party sales

   $ 1,097       $ 1,758   

Intersegment sales

     613         934   
  

 

 

    

 

 

 

Total sales

   $ 1,710       $ 2,692   
  

 

 

    

 

 

 

ATOI

   $ 5       $ 324   
  

 

 

    

 

 

 

 

* Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

Alumina production decreased 16% in the 2016 six-month period compared with the corresponding period in 2015. The decline was largely attributable to lower production at the Point Comfort (Texas) refinery (see below) and the absence of production at the Suralco (Suriname) refinery (see below).

In March 2015, management initiated a 12-month review of 2,800 kmt in refining capacity for possible curtailment (partial or full), permanent closure or divestiture. This review was part of management’s target to lower Alcoa Corporation’s refining operations on the global alumina cost curve to the 21st percentile (currently 23rd) by the end of 2016. As part of this review, in 2015, management decided to curtail the remaining operating capacity at both the Suralco (1,330 kmt-per-year) and Point Comfort (2,010 kmt-per-year) refineries. The curtailment of the capacity at Suralco and Point Comfort was completed by the end of November 2015 and June 2016 (375 kmt-per-year was completed by the end of December 2015), respectively. While management has completed this specific review of Alcoa’s refining capacity, analysis of portfolio optimization in light of changes in the marketplace that may occur at any given time is ongoing.

Third-party sales for the Alumina segment decreased 38% in the 2016 six-month period compared to the same period in 2015. The decline was primarily due to a 26% decrease in average realized price and a 15% decline in volume. The change in average realized price was mostly driven by a drop in the average alumina index price.

Intersegment sales decreased 34% in the 2016 six-month period compared with the corresponding period in 2015 due to a lower average realized price and lower demand from the Primary Metals segment. The lower demand was caused by lower shipments to the Warrick (Indiana) smelter (closed in the first quarter of 2016) and the absence of shipments to both the Wenatchee (Washington) smelter (curtailed in the fourth quarter of 2015) and the São Luís (Brazil) smelter (curtailed in the second quarter of 2015).

ATOI for this segment declined $319 in the 2016 six-month period compared to the same period in 2015. The decrease was principally related to the previously mentioned lower average realized alumina price and an unfavorable impact related to the curtailment of the Point Comfort refinery. These negative impacts were somewhat offset by net productivity improvements and net favorable foreign currency movements due to a stronger U.S. dollar, especially against the Australian dollar and Brazilian real.

In the 2016 third quarter (comparison with the 2015 third quarter), alumina production will reflect the absence of approximately 680 kmt due to the curtailment of the Point Comfort and Suralco refineries. Additionally, net productivity improvements are anticipated in this segment.

 

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Aluminum

 

     Six months ended June 30,  
         2016              2015      

Aluminum production (kmt)

     1,250         1,412   

Alcoa Corporation’s average cost per metric ton of aluminum*

   $ 1,560       $ 1,800   

Third-party sales

   $ 15       $ 2   

Intersegment sales

     1,889         2,908   

Total sales

   $ 1,904       $ 2,910   
  

 

 

    

 

 

 

ATOI

   $ (26    $ 185   

 

* Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

At June 30, 2016, Alcoa Corporation had 778 kmt of idle capacity on a base capacity of 3,133 kmt. During the six months ended June 30, 2016, base capacity decreased 269 kmt compared to December 31 2015, due to the permanent closure of the Warrick, IN, smelter.

In March 2015, management initiated a 12-month review of 500 kmt in smelting capacity for possible curtailment (partial or full), permanent closure or divestiture. This review was part of management’s target to lower Alcoa Corporation’s smelting operations on the global aluminum cost curve to the 38th percentile (currently 43rd) by the end of 2016. As part of this review, in 2015, management decided to curtail the remaining operating capacity at both the São Luís smelter (74 kmt-per-year) in Brazil and at the Wenatchee smelter (143 kmt-per-year) in Washington and to permanently close the Warrick smelter (269 kmt-per-year) in Indiana. The curtailment of capacity at São Luís and Wenatchee was completed in April 2015 and by the end of December 2015, respectively, and the permanent closure of Warrick was completed by the end of March 2016. Previously under this review (November 2015), management decided to curtail the remaining capacity at the Intalco smelter in Washington by the end of June 2016; however, in May 2016, Alcoa reached agreement on a new power contract that will help improve the competiveness of the smelter, resulting in the termination of the planned curtailment. While management has completed this specific review of Alcoa’s smelting capacity, analysis of portfolio optimization in light of changes in the marketplace that may occur at any given time is ongoing.

Aluminum production decreased 11% in the 2016 six-month period compared with the corresponding period in 2015. The decline was the result of lower production at the Warrick smelter and the absence of production at the Wenatchee smelter and the São Luís smelter.

Total sales for the Aluminum segment decreased 35% in the 2016 six-month period compared to the same period in 2015. The decrease was mainly attributable to a decrease in aluminum prices and the absence of sales (approximately $195) from the Wenatchee and São Luís smelters that were curtailed in 2015 as well as lower sales (approximately $135) from the Warrick smelter that was permanently closed at the end of March 2016. The negative impacts were slightly offset by higher volume in the remaining smelter portfolio. The change in aluminum price was driven by a 15% lower average LME price (on 15-day lag) and lower regional premiums, which dropped by an average of 52% in the United States and Canada, 56% in Europe, and 64% in the Pacific region.

ATOI for this segment decreased $211 in the 2016 six-month period compared to the same period in 2015. The decline was primarily driven by the previously-mentioned lower aluminum price. This negative impact was partially offset by lower costs for alumina and net productivity improvements.

In the 2016 third quarter (comparison with the 2015 third quarter), aluminum production will be approximately 100 kmt lower as a result of the closure of the Warrick smelter and the curtailment of the Wenatchee smelter. Also, total sales will reflect the absence of approximately $165 due to the closure of the Warrick smelter and the curtailment of the Wenatchee smelter. Additionally, net productivity improvements are anticipated in this segment.

 

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Cast Products

 

     Six months ended June 30,  
         2016              2015      

Third-party aluminum shipments (kmt)

     1,401         1,478   

Alcoa Corporation’s average realized price per metric ton of aluminum*

   $ 1,835       $ 2,331   

Alcoa Corporation’s average cost per metric ton of aluminum**

   $ 1,739       $ 2,257   

Third-party sales

   $ 2,570       $ 3,444   

Intersegment sales

     106         23   
  

 

 

    

 

 

 

Total sales

   $ 2,676       $ 3,467   
  

 

 

    

 

 

 

ATOI

   $ 89       $ 43   

 

* Average realized price per metric ton of aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold in the United States); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.
** Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation, depletion, and amortization; and plant administrative expenses.

Third-party sales for the Cast Products segment decreased 25% in the 2016 six-month period compared to the same period in 2015. The decrease was mostly the result of a 21% decrease in average realized aluminum price and lower value-add product sales (approximately $190) due to 2015 smelter curtailments (see Aluminum above).

ATOI for this segment increased $46 in the 2016 six-month period compared to the same period in 2015. The increase was primarily driven by net productivity improvements, improved equity results from the Ma’aden casthouse, and net favorable foreign currency movements due to a stronger U.S. dollar. These favorable impacts were partially offset by lower product premiums and mix.

In the 2016 third quarter (comparison with the 2015 third quarter), price and mix impacts are expected to be offset by continued net productivity improvements. Also, third-party sales will reflect the absence of approximately $60 due to the Wenatchee smelter curtailment.

Energy

 

     Six months ended
June 30,
 
     2016      2015  

Third-party sales (GWh)

     3,550         3,204   

Third-party sales

   $ 132       $ 244   

Intersegment sales

     86         154   
  

 

 

    

 

 

 

Total sales

   $ 218       $ 398   
  

 

 

    

 

 

 

ATOI

   $ 36       $ 79   
  

 

 

    

 

 

 

Third-party sales (GWh) for the Energy segment increased 11% in the 2016 six-month period compared to the same period in 2015. The increase was the result of more power being available for third-party sales due to the curtailment of the Suralco refinery (see Alumina above) and the Sao Luis and Warrick smelters (see Aluminum above), higher water inflows at Yadkin, NC, and an increase in the distribution of assured energy from the Brazil hydro facilities (assured energy is Alcoa Corporation’s share of the facilities’ commercial capacity). These positive impacts were partially offset by the absence of generation at Anglesea, Australia, which closed in August 2015.

 

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Total sales for the Energy segment decreased 45% in the 2016 six-month period compared to the same period in 2015. The decrease was mostly the result of lower energy prices, mainly in Brazil, and lower energy sales to Alcoa Corporation’s refineries and smelters offset by higher energy sales to third parties described above. Sales also declined as a result of unfavorable foreign currency movements due to a stronger U.S. dollar against the Brazilian real.

ATOI for this segment decreased $43 in the 2016 six-month period compared to the same period in 2015. The decline was primarily driven by the previously-mentioned change in sales and net unfavorable foreign currency movements due to a stronger U.S. dollar against the Brazilian real.

In the 2016 third quarter (comparison with the 2015 third quarter), energy prices are expected to be lower in Brazil.

Rolled Products

 

     Six months ended
June 30,
 
     2016      2015  

Third-party aluminum shipments (kmt)

     133         134   

Alcoa Corporation’s average realized price per metric ton of aluminum

   $ 3,344       $ 3,851   

Third-party sales

   $ 446       $ 515   

ATOI

   $ (16    $ 11   

Third-party sales for the Rolled Products segment decreased 13% in the 2016 six-month period compared with the corresponding period in 2015. The decline was mostly due to a decrease in metal prices (both LME and regional premium components) and pricing pressure in the packaging end market.

ATOI for this segment decreased $27 in the 2016 six-month period compared to the same period in 2015. The decrease was primarily due to the previously-mentioned pricing pressures and additional costs to secure alternative metal supply as Warrick transitions to a cold metal rolling mill ($20). This was partially offset by net productivity improvements.

In the 2016 third quarter (comparison with the 2015 third quarter), additional costs ($15) related to the conversion of the Warrick smelter into a cold metal plant as well as pricing pressure from the packaging market are expected to continue.

Reconciliation of ATOI to Combined Net (Loss) Income Attributable to Alcoa Corporation

Items required to reconcile total segment ATOI to Combined net (loss) income attributable to Alcoa Corporation include: the impact of LIFO inventory accounting; metal price lag; interest expense; noncontrolling interest; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit eliminations; the impact of any discrete tax items, deferred tax valuation allowance adjustments, and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income.

 

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The following table reconciles total segment ATOI to combined net (loss) income attributable to Alcoa Corporation:

 

Six months ended June 30,

   2016      2015  

Total segment ATOI

   $ 189       $ 748   

Unallocated amounts:

     

Impact of LIFO

     27         43   

Metal price lag

     4         (12

Interest expense

     (130      (139

Noncontrolling interest (net of tax)

     (38      (127

Corporate expense

     (96      (102

Restructuring and other charges

     (92      (243

Income taxes

     (39      58   

Other

     (90      (157
  

 

 

    

 

 

 

Combined net (loss) income attributable to Alcoa Corporation

   $ (265    $ 69   
  

 

 

    

 

 

 

The changes in the reconciling items between total segment ATOI and combined net (loss) income attributable to Alcoa Corporation for the 2016 six-month period compared with the corresponding period in 2015 consisted of:

 

    a change in the Impact of LIFO, mostly due to an increase in the price of aluminum (driven by higher base metal prices (LME), slightly offset by lower regional premiums) at June 30, 2016 indexed to December 31, 2015 for the 2016 six-month period compared to a decrease in the price of aluminum (both lower base metal prices (LME) and regional premiums) at June 30, 2015 indexed to December 31, 2014 for the 2015 six-month period (overall, the price of aluminum in the 2016 six-month period was lower compared with the 2015 six-month period);

 

    a change in Metal price lag, the result of an increase in the price of aluminum (see Impact of LIFO above) at June 30, 2016 indexed to December 31, 2015 for the 2016 six-month period compared to a decrease in the price of aluminum (see Impact of LIFO above) at June 30, 2015 indexed to December 31, 2014 for the 2015 six-month period (Metal price lag describes the timing difference created when the average price of metal sold differs from the average cost of the metal when purchased by Alcoa Corporation’s Rolled Products segment. In general, when the price of metal increases, metal price lag is favorable, and when the price of metal decreases, metal price lag is unfavorable);

 

    a decrease in Interest expense, principally due to a lower allocation to Alcoa Corporation of ParentCo’s interest expense, which is primarily a function of the lower ratio in the 2016 six-month period (as compared to the 2015 six-month period) of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic;

 

    a change in Noncontrolling interest, due to the change in results of AWAC, principally driven by a decline in operating results, partially offset by the absence of restructuring charges related to the permanent closure of the Anglesea power station and coal mine, a $27 ($8 was noncontrolling interest’s share) gain on the sale of an equity interest in a natural gas pipeline in Australia, and the absence of an $85 ($34 was noncontrolling interest’s share) discrete income tax charge for a valuation allowance on certain deferred tax assets;

 

    a decline in Corporate expense, largely attributable to decreases in various expenses, partially offset by expenses related to the planned separation of ParentCo ($31);

 

    a decrease in Restructuring and other charges due to fewer portfolio actions; and

 

    a change in Income taxes, primarily the result of the absence of a discrete income tax charge for a valuation allowance on certain deferred tax assets ($85).

 

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Environmental Matters

See the Environmental Matters section of Note G to the unaudited Combined Financial Statements in this information statement.

Liquidity and Capital Resources

Cash From Operations

Cash used for operations was $451 in the 2016 six-month period compared with cash provided from operations of $511 in the same period of 2015. The increase in cash used for operations of $962 was principally due to lower operating results (net (loss) income plus net add-back for noncash transactions in earnings) and a negative change associated with working capital of $391, principally driven by an unfavorable change in taxes, including income taxes, due to a change from pretax income to a pretax loss. These items were slightly offset by a positive change in noncurrent assets of $139, which was mainly the result of a $100 smaller prepayment made under a natural gas supply agreement in Australia (see below).

On April 8, 2015, Alcoa Corporation’s majority-owned subsidiary, Alcoa of Australia Limited (AofA), which is part of AWAC, secured a new 12-year gas supply agreement to power its three alumina refineries in Western Australia beginning in July 2020. This agreement was conditional on the completion of a third-party acquisition of the related energy assets from the then-current owner, which occurred in June 2015. The terms of AofA’s gas supply agreement required a prepayment of $500 to be made in two installments. The first installment of $300 was made at the time of completion of the third-party acquisition in June 2015 and the second installment of $200 was made in April 2016.

Financing Activities

Cash provided from financing activities was $250 in the 2016 six-month period compared with cash used for financing activities of $326 in the 2015 six-month period, resulting in an increase in cash provided of $576.

Investing Activities

Cash used for investing activities was $43 in the 2016 six-month period compared with $111 in the 2015 six-month period, resulting in a decrease in cash used of $68. In the 2016 six-month period, the use of cash was principally due to $172 in capital expenditures, of which 8% related to growth projects, mostly offset by $145 in proceeds from the sale of an equity interest in a natural gas pipeline in Australia. The use of cash in the 2015 six-month period was principally due to $157 in capital expenditures, of which 5% related to growth projects, partially offset by $70 in proceeds from the sale of assets and businesses, largely related to post-closing adjustments associated with an ownership stake in a smelter and the sale of land around the Lake Charles, LA anode facility.

Recently Adopted and Recently Issued Accounting Guidance

See Note B to the unaudited Combined Financial Statements in this information statement.

 

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MANAGEMENT

Executive Officers Following the Distribution

The following table sets forth information as of June 1, 2016 regarding the individuals who are expected to serve as executive officers of Alcoa Corporation following the distribution. While some of Alcoa Corporation’s executive officers are currently executive officers and employees of ParentCo, after the distribution, none of these individuals will be employees or executive officers of ParentCo.

 

Name

   Age   

Position

Roy C. Harvey

   41    Chief Executive Officer

William F. Oplinger

   49    Chief Financial Officer

Robert S. Collins

   50    Controller and Vice President, Financial Planning and Analysis

Leigh Ann C. Fisher

   49    Chief Administrative Officer

Jeffrey D. Heeter

   51   

General Counsel

Tómas Sigurðsson

   48    Chief Operating Officer

Roy C. Harvey will be the Chief Executive Officer of Alcoa Corporation. Mr. Harvey has served as Executive Vice President of ParentCo and President of ParentCo’s Global Primary Products since October 2015. From June 2014 to October 2015, he was Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability at ParentCo. Prior to that, Mr. Harvey was Chief Operating Officer for Global Primary Products at ParentCo from July 2013 to June 2014, and was Chief Financial Officer for Global Primary Products from December 2011 to July 2013. In addition to these roles, Mr. Harvey served as Director of Investor Relations at ParentCo from September 2010 to November 2011 and was Director of Corporate Treasury from January 2010 to September 2010. Mr. Harvey joined ParentCo in 2002 as a business analyst for Global Primary Products in Knoxville, Tennessee.

William F. Oplinger will be the Chief Financial Officer of Alcoa Corporation. Mr. Oplinger has served as Executive Vice President and Chief Financial Officer of ParentCo since April 1, 2013. Mr. Oplinger joined ParentCo in 2000 and held key corporate positions in financial analysis and planning and as Director of Investor Relations. Mr. Oplinger also held key positions in the ParentCo’s Global Primary Products business, including as Controller, Operational Excellence Director, Chief Financial Officer and Chief Operating Officer.

Robert S. Collins will be the Controller and Vice President, Financial Planning and Analysis, of Alcoa Corporation. Mr. Collins has served as Vice President and Controller of ParentCo since October 2013. He served as Assistant Controller from May 2009 to October 2013. Prior to his role as Assistant Controller, Mr. Collins was Director of Financial Transactions and Policy, providing financial accounting support for ParentCo’s transactions in global mergers, acquisitions and divestitures. Before joining ParentCo in 2005, Mr. Collins worked in the audit and mergers and acquisitions practices at PricewaterhouseCoopers LLP for 14 years.

Leigh Ann Fisher will be the Chief Administrative Officer overseeing Human Resources, Shared Services, Procurement and Information Technology of Alcoa Corporation. Ms. Fisher has served as Chief Financial Officer of ParentCo’s Global Primary Products business since July 2013. Ms. Fisher was Group Controller for Global Primary Products at ParentCo from 2011 to 2013. From 2008 to 2011, Ms. Fisher was Group Controller for ParentCo’s Engineered Products and Solutions business.

Jeffrey D. Heeter will be the General Counsel of Alcoa Corporation. Mr. Heeter has served as Assistant General Counsel of ParentCo since 2014. Mr. Heeter was Group Counsel for Global Primary Products at ParentCo from 2010 to 2014. From 2008 to 2010, Mr. Heeter was General Counsel of Alcoa of Australia in Perth, Australia.

Tómas Sigurðsson will be the Chief Operating Officer of Alcoa Corporation. Mr. Sigurðsson has served as Chief Operating Officer of ParentCo’s Global Primary Products business since 2014. Mr. Sigurðsson was President of ParentCo’s European Region and Global Primary Products Europe from 2012 to 2014. From 2004 to 2011, Mr. Sigurðsson was Managing Director of Alcoa Iceland.

 

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DIRECTORS

Board of Directors Following the Distribution

The following table sets forth information as of [                    ], 2016 regarding those persons who are expected to serve on Alcoa Corporation’s Board of Directors following completion of the separation and until their respective successors are duly elected and qualified. Alcoa Corporation’s amended and restated certificate of incorporation will provide that directors will be elected annually. Ms. Fuller, Mr. Morris, Mr. Owens, Ms. Roberts and Mr. Zedillo currently serve as directors of ParentCo until the separation.

 

Name

   Age   

  Position  

Michael G. Morris

   68   

Chairman

Mary Anne Citrino

   57    Director

Timothy P. Flynn

   59    Director

Kathryn S. Fuller

   68    Director

Roy C. Harvey

   41    Director

James A. Hughes

   53    Director

James E. Nevels

   65    Director

James W. Owens

   69    Director

Carol L. Roberts

   55    Director

Suzanne Sitherwood

   56    Director

Steven W. Williams

   60    Director

Ernesto Zedillo

   63    Director

Mary Anne Citrino

Age: 57

Other Current Public Directorships: HP Inc., Dollar Tree Inc., Royal Ahold Delhaize.

Career Highlights and Qualifications: Ms. Citrino has served as Senior Advisor of The Blackstone Group L.P since 2015, and as Senior Managing Director of Blackstone Advisory Partners L.P. from 2004 until 2015. At Blackstone, she advised a broad range of clients in the consumer products industry including Procter & Gamble, Kraft Foods and Nestlé. Before joining Blackstone, she spent more than 20 years advising clients at Morgan Stanley. From 1986 until 2004, she served as a Managing Director at Morgan Stanley, holding positions as Global Head of Consumer Products Investment Banking Group and Co-Head of Health Care Services Investment Banking. She previously served as a Mergers and Acquisitions Analyst at Morgan Stanley from 1982 until 1984.

Other Current Affiliations: In addition to her public company board memberships, Ms. Citrino serves on the Retail & Tourism Advisory Board of the Partnership Fund for New York City and on the Advisory Council at Princeton University’s Center for Health and Wellness.

Attributes and Skills: Ms. Citrino’s more than 30-year career as an investment banker provides the Board with substantial knowledge regarding business operations strategy, as well as valuable financial and investment expertise. Her expertise in finance and business operations is an invaluable asset to Alcoa Corporation as it pursues its strategic plans as an independent publicly-traded company.

Timothy P. Flynn

Age: 59

Other Current Public Directorships: JPMorgan Chase & Co., Walmart Stores, Inc.

 

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Career Highlights and Qualifications: Mr. Flynn was Chairman of KPMG International, a global professional services organization that provides audit, tax and advisory services, from 2007 until his retirement in October 2011. He served as Chairman from 2005 to 2010 and Chief Executive Officer from 2005 to 2009 of KPMG LLP in the U.S., the largest individual member firm of KPMG International. Before serving as Chairman and CEO, Mr. Flynn was Vice Chairman, Audit and Risk Advisory Services, with operating responsibility for the Audit, Risk Advisory and Financial Advisory Services practices.

Other Current Affiliations: In addition to his public company board memberships, Mr. Flynn serves as a director for International Integrated Reporting Council and the University of St. Thomas – Minnesota.

Previous Directorships: Mr. Flynn was a director of The Chubb Corporation from 2013 until 2016.

Attributes and Skills: Through his leadership positions at KPMG, Mr. Flynn gained perspective on the evolving business and regulatory environment, and brings to the Board his experience with many of the issues facing complex, global companies, as well as expertise in financial services and risk management.

Kathryn S. Fuller

Age: 68

Career Highlights and Qualifications: Ms. Fuller is the Chair of the Smithsonian’s National Museum of Natural History, the world’s preeminent museum and research complex. She currently serves on the board, and chairs the Nominating and Governance Committee at, The Robert Wood Johnson Foundation, a leading philanthropy in the field of health and health care. Ms. Fuller is also the Chair of the Institute at Brown for Environment & Society (Brown University) which seeks to prepare leaders to understand and holistically manage complex social and environmental systems.

Ms. Fuller retired as Chair of The Ford Foundation, a nonprofit organization, in September 2010, after having served in that position since May 2004.

Ms. Fuller retired as President and Chief Executive Officer of World Wildlife Fund U.S. (WWF), one of the world’s largest nature conservation organizations, in July 2005, after having served in those positions since 1989. Ms. Fuller continues her affiliation with WWF as President Emerita and an honorary member of the Board of Directors.

Ms. Fuller was a Public Policy Scholar at the Woodrow Wilson International Center for Scholars, a nonpartisan institute established by Congress for advanced study of national and world affairs, for a year beginning in October 2005.

Ms. Fuller had various responsibilities with WWF and The Conservation Foundation from 1982 to 1989, including executive vice president, general counsel and director of WWF’s public policy and wildlife trade monitoring programs. Before that, she held several positions in the U.S. Department of Justice, culminating as Chief, Wildlife and Marine Resources Section, in 1981 to 1982.

Attributes and Skills: Ms. Fuller has led three internationally recognized and respected organizations, having served as the chief executive officer of WWF and Chair of The Ford Foundation and currently serving as Chair of the Smithsonian’s National Museum of Natural History. Her experience in managing world-class organizations, combined with her proven leadership skills, international experience and environmental focus have all contributed to the diversity and richness of the Board’s deliberations.

The Company has long recognized the need to earn the right to continue to do business in the communities in which it operates, and as a result, the Board seeks the input of directors, such as Ms. Fuller, who have a broad perspective on sustainable development.

 

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Roy C. Harvey

Age: 41

Career Highlights and Qualifications: Mr. Harvey will be the Chief Executive Officer of Alcoa Corporation.

From October 2015 until the separation, he was Executive Vice President of Alcoa and President of Alcoa’s Global Primary Products. From June 2014 to October 2015, he was Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability at Alcoa. As part of that role, he also oversaw the Alcoa Foundation, one of the largest corporate foundations in the U.S.

In addition, Mr. Harvey held a variety of operational and financial assignments across the U.S., Europe and Latin America during his career at Alcoa, predominantly in its Upstream business. As the Chief Operating Officer for Global Primary Products at Alcoa from July 2013 to June 2014, he oversaw the day-to-day global operations of the Alcoa Inc.’s mining, refining, smelting, casting and energy businesses. Prior to that role, he was Chief Financial Officer for Global Primary Products from December 2011 to July 2013. Mr. Harvey also interfaced with securities analysts and investors globally as Director of Investor Relations at Alcoa from September 2010 to November 2011, and he was Director of Corporate Treasury from January 2010 to September 2010. Mr. Harvey joined Alcoa in 2002 as a business analyst for Global Primary Products in Knoxville, Tennessee.

Attributes and Skills: As the only management representative on the Board, Mr. Harvey’s leadership of, and extensive experience and familiarity with, Alcoa Corporation’s businesses provides the Board with invaluable insight into the Company’s operations and strategic direction. His broad range of operational, financial, investor relations and other roles at Alcoa has given him an in-depth and well-rounded understanding of the Company.

James A. Hughes

Age: 53

Other Current Public Directorships: TPI Composites Inc.

Career Highlights and Qualifications: Mr. Hughes joined First Solar, Inc. in March 2012 as Chief Commercial Officer and was appointed Chief Executive Officer in May 2012. He stepped down as CEO on June 20, 2016 and left the board on September 1, 2016. Prior to joining First Solar, Mr. Hughes served, from October 2007 until April 2011, as Chief Executive Officer and Director of AEI Services LLC, which owned and operated power distribution, power generation (both thermal and renewable), natural gas transportation and services, and natural gas distribution businesses in emerging markets worldwide. From 2004 to 2007, he engaged in principal investing with a privately held company based in Houston, Texas that focused on micro-cap investments in North American distressed manufacturing assets. Previously, he served, from 2002 until March 2004, as President and Chief Operating Officer of Prisma Energy International, which was formed out of former Enron interests in international electric and natural gas utilities. Prior to that role, Mr. Hughes spent almost a decade with Enron Corporation in positions that included President and Chief Operating Officer of Enron Global Assets, President and Chief Operating Officer of Enron Asia, Pacific, Africa and China and as Assistant General Counsel of Enron International.

Other Current Affiliations: In addition to his public company board membership, Mr. Hughes serves as the Chairman of the Los Angeles Branch of the Federal Reserve Bank of San Francisco.

Previous Directorships: APR Energy PLC, Quicksilver Resources, Inc. and First Solar, Inc.

Attributes and Skills: Mr. Hughes’s extensive experience in the energy sector will be a valuable resource to the Company, including the Company’s valuable portfolio of energy assets. His previous leadership positions at large energy and utility companies enable him to contribute valuable business, operational and management expertise.

 

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Michael G. Morris

Age: 68

Other Current Public Directorships: L Brands, Inc.; The Hartford Financial Services Group, Inc.; Spectra Energy Corp

Career Highlights and Qualifications: Mr. Morris was Chairman of American Electric Power Company, Inc. (AEP), one of the nation’s largest utility generators and owner of the largest electricity transmission system in the United States, from 2004 through 2013. He served as Chief Executive Officer of AEP and all of its major subsidiaries from 2004 until his retirement in November 2011 and as President from 2004 to 2011. From 1997 to 2003, Mr. Morris was Chairman, President and Chief Executive Officer of Northeast Utilities. Prior to that, he held positions of increasing responsibility in energy and natural gas businesses.

Other Current Affiliations: In addition to his public company board memberships, Mr. Morris serves on the U.S. Department of Energy’s Electricity Advisory Board, the National Governors Association Task Force on Electricity Infrastructure, the Institute of Nuclear Power Operations and the Business Roundtable (chairing the Business Roundtable’s Energy Task Force).

Previous Directorships: Mr. Morris was Chairman of AEP from 2004 to 2013. From 1997 to 2003, Mr. Morris was Chairman of Northeast Utilities. Mr. Morris was previously chairman of the Edison Electric Institute.

Attributes and Skills: Mr. Morris has proven business acumen, having served as the chief executive officer of significant, complex organizations. Mr. Morris’ experience in the energy field is a valuable resource to the Company as it engages in renewing its energy supplies. The production of aluminum requires large amounts of energy in an electrolytic smelting process. In addition, Mr. Morris is a leader in developing the carbon sequestration process, which is a technology that may prove to be valuable to the aluminum industry in reducing greenhouse gas emissions.

James E. Nevels

Age: 65

Other Current Public Directorships: First Data Corporation; WestRock Company (Lead Director); The Hershey Company (Lead Independent Director)

Career Highlights and Qualifications: Mr. Nevels founded The Swarthmore Group in 1991 and has served as its Chairman since that time. He has more than 36 years of experience in the securities and investment industry and is a member of The Swarthmore Group’s Executive Committee. Mr. Nevels was appointed by the President of the United States to the Advisory Committee to the Pension Benefit Guaranty Corporation and served as Chairman from 2005 until 2007. In December 2001, Mr. Nevels was appointed by the Governor of Pennsylvania as Chairman of the Philadelphia School Reform Commission and served through September 2007 overseeing the turnaround of the Philadelphia School System, then the ninth largest school district in the United States. In addition, Mr. Nevels served as a member of the Board of The Federal Reserve Bank of Philadelphia from 2010 to 2015, and served as Chair of the Board in 2014 and 2016.

Other Current Affiliations: In addition to his public company board memberships, Mr. Nevels is currently a member of the Board of the Hershey Trust Company and Milton Hershey School, member of the Board of the Marine Corps Heritage Foundation, member of the Board of MMG Insurance Company, member of the Board of The Barbara Bush Foundation for Family Literacy, member of the Board of Trustees of the Pro Football Hall of Fame (Emeritus Status) and a member of the Council of Foreign Relations.

 

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Attributes and Skills: Mr. Nevels’ background and experience as an investment advisor and board member and chairman of large public companies give him broad knowledge and perspective on the governance and leadership of publicly traded companies, as well as financial expertise that will provide the Board with valuable insight.

James W. Owens

Age: 69

Other Current Public Directorships: International Business Machines Corporation; Morgan Stanley

Career Highlights and Qualifications: Mr. Owens served as Chairman and Chief Executive Officer of Caterpillar Inc., a leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, from February 2004 through June 2010. He was Executive Chairman from June to October 2010, when he retired from the company.

Mr. Owens served as Vice Chairman of Caterpillar from December 2003 to February 2004 and as Group President from 1995 to 2003, responsible at various times for 13 of the company’s 25 divisions. Mr. Owens joined Caterpillar in 1972 as a corporate economist and was named chief economist of Caterpillar Overseas S.A. in Geneva, Switzerland in 1975. From 1980 until 1987, he held managerial positions in the Accounting and Product Source Planning Departments. In 1987, he became managing director of P.T. Natra Raya, Caterpillar’s joint venture in Indonesia. He held that position until 1990, when he was elected a Corporate Vice President and named President of Solar Turbines Incorporated, a Caterpillar subsidiary in San Diego, California. In 1993, he was elected Vice President and Chief Financial Officer.

Other Current Affiliations: In addition to his public company board memberships, Mr. Owens serves as a senior advisor to Kohlberg Kravis Roberts & Co. L.P., a global asset manager working in private equity and fixed income. His other major affiliations include the Peterson Institute for International Economics and the Council on Foreign Relations.

Previous Directorships: Mr. Owens was Chairman of Caterpillar Inc. from 2004 to 2010. He was also former Chairman and Executive Committee member of the Business Council.

Attributes and Skills: Mr. Owens’ previous leadership positions, including as Chief Executive Officer of a significant, complex global industrial company, bring to the Board proven business acumen, management experience and economics expertise. His background as former Chief Financial Officer of Caterpillar also provides a strong financial foundation for Audit Committee deliberations.

Carol L. Roberts

Age: 55

Career Highlights and Qualifications: Ms. Roberts is Senior Vice President and Chief Financial Officer of International Paper Company (IP), a global leader in packaging and paper with manufacturing operations in 24 countries. Ms. Roberts has over 30 years of industrial manufacturing experience, having worked in multiple facilities and across various functions at IP. Before being named CFO in 2011, Ms. Roberts led IP’s largest business, the Industrial Packaging Group. While in that role, she led IP’s acquisition of Weyerhaeuser’s packaging business. Ms. Roberts has also served as IP’s Vice President of People Development for three years, during which she developed human resources programs that have had a major impact on IP’s talent posture and employee engagement. Ms. Roberts has served in a variety of operational and technical roles since beginning her career with IP in 1981 as an associate engineer at the company’s Mobile, Alabama mill.

Attributes and Skills: Ms. Roberts’ career spans engineering, manufacturing, business management, human resources and finance, bringing a strong set of cross-functional experiences to the Board. Her current role as

 

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Chief Financial Officer of IP also provides her with a strong foundation for valuable contributions to Board discussions relating to financial and strategic matters.

Suzanne Sitherwood

Age: 56

Other Current Public Directorships: Spire Inc.

Career Highlights and Qualifications: Ms. Sitherwood has been the President and Chief Executive Officer of Spire Inc. (formerly The Laclede Group, Inc.) since February 2012.

Spire is the fifth largest, publicly-traded natural gas utility in the U.S., serving more than 1.6 million customers. Prior to joining Spire, Ms. Sitherwood was President of Atlanta Gas Light, Chattanooga Gas and Florida City Gas, which were natural gas utility subsidiaries of AGL Resources. Since joining AGL Resources in 1983, she has held executive positions in gas supply, storage and transportation, construction, engineering and rates and regulatory affairs.

Other Current Affiliations: Ms. Sitherwood serves as deputy chair of the Federal Reserve Bank of St. Louis and is a Board Member of Southern Polytechnic State University in Marietta, Georgia. She also serves as a Board Member for Emory Hospital Visiting Committee.

Attributes and Skills: With more than 30 years of experience in the natural gas industry, serving in roles ranging from chief engineer to vice president gas operations and capacity planning to the president of three natural gas utilities, Ms. Sitherwood possesses significant experience working in a regulatory environment while implementing strategic growth initiatives. She brings considerable leadership and management experience to the Board.

Steven W. Williams

Age: 60

Other Current Public Directorships: Suncor Energy Inc.

Career Highlights and Qualifications: Mr. Williams has served as President of Suncor Energy since December 2011 and Chief Executive Officer since May 2012. His career with Suncor Energy began in 2002 when he was appointed Executive Vice President, Corporate Development and Chief Financial Officer. He also served at Suncor Energy as Executive Vice President, Oil Sands, from 2003 to 2007 and as Chief Operating Officer, from 2007 to 2011. Mr. Williams has more than 39 years of international energy industry experience, including 18 years at Esso/Exxon.

Other Current Affiliations: In addition to his public company board membership, Mr. Williams is a fellow of the Institution of Chemical Engineers and is a member of the Institute of Directors. He is one of 12 founding CEOs of Canada’s Oil Sands Innovation Alliance (COSIA), a member of the advisory board of Canada’s Ecofiscal Commission, a member of the Board of the Business Council of Canada, and vice-chair of the Alberta Premier’s Advisory Committee on the Economy.

Attributes and Skills: Mr. Williams has decades of experience in leadership positions at large, publicly-traded energy companies. His expertise in the energy sector, both on the operational and financial side, brings invaluable insight and experience to the Board. Mr. Williams also has extensive experience with business leadership organizations and advising government organizations regarding businesses and the economy.

 

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Ernesto Zedillo

Age: 63

Other Current Public Directorships: Citigroup Inc.; Promotora de Informaciones, S.A.; The Procter & Gamble Company

Career Highlights and Qualifications: Dr. Zedillo has been at Yale University since 2002, where he is the Frederick Iseman ’74 Director of the Yale Center for the Study of Globalization; Professor in the Field of International Economics and Politics; Professor of International and Area Studies; and Professor Adjunct of Forestry and Environmental Studies. He was a Distinguished Visiting Fellow at the London School of Economics in 2001.

Dr. Zedillo was President of Mexico from December 1994 to December 2000. He served in the Federal Government of Mexico as Undersecretary of the Budget (1987-1988); as Secretary of Economic Programming and the Budget and board member of various state owned enterprises, including PEMEX, Mexico’s national oil company (1988-1992); and as Secretary of Education (1992-1993). From 1978 to 1987, he was with the central bank of Mexico where he served as deputy manager of economic research and deputy director. From 1983 to 1987, he was the founding General Director of the Trust Fund for the Coverage of Exchange Risks, a mechanism created to manage the rescheduling of the foreign debt of the country’s private sector that involved negotiations and complex financial operations with hundreds of firms and international banks.

Dr. Zedillo earned his Bachelor’s degree from the School of Economics of the National Polytechnic Institute in Mexico and his M.A., M.Phil. and Ph.D. at Yale University. In Mexico, he taught economics at the National Polytechnic Institute and El Colegio de Mexico.

Other Current Affiliations: In addition to his public company board memberships, Dr. Zedillo belongs to the international advisory board of BP. He is a senior advisor to the Credit Suisse Research Institute. His current service in non-profit institutions includes being a member of the Foundation Board of the World Economic Forum.

Previous Directorships: Dr. Zedillo was a director of Electronic Data Systems Corporation from 2007 to 2008 where he was a member of its Governance Committee. He was a director of the Union Pacific Corporation from 2001 to 2006 where he served on the Audit and Finance Committees.

Attributes and Skills: From his broad experience in government and international politics and his prior service as President of Mexico, Dr. Zedillo brings international perspective and insight to matters such as governmental relations and public issues in the various countries in which Alcoa operates. Dr. Zedillo also has significant financial experience, having previously served on the audit committee of Union Pacific and as the Secretary of Economic Programming and the Budget for Mexico, as well as having held various positions at Banco de México, the central bank of Mexico.

Director Independence

In its Corporate Governance Guidelines, the Board of Directors recognizes that independence depends not only on directors’ individual relationships, but also on the directors’ overall attitude. Providing objective, independent judgment is at the core of the Board of Directors’ oversight function. Under the company’s Director Independence Standards, which conform to the corporate governance listing standards of the NYSE, a director is not considered “independent” unless the Board of Directors affirmatively determines that the director has no material relationship with Alcoa Corporation or any subsidiary in its group. The Director Independence Standards comprise a list of all categories of material relationships affecting the determination of a director’s independence. Any relationship that falls below a threshold set forth in the Director Independence Standards, or is not otherwise listed in the Director Independence Standards, and is not required to be disclosed under Item 404(a) of SEC Regulation S-K, is deemed to be an immaterial relationship.

 

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Committees of the Board of Directors

Effective upon the completion of the distribution, our Board of Directors will have the following five standing committees: an Audit Committee, a Compensation and Benefits Committee, a Governance and Nominating Committee, an Executive Committee, and a Public Issues Committee. The Board of Directors is expected to adopt written charters for each committee, which will be made available on our website in connection with the separation.

Each of the Audit, Compensation and Benefits, and Governance and Nominating Committees will consist solely of directors who have been determined by the Board of Directors to be independent in accordance with SEC regulations, NYSE listing standards and the company’s Director Independence Standards (including the heightened independence standards for members of the Audit and Compensation and Benefits Committees).

The following table sets forth the committees of the Board of Directors and the expected membership and chairpersons of the committees as of the completion of the distribution:

 

     Audit      Compensation
and Benefits
     Governance
and

Nominating
     Public
Issues
 

Mary Anne Citrino*

           ü         ü   

Timothy P. Flynn*

     ü               ü   

Kathryn S. Fuller*

        ü         Chair      

Roy C. Harvey

           

James A. Hughes*

     ü               ü   

Michael G. Morris*

           

James E. Nevels*

        ü         ü      

James W. Owens*

        Chair         ü      

Carol L. Roberts*

     Chair         ü         

Suzanne Sitherwood*

     ü               ü   

Steven W. Williams*

        ü         ü      

Ernesto Zedillo*

     ü               Chair   

 

* Independent Director

The following table sets forth the expected responsibilities of the committees of the Board of Directors:

 

Committee

  

Responsibilities

Audit Committee

  

•       Oversees the integrity of the financial statements and internal controls, including review of the scope and the results of the audits of the internal and independent auditors

 

•       Appoints the independent auditors and evaluates their independence and performance

 

•       Reviews the organization, performance and adequacy of the internal audit function

 

•       Pre-approves all audit, audit-related, tax and other services to be provided by the independent auditors

 

•       Oversees the company’s compliance with legal, ethical and regulatory requirements

 

•       Discusses with management and the auditors the policies with respect to risk assessment and risk management, including major financial risk exposures

 

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Each member of the Audit Committee is expected to be financially literate, and the Board of Directors is expected to determine the committee members who qualify as “audit committee financial experts” under applicable SEC rules.

Compensation and Benefits Committee

  

•       Establishes the Chief Executive Officer’s compensation based upon an evaluation of performance in light of approved goals and objectives

 

•       Reviews and approves the compensation of the company’s officers

 

•       Oversees the implementation and administration of the company’s compensation and benefits plans, including pension, savings, incentive compensation and equity-based plans

 

•       Reviews and approves general compensation and benefit policies

 

•       Approves the Compensation Discussion and Analysis for inclusion in the proxy statement

 

•       Has the sole authority to retain and terminate a compensation consultant, as well as to approve the consultant’s fees and other terms of engagement

 

The Compensation and Benefits Committee may form and delegate its authority to subcommittees when appropriate (including subcommittees of management). Executive officers do not determine the amount or form of executive or director compensation, although the Chief Executive Officer provides recommendations to the Compensation and Benefits Committee regarding compensation changes and incentive compensation for executive officers other than himself. See “Executive Compensation” and “Compensation Discussion and Analysis.”

Executive Committee

  

•       Has the authority to act on behalf of the Board of Directors

Governance and Nominating Committee

  

•       Identifies individuals qualified to become Board of Directors members and recommends them to the full Board of Directors for consideration, including evaluating all potential candidates, whether initially recommended by management, other Board of Directors members or stockholders

•       Makes recommendations to the Board of Directors regarding committee assignments

 

•       Develops and annually reviews corporate governance guidelines for the company, and oversees other corporate governance matters

 

•       Reviews related person transactions

 

•       Oversees an annual performance review of the Board of Directors, committees and individual director nominees

 

•       Periodically reviews and makes recommendations to the Board of Directors regarding director compensation

Public Issues Committee

  

•       Provides guidance on matters relating to the company’s corporate social responsibility, including good corporate citizenship, environmental sustainability, health and safety and social issues

 

•       Oversees and monitors the company’s policies and practices to ensure alignment with the company’s vision and values

 

•       Advises on significant public issues that are pertinent to the company and its stakeholders

 

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•       Considers, and brings to the attention of the Board as appropriate, political, social and environmental trends and major global legislative and regulatory developments or other public policy issues

 

•       Oversees the company’s policies and practices relating to the company’s political activities, diversity and charitable contributions

 

•       Monitors the company’s reputation and environmental sustainability progress

Compensation Committee Interlocks and Insider Participation

During our fiscal year ended December 31, 2015, Alcoa Corporation was not an independent company, and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who currently serve as our executive officers were made by ParentCo, as described in the section of this information statement captioned “Compensation Discussion and Analysis.”

Corporate Governance

Stockholder Recommendations for Director Nominees

Any stockholder wishing to recommend a candidate for director should submit the recommendation in writing to our principal executive offices: Alcoa Corporation, Governance and Nominating Committee, c/o Corporate Secretary’s Office, 390 Park Avenue, New York, New York 10022-4608. The written submission should comply with all requirements that will be set forth in the company’s certificate of incorporation and bylaws. The Governance and Nominating Committee will consider all candidates recommended by stockholders who comply with the foregoing procedures and satisfy the minimum qualifications for director nominees and Board of Directors member attributes.

Alcoa Corporation’s amended and restated bylaws will provide that any stockholder entitled to vote at an annual stockholders’ meeting may nominate one or more director candidates for election at that annual meeting by following certain prescribed procedures.

Director Qualification Standards and Process for Evaluating Director Candidates

The Governance and Nominating Committee is expected to adopt Criteria for Identification, Evaluation and Selection of Directors as follows:

 

  1. Directors must have demonstrated the highest ethical behavior and must be committed to the company’s values.

 

  2. Directors must be committed to seeking and balancing the legitimate long-term interests of all of the company’s stockholders, as well as its other stakeholders, including its customers, employees and the communities where the company has an impact. Directors must not be beholden primarily to any special interest group or constituency.

 

  3. No director should have, or appear to have, a conflict of interest that would impair that director’s ability to make decisions consistently in a fair and balanced manner.

 

  4. Directors must be independent in thought and judgment. They must each have the ability to speak out on difficult subjects; to ask tough questions and demand accurate, honest answers; to constructively challenge management; and at the same time, act as an effective member of the team, engendering by his or her attitude an atmosphere of collegiality and trust.

 

  5. Each director must have demonstrated excellence in his or her area and must be able to deal effectively with crises and to provide advice and counsel to the Chief Executive Officer and his or her peers.

 

  6.

Directors should have proven business acumen, serving or having served as a chief executive officer, chief operating officer or chief financial officer of a significant, complex organization, or other senior

 

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  leadership role in a significant, complex organization; or serving or having served in a significant policy-making or leadership position in a well-respected, nationally or internationally recognized educational institution, not-for-profit organization or governmental entity; or having achieved a widely recognized position of leadership in the director’s field of endeavor, which adds substantial value to the oversight of material issues related to the company’s business.

 

  7. Directors must be committed to understanding the company and its industry; to regularly preparing for, attending and actively participating in meetings of the Board of Directors and its committees; and to ensuring that existing and future individual commitments will not materially interfere with the director’s obligations to the company. The number of other board memberships, in light of the demands of a director nominee’s principal occupation, should be considered, as well as travel demands for meeting attendance.

 

  8. Directors must understand the legal responsibilities of board service and fiduciary obligations. All members of the Board of Directors should be financially literate and have a sound understanding of business strategy, business environment, corporate governance and board operations. At least one member of the Board must satisfy the requirements of an “audit committee financial expert.”

 

  9. Directors must be self-confident and willing and able to assume leadership and collaborative roles as needed. They need to demonstrate maturity, valuing board and team performance over individual performance and respect for others and their views.

 

  10. New director nominees should be able to and committed to serve as a member of the Board of Directors for an extended period of time.

 

  11. While the diversity, the variety of experiences and viewpoints represented on the Board of Directors should always be considered, a director nominee should not be chosen nor excluded solely or largely because of race, color, gender, national origin or sexual orientation or identity. In selecting a director nominee, the committee will focus on any special skills, expertise or background that would complement the existing Board of Directors, recognizing that the company’s businesses and operations are diverse and global in nature.

 

  12. Directors should have reputations, both personal and professional, consistent with the company’s image and reputation.

The Governance and Nominating Committee will make a preliminary review of a prospective candidate’s background, career experience and qualifications based on available information or information provided by an independent search firm that identifies or provides an assessment of a candidate. If a consensus is reached by the committee that a particular candidate would likely contribute positively to the Board of Directors’ mix of skills and experiences, and a Board of Directors vacancy exists or is likely to occur, the candidate will be contacted to confirm his or her interest and willingness to serve. The committee will conduct interviews and may invite other Board of Directors members or senior executives to interview the candidate to assess the candidate’s overall qualifications. The committee will consider the candidate against the criteria it has adopted in the context of the current composition and needs of the Board of Directors and its committees.

At the conclusion of this process, the committee will reach a conclusion and report the results of its review to the full Board of Directors. The report is expected to include a recommendation whether the candidate should be nominated for election to the Board of Directors. This procedure will be the same for all candidates, including director candidates identified by stockholders.

The Governance and Nominating Committee may retain the services of a search firm that specializes in identifying and evaluating director candidates.

Corporate Governance Principles

Our Board of Directors is expected to adopt a set of Corporate Governance Guidelines in connection with the separation to assist it in guiding our governance practices. These practices will be reviewed annually by the Governance and Nominating Committee in light of changing circumstances in order to continue serving Alcoa Corporation’s best interests and the best interests of our stockholders.

 

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Communicating with our Board of Directors

Stockholders and other interested parties wishing to contact the Lead Director or the non-management directors as a group may do so by sending a written communication to the attention of the Lead Director c/o Alcoa Corporation, Corporate Secretary’s Office, 390 Park Avenue, New York, New York 10022-4608. To communicate issues or complaints regarding questionable accounting, internal accounting controls or auditing matters, send a written communication to the Audit Committee c/o Alcoa Corporation, Corporate Secretary’s Office, 390 Park Avenue, New York, New York 10022-4608. Alternatively, you may place an anonymous, confidential, toll free call in the United States to Alcoa Corporation’s Integrity Line at 1-800-346-7319. A listing of Integrity Line telephone numbers outside the United States will be available on our website.

Communications addressed to the Board of Directors or to an individual director are distributed to the Board of Directors or to any individual director or directors as appropriate, depending upon the facts and circumstances outlined in the communication. The Board of Directors is expected to ask the Corporate Secretary’s Office to submit to the Board of Directors all communications received, excluding only those items that are not related to its duties and responsibilities, such as junk mail and mass mailings; product complaints and product inquiries; new product or technology suggestions; job inquiries and resumes; advertisements or solicitations; and surveys.

Risk Oversight

The Board of Directors will be actively engaged in overseeing and reviewing the company’s strategic direction and objectives, taking into account (among other considerations) the company’s risk profile and exposures. It will be management’s responsibility to manage risk and bring to the Board of Directors’ attention the most material risks to the company. The Board of Directors will have oversight responsibility of the processes established to report and monitor systems for material risks applicable to the company. The Board of Directors will annually review the company’s enterprise risk management and receive regular updates on risk exposures.

Business Conduct Policies and Code of Ethics

In connection with the separation, we expect to adopt Business Conduct Policies that apply equally to the directors and to all officers and employees of the company, as well as those of our controlled subsidiaries, affiliates and joint ventures. The directors and employees in positions to make discretionary decisions are surveyed annually regarding their compliance with the policies.

The company is also expected to have a Code of Ethics applicable to the Chief Executive Officer, Chief Financial Officer and other financial professionals, including the principal accounting officer, and those subject to it are surveyed annually for compliance with it. Only the Audit Committee will have the authority to amend or grant waivers from the provisions of the company’s Code of Ethics, and any such amendments or waivers will be posted promptly on our website.

 

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DIRECTOR COMPENSATION

Compensation for non-employee directors of Alcoa Corporation will be a mix of cash and equity-based compensation. Mr. Harvey, who will be the sole director employed by Alcoa Corporation immediately following the separation, will not receive any additional compensation for his service as a member of the Board of Directors of Alcoa Corporation.

The table below sets forth the components of compensation for our non-employee directors (to be prorated based on actual service periods) approved by the ParentCo Board of Directors.

 

Annual Compensation Element

   Amount  

Cash Retainer for Non-Employee Directors 1

   $ 120,000   

Annual Equity Award for Non-Employee Directors 2

   $ 120,000 in grant date value   

Other Annual Cash Fees 1

  

•       Chairman Fee

   $ 25,000   

•       Audit Committee Chair Fee (includes Audit Committee Member Fee)

   $ 27,500   

•       Audit Committee Member Fee

   $ 11,000   

•       Compensation and Benefits Committee Chair Fee

   $ 20,000   

•       Other Committee Chair Fee

   $ 16,500   

Stock Ownership Requirement

   $ 750,000   

 

1   Each non-employee director may elect to defer all or part of the cash compensation to the Alcoa Corporation non-employee director deferred compensation plan or to additional restricted stock units.
2   To be granted in the form of restricted stock units with a one-year cliff vesting requirement. Vested restricted stock units will be settled in a lump sum or installments following termination of service on the Alcoa Corporation Board of Directors in accordance with the elections made by non-employee directors.

Cash-settled deferred share units issued under the ParentCo director deferred fee plans to non-employee directors who previously served on the ParentCo Board of Directors will be converted into cash-settled deferred share units relating to Alcoa Corporation common stock in a manner that preserves the aggregate intrinsic value of the units as measured immediately before and immediately after the separation.

 

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COMPENSATION DISCUSSION AND ANALYSIS

As discussed above, Alcoa Corporation is currently part of ParentCo and not an independent company, and its compensation committee has not yet been formed. Decisions regarding the past compensation of Messrs. Harvey, Oplinger, and Collins were made by the Compensation & Benefits Committee of ParentCo (the “ParentCo Compensation Committee”), and decisions regarding the past compensation of Mr. Sigurdsson and Ms. Fisher were made by ParentCo management in accordance with plan results and performance. This Compensation Discussion and Analysis describes the compensation practices of ParentCo as they relate to these executives and also discusses certain aspects of Alcoa Corporation’s anticipated compensation structure following the separation. After separation, Alcoa Corporation’s executive compensation programs, policies, and practices for its executive officers will be subject to the review and approval of Alcoa Corporation’s compensation committee.

For purposes of the following Compensation Discussion and Analysis and executive compensation disclosures, the individuals listed below are collectively referred to as Alcoa Corporation’s “named executive officers.” They are Alcoa Corporation’s chief executive officer, chief financial officer, and, of the other individuals who are expected to be designated as Alcoa Corporation executive officers, the three most highly compensated based on 2015 compensation from ParentCo.

 

    Roy C. Harvey, Alcoa Corporation Chief Executive Officer. Prior to the separation, Mr. Harvey served as Executive Vice President and Group President, Global Primary Products for ParentCo.

 

    William F. Oplinger, Alcoa Corporation Chief Financial Officer. Prior to the separation, Mr. Oplinger served as Executive Vice President and Chief Financial Officer for ParentCo.

 

    Tomas Sigurdsson, Alcoa Corporation Chief Operating Officer. Prior to the separation, Mr. Sigurdsson served as Vice President and Chief Operating Officer—Global Primary Products for ParentCo.

 

    Robert S. Collins, Alcoa Corporation Controller. Prior to the separation, Mr. Collins served as Vice President and Controller for ParentCo.

 

    Leigh Ann Fisher, Alcoa Corporation Chief Administration Officer. Prior to the separation, Ms. Fisher served as Chief Financial Officer—Global Primary Products for ParentCo.

The following sections of the Compensation Discussion and Analysis describe ParentCo’s compensation philosophy, 2015 compensation targets and results, 2015 pay decisions, and policies and practices as they applied to Alcoa Corporation’s named executive officers in 2015.

Compensation Philosophy

ParentCo’s Executive Compensation Philosophy is based on three guiding principles to drive pay-for-performance and shareholder alignment:

 

  A. Target salary compensation at median, while using incentive compensation (“IC”) and long-term incentive (“LTI”) to reward exceptional performance and to attract and retain exceptional talent.

 

  B. Make equity the most dominant portion of total compensation for senior executives and managers, increasing the portion of performance-based equity with the level of responsibility.

 

  C. Choose IC and LTI metrics that focus management’s actions on achieving the greatest positive impact on ParentCo’s financial performance.

 

A. Target salary compensation at median, while using IC and LTI to reward exceptional performance and to attract and retain exceptional talent

To attract, motivate, align and retain high performing executives, ParentCo designs its compensation programs at median base salary levels while providing cash and equity incentives that motivate exceptional

 

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performance. Given the demanding leadership challenges confronting the aluminum industry in recent years, the prospect of an upside in IC and LTI has proven to be a major retention factor and has had a demonstrable impact on motivating managers to overcome those obstacles and achieve strong operational and financial performance. To dis-incentivize below-target performance, ParentCo sets thresholds that eliminate payouts for missing targets by more than a small margin. While the reduced payout slope from target to minimum is steep, ParentCo establishes payout multiples for overachievement that can be earned only with significant upside performance.

To help determine total direct compensation for the named executive officers in 2015, ParentCo used a peer group consisting of companies who participated in the Towers Watson Executive Compensation survey with revenues between $15 billion and $50 billion (excluding financial companies) to help estimate competitive compensation. This peer group reflected the broad-based group of companies with which ParentCo competes for non-CEO executive talent. The data from this peer group is considered by ParentCo in establishing executive compensation and to ensure that ParentCo provides and maintains compensation levels in line with the market, and to attract, retain and motivate employees. The ParentCo Compensation Committee’s independent compensation consultant has reviewed and endorsed this peer group. For 2015, 137 companies met the revenue and industry criteria and were used to compare compensation for all of the executive level positions; see “Attachment A” below.

For future Alcoa Corporation compensation benchmarking, Alcoa Corporation expects to continue to use a broader based peer group for our non-CEO executive positions and a more narrow industry-focused peer group for the CEO.

 

B. Make equity the most dominant portion of total compensation for senior executives and managers, increasing the portion of performance-based equity with the level of responsibility.

The target pay mix in 2015 for the named executive officers was as follows:

 

     Base Salary     Annual Cash
Incentive
    Performance
Shares
    Stock Options     Time-Vested
RSUs
 

Roy Harvey

     22     18     48     12     0

Bill Oplinger

     18     18     51     13     0

Tomas Sigurdsson

     31     21     24     12     12

Leigh Ann Fisher

     40     22     19     0     19

Robert Collins

     34     19     23     0     24

For Mr. Harvey and Mr. Oplinger, who were executive officers of ParentCo in 2015, 80% of the 2015 equity award was granted in the form of performance-based restricted share units and 20% was granted as stock options. For Mr. Sigurdsson, Mr. Collins and Ms. Fisher, who were in their prior roles for ParentCo in 2015, 50% of the 2015 equity awards was granted in the form of performance-based restricted share units and 50% was granted as either time-vested stock options or restricted share units.

 

C. Choose IC and LTI metrics that focus management’s actions on achieving the greatest positive impact on ParentCo’s financial performance

Supporting the IC and LTI targets that ParentCo sets each year is a comprehensive approach for establishing business plan targets, which are publicly disclosed by ParentCo. The business plan targets have been consistent with ParentCo’s overall strategy to build a globally competitive commodity business while profitably growing ParentCo’s value-add businesses.

In January 2014, ParentCo established three-year targets to be reached by the end of 2016. (ParentCo does not set new three-year targets each year.) Because of the diversity of ParentCo’s businesses, these three-year targets have taken varying forms for the upstream, midstream and downstream businesses. For example, because the Global Primary Products business largely competes in commodity markets, the focus has been on lowering

 

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costs. Targets are set to lower ParentCo’s position on the industry cost curves by the year in which the targets end. The midstream and downstream businesses have targets for profitable growth. The profitability targets for the midstream business are adjusted EBITDA/MT and for the downstream business are adjusted EBITDA Margin Percentage and revenue growth .

The three-year targets are set based on consideration of the following parameters:

 

  1. Market/competitive positioning, both current and projected;

 

  2. Competitor financial benchmarking;

 

  3. Market conditions, both current and projected; and

 

  4. Historical performance.

Annually, ParentCo conducts a rigorous, iterative operational planning process that considers a series of factors:

 

  1. Progress toward attainment of three-year targets;

 

  2. Current and projected market conditions, which are based on assumptions about key financial parameters, such as foreign currency exchange rates (“FX”) and prices of metal, energy and raw materials;

 

  3. Capital and operational projects to be completed during the year that increase ParentCo’s competitiveness, open new markets or drive additional profitability; and

 

  4. Historical performance and each business’ ability to overcome headwinds through ongoing productivity improvements.

Each business plan is evaluated using a number of financial and non-financial metrics, including revenue growth, gross and net productivity, overhead expenditures, capital efficiency (both working capital and capital expenditures), overall profitability, cash generation (both cash from operations and free cash flow (“FCF”)), safety, quality and customer metrics. The summation of these group plans then is compared with the financial position of ParentCo in the aggregate to determine whether the targets meet ParentCo’s financial ratio and cash requirements. The final result is the annual ParentCo Business Plan.

This rigorous process allows ParentCo to establish one-year and three-year business plan goals on which to base its IC and LTI targets. The LTI target is structured so that ParentCo can monitor and incentivize progress each year of the three-year plan, a critical factor given the volatility of the pricing of the aluminum commodity and of overall business conditions.

The consistent progress toward achieving the three-year business plan goals demonstrates that the annual business plans, on which the IC and LTI targets are based, consistently drive long-term value for ParentCo’s shareholders. The tangible evidence of this can be found in the multi-year productivity gains, reductions in days working capital and increases in profitable growth that have facilitated ParentCo’s transformation strategy.

ParentCo’s choice of metrics is directly related to the major priorities of ParentCo’s businesses and is aligned with ParentCo’s shareholders.

 

    Financial metrics represent 80% of the total IC targets. ParentCo has consistently chosen IC metrics that motivate high performance in the current environment and LTI metrics that are aligned with its long-term strategy. Because liquidity became the major concern for ParentCo during the economic downturn, FCF was a major financial IC metric beginning in 2009. Since 2014, ParentCo’s financial IC metrics are 40% for after-tax income to represent the investor priorities for profitable growth; 33% for FCF to maintain a focus on liquidity; and 7% for Average Year-to-Date Days Working Capital (“DWC”) to reduce financing costs by managing inventory, receivables and payables.

 

   

Non-financial metrics represent 20% of the IC target. Safety, environmental stewardship and diversity are intrinsic to ParentCo’s values and have an impact on ParentCo’s business performance.

 

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The safety metric focuses on reducing the number of serious injuries. ParentCo’s environmental metric drives reduction of carbon dioxide emissions, strengthening ParentCo’s energy efficiency. ParentCo’s diversity metric tracks representation of women globally and minorities in the United States, reinforcing ParentCo’s goal to draw on every talent pool to attract the best and brightest to ParentCo and to build on diverse viewpoints.

 

    Long term metrics . ParentCo’s LTI metrics consist of 75% for EBITDA margin growth and 25% for revenue growth to reinforce its long-term objective of profitable growth in ParentCo’s value-add businesses.

To drive management behavior that maximizes financial performance and value, ParentCo holds managers accountable for factors they can directly control. Because ParentCo’s compensation philosophy is not to reward or punish management for factors that are outside their control, ParentCo normalizes for those factors. As part of the financial planning process for an upcoming year, ParentCo establishes assumptions for the LME price of aluminum and currency exchange rates, both of which can have significant effects on financial results and neither of which management performance can impact.

LME: Without normalization, in years when the LME rises rapidly relative to plan, such as 2014, IC and LTI would be less effective as a performance incentive because management would receive an unearned benefit. When the LME price of aluminum falls dramatically, as it did in 2015, failure to normalize would demotivate employees by putting any IC and LTI awards out of reach for reasons beyond their control. Instead, ParentCo’s use of normalization enables ParentCo to drive operational and financial performance, particularly in recent years of volatile LME aluminum prices. While normalization reinforces management accountability and pay-for-performance, the significant equity portion of executive compensation reinforces management’s alignment with shareholders’ experience as investors in ParentCo.

Currency Exchange Rates: Since ParentCo’s revenues are largely U.S. dollar-denominated, while costs in non-U.S. locations are largely denominated in local currency, the volatility of currency exchange rates also has had a significant impact on ParentCo’s earnings. As ParentCo’s commodities are traded in U.S. dollars, ParentCo has typically seen an inverse correlation to FX. Therefore, to avoid double counting, the normalization for the commodity price swings needs to be corrected by concurrent normalization of foreign exchange.

Because ParentCo generally does not hedge foreign exchange or LME fluctuations, normalization is a practice that ParentCo has been following for many years. As a result, ParentCo’s management has remained highly focused on achieving and surpassing operational and strategic goals that benefit ParentCo’s top- and bottom-line performance.

Uncontrollable market forces have significant impact on ParentCo’s financial results

 

Market Force

   Benchmark   2015 Sensitivity for
Net Income ($M)
 

LME

   +/- $100/MT   +/- $ 190   

FX

   USD +/- 10%   +/- $ 225   

2015 Target Setting and Results

2015 Annual Cash Incentive Compensation

ParentCo’s corporate annual cash incentive compensation plan for 2015 was designed to achieve operating goals set at the beginning of the year.

 

    80% of the cash incentive formula was based on achieving financial targets for adjusted free cash flow (33%), adjusted net income (40%) and average year-to-date DWC (7%); and

 

    20% of the formula was based on achieving safety, environmental and diversity targets.

 

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After establishing the targets for the financial measures, the payout ranges were set above and below the target as shown in the table below:

 

    The steep curve to achieve 100% performance is intended to drive maximum effort.

 

    The payouts above target are aligned with achievement levels that ensure a strong return on the additional incentive compensation paid.

 

    ParentCo believes the challenging market environment for commodities and unexpected integration challenges adversely impacted ParentCo’s performance in 2015.

2015 ParentCo Annual Cash Incentive Compensation Plan Design, Targets and Results

 

    Defined Corporate Level Payout
Percentage
                         
   

Metric

  0%     50%     100%
(Target)
    150%     200%     Result     IC
Result
    Weighting     Formula
Award
 
($ in millions)        

Financial Measures 1

  Adjusted Free Cash Flow                 
    $ 350      $ 675      $ 1,000      $ 1,330      $ 1,800      $ 625        42     33     14.0
  Net Income                  
    $ 900      $ 1,104      $ 1,307      $ 1,507      $ 1,807      $ 1,135        58     40     23.1
  Average DWC                  
      33.1        32.6        32.1        31.1        30.1        33.3        0     7     0.0
                   

 

 

 
                      37.0
                   

 

 

 

Non-Financial Measures

  Safety 2                  
  DART       0.304        0.296          0.289        0.314        0     2.5     0.0
  FSI Reduction       -1        -4          -7        -28        200     2.5     0.0 % 2  
  Environment 3                  
 

CO 2 Emissions Reduction (tons)

      166,000        307,000          502,000        250,497        80     5.0     4.0
  Diversity 4                  
 

Executive Level Women, Global

      22.0     22.3       23.3     22.8     150     2.5     3.8
 

Executive Level Minorities, U.S.

      16.6     16.9       17.9     16.8     83     2.5     2.1
 

Professional Level Women, Global

      27.6     27.9       28.9     28.3     140     2.5     3.5
 

Professional Level Minorities, U.S.

      18.1     18.4       19.4     19.0     160     2.5     4.0
                   

 

 

 
                      13.3
                 

 

 

   

 

 

 

IC RESULT (CALCULATED)

                    100     54.3
                 

 

 

   

 

 

 

INCREASE IN PAYOUT AS DETERMINED BY COMMITTEE

                      34.2
             

 

 

 

FINAL IC TOTAL

                      88.5
                 

 

 

 

Foreign currency exchange rates and the price of aluminum on the LME were normalized to plan rates and prices to eliminate the effects of fluctuation in such rates and prices, both of which are factors outside management’s control. See “Attachment C—Calculation of Financial Measures” to the ParentCo’s Annual Proxy Statement on Definitive Schedule 14A for ParentCo’s 2016 Annual Meeting of Shareholders for calculation of financial measures and for the definition of Adjusted Free Cash Flow and Adjusted Net Income. The threshold payout is 0% for the financial metrics and 50% for the non-financial metrics. The maximum payout for each metric is 200%. For performance between defined levels, the payout is interpolated.

 

  1. 80% of the cash incentive formula was based on achieving financial targets for adjusted free cash flow, adjusted net income and average year-to-date DWC. We achieved a payout of 37.0% for financial metrics in 2015.

 

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  2. Safety targets included reductions in (A) the DART (Days Away, Restricted and Transfer) rate, which measures injuries and illnesses that involve one or more days away from work per 100 full-time workers and days in which work is restricted or employees are transferred to another job due to injury per 100 full-time workers and (B) the number of FSI (Fatality and Serious Injury) incidents. Performance against the FSI metric exceeded the maximum, but the payout was reduced to 0% because of work-related fatalities during the year.

 

  3. The environmental target highlights ParentCo’s commitment to reduce CO2 emissions in 2015 and make progress against ParentCo’s 2030 environmental goals. Performance against this metric was below target at 80% in 2015.

 

  4. Diversity targets were established to increase the representation of executive and professional women on a global basis and to increase the representation of minority executives and professionals in the United States. In 2015, ParentCo exceeded three of the four representation targets, falling short at the executive level for minorities.

2015 Equity Awards: Stock Options, Restricted Share Units and Performance-Based Restricted Share Units

Long-term stock incentives are performance based . ParentCo grants long-term stock awards to align executives’ interests with those of shareholders, link compensation to stock price appreciation over a multi-year period and support the retention of our management team. In January 2015, stock awards were made to all the named executive officers. The 2015 annual equity awards to the named executive officers were in the form of performance-based restricted share units and either time-vesting stock options or restricted share units.

 

    ParentCo believes that stock options further align management’s interests with those of ParentCo’s shareholders because the options have no value unless the stock price increases. Stock options vest ratably over a three-year period (one-third vests each year on the anniversary of the grant date) and if unexercised, will expire the earlier of ten years from the date of grant or five years after retirement.

 

    Time-vested restricted share units vest on the third anniversary of the grant date, providing a multi-year retention incentive the value of which is linked to the value of ParentCo’s stock.

 

    For performance-based restricted share units, performance is measured as the three-year average achievement against annual targets. Earned performance-based restricted share units will be converted into shares of common stock three years from the date of the grant if the executive is still actively employed. The number of performance-based restricted share units earned at the end of the three-year plan has been and will be determined as follows, based on the average of the annual payout percentages over the three-year period:

 

    1/3 of the award was based on performance against the 2015 targets (see table below)

 

    1/3 of the award will be based on performance against the targets to be established for 2016, and

 

    1/3 of the award will be based on performance against the targets to be established for 2017.

For each year, a minimum performance level will also be established. For performance below that level, the portion of the award subject to performance criteria in that year will be forfeited and will not carry over into any future performance period. As with the annual cash IC plan, ParentCo uses a steep curve to achieve 100% performance, which is intended to drive maximum effort.

Upon separation, outstanding equity awards held by the named executive officers will be converted into equity awards relating to Alcoa Corporation stock with the same terms and conditions, including vesting and exercise periods.

 

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2015-2017 Performance-Based Equity Design and Results for 2015*

 

Performance Measure (%)

   Payout Percentage     2015
Result
    Plan
Result
    Weighting     % of 1/3 of
Target Award
earned in 2015
 
   0%     50%     100%
(Target)
    150%     200%          

Revenue Growth

     10.2     11.2     12.2     13.7     16.2     6.80     0.0     25     0.0

Adjusted EBITDA Margin

     14.2     15.6     16.9     18.8     21.9     16.74     93.8     75     70.4

TOTAL

                   100     70.4
                

 

 

   

 

 

 

 

* The figures in the 2015 Result and Plan Result columns were rounded to one decimal place for the purposes of the table presentation. However, the figures in the % of 1/3 of Target Award earned in 2015 column were calculated based on the unrounded figures.

Discussion of 2015 Targets & Results

ParentCo set 2015 financial targets that drive long-term shareholder value. ParentCo has a rigorous process to develop the financial targets on which it bases its IC and LTI targets. Given the impact of a variety of external factors affecting ParentCo’s financial performance, the target-setting process must take into account the complexities of the business and the multiple external factors that impact it. As ParentCo has successfully addressed the challenging situation facing the aluminum industry during the past seven years, its incentive targets have played a major role in driving ParentCo’s year-over-year improvements in underlying operational fundamentals and financial performance. The 2015 IC and LTI financial targets were established to continue that progress. Following the review of ParentCo’s 2015 financial plan by the ParentCo Board of Directors in February 2015, the ParentCo Compensation Committee approved the metrics and targets after assessing the relevancy of the metrics to ParentCo’s strategy and value creation and the difficulty and appropriateness of the targets to drive performance.

Comparison of 2015 incentive targets to 2014 targets and results . As discussed above, in its compensation plan, ParentCo normalizes for the impact of fluctuations in the LME price of aluminum and FX due to the volatility and magnitude of their effect on key metrics. To provide comparability across years of the financial targets and results, underlying LME aluminum price and currency assumptions need to be consistent in the comparison years.

The 2014 targets as reported in the ParentCo 2015 proxy statement were set in January 2014 based on LME and foreign exchange assumptions in the 2014 financial plan. The 2014 results were also normalized to the 2014 plan assumptions. To compare the 2015 targets to the 2014 targets and results, as presented in the table below, the 2014 targets and results have been normalized to the LME and FX assumptions in the 2015 financial plan.

It is important to remember that the plan assumptions for LME and foreign exchange do not make the targets harder or easier because the results are normalized back to the plan assumptions. Whether actual LME or FX exceed or fall short of plan assumptions utilized in setting targets, those impacts are normalized out of the results in the compensation plan. In 2015, when actual LME or FX differed substantially from plan assumptions, that impact was normalized out of the result, raising it for purposes of IC and LTI awards.

 

     Annual Incentive Metrics      Long-Term Incentive Metrics  
     Free Cash Flow
(FCF) 1
     Adjusted
Net Income 2
     Average
YTD DWC
     Revenue
Growth
    Adjusted
EBITDA Margin 2
 

2014 Target

             

As reported in 2015 Proxy

   -$ 210M       $ 317M         28.9         2.7     11.6

Normalized for 2015 Plan LME/Fx

    $ 319M       $ 600M         30.0         2.7     14.5

2014 Result

             

As reported in 2015 Proxy

    $ 21M       $ 627M         30.2         2.7     13.0

Normalized for 2015 Plan LME/Fx

    $ 550M       $ 910M         29.9         2.8     16.0

2015 Target

    $ 1,000M       $ 1,307M         32.1         12.2     16.9

 

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1 Includes Saudi Arabia joint venture investment
2 For definition of Adjusted Net Income and Adjusted EBITDA, see “Attachment C—Calculation of Financial Measures” to the ParentCo’s Annual Proxy Statement on Definitive Schedule 14A for ParentCo’s 2016 Annual Meeting of Shareholders.

The annual targets for the IC and LTI metrics interact with ParentCo’s 3-year business plan. The targets take into account the three-year targets for the businesses and market conditions.

 

  The 2015 Adjusted Free Cash Flow target was aggressive relative to the 2014 target and result . The target was set as ParentCo was challenged to continue working capital improvements and significant growth in earnings. The FCF target was not hit in 2015, largely due to the decline in earnings.

 

  The 2015 Adjusted Net Income target was higher than both the 2014 target and result despite expectations of lower regional premiums, energy sales and higher energy costs. This challenging target required management to achieve significant improvements in sales volume and productivity in 2015. The target was not achieved as lower than expected regional premiums and alumina prices, along with volume and pricing headwinds, could not be overcome by ParentCo’s substantial pre-tax productivity improvements of $1.2 billion, which exceeded the $900 million target.

 

  The 2015 Average Year-to-Date DWC target was set higher than both the 2014 target and result. When excluding the impact of acquisitions, the 2015 target was set at an improvement of almost one day over 2014. Due to the aggressiveness of the target and previously discussed higher inventory requirements as the portfolio shifted toward high-growth, value-add businesses, ParentCo missed the DWC target, and this metric did not contribute to the 2015 IC payout. Nonetheless, the 2015 result was in line with the prior year result when excluding the impact of acquisitions.

 

  The 2015 Revenue Growth target was set well above the target and achieved result in 2014 . This target was especially challenging given the projected lower revenue associated with expected lower regional premiums as well as the significant growth challenge inherent in the target for ParentCo’s base business and recent acquisition of Firth Rixson. This target was not met in 2015 due to lower than expected regional premiums and revenue misses in ParentCo’s value-add businesses driven by acquisitions, aerospace pricing pressures and adverse conditions in certain markets.

 

  The 2015 Adjusted EBITDA Margin target represents an improvement over both the 2014 target and 2014 result especially in light of the planned headwinds discussed in the adjusted net income section above. This result was just under target at 16.7% as strong productivity could not fully offset the headwinds.

Contribution of Global Primary Products business. The Global Primary Products business, which will primarily constitute the business of Alcoa Corporation upon separation, delivered $901 million in adjusted after-tax operating income, despite substantial headwinds as alumina spot prices fell 43% and metal prices fell 28% in 2015. In face of these headwinds, ParentCo announced actions in 2015 to close or curtail approximately 25% of ParentCo’s operating smelter capacity and approximately 20% of ParentCo’s operating refining capacity, resulting in a decrease of 48% of operating smelter capacity and 36% of operating refinery capacity. ParentCo also delivered significant productivity improvements in ParentCo operations, increased higher margin differentiated products to 67% of total casting product shipments, and successfully converted 75% of ParentCo’s third-party smelter grade alumina shipments to the Alumina Price Index or spot price, delinking from LME based pricing. All these actions further contributed to strengthening the competitiveness of ParentCo’s upstream business. Messrs. Harvey and Sigurdsson and Ms. Fisher were engaged in ParentCo’s Global Primary Products business, and their annual incentive compensation was based, in part or in whole, on its performance, as discussed below.

Determination of final IC and LTI payouts.   In determining the IC and LTI payouts, the ParentCo Compensation Committee applied the principles of normalization, and also approved certain adjustments recommended by ParentCo management for items or assumptions not anticipated in the plan . For 2015, on a net basis, the normalizations and adjustments increased IC awards by 35.7% points and LTI awards by 64.8% points

 

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compared to formula results before the normalizations and adjustments. Following are the normalizations and adjustments to the 2015 financial results for incentive purposes:

 

     Annual Incentive Metrics ($M)     Long-Term Incentive Metrics ($M)  
     Free Cash Flow
(FCF)*
    Adjusted
Net Income**
        Revenue         Adjusted
  EBITDA**  
 

Preliminary Result

    $ 375       $ 787       $ 22,534      $ 3,248   

Normalizations & Adjustments

        

1. LME & Currency 1

   ($ 5    $ 234       $ 1,073      $ 384   

2. Premiums 2

    $ 117       $ 117       $ 209      $ 170   

3. Special items 3

    $ 155      ($ 3   ($ 398   $ 118   

5. Deferred equity contribution 4

   ($ 17     N/A        N/A        N/A   

Final Result

    $ 625       $ 1,135       $ 23,418      $ 3,920   

 

* Includes Saudi Arabia joint venture investment
** For definition of Adjusted Net Income and Adjusted EBITDA, see “Attachment C—Calculation of Financial Measures” to the ParentCo’s Annual Proxy Statement on Definitive Schedule 14A for ParentCo’s 2016 Annual Meeting of Shareholders.
1. The impact of the LME and currency fluctuations in 2015 against plan was a benefit to ParentCo’s Free Cash Flow and was a detriment to the other metrics. Under the practice described above, there was a negative normalization applied to the Free Cash result and a positive normalization for each of the other three metrics.
2. Because realized aluminum premiums came in well below plan assumptions, ParentCo management recommended, and the ParentCo Compensation Committee approved, a positive adjustment to all four metrics.
3. ParentCo management recommended, and the ParentCo Compensation Committee approved, adjustments for certain special items. For details, see “Attachment C—Calculation of Financial Measures” to the ParentCo’s Annual Proxy Statement on Definitive Schedule 14A for ParentCo’s 2016 Annual Meeting of Shareholders .
4. ParentCo deferred some Saudi Arabia joint venture equity contributions in 2015, which were adjusted out of the FCF results. The deferred contributions had no impact on the results for the other three metrics.

In determining these normalizations and other adjustments, the ParentCo Compensation Committee made every effort to assure that the incentives are designed to motivate management to maximize performance on factors they can control and that IC and LTI payouts are adjusted—up and down—for uncontrolled and unplanned impacts, such as LME and FX changes. In doing so, the ParentCo Compensation Committee maintained its focus on incentivizing and rewarding exceptional performance that delivers value to ParentCo’s shareholders over time.

In determining the final 2015 IC/LTI payouts, the ParentCo Compensation Committee considered significant management performance not captured by the targets. This included the acceleration in late 2014 of ParentCo’s transformation strategy with the acquisitions of Firth Rixson and continued in 2015 with the acquisitions of TITAL and RTI, investments that dramatically expanded ParentCo’s presence in high growth aerospace markets. The culmination of the transformation provided the foundation to announce in the third quarter of 2015 the separation of ParentCo into two public companies.

The ParentCo Compensation Committee recognized that those decisions will have a strong positive impact on ParentCo’s long term financial performance and return to shareholders and that the implementation of those decisions required intense management focus and flexibility, making achievement of ParentCo’s 2015 aggressive financial targets significantly more challenging. The ParentCo Compensation Committee considered that two of the three Groups nonetheless exceeded their aggressive targets and that the EPS management team, which missed

 

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its aggressive financial targets, exceeded its target for synergies from the acquisitions and has been skillfully integrating the three global acquisitions for the long term benefit of shareholders of ParentCo, with the rapid achievement of securing $10 billion in multi-year aerospace contracts.

Therefore, while deciding to provide below target IC and LTI payouts, the ParentCo Compensation Committee acknowledged ParentCo’s solid 2015 financial performance in a year of significant declines in the price of aluminum and the extraordinary circumstances resulting from major strategic decisions and actions that will have a positive impact on ParentCo’s future. Looking to 2016, the ParentCo Compensation Committee recognized the importance of retaining exceptional leaders and motivating the 4000 managers and employees who are entitled to incentive compensation to be fully engaged to capture the many opportunities facing ParentCo as it prepares for the separation and executes on the significant new contracts recently awarded. To address those exceptional circumstances, the ParentCo Compensation Committee approved a 24.8% increase ($16.8 million) to the attained IC pool, resulting in a final below target IC payout of 88.5%. No change was made to the 2015 70.4% below target LTI payout.

2015 Pay Decisions

The ParentCo Compensation Committee uses its business judgment to determine the appropriate compensation targets and awards for the named executive officers, in addition to assessing several factors that include:

 

    Individual, Group, and Corporate performance;

 

    Market positioning based on peer group data (described below);

 

    Complexity and importance of the role and responsibilities;

 

    Aggressiveness of targets;

 

    Signing of contracts that will positively impact future year’s performance;

 

    Unanticipated events impacting target achievement;

 

    Retention of key individuals in a competitive talent market; and

 

    Leadership and growth potential.

Chief Executive Officer—Mr. Harvey. In January 2015, Mr. Harvey was granted performance-based restricted share awards valued at $1,100,318 and stock options valued at $275,039, in his then role at ParentCo as Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability. This was above the target award as a result of his strong performance review in 2014. Mr. Harvey’s annual incentive compensation award for 2015 of $454,307 was above target at 109.8%. The award was based 50% on the corporate incentive compensation plan result of 88.5%, 50% on the incentive compensation plan results for the Global Primary Products (GPP) group, which he has led since his appointment to the position of Executive Vice President and Group President—Global Primary Products in October 2015, and an individual multiplier of 120% based on his performance review for 2015. The GPP group’s incentive compensation plan for 2015 had the same design as the corporate plan and similar financial metrics. The GPP group’s incentive compensation plan result for 2015 was 107.3% based on the group’s contribution to the overall corporate results. Mr. Harvey received a 1.4% salary increase effective October 5, 2015 upon his promotion to his new role.

Executive Vice President and Chief Financial Officer—Mr. Oplinger. In January 2015, in his role as Chief Financial Officer of ParentCo, Mr. Oplinger was granted performance-based restricted share awards valued at $1,600,406 and stock options valued at $400,020, which was above the target award due to his strong performance in 2014. The 24.2% increase in total grant-date value of his January 2015 award was also more commensurate with his increased level of experience in his role and to bring his total direct compensation closer to the median of the peer group. Mr. Oplinger’s annual incentive compensation award for 2015 of $479,375 was below target at 88.5% due to the corporate incentive compensation plan result of 88.5% and an individual

 

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multiplier of 100% based on his performance review for 2015. Mr. Oplinger received a 10% salary increase effective March 1, 2015 based on his 2014 performance as Chief Financial Officer and to bring his salary closer to the median of the peer group.

Executive Vice President and Chief Operating Officer—Mr. Sigurdsson. In January 2015, in his ParentCo role of Chief Operating Officer—Global Primary Products, Mr. Sigurdsson was granted performance-based restricted share awards valued at $330,282, stock options valued at $166,150, and time-vesting restricted share units valued at $165,141, which was above the target award based on his strong performance review in 2014. The total grant-date value of his January 2015 award was the same as the prior year. Mr. Sigurdsson’s annual incentive compensation award for 2015 of $340,635 was above target at 118% due to the GPP group’s incentive compensation plan result of 107.3% and an individual multiplier of 120% based on his performance review for 2015.

Controller—Mr. Collins. In January 2015, in his role as Controller of ParentCo, Mr. Collins was granted performance stock awards valued at $202,772 and time-vesting restricted share units valued at $222,772, which was above the target award due to his strong performance review in 2014. Mr. Collins’ annual incentive compensation award for 2015 of $189,985 was above target at 110.6% due to the corporate incentive compensation plan result of 88.5% and an individual multiplier of 125% based on his performance review for 2015. Mr. Collins received a 4.0% salary increase effective March 1, 2015 based on his 2014 performance.

Chief Administration Officer—Ms. Fisher. In January 2015, in her ParentCo role as Chief Financial Officer—Global Primary Products, Ms. Fisher was granted performance stock awards valued at $165,452 and time-vesting restricted share units valued at $165,452, which was above the target award based on her strong performance review in 2014. Ms. Fisher’s annual incentive compensation award for 2015 of $230,629 was above target at 122.4%. The award was based 50% on the corporate IC plan result of 88.5%, 50% on the Global Primary Products plan result of 107.3%, and an individual multiplier of 125% based on her performance review for 2015. Ms. Fisher received a 7.5% salary increase effective March 1, 2015 based on her 2014 performance and in order to bring her salary closer to the median of the peer group.

Compensation Policies and Practices

Highlighted below are certain executive compensation practices, both the practices ParentCo has implemented to incentivize performance and certain other practices that ParentCo has not implemented because ParentCo does not believe they would serve shareholders’ long-term interests. These policies and practices apply to ParentCo, and it is currently anticipated that all of them will be adopted by Alcoa Corporation as well.

What ParentCo Does

Pay for Performance. ParentCo links its executives’ compensation to measured performance in key financial and nonfinancial areas. As noted above, performance against rigorous adjusted free cash flow, average year-to-date DWC, adjusted net income, adjusted EBITDA margin, revenue growth, safety, environmental, and workplace diversity targets is measured in determining compensation. These metrics, coupled with the individual performance multipliers, incentivize individual, business group, and corporate performance. ParentCo’s strategic priorities are reflected in these compensation metrics.

Consider Peer Groups in Establishing Compensation. ParentCo’s aluminum industry peers do not provide an adequate basis for compensation comparison purposes because there are too few of them, they are all located outside of the United States and they do not disclose sufficient comparative compensation data. ParentCo uses Towers Watson’s broad-based survey data for companies with revenues between $15 billion and $50 billion (excluding financial companies) to help estimate competitive compensation for executive level positions (other than that of the ParentCo CEO), including the named executive officers. ParentCo targets its compensation structure at the median of this group of companies.

 

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Review Tally Sheets. The ParentCo Compensation Committee reviews tally sheets that summarize various elements of historic and current compensation for each named executive officer of ParentCo in connection with making annual compensation decisions. This information includes compensation opportunity, actual compensation realized and wealth accumulation. ParentCo has found that the tally sheets help to synthesize the various components of ParentCo’s compensation program in making decisions.

Maintain Robust Stock Ownership Guidelines. ParentCo’s stock ownership requirements further align the interests of management with those of shareholders by requiring executives to hold substantial equity in ParentCo until retirement. ParentCo’s stock ownership guidelines require that the ParentCo CEO retain equity equal in value to six times his base salary and that each of the other ParentCo named executive officers retain equity equal in value to three times base salary. These guidelines reinforce management’s focus on long-term shareholder value and commitment to ParentCo. Until the stock ownership requirements are met, each executive is required to retain until retirement 50% of shares acquired upon vesting of restricted share units or upon exercise of stock options that vest after March 1, 2011, after deducting shares used to pay for the option exercise price and taxes. Unvested restricted share units, unexercised stock options and any stock appreciation rights do not count towards meeting the stock ownership requirement.

Schedule and Price Stock Option Grants to Promote Transparency and Consistency. ParentCo grants stock options to its named executive officers at a fixed time every year—generally the date of the ParentCo Board and Committee meetings in January. Such meetings occur after ParentCo releases earnings for the prior year and the performance of ParentCo for that year is publicly disclosed. The exercise price of employee stock options is the closing price of ParentCo stock on the grant date, as reported on the New York Stock Exchange.

Maintain Clawback Policies Incorporated into ParentCo Incentive Plans. The 2009, 2013 and 2016 ParentCo Stock Incentive Plans, the Incentive Compensation Plan for annual cash incentives and the ParentCo Internal Revenue Code Section 162(m) Compliant Annual Cash Incentive Compensation Plan each contain provisions permitting recovery of performance-based compensation.

Apply Double-Trigger Equity Vesting in the Event of a Change in Control. Awards granted under the 2009 ParentCo Stock Incentive Plan after February 15, 2011 and all awards granted under the 2013 ParentCo Stock Incentive Plan and the 2016 ParentCo Stock Incentive Plan do not immediately vest upon a change in control if a replacement award is provided. The replacement award would vest immediately if, within a two-year period following a change in control, a plan participant is terminated without cause or leaves for good reason. Performance-based stock awards will be converted to time-vested stock awards upon a change in control under the following terms: (i) if 50% or more of the performance period has been completed as of the date on which the change in control has occurred, then the number of shares or the value of the award will be based on actual performance completed as of the date of the change in control; or (ii) if less than 50% of the performance period has been completed as of the date on which the change in control has occurred, then the number of shares or the value of the award will be based on the target number or value.

Pay Reasonable Salaries to Senior Executives. Each ParentCo named executive officer receives a salary that is determined after consideration of the median of the peer group for his or her position, performance and other factors. ParentCo pays salaries to its named executive officers to ensure an appropriate level of fixed compensation that enables the attraction and retention of highly skilled executives and mitigates the incentive to assume highly risky business strategies to maximize annual cash incentive compensation.

Provide Appropriate Benefits to Senior Executives. The ParentCo named executive officers participate in the same benefit plans as ParentCo’s salaried employees. ParentCo provides retirement and benefit plans to senior executives for the same reasons ParentCo provides them to employees—to provide a competitive compensation package that offers an opportunity for retirement, savings and health and welfare benefits. Retirement plans for senior executives, including Alcoa Corporation’s named executive officers, generally pay the same formula amount as retirement plans for salaried employees. See discussion relating to “—2015 Pension Benefits.” .

 

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Maintain a Conservative Compensation Risk Profile. The ParentCo Compensation Committee evaluates the risk profile of ParentCo’s compensation programs when establishing policies and approving plan design, and the ParentCo Board of Directors annually considers risks related to compensation in its oversight of enterprise risk management. These evaluations noted numerous ways in which compensation risk is effectively managed or mitigated, including the following factors:

 

    A balance of corporate and business unit weighting in incentive compensation plans;

 

    A balanced mix between short-term and long-term incentives;

 

    Caps on incentives;

 

    Use of multiple performance measures in the annual cash incentive compensation plan and the equity incentive plan, with a focus on operational targets to drive free cash flow and profitability;

 

    Discretion retained by the ParentCo Compensation Committee to adjust awards;

 

    Stock ownership guidelines requiring holding substantial equity in ParentCo until retirement;

 

    Clawback policies applicable to all forms of incentive compensation;

 

    Anti-hedging provisions in the Insider Trading Policy; and

 

    Restricting stock options to 20% of the value of equity awards to senior officers.

In addition, (i) no business unit has a compensation structure significantly different from that of other units or that deviates significantly from ParentCo’s overall risk and reward structure; (ii) unlike financial institutions involved in the financial crisis, where leverage exceeded capital by many multiples, ParentCo has a conservative leverage policy with a target of keeping the debt-to-capital ratio in the range of 30% to 35%; and (iii) compensation incentives are not based on the results of speculative trading. In 1994, the ParentCo Board of Directors adopted resolutions creating the Strategic Risk Management Committee with oversight of hedging and derivative risks and a mandate to use such instruments to manage risk and not for speculative purposes. As a result of these evaluations, ParentCo has determined that it is not reasonably likely that risks arising from ParentCo’s compensation and benefit plans would have a material adverse effect on ParentCo.

Consider Tax Deductibility When Designing and Administering Incentive Compensation. Section 162(m) of the Internal Revenue Code limits deductibility of certain compensation to $1 million per year for ParentCo’s Chief Executive Officer and each of the three other most highly compensated executive officers (other than the Chief Financial Officer) who are employed at year-end. If certain conditions are met, performance-based compensation may be excluded from this limitation. ParentCo’s shareholder-approved incentive compensation plans are designed with the intention that performance-based compensation paid under them may be eligible to qualify for deductibility under Section 162(m) and, in making compensation decisions, the ParentCo Compensation Committee considers the potential deductibility of the proposed compensation. However, the ParentCo Compensation Committee retains flexibility in administering ParentCo’s compensation programs and may exercise discretion to authorize awards or payments that it deems to be in the best interests of ParentCo and its shareholders which may not qualify for tax deductibility.

The ParentCo Compensation Committee Retains an Independent Compensation Consultant. The ParentCo Compensation Committee has authority under its charter to retain its own advisors, including compensation consultants. In 2015, the ParentCo Compensation Committee directly retained an independent consultant that provided advice as requested by the ParentCo Compensation Committee, on the amount and form of certain executive compensation components, including, among other things, executive compensation best practices, insights concerning SEC and say-on-pay policies, analysis and review of ParentCo’s compensation plans for executives and advice on setting the ParentCo CEO’s compensation. The independent consultant did not provide any services to ParentCo other than the services provided directly to the ParentCo Compensation Committee. ParentCo uses comparative compensation survey data from Towers Watson to help evaluate whether its compensation programs are competitive with the market. The latter is not customized based on parameters

 

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developed by Towers Watson. Towers Watson does not provide any advice or recommendations to the ParentCo Compensation Committee on the amount or form of executive or director compensation.

What ParentCo Doesn’t Do

No Dividend Equivalents on Stock Options and Unvested Restricted Share Units. Dividend equivalents are not paid currently on any restricted share units (including performance share units), but are accrued and paid only if the award vests. Dividend equivalents that accrue on restricted share units will be calculated at the same rate as dividends paid on the common stock of ParentCo. Dividend equivalents are not paid on stock options.

No Share Recycling. The 2009, 2013 and 2016 ParentCo Stock Incentive Plans prohibit share recycling. Shares tendered in payment of the purchase price of a stock option award or withheld to pay taxes may not be added back to the available pool of shares.

No Repricing of Underwater Stock Options (including cash-outs). The 2009, 2013 and 2016 ParentCo Stock Incentive Plans prohibit repricing, including cash-outs.

No Hedging or Pledging of Company Stock. Short sales of ParentCo securities (a sale of securities which are not then owned) and derivative or speculative transactions in ParentCo securities by ParentCo’s directors, officers and employees are prohibited. No director, officer or employee or any designee of such director, officer or employee is permitted to purchase or use 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 ParentCo securities. Directors and officers subject to Section 16 of the Securities Exchange Act of 1934 are prohibited from holding ParentCo securities in margin accounts, pledging ParentCo securities as collateral, or maintaining an automatic rebalance feature in savings plans, deferred compensation or deferred fee plans.

No Excise Tax Gross-Ups for New Participants in ParentCo’s Change in Control Severance Plan. The ParentCo Change in Control Severance Plan provides that no excise or other tax gross-ups will be paid, and that severance benefits will be available only upon termination of employment for “good reason” by an officer or without cause by ParentCo, with regard to any new plan participants after January 1, 2010. For a discussion of the ParentCo Change in Control Severance Plan, see “—Potential Payments upon Termination or Change in Control.”.

No Multi-Year Employment Contracts. It is the policy of the ParentCo Compensation Committee not to enter into multi-year employment contracts with senior executives providing for guaranteed payments of cash or equity compensation.

No Significant Perquisites. Consistent with ParentCo’s executive compensation philosophy and its commitment to emphasize performance-based pay, ParentCo limits the perquisites that it provides to its executive officers, including the ParentCo named executive officers, to perquisites that serve reasonable business purposes.

 

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ATTACHMENT A—Peer Group Companies for Market Information for 2015 Executive Compensation Decisions

 

3M

   DuPont    NextEra Energy Inc.

ABB

   Duke Energy    Nike

ACH Food

   EMC    Nokia

AES Corporation

   EMD Millipore    Northrop Grumman

AbbVie

   Eaton    Occidental Petroleum

Accenture

   Eli Lilly    Office Depot

Adecco

   Emerson Electric    Pacific Gas & Electric

Agrium

   EnLink Midstream    Pfizer

Air Liquide

   Ericsson    Philips Electronics

Altria Group

   Exelon    Qualcomm

American Electric Power

   Faurecia US Holdings    Ricoh Americas

Amgen

   FirstEnergy    Rio Tinto

Anadarko Petroleum

   Freeport-McMoRan    Rolls-Royce North America

Arrow Electronics

   Gap    Sanofi

Arvato Finance Services

   General Dynamics    Sasol USA

AstraZeneca

   General Mills    Schlumberger

Avnet

   Gilead Sciences    Schneider Electric

BAE Systems

   GlaxoSmithKline    Sears

Baxter

   HBO    Sodexo

Beam Suntory

   HCA Healthcare    Southern Company Services

Bechtel Nuclear, Security & Environmental

   HollyFrontier Corporation    Southwest Airlines

Berkshire Hathaway Energy

   Honeywell    Sprint

Best Buy

   Iberdrola Renewables    Starbucks Coffee

Boehringer Ingelheim US

   Iberdrola USA    SuperValu Stores

Bristol-Myers Squibb

   Indianapolis Power & Light Company    Syngenta

C&S Wholesale Grocers

   International Paper    Sysco Corporation

CHS

   Jabil Circuit    T-Mobile USA

CNH Industrial

   Johnson Controls    TRW Automotive

Carnival

   KPMG    Takeda Pharmaceuticals

CenturyLink

   Kimberly-Clark    Tenet Healthcare Corporation

Chesapeake Energy

   Kinder Morgan    Tesoro

Coca-Cola

   L’Oréal    Teva Pharmaceutical

Colgate-Palmolive

   Lafarge North America    Thermo Fisher Scientific

Compass

   Lear    Time Warner

ConAgra Foods

   Lehigh Hanson    Time Warner Cable

Continental Automotive Systems

   Liberty Global    Turbomeca

Cox Enterprises

   Lockheed Martin    Tyson Foods

DENSO International

   LyondellBasell    Union Pacific Corporation

DIRECTV Group

   Medtronic    United States Steel

Danaher

   Merck & Co    United Water

Delhaize America

   Messier Bugatti Dowty    University of California

Delta Air Lines

   Micron Technology    Veolia Environmental Services North America

Devon Energy

   Mondelez    Walt Disney

Diageo North America

   Monroe Energy, LLC    Whirlpool

Dignity Health

   Monsanto    eBay

Direct Energy

   NRG Energy   

 

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EXECUTIVE COMPENSATION

2015 Summary Compensation Table

The following table sets forth information concerning the compensation historically awarded to, earned by, or paid to, our named executive officers by ParentCo. Titles refer to each named executive officer’s accepted position at Alcoa Corporation following the separation.

 

Name and
Principal Position

(a)

   Year
(b)
     Salary
($)
(c)
     Stock
Awards

($)
(e)
     Option
Awards

($)
(f)
     Non-Equity
Incentive Plan
Compensation
($)

(g)
     Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings

($)
(h)
     All Other
Compensation

($)
(i)
     Total
($)
(j)
 

Roy C. Harvey

     2015       $ 508,068       $ 1,100,318       $ 275,039       $ 454,307       $ 160,233       $ 523,369       $ 3,021,334   

Chief Executive Officer

                       

William F. Oplinger

     2015       $ 541,667       $ 1,600,406       $ 400,020       $ 479,375       $ 327,386       $ 37,500       $ 3,386,354   

Chief Financial Officer

     2014       $ 500,000       $ 1,288,037       $ 322,028       $ 849,375       $ 413,526       $ 30,000       $ 3,402,966   
     2013       $ 436,875       $ 800,088       $ 202,138       $ 650,557       $ 90,220       $ 26,213       $ 2,206,091   

Tómas Sigurðsson

     2015       $ 444,000       $ 495,423       $ 166,150       $ 340,635       $ —         $ 295,103       $ 1,741,311   

Chief Operating Officer

                       

Leigh Ann C. Fisher

     2015       $ 342,657       $ 330,904       $ 0       $ 230,629       $ 258,983       $ 15,900       $ 1,179,073   

Chief Administrative

Officer

                       

Robert S. Collins

     2015       $ 312,250       $ 425,544       $ 0       $ 189,985       $ 76,542       $ 15,900       $ 1,020,221   

Controller and Vice

President, Financial

Planning and Analysis

                       

Notes to 2015 Summary Compensation Table

Column (a)—Named Executive Officers. The named executive officers include the chief executive officer, the chief financial officer, and, of the other individuals who are expected to be designated as Alcoa Corporation executive officers, the three most highly compensated based on 2015 compensation from ParentCo. We have excluded compensation for prior years 2014 and 2013 to the extent permitted by applicable SEC rules. For purposes of determining the most highly compensated executive officers, the amounts shown in column (h) were excluded.

Column (c)—Salary. This column represents each of the named executive officer’s total base salary earnings for 2015 and not their current annual base salaries.

Columns (e)   and (f)—Stock Awards and Option Awards. The value of stock awards in column (e) and stock options in column (f) equals the grant date fair value, which is calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation—Stock Compensation. Performance share awards granted in January 2015 are shown at 100% of target. The fair value of the performance awards on the date of grant was as follows:

 

Name

   Grant Date Value of
Performance Award
 
   At Target      At Maximum  

Roy C. Harvey

   $ 1,100,318       $ 2,200,636   

William F. Oplinger

   $ 1,600,406       $ 3,200,812   

Tómas Sigurðsson

   $ 330,282       $ 660,564   

Leigh Ann C. Fisher

   $ 165,452       $ 330,904   

Robert S. Collins

   $ 202,772       $ 405,544   

 

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Stock awards are valued at the market price of a share of stock on the date of grant as determined by the closing price of ParentCo common stock. At the date of grant on January 20, 2015, the closing price of ParentCo common stock was $15.55. At December 31, 2015, the closing price of ParentCo common stock was $9.87.

For a discussion of the assumptions used to estimate the fair value of stock awards and stock options, please refer to the following sections in ParentCo’s Annual Report on Form 10-K for the year ended December 31, 2015: “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-based Compensation” on page 87 and the disclosures on “Stock-Based Compensation” in Notes A and R to the Consolidated Financial Statements on pages 101 and 143 to 144, respectively.

Column (g)—Non-Equity Incentive Plan Compensation. Reflects cash payments made under the annual Incentive Compensation Plan for 2015 performance. See the “2015 Annual Cash Incentive Compensation” section.

Column (h)—Change in Pension Value and Nonqualified Deferred Compensation Earnings. The amount shown reflects the aggregate change in the actuarial present value of each named executive officer’s accumulated benefit under all defined benefit and actuarial plans, including supplemental plans, from December 31, 2014 to December 31, 2015. Increases are attributable to changes in the discount rate, mortality and exchange rate assumptions used for measurement of pension obligations from 2014 to 2015. Mr. Sigurðsson does not participate in the defined benefit pension plan for U.S.-based employees.

Earnings on deferred compensation are not reflected in this column because the return on earnings is calculated in the same manner and at the same rate as earnings on externally managed investments of salaried employees participating in the tax-qualified 401(k) plan and dividends on ParentCo stock are paid at the same rate as dividends paid to shareholders.

Column (i)—All Other Compensation.

Company Contributions to Savings Plans. In 2015, the named executive officers were eligible to participate in the Alcoa Retirement Savings Plan, a tax-qualified retirement savings plan maintained by ParentCo, and the Deferred Compensation Plan for U.S. salaried employees, a non-qualified deferred compensation plan maintained by ParentCo. Under ParentCo’s 401(k) tax-qualified retirement savings plan, participating employees may contribute up to 25% of base pay on a pretax basis and up to 10% on an after-tax basis. ParentCo matches 100% of employee pretax contributions up to 6% of base pay. For U.S. salaried employees hired on or after March 1, 2006, including Mr. Sigurdsson, ParentCo makes an Employer Retirement Income Contribution in an amount equal to 3% of salary and annual incentive eligible for contribution to the Alcoa Retirement Savings Plan as a pension contribution in lieu of a defined benefit pension plan, which was available to employees hired before March 1, 2006. If a named executive officer’s contributions to the savings plan exceed the limit on contributions imposed by the Internal Revenue Code, the executive may elect to have the amount over the limit “spill over” into the nonqualified Deferred Compensation Plan. In 2015, the ParentCo’s contributions were as follows:

 

Name

   Company
Matching Contribution
     3% Retirement Contribution      Total
Company Contribution
 
   Savings Plan      Def. Comp. Plan      Savings Plan      Def. Comp. Plan     

Roy C. Harvey

   $ 15,900       $ 0       $ 0       $ 0       $ 15,900   

William F. Oplinger

   $ 15,900       $ 16,600       $ 0       $ 0       $ 32,500   

Tómas Sigurðsson

   $ 15,900       $ 8,520       $ 7,950       $ 21,035       $ 53,405   

Leigh Ann C. Fisher

   $ 15,900       $ 0       $ 0       $ 0       $ 15,900   

Robert S. Collins

   $ 15,900       $ 0       $ 0       $ 0       $ 15,900   

 

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Relocation Expenses.   In 2015, ParentCo provided a cash allowance of $265,000 to Mr. Harvey related to his temporary commuting arrangement between his home in Knoxville, TN and ParentCo headquarters in New York, NY, in his prior role as Executive Vice President, Human Resources and Environment, Health, Safety and Sustainability. An additional $242,469 was provided as part of his permanent relocation to New York, NY, in his new current role as Executive Vice President and Group President, Global Primary Products. Also in 2015, Mr. Sigurdsson received $222,000 in connection with his relocation from Switzerland to New York, NY. In addition, he received relocation benefits totaling $19,698 to cover tax, financial and other services related to his move, including $1,703 in gross-ups for relocation assistance fees.

Charitable Contributions. In 2015, the Alcoa Foundation matched $5,000 in contributions made by Mr. Oplinger to an approved charitable organization.

2015 Grants of Plan-Based Awards

The following table provides information on equity and non-equity plan-based awards granted by ParentCo to the named executive officers as part of their fiscal year 2015 equity and cash incentive opportunity.

 

Name

(a)

  Grant
Dates

(b)
   

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards
1

   

 

 

Estimated Future Payouts
Under Equity Incentive Plan
Awards
2

    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units

(#)
(i)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
3
(#)
(j)
    Exercise
or Base
Price of
Option
Awards

($/sh)
(k)
    2015 Grant
Date Fair
Value of
Stock and
Option
Awards

($)
(l)
 
    Threshold
($)
(c)
    Target
($)
(d)
    Maximum 4
($)
(e)
    Threshold
(#)
(f)
    Target
(#)
(g)
    Maximum
(#)
(h)
         
                     

Roy C. Harvey

    1/20/2015      $ 206,925      $ 413,849      $ 1,241,548        0        70,760        141,520        —          61,530      $ 15.55      $ 1,375,357   

William F. Oplinger

    1/20/2015      $ 270,833      $ 541,667      $ 1,625,000        0        102,920        205,840        —          89,490      $ 15.55      $ 2,000,426   

Tómas Sigurðsson

    1/20/2015      $ 144,300      $ 288,600      $ 865,800        0        21,240        42,480        10,620        37,170      $ 15.55      $ 661,573   

Leigh Ann C. Fisher

    1/20/2015      $ 94,231      $ 188,461      $ 565,384        0        10,640        21,280        10,640        0        —        $ 330,904   

Robert S. Collins

    1/20/2015      $ 85,869      $ 171,738      $ 515,213        0        13,040        26,080        13,040        0        —        $ 405,544   
    2/19/2015                    1,250        0        —        $ 20,000   

 

1 2015 annual cash incentive awards made under the Incentive Compensation Plan, see “Compensation Discussion and Analysis—2015 Annual Cash Incentive Compensation.”
2 Performance equity awards in the form of restricted share units, granted under the 2013 Alcoa Stock Incentive Plan. See “Compensation Discussion and Analysis—2015 Equity Awards: Stock Options and Performance-Based Restricted Share Units.”
3 Time-vested stock options granted under the 2013 Alcoa Stock Incentive Plan, which vest ratably over a 3-year period and terminate the earlier of 10 years after grant or 5 years after retirement.
4 The maximum award under the 2015 cash incentive compensation plan formula is 200% of target. However, the Compensation and Benefits Committee has retained discretion to reduce the calculated award to zero or increase the calculated award by up to 150% of the calculated amount. The maximum amount of the award shown in this column is 150% of 200% to show the maximum discretionary amount that could possibly be awarded.

 

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Grants of Plan Based Awards (Actual Awards)

The Grants of Plan Based Awards table sets forth the 2015 cash incentive and equity incentive opportunity for the named executive officers. The 2015 awards targets and performance are discussed in “Compensation Discussion and Analysis.”

Mr.   Harvey. On January 20, 2015, Mr. Harvey received an annual grant of 61,530 stock options and a grant of performance equity with a target amount of 70,760 restricted share units. The earned amount of the first third of the performance equity award was 16,606 restricted share units. He was paid cash incentive compensation for 2015 in the amount of $454,307.

Mr.   Oplinger. On January 20, 2015, Mr. Oplinger received an annual grant of 89,490 stock options and a grant of performance equity with a target amount of 102,920 restricted share units. The earned amount of the first third of the performance equity award was 24,153 restricted share units. He was paid cash incentive compensation for 2015 in the amount of $479,375.

Mr.   Sigurðsson. On January 20, 2015, Mr. Sigurðsson received an annual grant of 37,170 stock options, 10,620 time-vested restricted share units and a grant of performance equity with a target amount of 21,240 restricted share units. The earned amount of the first third of the performance equity award was 4,985 restricted share units. He was paid cash incentive compensation for 2015 in the amount of $340,635.

Ms.   Fisher. On January 20, 2015, Ms. Fisher received an annual grant of 10,640 time-vested restricted share units and a grant of performance equity with a target amount of 10,640 restricted share units. The earned amount of the first third of the performance equity award was 2,498 restricted share units. She was paid cash incentive compensation for 2015 in the amount of $230,629.

Mr.   Collins. On January 20, 2015, Mr. Collins received an annual grant of 13,040 time-vested restricted share units and a grant of performance equity with a target amount of 13,040 restricted share units. On February 19, 2015, he received an additional recognition award of 1,250 restricted share units. The earned amount of the first third of the performance equity award was 3,061 restricted share units. He was paid cash incentive compensation for 2015 in the amount of $189,985.

 

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2015 Outstanding Equity Awards at Fiscal Year-End

The following table provides information on outstanding ParentCo equity awards held by the named executive officers as of December 31, 2015.

 

    Option Awards     Stock Awards  

Name

(a)

 

Number of
Securities of
Underlying
Unexercised
Options
(Exercisable)

(#)

   

Number of
Securities
Underlying
Unexercised
Options
(Unexercisable)

(#)

   

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options

(#)

   

Option
Exercise
Price

($)

    Option
Expiration
Date
   

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested

(#)

   

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested

($)

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested

(#)

   

Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not Vested

($)

 
  (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

Roy C. Harvey

  

Stock Awards 1

              20,651      $ 203,825     91,626      $ 904,349

Time-Vested Options 2

    —          61,530        —        $ 15.55        1/20/2025           
    34,774        69,546        $ 11.04        1/16/2024           
    13,920        13,920        $ 8.88        1/16/2023           
    10,360        —          —        $ 10.17        1/20/2022           
    24,480        —          —        $ 16.24        1/25/2021           

William F. Oplinger

  

Stock Awards 1

              128,984      $ 1,273,072     210,733      $ 2,079,935

Time-Vested Options 2

    —          89,490        —        $ 15.55        1/20/2025           
    37,797        75,593        —        $ 11.04        1/16/2024           
    60,160        30,080        —        $ 8.88        1/16/2023           
    99,600        —          —        $ 10.17        1/20/2022           
    5,340        —          —        $ 16.24        1/25/2021           
    15,240        —          —        $ 13.54        1/26/2020           

Tómas Sigurðsson

  

Stock Awards 1

              83,431      $ 823,464     37,639      $ 371,497

Time-Vested Options 2

    —          37,170        —        $ 15.55        1/20/2025           
    29,520        —          —        $ 10.17        1/20/2022           

Leigh Ann C. Fisher

  

Stock Awards 1

              31,230      $ 308,240     19,786      $ 195,288

Time-Vested Options 2

    9,147        18,293        —        $ 11.04        1/16/2024           
    20,000        10,000        $ 8.88        1/16/2023           
    17,880        —          $ 10.17        1/20/2022           
    11,220        —          —        $ 16.24        1/25/2021           
    24,960        —          —        $ 13.54        1/26/2020           

Robert S. Collins

  

Stock Awards 1

              51,321      $ 506,538     22,026      $ 217,397
    4,494        8,986        $ 11.04        1/16/2024           
    27,280        13,640        $ 8.88        1/16/2023           
    40,680        —          —        $ 10.17        1/20/2022           
    12,720          $ 16.24        1/25/2021           
    19,260        —          —        $ 13.54        1/26/2020           

 

* The closing price of ParentCo’s common stock on December 31, 2015 was $9.87.
1 Stock awards in column (g) include earned performance share awards and time-vested share awards. Stock awards in column (i) include unearned performance share awards at the target amount. In January 2016, the payout for the second one-third of performance share awards granted in January 2014 and the first one-third of performance share awards granted in January 2015 was determined to be 70.4%. These amounts are shown at target in column (i) above. The full earned amount will be shown in column (g) in next year’s proxy statement. All stock awards are in the form of restricted share units that vest three years from the date of grant and are paid in common stock when they vest.

 

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2 Time-vested and performance options include stock options granted at the regular annual grant date when the ParentCo Compensation and Benefits Committee meets in January. Options granted since 2009 have a term of ten years and vest over three years (1/3 each year).

2015 Option Exercises and Stock Vested

This table sets forth the actual value received by the named executive officers upon exercise of stock options or vesting of stock awards in 2015.

 

Name

(a)

   Option Awards      Stock Awards  
  

Number of Shares
Acquired on Exercise

(#)

    

Value Realized on
Exercise

($)

    

Number of Shares

Acquired on Vesting

(#)

    

Value Realized

on Vesting

($)

 
   (b)      (c)      (d)      (e)  

Roy C. Harvey

     —           —           12,913       $ 200,797   

William F. Oplinger

     16,867       $ 128,021         41,379       $ 643,443   

Tómas Sigurðsson

     —           —           12,266       $ 190,736   

Leigh Ann C. Fisher

     —           —           5,960       $ 92,678   

Robert S. Collins

     —           —           —           —     

2015 Pension Benefits

 

Name 1

  

Plan Name(s)

   Years of
Credited
Service
     Present Value of
Accumulated
Benefits
    

Payments
During Last
Fiscal Year

Roy C. Harvey

  

Alcoa Retirement Plan

     13.87       $ 227,448      
   Excess Benefits Plan C       $ 316,112      
        

 

 

    
   Total       $ 543,560       N/A

William F. Oplinger

   Alcoa Retirement Plan      15.78       $ 348,956      
   Excess Benefits Plan C       $ 911,063      
        

 

 

    
   Total       $ 1,260,019       N/A

Leigh Ann C. Fisher

   Alcoa Retirement Plan      26.61       $ 784,437      
   Excess Benefits Plan C       $ 655,708      
        

 

 

    
   Total       $ 1,440,145       N/A

Robert S. Collins

   Alcoa Retirement Plan      10.92       $ 251,926      
   Excess Benefits Plan C       $ 163,386      
        

 

 

    
   Total       $ 415,312       N/A

Qualified Defined Benefit Plan. In 2015, Messrs. Harvey, Oplinger, and Collins and Ms. Fisher participated in the Alcoa Retirement Plan. The Alcoa Retirement Plan is a funded, tax-qualified, non-contributory defined benefit pension plan maintained by ParentCo in 2015 that covers a majority of U.S. salaried employees. Benefits under the plan are based upon years of service and final average earnings. Final average earnings include salary plus 100% of annual cash incentive compensation, and are calculated using the average of the highest five of the last ten years of earnings in the case of Ms. Fisher and the highest consecutive five for Messrs. Harvey, Oplinger and Collins. The Alcoa Retirement Plan reflects compensation limits imposed by the U.S. tax code, which was $265,000 for 2015. The base benefit payable at age 65 is 1.1% of final average earnings up to the social security covered compensation limit plus 1.475% of final average earnings above the social security covered compensation limit, times years of service. Benefits are payable as a single life annuity, a reduced 50% joint and survivor annuity, or a reduced 75% joint and survivor annuity upon retirement.

Nonqualified Defined Benefit Plans. In 2015, Messrs. Harvey, Oplinger, and Collins and Ms. Fisher participated in ParentCo’s Excess Benefits Plan C. This plan is a nonqualified plan which provides for benefits that exceed the limits on compensation imposed by the U.S. tax code. The benefit formula is identical to the

 

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Alcoa Retirement Plan formula. Benefits under the nonqualified plan are payable as a reduced 50% joint and survivor annuity if the executive is married. Otherwise, the benefit is payable as a single life annuity.

Alcoa Retirement Savings Plan. For U.S. salaried employees hired on or after March 1, 2006, including Mr. Sigurdsson, ParentCo makes an Employer Retirement Income Contribution (ERIC) in an amount equal to 3% of salary and annual incentive eligible for contribution to the Alcoa Retirement Savings Plan as a pension contribution in lieu of a defined benefit pension plan, which was available to employees hired before March 1, 2006. ParentCo contributed $8,520 to the account of Mr. Sigurdsson in 2015. In addition, all U.S. salaried employees, including the named executive officers, are eligible to receive a company matching contribution of 100%, up to the first 6%, of deferred salary. In 2015, the company matching contribution amount was $15,900 each for Messrs. Harvey, Oplinger, Sigurdsson, and Collins and Ms. Fisher. These amounts are included in the column “All Other Compensation” in the “2015 Summary Compensation Table.”

2015 Nonqualified Deferred Compensation

 

Name

(a)

   Executive
Contributions
in 2015

(b)
     Registrant
Contributions

in 2015
(c)
     Aggregate Earnings
in 2015
(d)
     Aggregate
Withdrawals/

Distributions
(e)
     Aggregate
Balance at
12/31/2015 FYE

(f)
 

Roy C. Harvey

     —           —           —              —           —     

William F. Oplinger

   $ 522,538       $ 16,600       -$ 26,528         E         —         $ 816,321   
          $ 324         D         

Tómas Sigurðsson

   $ 8,520       $ 29,555       -$ 495         E         —         $ 37,580   
           —           D         

Leigh Ann C. Fisher

     —           —         -$ 462         E         —         $ 81,948   
           —           D         

Robert S. Collins

     —           —          $ 123         E         —         $ 103,637   
           —           D         

E—Earnings

D—Dividends on Alcoa common stock or share equivalents

The investment options under the ParentCo nonqualified Deferred Compensation Plan are the same choices available to all salaried employees under the Alcoa Retirement Savings Plan and the named executive officers did not receive preferential earnings on their investments. The named executive officers may defer up to 25% of their salaries in total to the Alcoa Retirement Savings Plan and Deferred Compensation Plan and up to 100% of their annual cash incentive compensation to the Deferred Compensation Plan.

To the extent the executive elects, ParentCo contributes matching contributions on employee base salary deferrals that exceed the limits on compensation imposed by the U.S. tax code. In 2015, the ParentCo matching contribution amount was $16,600 for Mr. Oplinger and $8,520 for Mr. Sigurdsson.

In addition, when the U.S. tax code limits on Employer Retirement Income Contributions (ERIC) to the Alcoa Retirement Savings Plan are reached, the ERIC contributions are made into ParentCo’s Deferred Compensation Plan. In 2015, ParentCo contributed $21,035 for Mr. Sigurdsson. Messrs. Harvey and Oplinger and Ms. Fisher do not receive these deferred compensation contributions because they participate in ParentCo’s defined benefit pension plan.

These amounts are included in the column “All Other Compensation” in the “2015 Summary Compensation Table.”

The principal benefit to executives of the Deferred Compensation Plan is that U.S. taxes are deferred until the investment is withdrawn, so that savings accumulate on a pretax basis. ParentCo also benefits from this

 

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arrangement because it does not use its cash to pay the salaries or incentive compensation of the individuals who have deferred receipt of these amounts. ParentCo may use this cash for other purposes until the deferred account is paid to the individual upon termination of employment. All nonqualified pension and deferred compensation are general unsecured assets of ParentCo until paid. Upon termination of employment, deferred compensation will be paid in cash as a lump sum or in up to ten annual installments, depending on the individual’s election, account balance and retirement eligibility.

Potential Payments upon Termination or Change in Control

Executive Severance Agreements. ParentCo has entered into severance agreements with certain executives to facilitate transitioning key positions to suit the timing needs of ParentCo. The agreements provide for higher severance benefits than the ParentCo severance plan for salaried employees, but these agreements also require the executives to agree to a two-year non-competition and non-solicitation provision. Mr. Oplinger is the only named executive officer who is party to an executive severance agreement, which agreement provides that, if his employment is terminated without cause, he will receive two years’ salary, continued health care benefits for a two-year period, and two additional years of pension accrual. He will also receive a lump sum severance payment of $50,000 upon execution of a general release of legal claims against ParentCo prior to the scheduled payment date. No severance payments will be made under the agreement unless the general release is signed. If severance payments or benefits are payable to Mr. Oplinger under the Change in Control Severance Plan, described below, no payments would be paid under his executive severance agreement. The following table describes the severance payments and benefits that would be provided to Mr. Oplinger under his executive severance agreement if he had experienced a qualifying termination on December 31, 2015.

 

Name

   Estimated net
present value of cash
severance payments
     Estimated net
present value of
additional

pension credits
     Estimated net
present value of

continued health care
benefits
     Total  

William F. Oplinger

   $ 1,123,314       $ 138,900       $ 37,916       $ 1,300,130   

Severance Plan for Salaried Employees.   Each of the named executive officers, other than Mr. Oplinger, was covered by the ParentCo severance plan for salaried employees in 2015. Such severance plan provides for the following severance benefits:

 

    A basic benefit equal to four weeks of base pay; and

 

    An enhanced benefit equal to two weeks of base pay for each full year of continuous service, contingent upon a signed separation agreement.

The combined basic and enhanced benefit provide a minimum of 10 weeks and a maximum of 56 weeks of pay.

Potential Payments upon a Change in Control. In 2002, ParentCo’s Board of Directors approved a Change in Control Severance Plan for officers and other key executives designated by ParentCo’s Compensation and Benefits Committee. The plan is designed to retain key executives during the period that a transaction is being negotiated or during a period in which a hostile takeover is being attempted and to ensure the impartiality of the key negotiators for ParentCo. The Change in Control Severance Plan provides certain officers with termination compensation if their employment is terminated without cause or if they leave for good reason, in either case within three years after a change in control of ParentCo. Messrs. Harvey and Oplinger participated in this plan in 2015.

Compensation provided by the plan includes: a cash payment equal to three times annual salary plus target annual cash incentive compensation; continuation of health care benefits for three years; growth on pension credits for three years; and six months outplacement. Messrs. Harvey and Oplinger are not eligible for reimbursement of excise taxes.

 

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ParentCo’s Compensation and Benefits Committee periodically reviews market data, which indicate that most companies have such plans or adopt such plans when a change in control is imminent.

The amounts shown in the table below include the estimated net present value of accelerated vesting of stock options and stock awards for all named executive officers. Awards made prior to February 2011 vest immediately upon a change of control. Awards granted since February 2011 do not have such automatic vesting if a replacement award is provided, but such replacement awards would vest upon a qualifying termination following the change in control. Values presented in the table below assume that both a change in control and a qualifying termination occurred for each named executive officer on December 31, 2015.

Change in Control Severance Benefits

 

Name

   Estimated value of
change in control severance
and benefits (other than
equity award acceleration)
     Estimated net present
value of accelerated vesting
of stock options and stock
awards (single and double
trigger)
     Total  

Roy C. Harvey

   $ 3,451,220       $ 208,662       $ 3,659,881   

William F. Oplinger

   $ 4,128,129       $ 411,510       $ 4,539,639   

Tómas Sigurðsson

   $ —         $ 145,116       $ 145,116   

Leigh Ann C. Fisher

   $ —         $ 79,197       $ 79,197   

Robert S. Collins

   $ —         $ 101,182       $ 101,182   

Retirement benefits. If Messrs. Harvey, Oplinger, and Collins and Ms. Fisher had voluntarily terminated employment as of December 31, 2015, it is estimated that their pensions would have paid an annual annuity as follows:

 

     Annuity      Starting at Age  

Roy C. Harvey

   $ 45,560         55   

William F. Oplinger

   $ 78,316         55   

Leigh Ann C. Fisher

   $ 91,302         55   

Robert S. Collins

   $ 24,891         55   

 

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ALCOA CORPORATION 2016 STOCK INCENTIVE PLAN

Alcoa Corporation will adopt the Alcoa Corporation 2016 Stock Incentive Plan (the “Plan”) in connection with the separation. The following is a summary of the principal terms of the Plan, which is qualified in its entirety by reference to the full text of the Plan. The Alcoa Corporation equity-based compensation awards into which the outstanding ParentCo equity-based compensation awards are converted upon the separation (see “The Separation and Distribution—Treatment of Equity-Based Compensation”) will be issued pursuant to the Plan and will reduce the shares authorized for issuance under the Plan.

Purpose of the Plan

The purpose of the Plan is to encourage participants to acquire a proprietary interest in the long-term growth and financial success of the company and to further link the interests of such individuals to the long-term interests of stockholders. The Plan is designed to permit the grant of awards that are intended to qualify as performance-based compensation under Section 162(m) of the Code (“Section 162(m)”).

Administration of the Plan

Under the Plan, the Compensation and Benefits Committee of our Board of Directors of Alcoa Corporation (the “Alcoa Corporation Compensation Committee”), which will be composed of non-employee directors, has authority to grant awards to employees of the company and its subsidiaries, and the full Board of Directors of Alcoa Corporation (the “Alcoa Corporation Board”) has authority to grant awards to non-employee directors.

The Alcoa Corporation Compensation Committee has the authority, subject to the terms of the Plan, to select employees to whom it will grant awards, to determine the types of awards and the number of shares covered, to set the terms and conditions of the awards, to cancel or suspend awards and to modify outstanding awards. The Alcoa Corporation Compensation Committee also has authority to interpret the Plan, to establish, amend and rescind rules applicable to the Plan or awards under the Plan, to approve the terms and provisions of any agreements relating to Plan awards, to determine whether any corporate transaction, such as a spin-off or joint venture, will result in a participant’s termination of service and to make all determinations relating to awards under the Plan.

The Alcoa Corporation Board of Directors has similar authority with respect to awards to non-employee directors. A non-employee director may not receive awards with an aggregate grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than $250,000 in any one year period.

The Plan permits delegation of certain authority to executive officers in limited instances to make, cancel or suspend awards to employees who are not Alcoa Corporation directors or executive officers.

Eligibility

All employees of Alcoa Corporation and its subsidiaries and all non-employee directors of Alcoa Corporation are eligible to be selected as participants. Participation in the Plan is at the discretion of the Alcoa Corporation Compensation Committee or, as applicable, the Alcoa Corporation Board.

Authorized Shares

The total number of shares authorized and available for issuance under the Plan is 19,000,000 (assuming the previously announced reverse stock split of ParentCo common stock is effected). Shares of Alcoa Corporation common stock issuable under the Plan may come from authorized but unissued shares, treasury shares, shares purchased on the open market or any combination of the foregoing.

 

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Shares tendered in payment of the purchase price of a stock option or other award or withheld to pay taxes may not be added back to the available pool of shares authorized under the Plan. If awards granted under the Plan are forfeited, cancelled or expire, the shares underlying such awards will become available for issuance under the Plan.

The Alcoa Corporation Compensation Committee may grant substitute awards to employees of companies acquired by Alcoa Corporation or a subsidiary in exchange for, or upon assumption of, outstanding stock-based awards issued by the acquired company. Shares covered by such substitute awards will not reduce the number of shares otherwise available for award under the Plan. As described above, Alcoa Corporation equity-based awards into which the outstanding ParentCo equity-based awards are converted (“Converted Awards”) upon separation will reduce the shares authorized for issuance under the Plan.

Types of Awards

The following types of awards may be granted under the Plan:

 

    Nonqualified stock options;

 

    Stock appreciation rights;

 

    Restricted shares;

 

    Restricted share units; and

 

    Other forms of awards authorized by the Plan (“Other Awards”).

These forms of awards may have a performance feature under which the award is not earned unless performance goals are achieved.

Minimum Vesting Requirements

Stock options and stock appreciation rights granted under the Plan must have a minimum vesting period of one year. The performance period for a performance award may not be less than one year. Time-based restricted shares and restricted share units must have a minimum three-year pro-rata vesting period, except that a shorter vesting period may be approved for awards with respect to up to 5% of the shares reserved under the Plan. The foregoing minimum vesting requirements do not apply to substitute awards, Converted Awards or Other Awards (which may not exceed 5% of shares reserved under the Plan) or in connection with a capitalization adjustment.

Stock Option Awards

Under the Plan, stock option awards entitle a participant to purchase shares of Alcoa Corporation common stock during the option term at a fixed price that is equal to the fair market value of Alcoa Corporation’s stock on the date of the grant. The maximum term of stock options granted is ten years. The Alcoa Corporation Compensation Committee has discretion to cap the amount of gain that may be obtained in the exercise of the stock option. The option price must be paid in full by the participant upon exercise of the option, in cash, shares or other consideration having a fair market value equal to the option price or by a combination of cash, shares or other consideration specified by the Alcoa Corporation Compensation Committee.

Stock Appreciation Rights

A stock appreciation right (SAR) entitles the holder to receive, on exercise, the excess of the fair market value of the shares on the exercise date (or, if the Alcoa Corporation Compensation Committee so

 

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determines, as of any time during a specified period before the exercise date) over the SAR grant price. The Alcoa Corporation Compensation Committee may grant SAR awards as stand-alone awards or in combination with a related stock option award under the Plan. The SAR grant price is set by the Alcoa Corporation Compensation Committee and may not be less than the fair market value of the shares on the date of grant. Payment by the company upon exercise will be in cash, stock or other property or any combination of cash, stock or other property as the Alcoa Corporation Compensation Committee may determine. Unless otherwise determined by the Alcoa Corporation Compensation Committee, any related stock option will no longer be exercisable to the extent the SAR has been exercised, and the exercise of an option will cancel the related SAR. The Alcoa Corporation Compensation Committee has discretion to cap the amount of gain that may be obtained in the exercise of a stock appreciation right. The maximum term of stock appreciation rights is ten years, or if granted in tandem with an option, the expiration date of the option.

Restricted Shares

A restricted share is a share issued with such contingencies or restrictions as the Alcoa Corporation Compensation Committee may impose. Until the conditions or contingencies are satisfied or lapse, the stock is subject to forfeiture. A recipient of a restricted share award has the right to vote the shares and, subject to the discussion below under “Dividends,” will receive any dividends on the shares, unless the Alcoa Corporation Compensation Committee determines otherwise. If the participant ceases to be an employee before the end of the contingency period, the award is forfeited, subject to such exceptions as authorized by the Alcoa Corporation Compensation Committee.

Restricted Share Units

A restricted share unit is an award of a right to receive, in cash or shares, as the Alcoa Corporation Compensation Committee may determine, the fair market value of one share of company common stock, on such terms and conditions as the Alcoa Corporation Compensation Committee may determine.

Performance Awards

A performance award may be in any form of award permitted under the Plan. The Alcoa Corporation Compensation Committee may select periods of at least one year during which performance criteria chosen by the Alcoa Corporation Compensation Committee are measured for the purpose of determining the extent to which a performance award has been earned. The Alcoa Corporation Compensation Committee decides whether the performance levels have been achieved, what amount of the award will be paid and the form of payment, which may be cash, stock or other property or any combination thereof.

Dividends

As discussed under “Dividend Policy,” the payment of any dividends in the future, and the timing and amount thereof, is within the discretion of the Alcoa Corporation Board. To the extent that the Alcoa Corporation Board, in its discretion, declares a dividend on the shares, (i) no dividends may be paid on stock options or SARs; (ii) dividend equivalents may not be paid on any unvested restricted share units but will be accrued and paid only if and when the restricted share units vest, unless the Alcoa Corporation Compensation Committee determines otherwise; (iii) no dividends or dividend equivalents may be paid on unearned performance-based restricted share units; and (iv) a recipient of restricted shares will receive dividends on the restricted shares unless the Alcoa Corporation Compensation Committee determines otherwise.

Stock Option and SAR Repricing Prohibited

The Plan prohibits repricing of stock options or SARs without stockholder approval. Repricing means the cancellation of an option or SAR in exchange for cash or other awards at a time when the exercise price of such option or SAR is higher than the fair market value of a share of the company’s stock, the grant of a new

 

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stock option or SAR with a lower exercise price than the original option or SAR, or the amendment of an outstanding award to reduce the exercise price. The grant of a substitute award or a Converted Award is not a repricing.

Adjustment Provision

The Plan defines certain transactions with our stockholders, not involving our receipt of consideration, that affect the shares or the share price of the company’s common stock as “equity restructurings” (e.g., a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend). In the event that an equity restructuring occurs, the Alcoa Corporation Compensation Committee will adjust the terms of the Plan and each outstanding award as it deems equitable to reflect the equity restructuring, which may include (i) adjusting the number and type of securities subject to each outstanding award and/or adjusting the number of shares available under the Plan or the Section 162(m) award limitations, (ii) adjusting the terms and conditions of (including the grant or exercise price), and the performance targets or other criteria included in, outstanding awards; and (iii) granting new awards or making cash payments to participants. Such adjustments will be nondiscretionary, although the Alcoa Corporation Compensation Committee will determine whether an adjustment is equitable.

Other types of transactions may also affect the company’s common stock, such as a dividend or other distribution, reorganization, merger or other changes in corporate structure. In the event that there is such a transaction, which is not an equity restructuring, or in the case of other unusual or nonrecurring transactions or events or changes in applicable laws, regulations or accounting principles, the Alcoa Corporation Compensation Committee will determine, in its discretion, whether any adjustment to the Plan and/or to any outstanding awards is appropriate to prevent any dilution or enlargement of benefits under the Plan or to facilitate such transactions or events or give effect to such changes in laws, regulations or principles.

Consideration for Awards

Unless otherwise determined by the Alcoa Corporation Compensation Committee, and except as required to pay the purchase price of stock options, recipients of awards are not required to make any payment or provide consideration other than rendering of services.

Transferability of Awards

Awards may be transferred by laws of descent and distribution or to a guardian or legal representative or, unless otherwise provided by the Alcoa Corporation Compensation Committee or limited by applicable laws, to family members or a trust for family members; provided however, that awards may not be transferred to a third party for value or consideration.

Change in Control Provisions

The Plan provides for double-trigger equity vesting in the event of a change in control (as defined in the Plan). This generally means that if outstanding awards under the Plan are replaced by the acquirer or related entity in a change in control of the company, those replacement awards will not immediately vest on a “single trigger” basis, but vesting would accelerate only if the participant is terminated without cause or quits for good reason (as those terms are defined in the Alcoa Corporation Change in Control Severance Plan) within 24 months following the change in control.

Performance-Based Compensation—Section 162(m)

The Alcoa Corporation Compensation Committee may grant awards to employees who are or may be “covered employees,” as defined in Section 162(m), that are intended to be performance-based compensation within the meaning of Section 162(m) to preserve the deductibility of these awards for federal income tax purposes. The Alcoa Corporation Compensation Committee determines at the time of grant whether awards are

 

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intended to be performance-based compensation within the meaning of Section 162(m). Participants are entitled to receive payment for a Section 162(m) performance-based award for any given performance period only to the extent that pre-established performance goals set by the Alcoa Corporation Compensation Committee for the period are satisfied. These pre-established performance goals are based on one or more of the following performance measures: (i) earnings, including earnings margin, operating income, earnings before or after taxes, and earnings before or after interest, taxes, depreciation, and amortization; (ii) book value per share; (iii) pre-tax income, after-tax income, income from continuing operations, or after tax operating income; (iv) operating profit; (v) earnings per common share (basic or diluted); (vi) return on assets (net or gross); (vii) return on capital; (viii) return on invested capital; (ix) sales, revenues or growth in or returns on sales or revenues; (x) share price appreciation; (xi) total stockholder return; (xii) cash flow, operating cash flow, free cash flow, cash flow return on investment (discounted or otherwise), cash on hand, reduction of debt, capital structure of the company including debt to capital ratios; (xiii) implementation or completion of critical projects or processes; (xiv) economic profit, economic value added or created; (xv) cumulative earnings per share growth; (xvi) achievement of cost reduction goals; (xvii) return on stockholders’ equity; (xviii) total stockholders’ return; (xix) reduction of days working capital, working capital or inventory; (xx) operating margin or profit margin; (xxi) capital expenditures; (xxii) cost targets, reductions and savings, productivity and efficiencies; (xxiii) strategic business criteria, consisting of one or more objectives based on market penetration, geographic business expansion, customer satisfaction (including product quality and delivery), employee satisfaction, human resources management (including diversity representation), supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures and similar transactions, and budget comparisons; (xxiv) personal professional objectives, including any of the foregoing performance measures, the implementation of policies and plans, the negotiation of transactions, the development of long-term business goals, formation of joint ventures, research or development collaborations, technology and best practice sharing within the company, and the completion of other corporate goals or transactions; (xxv) sustainability measures, community engagement measures or environmental, health or safety goals of the company or the subsidiary or business unit of the company for or within which the participant is primarily employed; or (xxvi) audit and compliance measures.

The annual limits on performance-based compensation per participant in the Plan for awards intended to comply with Section 162(m) are: 4 million shares if the award is in the form of restricted shares or restricted stock units; 10 million shares if the award is in the form of stock options or stock appreciation rights; and $15 million in value if the award is paid in property other than shares. The number of shares subject to Converted Awards are disregarded for purposes of the foregoing award limits.

While the Plan is designed to allow the company to grant awards intended to comply with the performance-based exception to Section 162(m), the company may elect to provide non-deductible compensation under the Plan. Additionally, there can be no guarantee that awards granted under the Plan eligible for treatment as qualified performance-based compensation under Section 162(m) will receive such treatment.

Termination and Amendment of the Plan

The Alcoa Corporation Board may amend, alter, suspend, discontinue or terminate the Plan or any portion thereof at any time, except that the Alcoa Corporation Board may not amend the Plan without stockholder approval if such approval would be required pursuant to applicable law or the requirements of the New York Stock Exchange or such other stock exchange on which the shares trade. The Alcoa Corporation Board or the Alcoa Corporation Compensation Committee generally may not amend the Plan or the terms of any award previously granted without the consent of the affected participant, if such action would impair the rights of such participant under any outstanding award.

Term of the Plan

The Plan is effective as of the company’s separation from ParentCo and, unless earlier terminated by the Alcoa Corporation Board, will operate for a fixed period of years.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Agreements with Arconic

Following the separation and distribution, Alcoa Corporation and Arconic will operate separately, each as an independent public company. In connection with the separation, Alcoa Corporation will enter into the separation agreement with ParentCo, and will also enter into various other agreements to effect the separation and provide a framework for its relationship with Arconic after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement, a stockholder and registration rights agreement with respect to ParentCo’s continuing ownership of Alcoa Corporation common stock, intellectual property license agreements, a metal supply agreement, real estate and office leases, a spare parts loan agreement and an agreement relating to the North American packaging business. These agreements, together with the documents and agreements by which the internal reorganization will be effected, will provide for the allocation between Alcoa Corporation and Arconic of ParentCo’s assets, employees, liabilities and obligations (including investments, property and employee benefits, and tax-related assets and liabilities) attributable to periods prior to, at and after Alcoa Corporation’s separation from ParentCo and will govern certain relationships between Alcoa Corporation and Arconic after the separation.

The material agreements described below will be filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries of each of these agreements set forth below are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.

Separation Agreement

Transfer of Assets and Assumption of Liabilities

The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of Alcoa Corporation and Arconic as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur. In particular, the separation agreement will provide that, among other things, subject to the terms and conditions contained therein:

 

    certain assets related to ParentCo’s Alcoa Corporation Business, which we refer to as the “Alcoa Corporation Assets,” will be transferred to Alcoa Corporation or one of its subsidiaries, including:

 

    equity interests in certain ParentCo subsidiaries that hold assets relating to the Alcoa Corporation Business;

 

    the Alcoa brand, certain other trade names and trademarks, and certain other intellectual property (including, patents, know-how and trade secrets), software, information and technology used in the Alcoa Corporation Business or related to the Alcoa Corporation Assets, the Alcoa Corporation Liabilities or Alcoa Corporation’s business;

 

    facilities related to the Alcoa Corporation Business;

 

    contracts (or portions thereof) that relate to the Alcoa Corporation Business;

 

    rights and assets expressly allocated to Alcoa Corporation pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation;

 

    permits that primarily relate to the Alcoa Corporation Business; and

 

    other assets that are included in Alcoa Corporation’s pro forma balance sheet, such as the pension assets included in Alcoa Corporation’s Unaudited Pro Forma Combined Condensed Financial Statements, which appear in the section entitled “Unaudited Pro Forma Combined Condensed Financial Statements”;

 

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    certain liabilities related to the Alcoa Corporation Business or the Alcoa Corporation Assets, which we refer to as the “Alcoa Corporation Liabilities,” will be retained by or transferred to Alcoa Corporation, including certain liabilities associated with previously consummated divestitures of assets primarily related to the Alcoa Corporation Business. Subject to limited exceptions, liabilities that relate primarily to the Alcoa Corporation Business, including liabilities of various legal entities that will be subsidiaries of Alcoa Corporation following the separation, will be Alcoa Corporation Liabilities;

 

    all of the assets and liabilities (including whether accrued, contingent or otherwise) other than the Alcoa Corporation Assets and Alcoa Corporation Liabilities (such assets and liabilities, other than the Alcoa Corporation Assets and the Alcoa Corporation Liabilities, we refer to as the “Arconic Assets” and “Arconic Liabilities,” respectively) will be retained by or transferred to Arconic; and

 

    Alcoa Corporation will pay over to Arconic the after-tax proceeds it receives in respect of the pending sales of certain assets, including the Yadkin hydroelectric project, following the effective time of the distribution.

Except as expressly set forth in the separation agreement or any ancillary agreement, neither Alcoa Corporation nor ParentCo will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either Alcoa Corporation or ParentCo, or as to the legal sufficiency of any document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the separation. All assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests, that any necessary consents or governmental approvals are not obtained, or that any requirements of law, agreements, security interests or judgments are not complied with.

Information in this information statement with respect to the assets and liabilities of the parties following the distribution is presented based on the allocation of such assets and liabilities pursuant to the separation agreement, unless the context otherwise requires. The separation agreement will provide that in the event that the transfer of certain assets and liabilities to Alcoa Corporation or Arconic, as applicable, does not occur prior to the separation, then until such assets or liabilities are able to be transferred, Alcoa Corporation or Arconic, as applicable, will hold such assets on behalf and for the benefit of the other party and will pay, perform and discharge such liabilities, for which the other party will reimburse Alcoa Corporation or Arconic, as applicable, for all commercially reasonable payments made in connection with the performance and discharge of such liabilities.

Non-Compete

Arconic and Alcoa Corporation will agree for four years not to compete with respect to certain rolled metal products. Arconic will agree not to produce certain products for the North American packaging business at its Tennessee operations (except for the benefit of Alcoa Corporation) for four years following the separation. Similarly, Alcoa Corporation will agree not to produce certain rolled metal products for automotive applications at Warrick for four years following the Distribution.

The Distribution

The separation agreement will also govern the rights and obligations of the parties regarding the distribution following the completion of the separation. On the distribution date, ParentCo will distribute to its shareholders that hold ParentCo common stock as of the record date for the distribution at least 80.1% of the issued and outstanding shares of Alcoa Corporation common stock on a pro rata basis. Shareholders will receive cash in lieu of any fractional shares. Following the distribution, ParentCo shareholders (which, as a result of ParentCo’s

 

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name change to Arconic, will be Arconic shareholders) will own directly at least 80.1% of the outstanding shares of common stock of Alcoa Corporation, and Alcoa Corporation will be a separate company from Arconic. Arconic will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution.

Conditions to the Distribution

The separation agreement will provide that the distribution is subject to satisfaction (or waiver by ParentCo) of certain conditions. These conditions are described under “The Separation and Distribution—Conditions to the Distribution.” ParentCo will have the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the distribution and, to the extent that it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio.

Claims

In general, each party to the separation agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.

Releases

The separation agreement will provide that Alcoa Corporation and its affiliates will release and discharge Arconic and its affiliates from all liabilities assumed by Alcoa Corporation as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to Alcoa Corporation’s business, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement. Arconic and its affiliates will release and discharge Alcoa Corporation and its affiliates from all liabilities retained by Arconic and its affiliates as part of the separation, from all acts and events occurring or failing to occur, and all conditions existing, on or before the distribution date relating to Arconic’s business, and from all liabilities existing or arising in connection with the implementation of the separation, except as expressly set forth in the separation agreement.

These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation, which agreements include the separation agreement and the other agreements described under “Certain Relationships and Related Party Transactions.”

Indemnification

In the separation agreement, Alcoa Corporation will agree to indemnify, defend and hold harmless Arconic, each of Arconic’s affiliates and each of Arconic and its affiliates’ respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:

 

    the Alcoa Corporation Liabilities;

 

    Alcoa Corporation’s failure or the failure of any other person to pay, perform or otherwise promptly discharge any of the Alcoa Corporation Liabilities, in accordance with their respective terms, whether prior to, at or after the distribution;

 

    except to the extent relating to a Arconic Liability, any guarantee, indemnification or contribution obligation for the benefit of Alcoa Corporation by Arconic that survives the distribution;

 

    any breach by Alcoa Corporation of the separation agreement or any of the ancillary agreements; and

 

    any untrue statement or alleged untrue statement or omission or alleged omission of material fact in the Form 10 or in this information statement (as amended or supplemented), except for any such statements or omissions made explicitly in Arconic’s name.

 

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Arconic will agree to indemnify, defend and hold harmless Alcoa Corporation, each of Alcoa Corporation’s affiliates and each of Alcoa Corporation and Alcoa Corporation’s affiliates’ respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:

 

    the Arconic Liabilities;

 

    the failure of Arconic or any other person to pay, perform or otherwise promptly discharge any of the Arconic Liabilities, in accordance with their respective terms whether prior to, at or after the distribution;

 

    except to the extent relating to an Alcoa Corporation Liability, any guarantee, indemnification or contribution obligation for the benefit of Arconic by Alcoa Corporation that survives the distribution;

 

    any breach by Arconic of the separation agreement or any of the ancillary agreements; and

 

    any untrue statement or alleged untrue statement or omission or alleged omission of a material fact made explicitly in Arconic’s name in the Form 10 or in this information statement (as amended or supplemented).

The separation agreement will also establish procedures with respect to claims subject to indemnification and related matters.

Insurance

The separation agreement will provide for the allocation between the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the distribution and set forth procedures for the administration of insured claims and related matters.

Further Assurances

In addition to the actions specifically provided for in the separation agreement, except as otherwise set forth therein or in any ancillary agreement, both Alcoa Corporation and ParentCo will agree in the separation agreement to use reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation agreement and the ancillary agreements.

Dispute Resolution

The separation agreement will contain provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between Alcoa Corporation and Arconic related to the separation or distribution and that are unable to be resolved through good faith discussions between Alcoa Corporation and Arconic. These provisions will contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to executives of Alcoa Corporation and Arconic, and that, if such efforts are not successful, either Alcoa Corporation or Arconic may submit the dispute, controversy or claim to nonbinding mediation or, if such nonbinding mediation is not successful, binding alternative dispute resolution, subject to the provisions of the separation agreement.

Expenses

Except as expressly set forth in the separation agreement or in any ancillary agreement, ParentCo will be responsible for all costs and expenses incurred in connection with the separation incurred prior to the distribution date, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation. Except as expressly set forth in the separation agreement or in any ancillary agreement, or as otherwise agreed in writing by Arconic and Alcoa Corporation, all costs and expenses incurred in connection with the separation after the distribution will be paid by the party incurring such cost and expense.

 

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Other Matters

Other matters governed by the separation agreement will include Arconic’s right to continue to use the “Alcoa” name and related trademark for limited purposes for a limited period following the distribution, access to financial and other information, confidentiality, access to and provision of records and treatment of outstanding guarantees and similar credit support.

Termination

The separation agreement will provide that it may be terminated, and the separation and distribution may be modified or abandoned, at any time prior to the distribution date in the sole and absolute discretion of ParentCo without the approval of any person, including Alcoa Corporation stockholders or ParentCo shareholders. In the event of a termination of the separation agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other party or any other person. After the distribution date, the separation agreement may not be terminated, except by an agreement in writing signed by both Arconic and Alcoa Corporation.

Transition Services Agreement

Alcoa Corporation and ParentCo will enter into a transition services agreement in connection with the separation pursuant to which Alcoa Corporation and Arconic and their respective affiliates will provide each other, on an interim, transitional basis, various services, including, but not limited to, employee benefits administration, specialized technical and training services and access to certain industrial equipment, information technology services, regulatory services, continued industrial site remediation and closure services on discrete projects, project management services for certain equipment installation and decommissioning projects, general administrative services and other support services. The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of out-of-pocket costs and expenses and a predetermined profit in the form of a mark-up of such out-of-pocket expenses. The party receiving each transition service will be provided with reasonable information that supports the charges for such transition service by the party providing the service.

The services generally will commence on the distribution date and terminate no later than two years following the distribution date. The receiving party may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges.

Subject to certain exceptions, the liabilities of each party providing services under the transition services agreement will generally be limited to the aggregate charges actually paid to such party by the other party pursuant to the transition services agreement.

Tax Matters Agreement

In connection with the separation, Alcoa Corporation and ParentCo will enter into a tax matters agreement that will govern the parties’ respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and assistance and cooperation in respect of tax matters.

In addition, the tax matters agreement will impose certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that will be designed to preserve the tax-free status of the distribution and certain related transactions. The tax sharing agreement will provide special rules that allocate tax liabilities in the event the distribution, together with certain

 

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related transactions, is not tax-free. In general, under the tax matters agreement, each party is expected to be responsible for any taxes imposed on ParentCo or Alcoa Corporation that arise from the failure of the distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Code, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the tax matters agreement.

Employee Matters Agreement

Alcoa Corporation and ParentCo will enter into an employee matters agreement in connection with the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters. The employee matters agreement will govern certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company.

The employee matters agreement will provide that, unless otherwise specified, Arconic will be responsible for liabilities associated with current and former employees of Arconic and its subsidiaries and certain other former employees classified as former employees of Arconic for purposes of post-separation compensation and benefits matters, and Alcoa Corporation will be responsible for liabilities associated with current and former employees of Alcoa Corporation and its subsidiaries and certain other former employees classified as former employees of Alcoa Corporation for purposes of post-separation compensation and benefits matters.

The employee matters agreement will also govern the treatment of equity-based awards granted by ParentCo prior to the separation. See “The Separation and Distribution—Treatment of Equity-Based Compensation.”

Stockholder and Registration Rights Agreement

Alcoa Corporation will enter into a stockholder and registration rights agreement with ParentCo pursuant to which we will agree that, following the 60-day period commencing immediately after the effective time of the distribution, upon the request of Arconic, we will use commercially reasonable efforts to effect the registration under applicable federal and state securities laws of any shares of our common stock retained by Arconic. In addition, Arconic will agree to vote any shares of our common stock that it retains immediately after the separation in proportion to the votes cast by our other stockholders. In connection with such agreement, Arconic will grant us a proxy to vote its shares of our common stock in such proportion. This proxy, however, will be automatically revoked as to any particular share upon any sale or transfer of such share from Arconic to a person other than Arconic, and neither the voting agreement nor proxy will limit or prohibit any such sale or transfer.

Intellectual Property License Agreements

In connection with the separation, Alcoa Corporation and ParentCo will enter into an Alcoa Corporation to Aronic Inc. Patent, Know-How, and Trade Secret License Agreement, an Arconic Inc. to Alcoa Corporation Patent, Know-How, and Trade Secret License Agreement, and an Alcoa Corporation to Arconic Inc. Trademark License Agreement, which we refer to, collectively, as the “intellectual property license agreements.”

Under the intellectual property license agreements, two Arconic businesses, Alcoa Wheels and Spectrochemical Standards, will have ongoing rights to use the “Alcoa” name following the separation. Alcoa Wheels will receive a 25 year, evergreen renewable, royalty-free license to use the “Alcoa” name for commercial transportation wheels and hubs. The Spectrochemical Standards business will receive a royalty-free license to use the “Alcoa” name for five years on existing inventory, with the possibility of one five-year extension. Under the intellectual property license agreements, subject to limited exceptions, Alcoa Corporation will not be permitted to use or license others to use the “Alcoa” name for a period of 20 years on Arconic-type products, such as aerospace and automotive parts.

 

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The intellectual property license agreements will also govern patents that were developed jointly and will continued to be used by both Arconic and Alcoa Corporation, as well as shared know-how. The intellectual property license agreements will provide for a license of these patents and know-how from Arconic or Alcoa Corporation, as applicable, to the other on a perpetual, royalty-free, non-exclusive basis, subject to certain exceptions. Namely, Alcoa Corporation will exclusively license to Arconic (i) Advanced Ceramics for non-smelting uses and (ii) the EVERCAST foundry alloy for commercial truck wheel applications, subject to a threshold sales target being met by December 31, 2020.

Either party may terminate the license with respect to any trademark under the intellectual property license agreements upon an uncured material breach of Arconic with respect to such trademark that remains uncured after at least 60 days.

Metal Supply Agreement

In connection with the separation, Alcoa Corporation and ParentCo will enter into a master agreement for the supply of primary aluminum (“metal supply agreement”) pursuant to which Alcoa Corporation will supply Arconic with aluminum for use in its businesses. The metal supply agreement will consist of a master agreement setting forth the general terms and conditions of the overall supply arrangement, with an initial term of three years, as well as individual sub-agreements that set forth terms and conditions with respect to the supply of a particular metal item. The master agreement will be based on the form of agreement currently used by the Alcoa Corporation Business with its third party customers for metal supply arrangements. Each of the sub-agreements will be negotiated individually and contain the main economic terms of the particular supply arrangement, including quantity and pricing. The term of each sub-agreement will typically be one year, but if longer than one year, quantity and pricing will be redetermined and renegotiated on an annual basis in accordance with industry practices. Notwithstanding the metal supply agreement, Arconic will have the right to purchase metal from other suppliers.

Real Estate Arrangements

Alcoa Corporation and ParentCo will enter into a lease agreement pursuant to which ParentCo will lease to Alcoa Corporation the land on which ParentCo’s smelter, cast house and associated facilities located in Massena, New York are located for a term of 20 years with three automatic 10-year extensions, except that if Alcoa Corporation determines to close the smelter, the lease will terminate three years after such closure. If Alcoa Corporation ceases active production by the smelter, the facility will be considered closed five years after such cessation continues uninterrupted, and Alcoa Corporation will then be required to dismantle the smelter, remediate the land and otherwise restore it to industrial standard within three years before the lease is deemed terminated. The rent under the Massena lease agreement will be set at a market rate and fixed for 10 years, after which it will increase annually based on the Consumer Price Index. In connection with the Massena lease agreement, Alcoa Corporation will provide certain power transmission services and process water to Arconic’s fabricating facility at the Massena, New York location.

In addition, subsidiaries of Alcoa Corporation and ParentCo will enter into a lease agreement pursuant to which a subsidiary of Alcoa Corporation, which will own the land and smelter assets at ParentCo’s Fusina, Italy location, will lease the land underlying ParentCo’s rolling mill facilities to a subsidiary of ParentCo for a term of 20 years with three automatic 10-year extensions. The rent under the Fusina lease agreement will be set at a market rate and fixed for 10 years, after which it will increase annually based on the Consumer Price Index.

Alcoa Corporation and ParentCo will enter into a lease agreement pursuant to which ParentCo will lease to Alcoa Corporation a portion of one research and development building in which ParentCo’s research and development facilities also are located, on ParentCo’s research and development campus in New Kensington, Pennsylvania (the “ATC Lease Agreement”). The ATC Lease Agreement will be for a term of 3 years with no automatic extensions and the rent will be set at a market rate and fixed for the term. In connection with the ATC

 

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Lease Agreement, ParentCo will also provide certain building utilities to Alcoa Corporation’s research and development facilities via metered rates.

North American Packaging Business Agreement

ParentCo’s operations in Tennessee, which will remain with Arconic following the separation, currently produce wide can body sheet for the North American packaging market. ParentCo plans to shift the production of the wide can body sheet for packaging applications from Tennessee to Alcoa Corporation’s Ma’aden rolling mill. Before the Ma’aden rolling mill can begin production of the wide can body sheet, product from the facilities must be qualified by existing customers as an acceptable source of supply. While it is anticipated that these approvals will be obtained, the process is expected to take approximately 18 months. Alcoa Corporation and Arconic will enter into a toll processing and services agreement (the “North American packaging business agreement”) pursuant to which Arconic will continue producing the wide can body sheet at Tennessee and provide it to Alcoa Corporation to permit Alcoa Corporation to continue supplying its customers without interruption during this period.

In addition, pursuant to the North American packaging business agreement, Arconic will process used beverage containers (“UBCs”) owned by Alcoa Corporation. Under the North American packaging business agreement, Arconic will cut, clean and melt the UBCs into ingot suitable for use by Alcoa Corporation as a raw material for use in Alcoa Corporation’s North American packaging business. The terms of the agreement will be based on the form of agreement currently used by ParentCo with its third party customers. The pricing terms of the agreement will be negotiated by Alcoa Corporation and Arconic following the separation. In addition to the pricing determination, the other terms and conditions of the agreement will be in line with industry practice. After the term of the North American packaging business agreement, Arconic and Alcoa Corporation may continue this commercial relationship subject to successful renegotiation at that time.

Spare Parts Loan Agreement

In connection with the separation, Alcoa Corporation and ParentCo will enter into a spare parts loan agreement pursuant to which each of Alcoa Corporation and Arconic and their respective affiliates will provide the other party with a loan of a spare equipment in its inventory while the other party has an order in process with its supplier. Upon fulfillment of the equipment order (or, if earlier, the need for the equipment by the loaning party or one year from the loan), the loaned spare equipment will be returned to the loaning party. Transportation costs will be borne by the borrowing party. Terms and conditions of the agreement will be in line with similar agreements to which ParentCo is currently a party with third parties.

Procedures for Approval of Related Party Transactions

Alcoa Corporation will adopt a written Related Person Transaction Approval Policy regarding the review, approval and ratification of transactions between the company and related persons. The policy will apply to any transaction in which the company or a company subsidiary is a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. A related person means any director or executive officer of the company, any nominee for director, any stockholder known to the company to be the beneficial owner of more than 5% of any class of the company’s voting securities, and any immediate family member of any such person.

Under this policy, reviews will be conducted by management to determine which transactions or relationships should be referred to the Governance and Nominating Committee for consideration. The Governance and Nominating Committee will then review the material facts and circumstances regarding a transaction and determine whether to approve, ratify, revise or reject a related person transaction, or to refer it to the full Board of Directors or another committee of the Board of Directors for consideration. The company’s Related Person Transaction Approval Policy will operate in conjunction with other aspects of the company’s

 

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compliance program, including its Business Conduct Policies, which will require that all directors, officers and employees have a duty to be free from the influence of any conflict of interest when they represent the company in negotiations or make recommendations with respect to dealings with third parties, or otherwise carry out their duties with respect to the company.

The Board of Directors is expected to consider the following types of potential related person transactions and pre-approve them under the company’s Related Person Transaction Approval Policy as not presenting material conflicts of interest:

 

    employment of executive officers (except employment of an executive officer that is an immediate family member of another executive officer, director, or nominee for director) as long as the Compensation and Benefits Committee has approved the executive officers’ compensation;

 

    director compensation that the Board of Directors has approved;

 

    any transaction with another entity in which the aggregate amount involved does not exceed the greater of $1 million or 2% of the other entity’s total annual revenues, if a related person’s interest arises only from:

 

    such person’s position as an employee or executive officer of the other entity; or

 

    such person’s position as a director of the other entity; or

 

    the ownership by such person, together with his or her immediate family members, of less than a 10% equity interest in the aggregate in the other entity (other than a partnership); or

 

    both such position as a director and ownership as described in the foregoing two bullets; or

 

    such person’s position as a limited partner in a partnership in which the person, together with his or her immediate family members, have an interest of less than 10%;

 

    charitable contributions in which a related person’s only relationship is as an employee (other than an executive officer), or a director or trustee, if the aggregate amount involved does not exceed the greater of $250,000 or 2% of the charitable organization’s total annual receipts;

 

    transactions, such as the receipt of dividends, in which all stockholders receive proportional benefits;

 

    transactions involving competitive bids;

 

    transactions involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and

 

    transactions with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of material U.S. federal income tax consequences of the distribution of Alcoa Corporation common stock to “U.S. holders” (as defined below) of ParentCo common stock. This summary is based on the Code, U.S. Treasury Regulations promulgated thereunder, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as in effect on the date of this information statement, and all of which are subject to differing interpretations and change at any time, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. This discussion applies only to U.S. holders of shares of ParentCo common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is based upon the assumption that the distribution, together with certain related transactions, will be consummated in accordance with the separation agreement and the other separation-related agreements and as described in this information statement. This summary is for general information only and is not tax advice. It does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of its particular circumstances or to holders subject to special rules under the Code (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, partners in partnerships that hold Alcoa Corporation common stock, pass-through entities (or investors therein), traders in securities who elect to apply a mark-to-market method of accounting, holders who hold Alcoa Corporation common stock as part of a “hedge,” “straddle,” “conversion,” “synthetic security,” “integrated investment” or “constructive sale transaction,” individuals who receive Alcoa Corporation common stock upon the exercise of employee stock options or otherwise as compensation, holders who are liable for alternative minimum tax or any holders who actually or constructively own more than 5% of ParentCo common stock). This discussion also does not address any tax consequences arising under the unearned Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any tax considerations under state, local or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. The distribution may be taxable under such other tax laws and all holders should consult their own tax advisors with respect to the applicability and effect of any such tax laws.

If a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes, holds ParentCo common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the distribution.

For purposes of this discussion, a “U.S. holder” is any beneficial owner of ParentCo common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or a resident of the United States;

 

    a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust, if (i) a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (ii) it has a valid election in place under applicable Treasury Regulations to be treated as a United States person.

THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

 

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It is a condition to the distribution that (i) the private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the separation and the distribution received by ParentCo remain valid and be satisfactory to the ParentCo Board of Directors and (ii) an opinion of its outside counsel, satisfactory to the ParentCo Board of Directors, regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The IRS private letter ruling is and the opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of Alcoa Corporation and ParentCo (including those relating to the past and future conduct of Alcoa Corporation and ParentCo). If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if Alcoa Corporation or ParentCo breach any of their respective representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of counsel, such IRS private letter ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion of counsel, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the IRS private letter ruling or the opinion of counsel was based are false or have been violated. In addition, the IRS private letter ruling does not address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes, and the opinion of counsel will represent the judgment of such counsel and will not be binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by ParentCo of the IRS private letter ruling and the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, ParentCo, Alcoa Corporation and ParentCo shareholders could be subject to significant U.S. federal income tax liability. Please refer to “—Material U.S. Federal Income Tax Consequences if the Distribution is Taxable” below.

Material U.S. Federal Income Tax Consequences if the Distribution, Together with Certain Related Transactions, Qualifies as a Transaction That is Generally Tax-Free Under Sections 355 and Sections 368(a)(1)(D) of the Code.

Assuming the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, the U.S. federal income tax consequences of the distribution are as follows:

 

    no gain or loss will be recognized by, and no amount will be includible in the income of ParentCo as a result of the distribution, other than gain or income arising in connection with certain internal restructurings undertaken in connection with the separation and distribution (including with respect to any portion of the borrowing proceeds transferred to ParentCo from Alcoa Corporation that is not used for qualifying purposes) and with respect to any “excess loss account” or “intercompany transaction” required to be taken into account by ParentCo under U.S. Treasury regulations relating to consolidated federal income tax returns;

 

    no gain or loss will be recognized by (and no amount will be included in the income of) U.S. holders of ParentCo common stock, upon the receipt of Alcoa Corporation common stock in the distribution, except with respect to any cash received in lieu of fractional shares of Alcoa Corporation common stock (as described below);

 

   

the aggregate tax basis of the ParentCo common stock and the Alcoa Corporation common stock received in the distribution (including any fractional share interest in Alcoa Corporation common stock

 

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for which cash is received) in the hands of each U.S. holder of ParentCo common stock immediately after the distribution will equal the aggregate basis of ParentCo common stock held by the U.S. holder immediately before the distribution, allocated between the ParentCo common stock and the Alcoa Corporation common stock (including any fractional share interest in Alcoa Corporation common stock for which cash is received) in proportion to the relative fair market value of each on the date of the distribution; and

 

    the holding period of the Alcoa Corporation common stock received by each U.S. holder of ParentCo common stock in the distribution (including any fractional share interest in Alcoa Corporation common stock for which cash is received) will generally include the holding period at the time of the distribution for the ParentCo common stock with respect to which the distribution is made.

A U.S. holder who receives cash in lieu of a fractional share of Alcoa Corporation common stock in the distribution will be treated as having sold such fractional share for cash, and will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and such U.S. holder’s adjusted tax basis in such fractional share. Such gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period for its ParentCo common stock exceeds one year at the time of distribution.

If a U.S. holder of ParentCo common stock holds different blocks of ParentCo common stock (generally shares of ParentCo common stock purchased or acquired on different dates or at different prices), such holder should consult its tax advisor regarding the determination of the basis and holding period of shares of Alcoa Corporation common stock received in the distribution in respect of particular blocks of ParentCo common stock.

U.S. Treasury regulations require certain U.S. holders who receive shares of Alcoa Corporation common stock in the distribution to attach to such U.S. holder’s federal income tax return for the year in which the distribution occurs a detailed statement setting forth certain information relating to the tax-free nature of the distribution.

Material U.S. Federal Income Tax Consequences if the Distribution is Taxable.

As discussed above, notwithstanding receipt by ParentCo of the IRS private letter ruling and an opinion of counsel, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, the consequences described above would not apply and ParentCo, Alcoa Corporation and ParentCo shareholders could be subject to significant U.S. federal income tax liability. In addition, certain events that may or may not be within the control of ParentCo or Alcoa Corporation could cause the distribution and certain related transactions to not qualify for tax-free treatment for U.S. federal income tax purposes. Depending on the circumstances, Alcoa Corporation may be required to indemnify ParentCo for taxes (and certain related losses) resulting from the distribution and certain related transactions not qualifying as tax-free.

If the distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, in general, ParentCo would recognize taxable gain as if it had sold the Alcoa Corporation common stock in a taxable sale for its fair market value (unless ParentCo and Alcoa Corporation jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (i) the ParentCo group would recognize taxable gain as if Alcoa Corporation had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the Alcoa Corporation common stock and the assumption of all Alcoa Corporation’s liabilities and (ii) Alcoa Corporation would obtain a related step up in the basis of its assets) and ParentCo shareholders who receive Alcoa Corporation common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

Even if the distribution were to otherwise qualify as tax-free under Sections 355 and 368(a)(1)(D) of the Code, it may result in taxable gain to ParentCo under Section 355(e) of the Code if the distribution were later

 

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deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in ParentCo or Alcoa Corporation. For this purpose, any acquisitions of ParentCo or Alcoa Corporation shares within the period beginning two years before the separation and ending two years after the separation are presumed to be part of such a plan, although Alcoa Corporation or ParentCo may be able to rebut that presumption.

In connection with the distribution, Alcoa Corporation and ParentCo will enter into a tax matters agreement pursuant to which Alcoa Corporation will be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the tax matters agreement, if the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code (including as a result of Section 355(e) of the Code) or if certain related transactions were to fail to qualify as tax-free under applicable law and, in each case, such failure were the result of actions taken after the distribution by ParentCo or Alcoa Corporation, the party responsible for such failure will be responsible for all taxes imposed on ParentCo or Alcoa Corporation to the extent such taxes result from such actions. However, if such failure was the result of any acquisition of Alcoa Corporation shares or assets, or of any of Alcoa Corporation’s representations, statements or undertakings being incorrect, incomplete or breached, Alcoa Corporation generally will be responsible for all taxes imposed as a result of such acquisition or breach. For a discussion of the tax matters agreement, see “Certain Relationships and Related Person Transactions—Tax Matters Agreement.” Alcoa Corporation’s indemnification obligations to ParentCo under the tax matters agreement are not expected to be limited in amount or subject to any cap. If Alcoa Corporation is required to pay any taxes or indemnify ParentCo and its subsidiaries and their respective officers and directors under the circumstances set forth in the tax matters agreement, Alcoa Corporation may be subject to substantial liabilities.

Backup Withholding and Information Reporting.

Payments of cash to U.S. holders of ParentCo common stock in lieu of fractional shares of Alcoa Corporation common stock may be subject to information reporting and backup withholding (currently, at a rate of 28%), unless such U.S. holder delivers a properly completed IRS Form W-9 certifying such U.S. holder’s correct taxpayer identification number and certain other information, or otherwise establishing a basis for exemption from backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. holder’s U.S. federal income tax liability provided that the required information is timely furnished to the IRS.

THE FOREGOING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OF OTHER JURISDICTIONS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.

 

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DESCRIPTION OF MATERIAL INDEBTEDNESS

A subsidiary of Alcoa Corporation has incurred certain indebtedness in connection with the separation.

The material agreements described below are filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries of each of these agreements set forth below are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.

Revolving Credit Facility

On September 16, 2016, Alcoa Corporation and Alcoa Nederland Holding B.V. (“Alcoa Nederland”), a wholly owned subsidiary of Alcoa Corporation, entered into a secured revolving credit agreement with a syndicate of lenders and issuers named therein, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders and issuers (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for revolving loans to be made available in an aggregate principal amount of up to $1.5 billion (the “Revolving Credit Facility”), of which $750 million of the outstanding loans may be denominated in Euros. In addition, up to $750 million may be utilized for the issuance of letters of credit, with a sublimit of $400 million for any letters of credit issued for the account of Alcoa Corporation or any domestic subsidiary (the “US Letters of Credit”). The proceeds of the Revolving Credit Facility are to be used for transaction costs associated with the separation, to provide working capital and/or for other general corporate purposes of Alcoa Corporation and its subsidiaries. The Revolving Credit Facility will not be available for borrowings until the date on which certain conditions are satisfied (or waived in accordance with the terms of the Revolving Credit Agreement), including the completion of the separation in a manner consistent, in all material respects, with the description provided to the lenders under the Revolving Credit Facility. In particular, if such conditions have not been satisfied (or waived in accordance with the terms of the Revolving Credit Agreement) on or before June 30, 2017, or if prior to the satisfaction of such conditions, Alcoa Corporation receives a public corporate family rating from Moody’s of B1 or lower or a public corporate credit rating of B+ or lower from S&P, the commitments under the Revolving Credit Agreement will be terminated.

The Revolving Credit Facility will mature on the earlier of (i) the date that is five years following the date on or after which the conditions for funding are first satisfied and (ii) December 31, 2021, with certain extension rights in the discretion of each lender.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin, plus, at Alcoa Nederland’s option, either (a) an adjusted LIBOR rate or (b) a base rate determined by reference to the highest of (1) the prime rate of JPMorgan Chase Bank, N.A., (2) the greater of the federal funds effective rate and the overnight bank funding rate, plus 0.5% and (3) the one month adjusted LIBOR rate plus 1% per annum. The applicable margin for LIBOR loans and base rate loans will vary based on Alcoa Corporation’s leverage ratio and will range from 1.75% to 2.50% for LIBOR loans and 0.75% to 1.50% for base rate loans. In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, Alcoa Nederland will be required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which will also be determined by Alcoa Corporation’s leverage ratio and will range from 0.225% to 0.450%.

Alcoa Nederland will be required to pay customary letter of credit fees and agency fees. Furthermore, an upfront fee equal to 0.375% of the aggregate amount of each lender’s commitment is also payable. Alcoa Nederland agrees to pay a ticking fee at a rate per annum equal to 0.125% of the total commitment, for the period from and including the date that is 90 days following the effective date of the Revolving Credit Agreement to but excluding the earlier of (i) the date on or after which the conditions for funding are first satisfied and (ii) the date the commitments are terminated in accordance with Revolving Credit Agreement, and payable on such date.

 

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Alcoa Nederland may voluntarily prepay any amounts outstanding under the Revolving Credit Facility, without penalty or premium, other than customary “breakage” costs with respect to LIBOR loans, and may also reduce the commitment under the Revolving Credit Facility, in whole or in part, in each case, subject to certain minimum amounts and increments.

All obligations of Alcoa Corporation or a domestic entity under the Revolving Credit Facility, including in respect of or in connection with US Letters of Credit, are guaranteed on a senior secured basis by Alcoa Nederland, Alcoa Corporation, Aluminerie Lauralco, Sàrl and the material domestic wholly-owned subsidiaries of Alcoa Corporation (collectively the “US Loan Parties”), subject to certain exceptions set forth in the Revolving Credit Agreement. All such obligations are secured by, subject to certain exceptions (including a limitation of pledges of equity interests in certain foreign subsidiaries to 65%, and certain thresholds with respect to real property), a first priority lien on substantially all assets of the US Loan Parties (other than assets owned by Alcoa Nederland and Aluminerie Lauralco, Sàrl), 100% of the equity interests of Alcoa Australian Holdings Pty Ltd. and 65% of the equity interests of both Alcoa Nederland and Aluminerie Lauralco, Sàrl.

All other obligations under the Revolving Credit Facility are guaranteed by the US Loan Parties and the material foreign wholly-owned subsidiaries of Alcoa Corporation located in Australia, Brazil, Canada, Luxembourg, the Netherlands and Norway (collectively, the “Global Loan Parties”), in each case, subject to certain exceptions set forth in the Revolving Credit Agreement. All such obligations are secured by, subject to certain exceptions (including certain thresholds with respect to real property), a first priority security interest in substantially all assets of the Global Loan Parties, including equity interests of certain subsidiaries that directly holds equity interests in Alcoa World Alumina and Chemicals (AWAC) entities. However, no AWAC entity is a guarantor of any obligation under the Revolving Credit Facility and no asset of any AWAC entity, or equity interests in any AWAC entity, will be pledged to secure the obligations under the Revolving Credit Facility.

The Revolving Credit Facility contains a number of customary affirmative covenants. In addition, the Revolving Credit Facility contains a number of negative covenants (to be applicable to Alcoa Corporation and its restricted subsidiaries), that, subject to certain exceptions, include limitations on (among other things): liens, fundamental changes, sales of assets, indebtedness, entering into restrictive agreements, restricted payments, investments, loans, advances, guarantees and acquisitions, transactions with affiliates, amendment of certain material documents, and a covenant prohibiting reductions in the ownership of AWAC entities held by the Global Loan Parties and certain other specified restricted subsidiaries of Alcoa Corporation, below an agreed level.

The Revolving Credit Facility also includes financial covenants requiring the maintenance of a specified interest expense coverage ratio of not less than 5.00 to 1.00, and a leverage ratio for any period of four consecutive fiscal quarters that is not greater than 2.25 to 1.00.

The Revolving Credit Facility contains customary events of default, including with respect to a failure to make payments under the Revolving Credit Facility, cross-default and cross-judgment default and certain bankruptcy and insolvency events.

Senior Notes

On September 27, 2016, Alcoa Nederland completed an offering of $750,000,000 aggregate principal amount of 6.75% senior notes due 2024 (the “2024 notes”) and $500,000,000 aggregate principal amount of 7.00% senior notes due 2026 (the “2026 notes” and, together with the 2024 notes, the “notes”). The notes were issued pursuant to an indenture (the “Indenture”) among (i) Alcoa Nederland, (ii) Alcoa Corporation and (iii) The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”).

Concurrently with the closing, Alcoa Nederland deposited (i) the net proceeds from the offering of notes and (ii) an additional amount of cash sufficient to fund the redemption of the notes and to pay all regularly scheduled interest on the notes to, but not including, the latest possible redemption date for the Special Mandatory

 

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Redemption (as defined below) and to pay the maximum possible Special Mandatory Redemption Price (as defined below) into segregated escrow accounts. The release of the escrowed funds will be subject to the conditions set forth in the escrow agreements among Alcoa Nederland, the Trustee and SunTrust Bank, as escrow agent (the “Escrow Agent”) and securities intermediary, including the delivery of an officer’s certificate to the Trustee and Escrow Agent to the effect, among other things, that the separation of the Alcoa Corporation Business (as defined in the Indenture) from ParentCo and the distribution of Alcoa Corporation’s common stock to ParentCo’s shareholders will occur substantially concurrently with the release of the escrowed funds and that each Initial Subsidiary Guarantor (as defined in the Indenture) has executed and delivered to the Trustee a supplemental indenture to the Indenture to provide a guarantee and that such guarantee will be effective from and after the separation and distribution. If the separation and distribution have not been completed on or before April 3, 2017 (the “Outside Date”) or, prior to the Outside Date, Alcoa Nederland has delivered to the Trustee and the Escrow Agent an officer’s certificate stating that the separation and distribution have been abandoned or that the conditions for the release of funds will not be satisfied, Alcoa Nederland must redeem the notes (the “Special Mandatory Redemption”) at a price equal to (i) 100% of the principal amount of the notes if the redemption 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 not including, the date on which the Special Mandatory Redemption occurs (the “Special Mandatory Redemption Price”).

Prior to the satisfaction of the conditions for the release of funds, the notes are secured by a first-priority lien on the funds held in the escrow accounts. Prior to the distribution date, the notes are guaranteed on a senior unsecured basis by Alcoa Corporation only. From and after the distribution date, the notes will be guaranteed on a senior unsecured basis by Alcoa Corporation and Alcoa Corporation’s subsidiaries that are guarantors under the Revolving Credit Facility on the distribution date, subject to certain exceptions (the “subsidiary guarantors” and, together with Alcoa Corporation, the “guarantors”). Each of the subsidiary guarantors will be released from their note guarantees upon the occurrence of certain events, including the release of such guarantor from its obligations as a guarantor under the Revolving Credit Agreement.

The Indenture contains certain restrictive covenants that will, after the separation and distribution, limit Alcoa Nederland’s and each guarantor’s ability to, among other things, incur, assume or guarantee debt or issue certain disqualified equity interests and preferred shares; pay dividends on or make other distributions in respect of capital stock and make other restricted payments and investments; sell or transfer certain assets; create liens on assets to secure debt unless the notes are secured equally and ratably; enter into certain transactions with their affiliates; restrict dividends and other payments by certain of their subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; and take any actions that would reduce their ownership of AWAC entities below an agreed level. These covenants are subject to a number of limitations and exceptions. The Indenture also contains customary events of default.

The notes may be redeemed at Alcoa Nederland’s option, in whole or in part, at any time and from time to time after September 30, 2019, in the case of the 2024 notes, and September 30, 2021, in the case of the 2026 notes, at the applicable redemption prices that will be set forth in the Indenture. At any time prior to such dates, Alcoa Nederland will be entitled at its option to redeem all, but not less than all, of the notes at a “make-whole” redemption price that will be set forth in the Indenture. Additionally, at any time prior to September 30, 2019, Alcoa Nederland may, on one or more occasions, redeem up to 40% of the aggregate principal amount of the notes of each series at the applicable redemption prices set forth in the Indenture with the net cash proceeds of certain equity offerings. The notes may also be redeemed at the option of Alcoa Nederland at any time in connection with certain changes in withholding taxes. Upon the occurrence of a change of control, if certain other conditions are met, Alcoa Nederland must offer to purchase the notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest.

Upon release from escrow, Alcoa Nederland intends to use a substantial portion of the net proceeds of the issuance of the notes to make a payment to Arconic to fund the transfer of certain assets from Arconic to Alcoa Nederland in connection with the separation and distribution, and remaining net proceeds may be used for general corporate purposes.

 

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Other Debt

Alcoa Corporation has a loan agreement with Brazil’s National Bank for Economic and Social Development (“BNDES”) that provides for a financing commitment of $397 million, which is divided into three subloans and was used to pay for certain expenditures of the Estreito hydroelectric power project. Interest on the three subloans is a Brazil real rate of interest equal to BNDES’ long-term interest rate, 7.00% as of December 31, 2015 plus a weighted-average margin of 1.48%. As of December 31, 2015, Alcoa Corporation’s outstanding borrowings was $136 million and the weighted-average interest rate was 8.49%. This loan may be repaid early without penalty with the approval of BNDES.

Alcoa Corporation has another loan agreement with BNDES that provides for a financing commitment of

$85 million, which was also used to pay for certain expenditures of the Estreito hydroelectric power project. Interest on the loan is a Brazil real rate of interest equal to BNDES’ long-term interest rate plus a margin of 1.55%. As of December 31, 2015, Alcoa Corporation’s outstanding borrowings was $38 million, and the interest rate was 6.55%. This loan may be repaid early without penalty with the approval of BNDES. See Note K to the Combined Financial Statements under the caption “Debt.”

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Before the separation and distribution, all of the outstanding shares of Alcoa Corporation common stock will be owned beneficially and of record by ParentCo. Following the separation and distribution, Alcoa Corporation expects to have outstanding an aggregate of approximately [            ] shares of common stock based upon approximately [            ] shares of ParentCo common stock issued and outstanding on [                    ], 2016, excluding treasury shares, assuming no exercise of ParentCo options and applying the distribution ratio.

Security Ownership of Certain Beneficial Owners

The following table reports the number of shares of Alcoa Corporation common stock that Alcoa Corporation expects will be beneficially owned, immediately following the completion of the distribution by each person who is expected to beneficially own more than 5% of Alcoa Corporation common stock at such time. The table is based upon information available as of [                    ], 2016 as to those persons who beneficially own more than 5% of ParentCo common stock and assumes a distribution of approximately 80.1% of the outstanding shares of Alcoa Corporation common stock and that, for every three shares of ParentCo common stock held by such persons, they will receive one of Alcoa Corporation common stock.

 

Name and Address of Beneficial Owner

   Amount and Nature of
Beneficial Ownership
     Percent of Class  

ParentCo

     [                  19.9

[            ]

     [                  [        

Share Ownership of Executive Officers and Directors

The following table sets forth information, immediately following the completion of the distribution calculated as of [                ], 2016, based upon the distribution of one share of Alcoa Corporation common stock for every three shares of ParentCo common stock, regarding (i) each expected director, director nominee and executive officer of Alcoa Corporation and (ii) all of Alcoa Corporation’s expected directors and executive officers as a group. The address of each director, director nominee and executive officer shown in the table below is c/o Alcoa Corporation, Corporate Secretary’s Office, 390 Park Avenue, New York, New York 10022-4608.

 

Name of Beneficial Owner

   Shares
Beneficially Owned
  Percent of Class

Michael G. Morris

   [            ]   [            ]

Mary Anne Citrino

   [            ]   [            ]

Timothy P. Flynn

   [            ]   [            ]

Kathryn S. Fuller

   [            ]   [            ]

James A. Hughes

   [            ]   [            ]

James E. Nevels

   [            ]   [            ]

James W. Owens

   [            ]   [            ]

Carol L. Roberts

   [            ]   [            ]

Suzanne Sitherwood

   [            ]   [            ]

Steven W. Williams

   [            ]   [            ]

Ernesto Zedillo

   [            ]   [            ]

Roy C. Harvey

   [            ]   [            ]

William F. Oplinger

   [            ]   [            ]

Robert S. Collins

   [            ]   [            ]

Leigh Ann C. Fisher

   [            ]   [            ]

Jeffrey D. Heeter

   [            ]   [            ]

Tómas Sigurðsson

   [            ]   [            ]

All directors and executive officers as a group ([            ] persons)

   [            ]   [            ]

 

* Indicates that the percentage of beneficial ownership does not exceed 1%.

 

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DESCRIPTION OF ALCOA CORPORATION CAPITAL STOCK

Alcoa Corporation’s certificate of incorporation and bylaws will be amended and restated prior to the distribution. The following is a summary of the material terms of our capital stock that will be contained in our amended and restated certificate of incorporation and bylaws. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of our certificate of incorporation or bylaws that will be in effect at the time of the distribution, and are qualified in their entirety by reference to these documents, which you must read (along with the applicable provisions of Delaware law) for complete information on our capital stock as of the time of the distribution. The certificate of incorporation and bylaws, each in a form expected to be in effect at the time of the distribution, will be included as exhibits to Alcoa Corporation’s registration statement on Form 10, of which this information statement forms a part. We will include our amended and restated certificate of incorporation and bylaws, as in effect at the time of the distribution, in a Current Report on Form 8-K filed with the SEC. The following also summarizes certain relevant provisions of the Delaware General Corporation Law (which we refer to as the “DGCL”). Since the terms of the DGCL are more detailed than the general information provided below, you should read the actual provisions of the DGCL for complete information.

General

Alcoa Corporation will be authorized to issue 850,000,000 shares, of which:

 

    750,000,000 shares will be designated as common stock, par value $0.01 per share; and

 

    100,000,000 shares will be designated as preferred stock, par value $0.01 per share.

Immediately following the distribution, we expect that approximately [            ] shares of our common stock will be issued and outstanding and that no shares of our preferred stock will be issued and outstanding.

Common Stock

Dividend Rights

Holders of our common stock will be entitled to receive dividends as declared by the Board of Directors. However, no dividend will be declared or paid on our common stock until the company has paid (or declared and set aside funds for payment of) all dividends that have accrued on all classes of Alcoa Corporation’s outstanding preferred stock.

Voting Rights

Holders of our common stock will be entitled to one vote per share.

Liquidation Rights

Upon any liquidation, dissolution or winding up of Alcoa Corporation, whether voluntary or involuntary, after payments to holders of preferred stock of amounts determined by the Board of Directors, plus any accrued dividends, the company’s remaining assets will be divided among holders of our common stock.

Preemptive or Other Subscription Rights

Holders of our common stock will not have any preemptive right to subscribe for any securities of the company.

Conversion and Other Rights

No conversion, redemption or sinking fund provisions will apply to our common stock, and our common stock will not be liable to further call or assessment by the company. All issued and outstanding shares of our common stock will be fully paid and non-assessable.

 

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Preferred Stock

Under the terms of our amended and restated certificate of incorporation, our Board of Directors will be authorized to issue up to 100,000,000 shares of preferred stock in one or more series without further action by the holders of our common stock. Our Board of Directors will have the discretion, subject to limitations prescribed by Delaware law and by our amended and restated certificate of incorporation, to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, terms of redemption and liquidation preferences, of each series of preferred stock.

Although our Board of Directors does not currently intend to do so, it could authorize us to issue a class or series of preferred stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a transaction or a change of control of our company, even if such transaction or change of control involves a premium price for our stockholders or our stockholders believe that such transaction or change of control may be in their best interests.

Limitation on Liability of Directors; Indemnification; Insurance

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors, and our amended and restated certificate of incorporation will include such an exculpation provision. Our amended and restated certificate of incorporation and bylaws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of Alcoa Corporation, or for serving at Alcoa Corporation’s request as a director or officer or another position at another corporation or enterprise, as the case may be. Our amended and restated certificate of incorporation and bylaws will also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. Our amended and restated certificate of incorporation will expressly authorize us to carry directors’ and officers’ insurance to protect Alcoa Corporation, its directors, officers and certain employees against certain liabilities.

The limitation of liability and indemnification provisions that will be in our amended and restated certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit Alcoa Corporation and its stockholders. Your investment may be adversely affected to the extent that, in a class action or direct suit, Alcoa Corporation pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. However, these provisions will not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. The provisions will not alter the liability of directors under the federal securities laws.

Anti-Takeover Effects of Various Provisions of Delaware Law and our Certificate of Incorporation and Bylaws

Provisions of the DGCL and our amended and restated certificate of incorporation and bylaws could make it more difficult to acquire Alcoa Corporation by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and takeover bids that our Board of Directors may consider inadequate and to encourage persons seeking to acquire control of the company to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure it outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

 

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Delaware Anti-Takeover Provisions

Alcoa Corporation will be subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by our stockholders.

Size of Board; Vacancies; Removal

Our amended and restated bylaws will provide that the number of directors on our Board of Directors will be fixed exclusively by our Board of Directors. Any vacancies created in our Board of Directors resulting from any increase in the authorized number of directors or the death, resignation, retirement, disqualification, removal from office or other cause will be filled by a majority of the Board of Directors then in office, even if less than a quorum is present, or by a sole remaining director. Any director appointed to fill a vacancy on our Board of Directors will be appointed for a term expiring at the next election of directors and until his or her successor has been elected and qualified.

Our amended and restated bylaws will provide that stockholders may remove our directors with or without cause by holders of a majority of shares entitled to vote at an election of directors.

Stockholder Action by Written Consent

Our amended and restated certificate of incorporation will provide that stockholders may not act by written consent unless such written consent is unanimous. Stockholder action must otherwise take place at the annual or a special meeting of our stockholders.

Special Stockholder Meetings

Our amended and restated certificate of incorporation will provide that the chairman of our Board of Directors, our chief executive officer or our Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors may call special meetings of our stockholders. Additionally, stockholders owning not less than 25% of our outstanding shares, who have held those shares for at least one year, may call a special stockholder meeting.

Advance Notice for Stockholder Proposals and Nominations

Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors (other than nominations made by or at the direction of the Board of Directors).

Proxy Access

In addition to advance notice procedures, our amended and restated bylaws will also include provisions permitting, subject to certain terms and conditions, stockholders who have maintained continuous qualifying ownership of at least 3% of our outstanding common stock for at least three years to use our annual meeting proxy statement to nominate a number of director candidates not to exceed the greater of two candidates or 20% of the number of directors in office.

 

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Certain Effects of Authorized but Unissued Stock

We may issue additional shares of common stock or preferred stock without stockholder approval, subject to applicable rules of the NYSE and Delaware law, for a variety of corporate purposes, including future public or private offerings to raise additional capital, corporate acquisitions, and employee benefit plans and equity grants. The existence of unissued and unreserved common and preferred stock may enable us to issue shares to persons who are friendly to current management, which could discourage an attempt to obtain control of Alcoa Corporation by means of a proxy contest, tender offer, merger or otherwise. We will not solicit approval of our stockholders for issuance of common or preferred stock unless our Board of Directors believes that approval is advisable or is required by applicable stock exchange rules or Delaware law.

No Cumulative Voting

The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless the company’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.

Exclusive Forum

Our amended and restated certificate of incorporation will provide that unless the Board of Directors otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Alcoa Corporation, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer of Alcoa Corporation to Alcoa Corporation or to Alcoa Corporation stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against Alcoa Corporation or any current or former director or officer of Alcoa Corporation arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or bylaws, any action asserting a claim relating to or involving Alcoa Corporation governed by the internal affairs doctrine, or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. However, if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, the action may be brought in the federal court for the District of Delaware.

Listing

We intend to apply to have our shares of common stock listed on the NYSE under the symbol “AA.”

Sale of Unregistered Securities

On March 14, 2016 Alcoa Corporation issued 1,000 shares of its common stock to ParentCo pursuant to Section 4(a)(2) of the Securities Act. We did not register the issuance of the issued shares under the Securities Act because such issuance did not constitute a public offering.

Transfer Agent and Registrar

After the distribution, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to Alcoa Corporation and Alcoa Corporation common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document filed as an exhibit to the registration statement include the material terms of such contract or other document. However, such statements are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330, as well as on the Internet website maintained by the SEC at www.sec.gov Information contained on or connected to any website referenced in this information statement is not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC .

As a result of the distribution, Alcoa Corporation will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.

We intend to furnish holders of our common stock with annual reports containing combined financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.

You should rely only on the information contained in this information statement or to which this information statement has referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.

 

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INDEX TO FINANCIAL STATEMENTS

 

     Page  

Audited Combined Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-2   

Statements of Combined Operations for the years ended December 31, 2015, 2014 and 2013

     F-3   

Statement of Combined Comprehensive Loss for the years ended December 31, 2015, 2014 and 2013

     F-4   

Combined Balance Sheet as of December 31, 2015 and 2014

     F-5   

Statement of Combined Cash Flows for the years ended December 31, 2015 and 2014

     F-6   

Statement of Changes in Combined Equity for the years ended December 31, 2015, 2014 and 2013

     F-7   

Notes to Combined Financial Statements

     F-8   

Unaudited Combined Financial Statements

  

Report of Independent Registered Public Accounting Firm

     F-72   

Statement of Combined Operations for the six months ended June 30, 2016 and 2015 (Unaudited)

     F-73   

Statement of Combined Comprehensive (Loss) Income for the six months ended June 30, 2016 and 2015 (Unaudited)

     F-74   

Combined Balance Sheet as of June 30, 2016 and December 31, 2015 (Unaudited)

     F-75   

Statement of Combined Cash Flows for the six months ended June 30, 2016 and 2015 (Unaudited)

     F-76   

Statement of Changes in Combined Equity for the six months ended June 30, 2016 and 2015 (Unaudited)

     F-77   

Notes to Combined Financial Statements

     F-78   

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Alcoa Inc.

In our opinion, the accompanying combined balance sheets and the related statements of combined operations, combined comprehensive loss, changes in combined equity, and combined cash flows present fairly, in all material respects, the financial position of Alcoa Upstream Corporation at December 31, 2015 and December 31, 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s 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) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

June 29, 2016

 

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Alcoa Upstream Corporation

Statement of Combined Operations

(in millions)

 

For the year ended December 31,

   Note      2015     2014     2013  

Sales to unrelated parties

      $ 10,121      $ 11,364      $ 11,035   

Sales to related parties

        1,078        1,783        1,538   
     

 

 

   

 

 

   

 

 

 

Total sales

     Q         11,199        13,147        12,573   
     

 

 

   

 

 

   

 

 

 

Cost of goods sold (exclusive of expenses below)

        9,039        10,548        11,040   

Selling, general administrative, and other expenses

        353        383        406   

Research and development expenses

        69        95        86   

Provision for depreciation, depletion, and amortization

        780        954        1,026   

Impairment of goodwill

     A & E         —          —          1,731   

Restructuring and other charges

     D         983        863        712   

Interest expense

     A & V         270        309        305   

Other expenses, net

     O         42        58        14   
     

 

 

   

 

 

   

 

 

 

Total costs and expenses

        11,536        13,210        15,320   
     

 

 

   

 

 

   

 

 

 

Loss before income taxes

        (337     (63     (2,747

Provision for income taxes

     S         402        284        123   
     

 

 

   

 

 

   

 

 

 

Net loss

        (739     (347     (2,870

Less: Net income (loss) attributable to noncontrolling interest

        124        (91     39   
     

 

 

   

 

 

   

 

 

 

Net loss attributable to Alcoa Upstream Corporation

      $ (863   $ (256   $ (2,909
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of

Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Combined Comprehensive Loss

(in millions)

 

          Alcoa Upstream
Corporation
    Noncontrolling interest     Total  

For the year ended December 31,

  Note     2015     2014     2013     2015     2014     2013     2015     2014     2013  

Net (loss) income

    $ (863   $ (256   $ (2,909   $ 124      $ (91   $ 39      $ (739   $ (347   $ (2,870

Other comprehensive loss, net of tax:

    B                     

Change in unrecognized net actuarial loss/gain and prior service cost/benefit related to pension and other postretirement benefits

      72        (51     181        8        (13     26        80        (64     207   

Foreign currency translation adjustments

      (1,183     (688     (792     (428     (236     (367     (1,611     (924     (1,159

Net change in unrecognized gains/losses on cash flow hedges

      827        80        181        (1     —          3        826        80        184   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive loss, net of tax

      (284     (659     (430     (421     (249     (338     (705     (908     (768
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

    $ (1,147   $ (915   $ (3,339   $ (297   $ (340   $ (299   $ (1,444   $ (1,255   $ (3,638
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Combined Balance Sheet

(in millions)

 

December 31,

   Note      2015     2014  

Assets

       

Current assets:

       

Cash and cash equivalents

     X       $ 557      $ 266   

Receivables from customers, less allowances of $0 in 2015 and $1 in 2014

        380        474   

Other receivables

        124        238   

Inventories

     G         1,172        1,501   

Prepaid expenses and other current assets

        333        438   
     

 

 

   

 

 

 

Total current assets

        2,566        2,917   

Properties, plants, and equipment, net

     H         9,390        11,326   

Goodwill

     A & E         152        160   

Investments

     I         1,472        1,777   

Deferred income taxes

     S         589        1,065   

Fair value of derivative contracts

        997        146   

Other noncurrent assets

     J         1,247        1,289   
     

 

 

   

 

 

 

Total Assets

      $ 16,413      $ 18,680   
     

 

 

   

 

 

 

Liabilities

       

Current liabilities:

       

Accounts payable, trade

      $ 1,379      $ 1,740   

Accrued compensation and retirement costs

        313        372   

Taxes, including income taxes

        136        141   

Other current liabilities

        558        453   

Long-term debt due within one year

     K & X         18        29   
     

 

 

   

 

 

 

Total current liabilities

        2,404        2,735   

Long-term debt, less amount due within one year

     K & X         207        313   

Noncurrent income taxes

        508        424   

Accrued pension benefits

     W         359        417   

Accrued other postretirement benefits

     W         78        93   

Environmental remediation

     N         207        125   

Asset retirement obligations

     C         539        572   

Other noncurrent liabilities and deferred credits

     L         598        928   
     

 

 

   

 

 

 

Total liabilities

        4,900        5,607   
     

 

 

   

 

 

 

Contingencies and commitments

     N        

Equity

       

Net parent investment

        11,042        11,915   

Accumulated other comprehensive loss

     B         (1,600     (1,316
     

 

 

   

 

 

 

Total net parent investment and other comprehensive loss

        9,442        10,599   
     

 

 

   

 

 

 

Noncontrolling interest

     M         2,071        2,474   
     

 

 

   

 

 

 

Total equity

        11,513        13,073   
     

 

 

   

 

 

 

Total Liabilities and Equity

      $ 16,413      $ 18,680   
     

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Combined Cash Flows

(in millions)

 

For the year ended December 31,

   Note      2015     2014     2013  

Cash From Operations

         

Net loss

      $ (739   $ (347   $ (2,870

Adjustments to reconcile net loss to cash from operations:

         

Depreciation, depletion, and amortization

        780        954        1,026   

Deferred income taxes

     S         86        (50     (10

Equity income, net of dividends

        158        97        77   

Impairment of goodwill

     A & E         —          —          1,731   

Restructuring and other charges

     D         983        863        712   

Net gain from investing activities—asset sales

     O         (32     (34     (13

Net period pension benefit cost

     W         67        77        122   

Stock-based compensation

     R         35        39        33   

Other

        41        15        (26

Changes in assets and liabilities, excluding effects of divestitures and foreign currency translation adjustments:

         

Decrease (increase) in receivables

        130        (91     (62

Decrease (increase) in inventories

        212        (126     36   

Decrease (increase) in prepaid expenses and other current assets

        58        (21     (1

(Decrease) increase in accounts payable, trade

        (156     110        219   

(Decrease) in accrued expenses

        (311     (404     (393

(Decrease) increase in taxes, including incomes taxes

        (32     (67     96   

Pension contributions

     W         (69     (154     (128

(Increase) in noncurrent assets

        (356     (32     (185

Increase in noncurrent liabilities

        20        13        88   
     

 

 

   

 

 

   

 

 

 

Cash provided from operations

        875        842        452   
     

 

 

   

 

 

   

 

 

 

Financing Activities

         

Net parent investment

        (34     (332     561   

Net change in short-term borrowings (original maturities of three months or less)

        —          —          6   

Additions to debt (original maturities greater than three months)

     K         —          1        1   

Payments on debt (original maturities greater than three months)

     K         (24     (36     (41

Contributions from noncontrolling interest

     M         2        43        9   

Distributions to noncontrolling interest

        (106     (120     (107
     

 

 

   

 

 

   

 

 

 

Cash (used for) provided from financing activities

        (162     (444     429   
     

 

 

   

 

 

   

 

 

 

Investing Activities

         

Capital expenditures

        (391     (444     (567

Proceeds from the sale of assets and businesses

     F         70        223        8   

Additions to investments

     I         (63     (145     (242

Sale of investments

     I         —          28        —     

Other

        —          —          (1
     

 

 

   

 

 

   

 

 

 

Cash used for investing activities

        (384     (338     (802
     

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

        (38     (7     (14
     

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

        291        53        65   

Cash and cash equivalents at beginning of year

        266        213        148   
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

      $ 557      $ 266      $ 213   
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Changes in Combined Equity

(in millions)

 

     Net parent
investment
    Accumulated
other
comprehensive
loss
    Noncontrolling
interest
    Total equity  

Balance at December 31, 2012

   $ 14,934      $ (227   $ 3,295      $ 18,002   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2,909     —          39        (2,870

Other comprehensive loss (B)

     —          (430     (338     (768

Change in Net parent investment

     525        —          —          525   

Distributions

     —          —          (107     (107

Contributions (M)

     —         —          9        9   

Other

     —          —          (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     12,550        (657     2,896        14,789   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (256     —          (91     (347

Other comprehensive loss (B)

     —          (659     (249     (908

Change in Net parent investment

     (379     —          —          (379

Distributions

     —          —          (120     (120

Contributions (M)

     —         —          43        43   

Other

     —          —          (5     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014

     11,915        (1,316     2,474        13,073   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (863     —          124        (739

Other comprehensive loss (B)

     —          (284     (421     (705

Change in Net parent investment

     (10     —          —          (10

Distributions

     —         —          (106     (106

Contributions (M)

     —          —          2        2   

Other

     —          —          (2     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

   $ 11,042      $ (1,600   $ 2,071      $ 11,513   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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ALCOA UPSTREAM CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

(Dollars in millions)

A. The Proposed Separation and Basis of Presentation

References in these Notes to “ParentCo” refer to Alcoa Inc., a Pennsylvania corporation and its consolidated subsidiaries.

The Proposed Separation. On September 28, 2015, ParentCo announced that its Board of Directors approved a plan (the “separation”) to separate into two independent, publicly-traded companies: Alcoa Upstream Corporation (“Alcoa Corporation” or the “Company”), which will primarily comprise the historical bauxite mining, alumina refining, aluminum production and energy operations of ParentCo, as well as the rolling mill at the Warrick, Indiana, operations and ParentCo’s 25.1% stake in the Ma’aden Rolling Company in Saudi Arabia; and a value-add company, that will principally include the Global Rolled Products (other than the Warrick and Ma’aden rolling mills), Engineered Products and Solutions, and Transportation and Construction Solutions segments (collectively, the “Value-Add Businesses”) of ParentCo.

The separation will occur by means of a pro rata distribution by ParentCo of at least 80.1% of the outstanding shares of Alcoa Corporation. ParentCo, the existing publicly traded company, will continue to own the Value-Add Businesses, and will become the value-add company. In conjunction with the separation, ParentCo will change its name to Arconic Inc. (“Arconic”) and Alcoa Upstream Corporation will change its name to Alcoa Corporation.

The separation transaction, which is expected to be completed in the second half of 2016, is subject to a number of conditions, including, but not limited to: final approval by ParentCo’s Board of Directors; the continuing validity of the private letter ruling from the Internal Revenue Service regarding certain U.S. federal income tax matters relating to the transaction; receipt of an opinion of legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes; and the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this information statement forms a part. Upon completion of the separation, ParentCo shareholders will own at least 80.1% of the outstanding shares of Alcoa Corporation, and Alcoa Corporation will be a separate company from Arconic. Arconic will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution.

Alcoa Corporation and Arconic will enter into an agreement (the “Separation Agreement”) that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of Alcoa Corporation and Aronic as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur.

ParentCo may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.

Basis of Presentation . The Combined Financial Statements of Alcoa Corporation are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and require management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Combined Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for on the cost method.

 

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Principles of Combination. The Combined Financial Statements include certain assets and liabilities that have historically been held at ParentCo’s corporate level but are specifically identifiable or otherwise attributable to Alcoa Corporation. All significant transactions and accounts within Alcoa Corporation have been eliminated. All significant intercompany transactions between ParentCo and Alcoa Corporation have been included within Net parent investment in these Combined Financial Statements.

Cost Allocations. The Combined Financial Statements of Alcoa Corporation include general corporate expenses of ParentCo that were not historically charged to Alcoa Corporation for certain support functions that are provided on a centralized basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance, facilities, employee benefits and compensation, and research and development (“R&D”) activities. These general corporate expenses are included in the combined statement of operations within Cost of goods sold, Research and development expenses, and Selling, general administrative and other expenses. These expenses have been allocated to Alcoa Corporation on the basis of direct usage when identifiable, with the remainder allocated based on Alcoa Corporation’s segment revenue as a percentage of ParentCo’s total segment revenue for both Alcoa Corporation and Arconic.

All external debt not directly attributable to Alcoa Corporation has been excluded from the combined balance sheet of Alcoa Corporation. Financing costs related to these debt obligations have been allocated to Alcoa Corporation based on the ratio of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, and are included in the Statement of Combined Operations within Interest expense.

The following table reflects the allocations of those detailed above:

 

     Amount allocated to
Alcoa Corporation
 
     2015      2014      2013  

Cost of goods sold (1)

   $ 93       $ 76       $ 109   

Selling, general administrative, and other expenses

     146         158         154   

Research and development expenses

     17         21         16   

Provision for depreciation, depletion, and amortization

     22         37         38   

Restructuring and other charges (2)

     32         23         14   

Interest expense

     245         278         272   

Other expenses (income), net

     12         5         (1

 

(1) Allocation relates to ParentCo’s retained pension and Other postemployment benefits expenses for closed and sold operations.
(2) Allocation primarily relates to layoff programs for ParentCo employees.

Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing costs are reasonable.

Nevertheless, the Combined Financial Statements of Alcoa Corporation may not reflect the actual expenses that would have been incurred and may not reflect Alcoa Corporation’s combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Alcoa Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between Alcoa Corporation and ParentCo, including sales to Arconic, have been included as related party transactions in these 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 transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheet as Net parent investment.

Cash management.  Cash is managed centrally with certain net earnings reinvested locally and working capital requirements met from existing liquid funds. Accordingly, the cash and cash equivalents held by

 

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ParentCo at the corporate level were not attributed to Alcoa Corporation for any of the periods presented. Only cash amounts specifically attributable to Alcoa Corporation are reflected in the Combined Balance Sheet. Transfers of cash, both to and from ParentCo’s centralized cash management system, are reflected as a component of Net parent investment in Alcoa Corporation’s Combined Balance Sheet and as a financing activity on the accompanying Combined Statement of Cash Flows.

ParentCo has an arrangement with several financial institutions to sell certain customer receivables without recourse on a revolving basis. The sale of such receivables is completed through the use of a bankruptcy-remote special-purpose entity, which is a consolidated subsidiary of ParentCo. In connection with this arrangement, certain of Alcoa Corporation’s customer receivables are sold on a revolving basis to this bankruptcy-remote subsidiary of ParentCo; these sales are reflected as a component of Net parent investment in the Combined Balance Sheet.

ParentCo participates in several accounts payable settlement arrangements with certain vendors and third-party intermediaries. These arrangements provide that, at the vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an appropriate discount, before the scheduled payment date and ParentCo makes payment to the third-party intermediary on the date stipulated in accordance with the commercial terms negotiated with its vendors. In connection with these arrangements, certain of Alcoa Corporation’s accounts payable are settled, at the vendor’s request, before the scheduled payment date; these settlements are reflected as a component of Net parent investment in the Combined Balance Sheet.

Related Party Transactions. Alcoa Corporation buys products from and sells products to various related companies, including entities in which Alcoa Corporation retains a 50% or less equity interest, at negotiated prices between the two parties. These transactions were not material to the financial position or results of operations of Alcoa Corporation for all periods presented. Transactions between Alcoa Corporation and Arconic have been presented as related party transactions in these Combined Financial Statements.

Cash Equivalents . Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. The cash and cash equivalents held by ParentCo at the corporate level were not attributed to Alcoa Corporation for any periods presented. Only cash amounts specifically attributable to Alcoa Corporation (primarily comprising cash held by entities within the Alcoa World Alumina and Chemicals joint venture) are reflected in the Combined Balance Sheet.

Inventory Valuation . Inventories are carried at the lower of cost or market, with cost for a substantial portion of U.S. and Canadian inventories determined under the last-in, first-out (LIFO) method. The cost of other inventories is principally determined under the average-cost method.

Properties, Plants, and Equipment. Properties, plants, and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. For greenfield assets, which refer to the construction of new assets on undeveloped land, the units of production method is used to record depreciation. These assets require a significant period (generally greater than one-year) to ramp-up to full production capacity. As a result, the units of production method is deemed a more systematic and rational method for recognizing depreciation on these assets. Depreciation is recorded on temporarily idled facilities until such time management approves a permanent shutdown. The following table details the weighted-average useful lives of structures and machinery and equipment by reporting segment (numbers in years):

 

Segment

   Structures      Machinery and equipment  

Bauxite

     34         17   

Alumina

     30         27   

Aluminum

     36         22   

Cast Products

     36         22   

Energy

     31         22   

Rolled Products

     31         21   

 

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Gains or losses from the sale of assets are generally recorded in other income or expenses. Repairs and maintenance are charged to expense as incurred. Interest related to the construction of qualifying assets is capitalized as part of the construction costs.

Properties, plants, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (asset group) may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted net cash flows of the operations related to the assets (asset group) to their carrying amount. An impairment loss would be recognized when the carrying amount of the assets (asset group) exceeds the estimated undiscounted net cash flows. The amount of the impairment loss to be recorded is calculated as the excess of the carrying value of the assets (asset group) over their fair value, with fair value determined using the best information available, which generally is a discounted cash flow (DCF) model. The determination of what constitutes an asset group, the associated estimated undiscounted net cash flows, and the estimated useful lives of assets require significant judgments.

Mineral Rights. Alcoa Corporation recognizes mineral rights upon specific acquisitions of land that include such underlying rights, primarily in Jamaica (in December 2014, Alcoa Corporation divested its ownership stake in the joint venture in Jamaica—see Note F). This land is purchased for the sole purpose of mining bauxite. The underlying bauxite reserves are known at the time of acquisition based on associated drilling and analysis and are considered to be proven reserves. The acquisition cost of the land and mineral rights are amortized as the bauxite is produced based on the level of proven reserves determined at the time of purchase. Mineral rights are included in Properties, plants, and equipment on the accompanying Combined Balance Sheet.

Deferred Mining Costs. Alcoa Corporation recognizes deferred mining costs during the development stage of a mine life cycle. Such costs include the construction of access and haul roads, detailed drilling and geological analysis to further define the grade and quality of the known bauxite, and overburden removal costs. These costs relate to sections of the related mines where Alcoa Corporation is either currently extracting bauxite or is preparing for production in the near term. These sections are outlined and planned incrementally and generally are mined over periods ranging from one to five years, depending on mine specifics. The amount of geological drilling and testing necessary to determine the economic viability of the bauxite deposit being mined is such that the reserves are considered to be proven, and the mining costs are amortized based on this level of reserves. Deferred mining costs are included in Other noncurrent assets on the accompanying Combined Balance Sheet .

Goodwill and Other Intangible Assets. Goodwill is not amortized; instead, it is reviewed for impairment annually (in the fourth quarter) or more frequently if indicators of impairment exist or if a decision is made to sell or exit a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include deterioration in general economic conditions, negative developments in equity and credit markets, adverse changes in the markets in which an entity operates, increases in input costs that have a negative effect on earnings and cash flows, or a trend of negative or declining cash flows over multiple periods, among others. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. For 2015, Alcoa Corporation has two reporting units that contain goodwill: Bauxite ($51) and Alumina ($101); and four reporting units that contain no goodwill: Aluminum, Cast Products, Energy, and Rolled Products. Prior to 2015, Alcoa Corporation had three reporting units, which were Alumina (Bauxite, Alumina and a small portion of Energy), Primary Metals (Aluminum, Cast Products and the majority of Energy), and Rolled Products. All goodwill related to Primary Metals was impaired in 2013—see below. The previous amounts mentioned related to Bauxite and Alumina include an allocation of corporate goodwill.

In reviewing goodwill for impairment, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater

 

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than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If an entity elects to perform a qualitative assessment and determines that an impairment is more likely than not, the entity is then required to perform the existing two-step quantitative impairment test (described below), otherwise no further analysis is required. An entity also may elect not to perform the qualitative assessment and, instead, proceed directly to the two-step quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether an entity chooses to perform the qualitative assessment or proceeds directly to the two-step quantitative impairment test.

Alcoa Corporation’s policy for its annual review of goodwill is to perform the qualitative assessment for all reporting units not subjected directly to the two-step quantitative impairment test. Generally, management will proceed directly to the two-step quantitative impairment test for each of its two reporting units that contain goodwill at least once during every three-year period, as part of its annual review of goodwill.

Under the qualitative assessment, various events and circumstances (or factors) that would affect the estimated fair value of a reporting unit are identified (similar to impairment indicators above). These factors are then classified by the type of impact they would have on the estimated fair value using positive, neutral, and adverse categories based on current business conditions. Additionally, an assessment of the level of impact that a particular factor would have on the estimated fair value is determined using high, medium, and low weighting. Furthermore, management considers the results of the most recent two-step quantitative impairment test completed for a reporting unit and compares the weighted average cost of capital (WACC) between the current and prior years for each reporting unit.

During the 2015 annual review of goodwill, management performed the qualitative assessment for two reporting units, Bauxite and Alumina. Management concluded it was not more likely than not that the estimated fair values of the two reporting units were less than their carrying values. As such, no further analysis was required.

Under the two-step quantitative impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. Alcoa Corporation uses a DCF model to estimate the current fair value of its reporting units when testing for impairment, as management believes forecasted cash flows are the best indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market share, sales volumes and prices, production costs, tax rates, capital spending, discount rate, and working capital changes. Certain of these assumptions can vary significantly among the reporting units. Cash flow forecasts are generally based on approved business unit operating plans for the early years and historical relationships in later years. The betas used in calculating the individual reporting units’ WACC rate are estimated for each business with the assistance of valuation experts.

In the event the estimated fair value of a reporting unit per the DCF model is less than the carrying value, additional analysis would be required. The additional analysis would compare the carrying amount of the reporting unit’s goodwill with the implied fair value of that goodwill, which may involve the use of valuation experts. The implied fair value of goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess would be recognized, which could significantly and adversely impact reported results of operations and shareholders’ equity.

Goodwill impairment tests in prior years indicated that goodwill was not impaired for any of Alcoa Corporation’s reporting units, except for the former Primary Metals segment in 2013 (see below), and there were no triggering events since that time that necessitated an impairment test.

 

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In 2013, for the former Primary Metals reporting unit (see above), the estimated fair value as determined by the DCF model was lower than the associated carrying value. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of the goodwill. The results of the second-step analysis showed that the implied fair value of goodwill was zero. Therefore, in 2013, Alcoa Corporation recorded a goodwill impairment of $1,731 ($1,719 after noncontrolling interest). As a result of the goodwill impairment, there is no goodwill remaining for the historical Primary Metals reporting unit.

The impairment of the Primary Metals goodwill resulted from several causes: the prolonged economic downturn; a disconnect between industry fundamentals and pricing that has resulted in lower metal prices; and the increased cost of alumina, a key raw material, resulting from expansion of the Alumina Price Index throughout the industry. All of these factors, exacerbated by increases in discount rates, continued to place significant downward pressure on metal prices and operating margins, and the resulting estimated fair value, of the Primary Metals business. As a result, management decreased the near-term and long-term estimates of the operating results and cash flows utilized in assessing the goodwill for impairment. The valuation of goodwill for the second step of the goodwill impairment analysis is considered a level 3 fair value measurement, which means that the valuation of the assets and liabilities reflect management’s own judgments regarding the assumptions market participants would use in determining the fair value of the assets and liabilities.

Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited. The following table details the weighted average useful lives of software and other intangible assets by reporting segment (numbers in years):

 

Segment

   Software    Other intangible assets

Bauxite

   7    15

Alumina

   7    15

Aluminum

   6    37

Cast Products

   6    37

Energy

   6    37

Rolled Products

   9    14

Equity Investments. Alcoa Corporation invests in a number of privately-held companies, primarily through joint ventures and consortia, which are accounted for on the equity method. The equity method is applied in situations where Alcoa Corporation has the ability to exercise significant influence, but not control, over the investee. Management reviews equity investments for impairment whenever certain indicators are present suggesting that the carrying value of an investment is not recoverable. This analysis requires a significant amount of judgment from management to identify events or circumstances indicating that an equity investment is impaired. The following items are examples of impairment indicators: significant, sustained declines in an investee’s revenue, earnings, and cash flow trends; adverse market conditions of the investee’s industry or geographic area; the investee’s ability to continue operations measured by several items, including liquidity; and other factors. Once an impairment indicator is identified, management uses considerable judgment to determine if the impairment is other than temporary, in which case the equity investment is written down to its estimated fair value. An impairment that is other than temporary could significantly and adversely impact reported results of operations.

Revenue Recognition. Alcoa Corporation recognizes revenue when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms. The shipping terms vary across all businesses and depend on the product, the country of origin, and the type of transportation (truck, train, or vessel). Alcoa Corporation periodically enters into long-term supply contracts with alumina and aluminum customers and receives advance payments for product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as shipments are made and title, ownership, and risk of loss pass to the customer during the term of the contracts. Deferred revenue is included in Other current liabilities and Other noncurrent liabilities and deferred credits on the accompanying Combined Balance Sheet.

 

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Environmental Matters. Expenditures for current operations are expensed or capitalized, as appropriate. Expenditures relating to existing conditions caused by past operations, which will not contribute to future revenues, are expensed. Liabilities are recorded when remediation costs are probable and can be reasonably estimated. The liability may include costs such as site investigations, consultant fees, feasibility studies, outside contractors, and monitoring expenses. Estimates are generally not discounted or reduced by potential claims for recovery. Claims for recovery are recognized as agreements are reached with third parties. The estimates also include costs related to other potentially responsible parties to the extent that Alcoa Corporation has reason to believe such parties will not fully pay their proportionate share. The liability is continuously reviewed and adjusted to reflect current remediation progress, prospective estimates of required activity, and other factors that may be relevant, including changes in technology or regulations.

Litigation Matters. For asserted claims and assessments, liabilities are recorded when an unfavorable outcome of a matter is deemed to be probable and the loss is reasonably estimable. Management determines the likelihood of an unfavorable outcome based on many factors such as the nature of the matter, available defenses and case strategy, progress of the matter, views and opinions of legal counsel and other advisors, applicability and success of appeals processes, and the outcome of similar historical matters, among others. Once an unfavorable outcome is deemed probable, management weighs the probability of estimated losses, and the most reasonable loss estimate is recorded. If an unfavorable outcome of a matter is deemed to be reasonably possible, then the matter is disclosed and no liability is recorded. With respect to unasserted claims or assessments, management must first determine that the probability that an assertion will be made is likely, then, a determination as to the likelihood of an unfavorable outcome and the ability to reasonably estimate the potential loss is made. Legal matters are reviewed on a continuous basis to determine if there has been a change in management’s judgment regarding the likelihood of an unfavorable outcome or the estimate of a potential loss.

Asset Retirement Obligations. Alcoa Corporation recognizes asset retirement obligations (AROs) related to legal obligations associated with the normal operation of bauxite mining, alumina refining, and aluminum smelting facilities. These AROs consist primarily of costs associated with spent pot lining disposal, closure of bauxite residue areas, mine reclamation, and landfill closure. Alcoa Corporation also recognizes AROs for any significant lease restoration obligation, if required by a lease agreement, and for the disposal of regulated waste materials related to the demolition of certain power facilities. The fair values of these AROs are recorded on a discounted basis, at the time the obligation is incurred, and accreted over time for the change in present value. Additionally, Alcoa Corporation capitalizes asset retirement costs by increasing the carrying amount of the related long-lived assets and depreciating these assets over their remaining useful life.

Certain conditional asset retirement obligations (CAROs) related to alumina refineries, aluminum smelters, power and rolled products facilities have not been recorded in the Combined Financial Statements of Alcoa Corporation due to uncertainties surrounding the ultimate settlement date. Such uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other factors. At the date a reasonable estimate of the ultimate settlement date can be made, Alcoa Corporation would record an ARO for the removal, treatment, transportation, storage, and/or disposal of various regulated assets and hazardous materials such as asbestos, underground and aboveground storage tanks, polychlorinated biphenyls (PCBs), various process residuals, solid wastes, electronic equipment waste, and various other materials. Such amounts may be material to the Combined Financial Statements of Alcoa Corporation in the period in which they are recorded.

Income Taxes. Alcoa Corporation’s operations have historically been included in the income tax filings of ParentCo. The provision for income taxes in Alcoa Corporation’s combined statement of operations is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year calculated as if the Company was a standalone taxpayer filing hypothetical income tax returns where applicable. Any additional accrued tax liability or refund arising as a result of this approach is assumed to be immediately settled with ParentCo as a component of Net parent investment. Deferred taxes represent the future tax consequences expected to occur when the reported

 

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amounts of assets and liabilities are recovered or paid, and result from differences between the financial and tax bases of Alcoa Corporation’s assets and liabilities and are adjusted for changes in tax rates and tax laws when enacted. Deferred tax assets are reflected in the combined balance sheet for net operating losses, credits or other attributes to the extent that such attributes are expected to transfer to Alcoa Corporation upon the separation. Any difference from attributes generated in a hypothetical return on a separate return basis is adjusted as a component of Net parent investment.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Alcoa Corporation’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.

Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitation has expired or the appropriate taxing authority has completed their examination even though the statute of limitations remains open. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.

Stock-Based Compensation. Alcoa Corporation employees have historically participated in ParentCo’s equity-based compensation plans. Until consummation of the distribution, Alcoa Corporation will continue to participate in ParentCo’s stock-based compensation plans and record compensation expense based on the awards granted to Alcoa Corporation employees. ParentCo recognizes compensation expense for employee equity grants using the non-substantive vesting period approach, in which the expense (net of estimated forfeitures) is recognized ratably over the requisite service period based on the grant date fair value. The compensation expense recorded by Alcoa Corporation, in all periods presented, includes the expense associated with employees historically attributable to Alcoa Corporation operations, as well as the expense associated with the allocation of stock compensation expense for corporate employees. The fair value of new stock options is estimated on the date of grant using a lattice-pricing model. Determining the fair value of stock options at the grant date requires judgment, including estimates for the average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, and exercise behavior. These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time.

Most plan participants can choose whether to receive their award in the form of stock options, stock awards, or a combination of both. This choice is made before the grant is issued and is irrevocable.

Derivatives and Hedging. Derivatives are held for purposes other than trading and are part of a formally documented risk management program. For derivatives designated as cash flow hedges, Alcoa Corporation measures hedge effectiveness by formally assessing, at least quarterly, the probable high correlation of the

 

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expected future cash flows of the hedged item and the derivative hedging instrument. The ineffective portions of both types of hedges are recorded in sales or other income or expense in the current period. If the hedging relationship ceases to be highly effective or it becomes probable that an expected transaction will no longer occur, future gains or losses on the derivative instrument are recorded in other income or expense.

Alcoa Corporation accounts for hedges of certain forecasted transactions as cash flow hedges. The fair values of the derivatives are recorded in other current and noncurrent assets and liabilities in the Combined Balance Sheet. The effective portions of the changes in the fair values of these derivatives are recorded in other comprehensive income and are reclassified to sales, cost of goods sold, or other income or expense in the period in which earnings are impacted by the hedged items or in the period that the transaction no longer qualifies as a cash flow hedge. These contracts cover the same periods as known or expected exposures, generally not exceeding five years.

If no hedging relationship is designated, the derivative is marked to market through earnings.

Cash flows from derivatives are recognized in the Statement of Combined Cash Flows in a manner consistent with the underlying transactions.

Pensions and Other Postretirement Benefits. Certain Alcoa Corporation employees participate in defined benefit pension and other postretirement benefit plans (“Shared Plans”) sponsored by ParentCo, which also includes Arconic participants. For purposes of these Combined Financial Statements, Alcoa Corporation accounts for Shared Plans as multiemployer benefit plans. Accordingly, Alcoa Corporation does not record an asset or liability to recognize the funded status of the Shared Plans. However, the related expense recorded by Alcoa Corporation is based primarily on pensionable compensation and estimated interest costs attributable to Alcoa Corporation participants.

Certain plans that are specific to Alcoa Corporation employees (“Direct Plans”) are accounted for as defined benefit pension and other postretirement benefit plans for purposes of the Combined Financial Statements. Accordingly, the funded and unfunded position of each Direct Plan is recorded in the Combined Balance Sheet. Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and recognition of expenses related to Direct Plans is dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual location in which such plans exist.

Foreign Currency. The local currency is the functional currency for Alcoa Corporation’s significant operations outside the United States, except for certain operations in Canada and Iceland, where the U.S. dollar is used as the functional currency. The determination of the functional currency for Alcoa Corporation’s operations is made based on the appropriate economic and management indicators.

Recently Adopted Accounting Guidance. On January 1, 2015, Alcoa Corporation adopted changes issued by the Financial Accounting Standards Board (FASB) to reporting discontinued operations and disclosures of disposals of components of an entity. These changes require a disposal of a component to meet a higher threshold in order to be reported as a discontinued operation in an entity’s financial statements. The threshold is defined as a strategic shift that has, or will have, a major effect on an entity’s operations and financial results such as a disposal of a major geographical area or a major line of business. Additionally, the following two criteria have been removed from consideration of whether a component meets the requirements for discontinued operations presentation: (i) the operations and cash flows of a disposal component have been or will be eliminated from the ongoing operations of an entity as a result of the disposal transaction, and (ii) an entity will not have any significant continuing involvement in the operations of the disposal component after the disposal transaction. Furthermore, equity method investments now may qualify for discontinued operations presentation. These changes also require expanded disclosures for all disposals of components of an entity, whether or not the

 

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threshold for reporting as a discontinued operation is met, related to profit or loss information and/or asset and liability information of the component. The adoption of these changes had no impact on the Combined Financial Statements of Alcoa Corporation. This guidance will need to be considered in the event Alcoa Corporation initiates a disposal of a component.

In November 2015, the FASB issued changes to the balance sheet classification of deferred taxes, which Alcoa Corporation immediately adopted. These changes simplify the presentation of deferred income taxes by requiring all deferred income tax assets and liabilities to be classified as noncurrent in a classified balance sheet. The current requirement that deferred tax assets and liabilities of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments of this update. As such, all deferred income tax assets and liabilities have been classified in the Deferred income taxes and Other noncurrent liabilities and deferred credits, respectively, line items on the December 31, 2015 Combined Balance Sheet.

Recently Issued Accounting Guidance. In January 2015, the FASB issued changes to the presentation of extraordinary items. Such items are defined as transactions or events that are both unusual in nature and infrequent in occurrence, and, currently, are required to be presented separately in an entity’s income statement, net of income tax, after income from continuing operations. The changes eliminate the concept of an extraordinary item and, therefore, the presentation of such items will no longer be required. Notwithstanding this change, an entity will still be required to present and disclose a transaction or event that is both unusual in nature and infrequent in occurrence in the notes to the financial statements. These changes become effective for Alcoa Corporation on January 1, 2016. Management has determined that the adoption of these changes will not have an impact on the Combined Financial Statements.

In February 2015, the FASB issued changes to the analysis that an entity must perform to determine whether it should consolidate certain types of legal entities. These changes (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. These changes become effective for Alcoa Corporation on January 1, 2016. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements.

In July 2015, the FASB issued changes to the subsequent measurement of inventory. Currently, an entity is required to measure its inventory at the lower of cost or market, whereby market can be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The changes require that inventory be measured at the lower of cost and net realizable value, thereby eliminating the use of the other two market methodologies. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. These changes do not apply to inventories measured using LIFO (last-in, first-out) or the retail inventory method. Currently, Alcoa Corporation applies the net realizable value market option to measure non-LIFO inventories at the lower of cost or market. These changes become effective for Alcoa Corporation on January 1, 2017. Management has determined that the adoption of these changes will not have an impact on the Combined Financial Statements.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

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To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date by one year, making these changes effective for Alcoa Corporation on January 1, 2018. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for Alcoa Corporation for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Combined Financial Statements of Alcoa Corporation. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the Combined Financial Statements in a given reporting period.

In February 2016, the FASB issued changes to the accounting and presentation of leases. These changes require lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. These changes become effective for Alcoa Corporation on January 1, 2019. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements.

 

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B. Accumulated Other Comprehensive Loss

The following table details the activity of the three components that comprise Accumulated other comprehensive loss for both Alcoa Corporation and noncontrolling interest:

 

          Alcoa Corporation     Noncontrolling interest  
    Note     2015     2014     2013      2015       2014       2013   

Pension and other postretirement benefits

    W               

Balance at beginning of period

      (424     (373     (554     (64     (51     (77

Other comprehensive income (loss):

             

Unrecognized net actuarial loss/gain and prior service cost/benefit

      73        (109     197        5        (22     28   

Tax (expense) benefit

      (18     35        (54     (1     7        (9
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive income (loss) before reclassifications, net of tax

      55        (74     143        4        (15     19   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of net actuarial loss/gain and prior service cost/benefit (1)

      26        35        58        6        3        11   

Tax expense (2)

      (9     (12     (20     (2     (1     (4
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amount reclassified from Accumulated other comprehensive loss, net of tax (5)

      17        23        38        4        2        7   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive income (loss)

      72        (51     181        8        (13     26   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      (352     (424     (373     (56     (64     (51
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation

             

Balance at beginning of period

      (668     20        812        (351     (115     252   

Other comprehensive loss (3)

      (1,183     (688     (792     (428     (236     (367
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      (1,851     (668     20        (779     (351     (115
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow hedges

    X               

Balance at beginning of period

      (224     (304     (485     (2     (2     (5

Other comprehensive income (loss):

             

Net change from periodic revaluations

      1,155        78        197        (1     —          4   

Tax expense

      (344     (20     (40     —          —          (1
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive income (loss) before reclassifications, net of tax

      811        58        157        (1     —          3   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount reclassified to earnings:

             

Aluminum contracts (4)

      21        26        30        —          —          —     

Tax expense (2)

      (5     (4     (6     —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amount reclassified from Accumulated other comprehensive loss, net of tax (5)

      16        22        24        —          —          —     
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive income (loss)

      827        80        181        (1     —          3   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      603        (224     (304     (3     (2     (2
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note W).
(2) These amounts were included in Provision for income taxes on the accompanying Statement of Combined Operations.
(3) In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
(4) These amounts were included in Sales on the accompanying Statement of Combined Operations.
(5) A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings. These amounts were reflected on the accompanying Statement of Combined Operations in the line items indicated in footnotes 1 through 4.

 

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C. Asset Retirement Obligations

Alcoa Corporation has recorded AROs related to legal obligations associated with the normal operations of bauxite mining, alumina refining, and aluminum smelting facilities. These AROs consist primarily of costs associated with spent pot lining disposal, closure of bauxite residue areas, mine reclamation, and landfill closure. Alcoa Corporation also recognizes AROs for any significant lease restoration obligation, if required by a lease agreement, and for the disposal of regulated waste materials related to the demolition of certain power facilities.

In addition to AROs, certain CAROs related to alumina refineries, aluminum smelters, power and rolled products facilities have not been recorded in the Combined Financial Statements of Alcoa Corporation due to uncertainties surrounding the ultimate settlement date. Such uncertainties exist as a result of the perpetual nature of the structures, maintenance and upgrade programs, and other factors. At the date a reasonable estimate of the ultimate settlement date can be made (e.g., planned demolition), Alcoa Corporation would record an ARO for the removal, treatment, transportation, storage, and/or disposal of various regulated assets and hazardous materials such as asbestos, underground and aboveground storage tanks, PCBs, various process residuals, solid wastes, electronic equipment waste, and various other materials. If Alcoa Corporation was required to demolish all such structures immediately, the estimated CARO as of December 31, 2015 ranges from $3 to $28 per structure (25 structures) in today’s dollars.

The following table details the carrying value of recorded AROs by major category (of which $96 and $77 was classified as a current liability as of December 31, 2015 and 2014, respectively):

 

December 31,

   2015      2014  

Spent pot lining disposal

   $ 141       $ 170   

Closure of bauxite residue areas

     165         178   

Mine reclamation

     191         167   

Demolition*

     103         103   

Landfill closure

     29         30   

Other

     6         —     
  

 

 

    

 

 

 
   $ 635       $ 648   
  

 

 

    

 

 

 

 

* In 2015 and 2014, AROs were recorded as a result of management’s decision to permanently shut down and demolish certain structures (See Note D).

The following table details the changes in the total carrying value of recorded AROs:

 

December 31,

   2015      2014  

Balance at beginning of year

   $ 648       $ 620   

Accretion expense

     18         23   

Payments

     (72      (83

Liabilities incurred

     96         137   

Divestitures*

     —           (20

Foreign currency translation and other

     (55      (29
  

 

 

    

 

 

 

Balance at end of year

   $ 635       $ 648   
  

 

 

    

 

 

 

 

* In 2014, this amount relates to the sale of an interest in a bauxite mine and alumina refinery in Jamaica and a smelter in the United States (see Note F).

 

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D. Restructuring and Other Charges

Restructuring and other charges for each year in the three-year period ended December 31, 2015 were comprised of the following:

 

     Note      2015      2014      2013  

Asset impairments

      $ 311       $ 328       $ 100   

Layoff costs

        199         157         152   

Legal matters in Italy

     N         201         —           —     

Net loss on divestitures of businesses

     F         25         214         —     

Resolution of a legal matter

     N         —           —           391   

Other*

        254         181         73   

Reversals of previously recorded layoff and other exit costs

        (7      (17      (4
     

 

 

    

 

 

    

 

 

 

Total restructuring and other charges

      $ 983       $ 863       $ 712   
     

 

 

    

 

 

    

 

 

 

 

* Includes $32, $23, and $14 in 2015, 2014, and 2013, respectively, related to the allocation of restructuring charges to Alcoa Corporation based on segment revenue.

Layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated, benefits to be paid under existing severance plans, union contracts or statutory requirements, and the expected timetable for completion of the plans.

2015 Actions. In 2015, Alcoa Corporation recorded Restructuring and other charges of $983, which were comprised of the following components: $418 for exit costs related to decisions to permanently shut down and demolish three smelters and a power station (see below); $238 for the curtailment of two refineries and two smelters (see below); $201 related to legal matters in Italy (see Note N); a $24 net loss primarily related to post-closing adjustments associated with two December 2014 divestitures (see Note F); $45 for layoff costs, including the separation of approximately 465 employees; $33 for asset impairments related to prior capitalized costs for an expansion project at a refinery in Australia that is no longer being pursued; a net credit of $1 for other miscellaneous items; $7 for the reversal of a number of small layoff reserves related to prior periods; and $32 related to Corporate restructuring allocated to Alcoa Corporation.

During 2015, management initiated various alumina refining and aluminum smelting capacity curtailments and/or closures. The curtailments were composed of the remaining capacity at all of the following: the São Luís smelter in Brazil (74,000 metric-tons-per-year); the Suriname refinery (1,330,000 metric-tons-per-year); the Point Comfort, TX refinery (2,010,000 metric-tons-per-year); and the Wenatchee, WA smelter (143,000 metric-tons-per-year). All of the curtailments were completed in 2015 except for 1,635,000 metric-tons-per-year at the Point Comfort refinery, which is expected to be completed by the end of June 2016. The permanent closures were composed of the capacity at the Warrick, IN smelter (269,000 metric-tons-per-year) (includes the closure of a related coal mine) and the infrastructure of the Massena East, NY smelter (potlines were previously shut down in both 2013 and 2014—see 2013 Actions and 2014 Actions below), as the modernization of this smelter is no longer being pursued. The shutdown of the Warrick smelter was completed by the end of March 2016.

The decisions on the above actions were part of a separate 12-month review in refining (2,800,000 metric-tons-per-year) and smelting (500,000 metric-tons-per-year) capacity initiated by management in March 2015 for possible curtailment (partial or full), permanent closure or divestiture. While many factors contributed to each decision, in general, these actions were initiated to maintain competitiveness amid prevailing market conditions for both alumina and aluminum. Demolition and remediation activities related to the Warrick smelter and the Massena East location will begin in 2016 and are expected to be completed by the end of 2020.

Separate from the actions initiated under the reviews described above, in mid-2015, management approved the permanent shutdown and demolition of the Poços de Caldas smelter (capacity of 96,000 metric-tons-per-year) in Brazil and the Anglesea power station (includes the closure of a related coal mine) in Australia. The entire

 

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capacity at Poços de Caldas had been temporarily idled since May 2014 and the Anglesea power station was shut down at the end of August 2015. Demolition and remediation activities related to the Poços de Caldas smelter and the Anglesea power station began in late 2015 and are expected to be completed by the end of 2026 and 2020, respectively.

The decision on the Poços de Caldas smelter was due to management’s conclusion that the smelter was no longer competitive as a result of challenging global market conditions for primary aluminum, which led to the initial curtailment, that have not dissipated and higher costs. For the Anglesea power station, the decision was made because a sale process did not result in a sale and there would have been imminent operating costs and financial constraints related to this site in the remainder of 2015 and beyond, including significant costs to source coal from available resources, necessary maintenance costs, and a depressed outlook for forward electricity prices. The Anglesea power station previously supplied approximately 40 percent of the power needs for the Point Henry smelter, which was closed in August 2014 (see 2014 Actions below).

In 2015, costs related to the shutdown and curtailment actions included asset impairments of $226, representing the write-off of the remaining book value of all related properties, plants, and equipment; $154 for the layoff of approximately 3,100 employees (1,800 in the Primary Metals segment and 1,300 in the Alumina segment), including $30 in pension costs (see Note W); accelerated depreciation of $85 related to certain facilities as they continued to operate during 2015; and $222 in other exit costs. Additionally in 2015, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $90, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $222 represent $72 in asset retirement obligations and $85 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in the United States, Brazil, and Australia (includes the rehabilitation of a related coal mine in each of Australia and the United States), and $65 in supplier and customer contract-related costs.

As of December 31, 2015, approximately 740 of the 3,600 employees were separated. The remaining separations for 2015 restructuring programs are expected to be completed by the end of 2016. In 2015, cash payments of $26 were made against layoff reserves related to 2015 restructuring programs.

2014 Actions. In 2014, Alcoa Corporation recorded Restructuring and other charges of $863, which were comprised of the following components: $526 for exit costs related to decisions to permanently shut down and demolish three smelters (see below); a $216 net loss for the divestitures of three operations (see Note F); $61 for the temporary curtailment of two smelters and a related production slowdown at one refinery (see below); $33 for asset impairments related to prior capitalized costs for a modernization project at a smelter in Canada that is no longer being pursued; $9 for layoff costs, including the separation of approximately 60 employees; a net charge of $4 for an environmental charge at a previously shut down refinery; $9 primarily for the reversal of a number of layoff reserves related to prior periods; and $23 related to Corporate restructuring allocated to Alcoa Corporation.

In early 2014, management approved the permanent shutdown and demolition of the remaining capacity (84,000 metric-tons-per-year) at the Massena East, NY smelter and the full capacity (190,000 metric-tons-per-year) at the Point Henry smelter in Australia. The capacity at Massena East was fully shut down by the end of March 2014 and the Point Henry smelter was fully shut down in August 2014. Demolition and remediation activities related to both the Massena East and Point Henry smelters began in late 2014 and are expected to be completed by the end of 2020 and 2018, respectively.

The decisions on the Massena East and Point Henry smelters were part of a 15-month review of 460,000 metric tons of smelting capacity initiated by management in May 2013 (see 2013 Actions below) for possible curtailment. Through this review, management determined that the remaining capacity of the Massena East smelter was no longer competitive and the Point Henry smelter had no prospect of becoming financially viable.

 

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Management also initiated the temporary curtailment of the remaining capacity (62,000 metric-tons-per-year) at the Poços de Caldas smelter and additional capacity (85,000 metric-tons-per-year) at the São Luís smelter, both in Brazil. These curtailments were completed by the end of May 2014. As a result of these curtailments, 200,000 metric-tons-per-year of production at the Poços de Caldas refinery was reduced by the end of June 2014.

Additionally, in August 2014, management approved the permanent shutdown and demolition of the capacity (150,000 metric-tons-per-year) at the Portovesme smelter in Italy, which had been idle since November 2012. This decision was made because the fundamental reasons that made the Portovesme smelter uncompetitive remained unchanged, including the lack of a viable long-term power solution. Demolition and remediation activities related to the Portovesme smelter will begin in 2016 and are expected to be completed by the end of 2020 (delayed due to discussions with the Italian government and other stakeholders).

In 2014, costs related to the shutdown and curtailment actions included $149 for the layoff of approximately 1,290 employees, including $24 in pension costs (see Note W); accelerated depreciation of $146 related to the Point Henry smelter in Australia as they continued to operate during 2014; asset impairments of $150 representing the write-off of the remaining book value of all related properties, plants, and equipment; and $152 in other exit costs. Additionally in 2014, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $55, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $152 represent $87 in asset retirement obligations and $24 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Australia, Italy, and the United States, and $41 in other related costs, including supplier and customer contract-related costs.

As of December 31, 2015, the separations associated with 2014 restructuring programs were essentially complete. In 2015 and 2014, cash payments of $34 and $87, respectively, were made against layoff reserves related to 2014 restructuring programs.

2013 Actions. In 2013, Alcoa Corporation recorded Restructuring and other charges of $712, which were comprised of the following components: $391 related to the resolution of a legal matter (see Government Investigations under Litigation in Note N); $244 for exit costs related to the permanent shutdown and demolition of certain structures at three smelter locations (see below); $38 for layoff costs, including the separation of approximately 370 employees, of which 280 relates to a global overhead reduction program; $23 for asset impairments related to the write-off of capitalized costs for projects no longer being pursued due to the market environment; a net charge of $2 for other miscellaneous items; and $14 related to Corporate restructuring allocated to Alcoa Corporation.

In May 2013, management approved the permanent shutdown and demolition of two potlines (capacity of 105,000 metric-tons-per-year) that utilize Soderberg technology at the Baie Comeau smelter in Québec, Canada (remaining capacity of 280,000 metric-tons-per-year composed of two prebake potlines) and the full capacity (44,000 metric-tons-per-year) at the Fusina smelter in Italy. Additionally, in August 2013, management approved the permanent shutdown and demolition of one potline (capacity of 41,000 metric-tons-per-year) that utilizes Soderberg technology at the Massena East, NY smelter (remaining capacity of 84,000 metric-tons-per-year composed of two Soderberg potlines). The aforementioned Soderberg lines at Baie Comeau and Massena East were fully shut down by the end of September 2013 while the Fusina smelter was previously temporarily idled in 2010. Demolition and remediation activities related to all three facilities began in late 2013 and are expected to be completed by the end of 2016 for Massena East and by the end of 2017 for both Baie Comeau and Fusina.

The decisions on the Soderberg lines for Baie Comeau and Massena East were part of a 15-month review of 460,000 metric tons of smelting capacity initiated by management in May 2013 for possible curtailment, while the decision on the Fusina smelter was in addition to the capacity being reviewed. Factors leading to all three decisions were in general focused on achieving sustained competitiveness and included, among others: lack of an economically viable, long-term power solution (Italy); changed market fundamentals; other existing idle capacity; and restart costs.

 

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In 2013, exit costs related to the shutdown actions included $113 for the layoff of approximately 550 employees (Primary Metals segment), including $78 in pension costs (see Note W); accelerated depreciation of $58 (Baie Comeau) and asset impairments of $19 (Fusina and Massena East) representing the write-off of the remaining book value of all related properties, plants, and equipment; and $54 in other exit costs. Additionally in 2013, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value resulting in a charge of $8, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $54 represent $47 in asset retirement obligations and $5 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish these structures, and $2 in other related costs.

As of December 31, 2015, the separations associated with 2013 restructuring programs were essentially complete. In 2015, 2014, and 2013, cash payments of $6, $24, and $23, respectively, were made against layoff reserves related to 2013 restructuring programs.

Alcoa Corporation does not include Restructuring and other charges in the results of its reportable segments. The impact of allocating such charges to segment results would have been as follows:

 

     2015      2014      2013  

Bauxite

   $ 16       $ —         $ —     

Alumina

     212         283         10   

Aluminum

     610         559         296   

Cast Products

     2         (2      —     

Energy

     84         —           —     

Rolled Products

     9         —           —     
  

 

 

    

 

 

    

 

 

 

Segment total

     933         840         306   
  

 

 

    

 

 

    

 

 

 

Corporate

     50         23         406   
  

 

 

    

 

 

    

 

 

 

Total restructuring and other charges

   $ 983       $ 863       $ 712   
  

 

 

    

 

 

    

 

 

 

Activity and reserve balances for restructuring charges were as follows:

 

     Layoff
costs
     Other
exit costs
     Total  

Reserve balances at December 31, 2012

   $ 40       $ 15       $ 55   
  

 

 

    

 

 

    

 

 

 

2013:

        

Cash payments

     (41      (1      (42

Restructuring charges

     152         58         210   

Other*

     (93      (58      (151
  

 

 

    

 

 

    

 

 

 

Reserve balances at December 31, 2013

     58         14         72   
  

 

 

    

 

 

    

 

 

 

2014:

        

Cash payments

     (120      (7      (127

Restructuring charges

     138         158         296   

Other*

     (26      (152      (178
  

 

 

    

 

 

    

 

 

 

Reserve balances at December 31, 2014

     50         13         63   
  

 

 

    

 

 

    

 

 

 

2015:

        

Cash payments

     (65      (1      (66

Restructuring charges

     199         423         622   

Other*

     (47      (420      (467
  

 

 

    

 

 

    

 

 

 

Reserve balances at December 31, 2015

   $ 137       $ 15       $ 152   
  

 

 

    

 

 

    

 

 

 

 

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* Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation. In 2015, 2014, and 2013, Other for layoff costs also included a reclassification of $35, $24, and $83, respectively, in pension and/or other postretirement benefits costs, as these obligations were included in Alcoa Corporation’s separate liability for pension and other postretirement benefits obligations (see Note W). Additionally in 2015, 2014, and 2013, Other for other exit costs also included a reclassification of the following restructuring charges: $76, $87, and $58, respectively, in asset retirement and $86, $28, and $12, respectively, in environmental obligations, as these liabilities were included in Alcoa Corporation’s separate reserves for asset retirement obligations (see Note C) and environmental remediation (see Note N).

The remaining reserves are expected to be paid in cash during 2016, with the exception of approximately $15, which is expected to be paid over the next several years for ongoing site remediation work and special layoff benefit payments.

E. Goodwill and Other Intangible Assets

The following table details the changes in the carrying amount of goodwill under the Bauxite and Alumina segmentation:

 

     Note      Bauxite     Alumina     Corporate*     Total  

Balance at December 31, 2013:

           

Goodwill

      $ 2      $ 7      $ 158      $ 167   

Accumulated impairment losses

        —           
     

 

 

   

 

 

   

 

 

   

 

 

 
        2        7        158        167   

Divestitures

     F         —          (3     —          (3

Translation

        1        1        (6     (4
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2014:

           

Goodwill

        3        5        152        160   

Accumulated impairment losses

        —          —          —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 
        3        5        152        160   

Translation

        (1     (1     (6     (8
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015:

           

Goodwill

        2        4        146        152   

Accumulated impairment losses

        —          —          —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 
      $ 2      $ 4      $ 146      $ 152   
     

 

 

   

 

 

   

 

 

   

 

 

 

 

* The $146 of goodwill reflected in corporate is allocated to the Bauxite ($49) and Alumina ($97) segments for purposes of impairment testing (see Note A). This goodwill is reflected in Corporate for segment reporting purposes because it is not included in management’s assessment of performance by segments.

In 2013, Alcoa Corporation recognized an impairment of goodwill in the amount of $1,731 ($1,719 after noncontrolling interest) related to the annual impairment review of the historical Primary Metals reporting unit (see Goodwill and Other Intangible Assets policy in Note A). Following this impairment, there is no goodwill associated with these four reporting units of Alcoa Corporation: Aluminum, Cast Products, Rolled Products and Energy.

 

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Other intangible assets, which are included in Other noncurrent assets on the accompanying Combined Balance Sheet, were as follows:

 

December 31, 2015

   Gross
carrying
amount
     Accumulated
amortization
 

Computer software

   $ 176       $ (158

Patents and licenses

     25         (5

Other intangibles

     25         (10
  

 

 

    

 

 

 

Total other intangible assets

   $ 226       $ (173
  

 

 

    

 

 

 

 

December 31, 2014

   Gross
carrying
amount
     Accumulated
amortization
 

Computer software

   $ 186       $ (156

Patents and licenses

     25         (5

Other intangibles

     30         (10
  

 

 

    

 

 

 

Total other intangible assets

   $ 241       $ (171
  

 

 

    

 

 

 

Computer software consists primarily of software costs associated with an enterprise business solution (EBS) within Alcoa Corporation to drive common systems among all businesses.

Amortization expense related to the intangible assets in the tables above for the years ended December 31, 2015, 2014, and 2013 was $10, $13, and $15, respectively, and is expected to be in the range of $10 to $15 annually from 2016 to 2020.

F. Acquisitions and Divestitures

2015 Divestitures. In 2015, Alcoa Corporation had post-closing adjustments, as provided for in the respective purchase agreements, related to two divestitures completed in December 2014 (see 2014 Divestitures below). The combined post-closing adjustments resulted in net cash received of $41 and a net loss of $24, which was recorded in Restructuring and other charges (see Note D) on the accompanying Statement of Combined Operations. These two divestitures are no longer subject to post-closing adjustments.

2014 Divestitures. In 2014, Alcoa Corporation completed the divestiture of three operations as described below. Combined, these transactions yielded net cash proceeds of $223 and resulted in a net loss of $216, which was recorded in Restructuring and other charges (see Note D) on the accompanying Statement of Combined Operations. Two of the three transactions were subject to certain post-closing adjustments as defined in the respective purchase agreements as of December 31, 2014 (see 2015 Divestitures above).

In November 2014, Alcoa Corporation completed the sale of an aluminum rod plant located in Bécancour, Québec, Canada to Sural Laminated Products. This facility takes molten aluminum and shapes it into the form of a rod, which is used by customers primarily for the transportation of electricity. While owned by Alcoa Corporation, the operating results and assets and liabilities of this plant were included in the former Primary Metals segment. In conjunction with this transaction, Alcoa Corporation entered into a multi-year agreement with Sural Laminated Products to supply molten aluminum for the rod plant. The aluminum rod plant generated sales of approximately $200 in 2013 and, at the time of divestiture, had approximately 60 employees.

In December 2014, Alcoa Corporation’s majority-owned subsidiary (60%), Alcoa World Alumina and Chemicals (AWAC), completed the sale of its ownership stake in a bauxite mine and alumina refinery joint venture in Jamaica to Noble Group Ltd. The joint venture was 55% owned by a subsidiary of AWAC, which is 40% owned by Alumina Limited. While owned by AWAC, 55% of both the operating results and assets and liabilities of this joint venture were included in the former Alumina segment. As it relates to AWAC’s previous

 

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55% ownership stake, the refinery (AWAC’s share of the capacity was 778,800 metric-tons-per-year) generated sales (third-party and intersegment) of approximately $200 in 2013, and the refinery and mine combined, at the time of divestiture, had approximately 500 employees.

Also in December 2014, Alcoa Corporation completed the sale of its 50.33% ownership stake in the Mt. Holly smelter located in Goose Creek, South Carolina to Century Aluminum Company. While owned by Alcoa Corporation, 50.33% of both the operating results and assets and liabilities related to the smelter were included in the former Primary Metals segment. As it relates to Alcoa Corporation’s previous 50.33% ownership stake, the smelter (Alcoa Corporation’s share of the capacity was 115,000 metric-tons-per-year) generated sales of approximately $280 in 2013 and, at the time of divestiture, had approximately 250 employees.

G. Inventories

 

December 31,

   2015      2014  

Finished goods

   $ 139       $ 231   

Work-in-process

     171         241   

Bauxite and alumina

     445         578   

Purchased raw materials

     295         318   

Operating supplies

     122         133   
  

 

 

    

 

 

 
   $ 1,172       $ 1,501   
  

 

 

    

 

 

 

At December 31, 2015 and 2014, the total amount of inventories valued on a LIFO basis was $361 and $520, respectively. If valued on an average-cost basis, total inventories would have been $172 and $279 higher at December 31, 2015 and 2014, respectively. During 2013, reductions in LIFO inventory quantities caused partial liquidations of the lower cost LIFO inventory base that resulted in the recognition of income of $11.

H. Properties, Plants, and Equipment, Net

 

December 31,

   2015      2014  

Land and land rights, including mines

   $ 333       $ 383   

Structures:

     

Bauxite

     986         1,335   

Alumina

     2,405         2,768   

Aluminum

     3,345         3,520   

Cast Products

     260         244   

Energy

     530         656   

Rolled Products

     256         255   

Other

     328         381   
  

 

 

    

 

 

 
     8,110         9,159   
  

 

 

    

 

 

 

Machinery and equipment:

     

Bauxite

     401         496   

Alumina

     3,717         4,173   

Aluminum

     6,480         6,911   

Cast Products

     435         391   

Energy

     980         1,009   

Rolled Products

     872         865   

Other

     306         321   
  

 

 

    

 

 

 
     13,191         14,166   
  

 

 

    

 

 

 
     21,634         23,708   

Less: accumulated depreciation, depletion, and amortization

     12,728         12,942   
  

 

 

    

 

 

 
     8,906         10,766   

Construction work-in-progress

     484         560   
  

 

 

    

 

 

 
   $ 9,390       $ 11,326   
  

 

 

    

 

 

 

 

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As of December 31, 2015 and 2014, the net carrying value of temporarily idled smelting assets was $324 and $419, representing 778 kmt and 665 kmt of idle capacity, respectively. Also, as of December 31, 2015 and 2014, the net carrying value of temporarily idled refining assets was $53 and $62, representing 2,801 kmt and 1,216 kmt of idle capacity, respectively.

I. Investments

As of December 31, 2015 and 2014, the Combined Financial Statements reflect equity investments of $1,472 and $1,777, respectively. These equity investments included an interest in a project to develop a fully-integrated aluminum complex in Saudi Arabia (see below); bauxite mining interests in Guinea (45% of Halco Mining, Inc.) and Brazil (18.2% of Mineração Rio do Norte S.A.); two hydroelectric power projects in Brazil (see Note N); a natural gas pipeline in Australia (see Note N); a smelter operation in Canada (50% of Pechiney Reynolds Quebec, Inc.); and a hydroelectric power company in Canada (40% of Manicouagan Power Limited Partnership). Pechiney Reynolds Quebec, Inc. owns a 50.1% interest in the Bécancour smelter in Quebec, Canada thereby entitling ParentCo to a 25.05% interest in the smelter. Through two wholly-owned Canadian subsidiaries, Alcoa Corporation also owns 49.9% of the Bécancour smelter. Halco Mining, Inc. owns 100% of Boké Investment Company, which owns 51% of Compagnie des Bauxites de Guinée. The investments in the bauxite mining interests in Guinea and Brazil and the natural gas pipeline in Australia are held by wholly-owned subsidiaries of Alcoa World Alumina and Chemicals (AWAC), which is owned 60% by Alcoa Corporation and 40% by Alumina Limited. In 2015, 2014, and 2013, Alcoa Corporation received $152, $86, and $89, respectively, in dividends from its equity investments.

ParentCo and Saudi Arabian Mining Company (known as “Ma’aden”) have a 30-year (from December 2009) joint venture shareholders’ agreement (automatic extension for an additional 20 years, unless the parties agree otherwise or unless earlier terminated) setting forth the terms for the development, construction, ownership, and operation of an integrated bauxite mine, alumina refinery, and aluminum smelter in Saudi Arabia. Specifically, the project developed by the joint venture consists of: (i) a bauxite mine for the extraction of approximately 4,000 kmt of bauxite from the Al Ba’itha bauxite deposit near Quiba in the northern part of Saudi Arabia; (ii) an alumina refinery with an initial capacity of 1,800 kmt; (iii) a primary aluminum smelter with an initial capacity of 740 kmt, and (iv) a rolling mill with an initial capacity of 380 kmt. The refinery, smelter, and rolling mill have been constructed in an industrial area at Ras Al Khair on the east coast of Saudi Arabia. The facilities use critical infrastructure, including power generation derived from reserves of natural gas, as well as port and rail facilities, developed by the government of Saudi Arabia. First production from the smelter, rolling mill, and mine and refinery occurred in December of 2012, 2013, and 2014, respectively.

In 2012, ParentCo and Ma’aden agreed to expand the capabilities of the rolling mill to include a capacity of 100 kmt dedicated to supplying aluminum automotive, building and construction, and foil stock sheet. First production related to the expanded capacity occurred in 2014. This expansion is not expected to result in additional equity investment (see beow) due to significant savings anticipated from a change in the project execution strategy of the initial 380 kmt capacity of the rolling mill.

The joint venture is owned 74.9% by Ma’aden and 25.1% by ParentCo and consists of three separate companies as follows: one each for the mine and refinery, the smelter, and the rolling mill. Following the signing of the joint venture shareholders’ agreement, ParentCo paid Ma’aden $80 representing the initial investment in the project. In addition, ParentCo paid $56 to Ma’aden, representing ParentCo’s pro rata share of certain agreed upon pre-incorporation costs incurred by Ma’aden prior to formation of the joint venture.

Ma’aden and ParentCo have put and call options, respectively, whereby Ma’aden can require ParentCo to purchase from Ma’aden, or ParentCo can require Ma’aden to sell to ParentCo, a 14.9% interest in the joint venture at the then fair market value. These options may only be exercised in a six-month window that opens five years after the Commercial Production Date (as defined in the joint venture shareholders’ agreement) and, if exercised, must be exercised for the full 14.9% interest. The Commercial Production Date for the smelting company was declared on September 1, 2014. There have not been similar declarations yet for the rolling mill company and the mining and refining company.

 

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The ParentCo affiliate that holds Alcoa Corporation’s interests in the smelting company and the rolling mill company is wholly owned by ParentCo, and the ParentCo affiliate that holds Alcoa Corporation’s interest in the mining and refining company is wholly owned by AWAC. Except in limited circumstances, ParentCo may not sell, transfer or otherwise dispose of or encumber or enter into any agreement in respect of the votes or other rights attached to its interests in the joint venture without Ma’aden’s prior written consent.

A number of ParentCo employees perform various types of services for the smelting, rolling mill, and refining and mining companies as part of the construction of the fully-integrated aluminum complex. At December 31, 2015 and 2014, ParentCo had an outstanding receivable of $19 and $30, respectively, from the smelting, rolling mill, and refining and mining companies for labor and other employee-related expenses.

Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion) and has been funded through a combination of equity contributions by the joint venture partners and project financing by the joint venture, which has been guaranteed by both partners (see below). Both the equity contributions and the guarantees of the project financing are based on the joint venture’s partners’ ownership interests. Originally, it was estimated that ParentCo’s total equity investment in the joint venture would be approximately $1,100, of which ParentCo has contributed $981, including $29 and $120 in 2015 and 2014, respectively. Based on changes to both the project’s capital investment and equity and debt structure from the initial plans, the estimated $1,100 equity contribution may be reduced. As of December 31, 2015 and 2014, the carrying value of Alcoa Corporation’s investment in this project was $928 and $983, respectively.

The smelting and rolling mill companies have project financing totaling $4,311 (reflects principal payments made through December 31, 2015), of which $1,082 represents ParentCo’s share (the equivalent of ParentCo’s 25.1% interest in the smelting and rolling mill companies). In conjunction with the financings, ParentCo issued guarantees on behalf of the smelting and rolling mill companies to the lenders in the event that such companies default on their debt service requirements through 2017 and 2020 for the smelting company and 2018 and 2021 for the rolling mill company (Ma’aden issued similar guarantees for its 74.9% interest). ParentCo’s guarantees for the smelting and rolling mill companies cover total debt service requirements of $142 in principal and up to a maximum of approximately $50 in interest per year (based on projected interest rates). At December 31, 2015 and 2014, the combined fair value of the guarantees was $7 and $8, respectively, which was included in Other noncurrent liabilities and deferred credits on the accompanying Alcoa Corporation Combined Balance Sheet.

The mining and refining company has project financing totaling $2,232, of which $560 represents AWAC’s 25.1% interest in the mining and refining company. In conjunction with the financings, ParentCo, on behalf of AWAC, issued guarantees to the lenders in the event that the mining and refining company defaults on its debt service requirements through 2019 and 2024 (Ma’aden issued similar guarantees for its 74.9% interest). ParentCo’s guarantees for the mining and refining company cover total debt service requirements of $120 in principal an up to a maximum of approximately $30 in interest per year (based on projected interest rates). At December 31, 2015 and 2014, the combined fair value of the guarantees was $3 and $4, respectively, which was included in Other noncurrent liabilities and deferred credits on the accompanying Alcoa Corporation Combined Balance Sheet. In the event ParentCo would be required to make payments under the guarantees, 40% of such amount would be contributed to ParentCo by Alumina Limited, consistent with its ownership interest in AWAC.

In June 2013, all three joint venture companies entered into a 20-year gas supply agreement with Saudi Aramco, replacing the previous authorized gas allocation of the Ministry of Petroleum and Mineral Resources of Saudi Arabia (the “Ministry of Petroleum”). The gas supply agreement provides sufficient fuel to meet manufacturing process requirements as well as fuel to the adjacent combined water and power plant being constructed by Saline Water Conversion Corporation, which is owned by the government of Saudi Arabia and is responsible for desalinating sea water and producing electricity for Saudi Arabia. The combined water and power plant will convert the three joint venture companies’ gas into electricity and water at cost, which will be supplied to the refinery, smelter, and rolling mill. A $60 letter of credit previously provided to the Ministry of Petroleum by Ma’aden (ParentCo is responsible for its pro rata share) under the gas allocation was terminated in June 2015 due to the completion of certain auxiliary rolling facilities.

 

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The parties subject to the joint venture shareholders’ agreement may not sell, transfer, or otherwise dispose of, pledge, or encumber any interests in the joint venture until certain milestones have been met as defined in both agreements. Under the joint venture shareholders’ agreement, upon the occurrence of an unremedied event of default by ParentCo, Ma’aden may purchase, or, upon the occurrence of an unremedied event of default by Ma’aden, ParentCo may sell, its interest for consideration that varies depending on the time of the default.

J. Other Noncurrent Assets

 

December 31,

   Note      2015      2014  

Gas supply prepayment

     N       $ 288       $  —     

Prepaid gas transmission contract

     N         268         295   

Value-added tax receivable

        233         294   

Deferred mining costs, net

        203         209   

Intangibles, net

     E         53         70   

Prepaid pension benefit

     W         35         35   

Advance related to European Commission Matter in Italy

     N         —           111   

Other

        167         275   
     

 

 

    

 

 

 
      $ 1,247       $ 1,289   
     

 

 

    

 

 

 

K. Debt

 

December 31,

   2015      2014  

BNDES Loans, due 2016-2029 (see below for weighted average rates)

   $ 174       $ 267   

Chelan County Loan, due 2031 (5.85%)

     14         14   

Other

     37         61   
  

 

 

    

 

 

 
     225         342   

Less: amount due within one year

     18         29   
  

 

 

    

 

 

 
   $ 207       $ 313   
  

 

 

    

 

 

 

The principal amount of long-term debt maturing in each of the next five years is $18 in 2016, $17 in 2017, $16 in 2018, $15 in 2019, and $15 in 2020.

BNDES Loans —Alcoa Corporation has a loan agreement with Brazil’s National Bank for Economic and Social Development (BNDES) that provides for a financing commitment of $397 (R$687), which is divided into three subloans and was used to pay for certain expenditures of the Estreito hydroelectric power project. Interest on the three subloans is a Brazil real rate of interest equal to BNDES’ long-term interest rate, 7.00% and 5.00% as of December 31, 2015 and 2014, respectively, plus a weighted-average margin of 1.48%. Principal and interest are payable monthly, which began in October 2011 and end in September 2029 for two of the subloans totaling R$667 and began in July 2012 and end in June 2018 for the subloan of R$20. This loan may be repaid early without penalty with the approval of BNDES.

As of December 31, 2015 and 2014, Alcoa Corporation’s outstanding borrowings were $136 (R$522) and $209 (R$560), respectively, and the weighted-average interest rate was 8.49%. During 2015 and 2014, Alcoa Corporation repaid $15 (R$48) and $20 (R$47), respectively, of outstanding borrowings. Additionally, Alcoa Corporation borrowed less than $1 (R$1) and $1 (R$2) under the loan in 2015 and 2014, respectively.

Alcoa Corporation has another loan agreement with BNDES that provides for a financing commitment of $85 (R$177), which also was used to pay for certain expenditures of the Estreito hydroelectric power project. Interest on the loan is a Brazil real rate of interest equal to BNDES’ long-term interest rate plus a margin of 1.55%. Principal and interest are payable monthly, which began in January 2013 and end in September 2029. This loan may be repaid early without penalty with the approval of BNDES. As of December 31, 2015 and 2014,

 

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Alcoa Corporation’s outstanding borrowings were $38 (R146) and $58 (R$156), respectively, and the interest rate was 6.55%. During 2015 and 2014, Alcoa Corporation repaid $3 (R$10) and $5 (R$11), respectively, of outstanding borrowings.

L. Other Noncurrent Liabilities and Deferred Credits

 

December 31,

   Note      2015      2014  

Fair value of derivative contracts

     X       $ 189       $ 368   

Liability related to the resolution of a legal matter

     N         148         222   

Accrued compensation and retirement costs

        92         102   

Deferred alumina sales revenue

        84         93   

Deferred credit related to derivative contract

     X         —           62   

Other

        85         81   
     

 

 

    

 

 

 
      $ 598       $ 928   
     

 

 

    

 

 

 

M. Noncontrolling Interest

As of December 31, 2015 and 2014, the amount of the noncontrolling shareholder’s (Alumina Limited) interest in the equity of certain Alcoa Corporation majority-owned entities, collectively known as Alcoa World Alumina and Chemicals, was $2,071 and $2,474, respectively.

In 2015, 2014, and 2013, Alcoa Corporation received $2, $43, and $9, respectively, in contributions from Alumina Limited related to Alcoa World Alumina and Chemicals.

In 2013, Noncontrolling interest included a charge of $17 related to a legal matter (see Settlement with Alumina Limited under Litigation in Note N).

N. Contingencies and Commitments

Contingencies

The matters discussed within this section are those of ParentCo that are associated directly or indirectly with Alcoa Corporation’s operations. For those matters where the outcome remains uncertain, the ultimate allocation of any potential future costs between Alcoa Corporation and Arconic will be addressed in the Separation Agreement.

Litigation.

Alba Matter

Civil Suit. On February 27, 2008, ParentCo received notice that Aluminium Bahrain B.S.C. (“Alba”) had filed suit against ParentCo, Alcoa World Alumina LLC (“AWA”), and William Rice (collectively, the “ParentCo Parties”), and others, in the U.S. District Court for the Western District of Pennsylvania (the “Court”), Civil Action number 08-299, styled Aluminium Bahrain B.S.C. v. ParentCo, Alcoa World Alumina LLC, William Rice, and Victor Phillip Dahdaleh. The complaint alleged that certain ParentCo entities and their agents, including Victor Phillip Dahdaleh, had engaged in a conspiracy over a period of 15 years to defraud Alba. The complaint further alleged that ParentCo and its employees or agents (1) illegally bribed officials of the government of Bahrain and/or officers of Alba in order to force Alba to purchase alumina at excessively high prices, (2) illegally bribed officials of the government of Bahrain and/or officers of Alba and issued threats in order to pressure Alba to enter into an agreement by which ParentCo would purchase an equity interest in Alba, and (3) assigned portions of existing supply contracts between ParentCo and Alba for the sole purpose of facilitating alleged bribes and unlawful commissions. The complaint alleged that ParentCo and the other defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed fraud. Alba claimed damages in excess of $1,000. Alba’s complaint sought treble damages with respect to its RICO claims; compensatory, consequential, exemplary, and punitive damages; rescission of the 2005 alumina supply contract; and attorneys’ fees and costs.

 

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On October 9, 2012, the ParentCo Parties, without admitting any liability, entered into a settlement agreement with Alba. The agreement called for AWA to pay Alba $85 in two equal installments, one-half at time of settlement and one-half one year later, and for the case against the ParentCo Parties to be dismissed with prejudice. Additionally, AWA and Alba entered into a long-term alumina supply agreement. On October 9, 2012, pursuant to the settlement agreement, AWA paid Alba $42.5, and all claims against the ParentCo Parties were dismissed with prejudice. On October 9, 2013 pursuant to the settlement agreement, AWA paid the remaining $42.5. Based on the settlement agreement, in the 2012 third quarter, ParentCo recorded a $40 charge in addition to the $45 charge it recorded in the 2012 second quarter in respect of the suit (see Agreement with Alumina Limited below).

Government Investigations. On February 26, 2008, ParentCo advised the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) that it had recently become aware of the claims by Alba as alleged in the Alba civil suit, had already begun an internal investigation and intended to cooperate fully in any investigation that the DOJ or the SEC may commence. On March 17, 2008, the DOJ notified ParentCo that it had opened a formal investigation. The SEC subsequently commenced a concurrent investigation. ParentCo has been cooperating with the government since that time.

In the second quarter of 2013, ParentCo proposed to settle the DOJ matter by offering the DOJ a cash payment of $103. Based on this offer, ParentCo recorded a charge of $103 in the 2013 second quarter. Also in the second quarter of 2013, ParentCo exchanged settlement offers with the SEC. However, the SEC staff rejected ParentCo’s offer of $60 and no charge was recorded. During the remainder of 2013, settlement discussions with both the DOJ and the SEC continued.

On January 9, 2014, ParentCo resolved the investigations by the DOJ and the SEC. The settlement with the DOJ was reached with AWA. Under the terms of a plea agreement entered into with the DOJ, effective January 9, 2014, AWA pled guilty to one count of violating the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”). As part of the DOJ resolution, AWA agreed to pay a total of $223, including a fine of $209 payable in five equal installments over four years. The first installment of $41.8, plus a one-time administrative forfeiture of $14, was paid in the first quarter of 2014, the second installment of $41.8 was paid in the first quarter of 2015, and the remaining installments of $41.8 each will be paid in the first quarters of 2016 through 2018 (the third installment was paid on January 8, 2016). The DOJ is bringing no case against ParentCo.

Effective January 9, 2014, ParentCo also settled civil charges filed by the SEC in an administrative proceeding relating to the anti-bribery, internal controls, and books and records provisions of the FCPA. Under the terms of the settlement with the SEC, ParentCo agreed to a settlement amount of $175, but will be given credit for the $14 one-time forfeiture payment, which is part of the DOJ resolution, resulting in a total cash payment to the SEC of $161 payable in five equal installments over four years. The first and second installments of $32.2 each were paid to the SEC in the first quarter of 2014 and 2015, respectively, and the remaining installments of $32.2 each will be paid in the first quarters of 2016 through 2018 (the third installment was paid on January 25, 2016).

There was no allegation in the filings by the DOJ and there was no finding by the SEC that anyone at ParentCo knowingly engaged in the conduct at issue.

Based on the resolutions with both the DOJ and SEC, in the 2013 fourth quarter, ParentCo recorded a $288 charge, which includes legal costs of $7, in addition to the $103 charge it recorded in the 2013 second quarter in respect of the investigations (see Agreement with Alumina Limited below).

Agreement with Alumina Limited. AWA is a U.S.-based Alcoa World Alumina and Chemicals (“AWAC”) company organized under the laws of Delaware that owns, directly or indirectly, alumina refineries and bauxite mines in the Atlantic region. AWAC is an unincorporated global bauxite mining and alumina refining venture between ParentCo and Alumina Limited. AWAC consists of a number of affiliated entities, including AWA, which own, or have an interest in, or operate bauxite mines and alumina refineries in eight

 

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countries (seven as of December 31, 2014 due to the divestiture of an ownership interest in a mining and refining joint venture in Jamaica—see Note F). ParentCo owns 60% and Alumina Limited owns 40% of these individual entities, which are consolidated by ParentCo for financial reporting purposes (and are reflected in Alcoa Corporation’s combined financial statements).

In October 2012, ParentCo and Alumina Limited entered into an agreement to allocate the costs of the Alba civil settlement and all legal fees associated with this matter (including the government investigations discussed above) between ParentCo and Alumina Limited on an 85% and 15% basis, respectively, but this would occur only if a settlement is reached with the DOJ and the SEC regarding their investigations. As such, the $85 civil settlement in 2012 and all legal costs associated with the civil suit and government investigations incurred prior to 2013 were allocated on a 60% and 40% basis in the respective periods on ParentCo’s Statement of Consolidated Operations. As a result of the resolutions of the government investigations, the $384 charge and legal costs incurred in 2013 were allocated on an 85% and 15% basis per the allocation agreement with Alumina Limited. Additionally, the $85 civil settlement from 2012 and all legal costs associated with the civil suit and government investigations incurred prior to 2013 were reallocated on the 85% and 15% basis. The following table details the activity related to the Alba matter:

 

     2013      2012  
     Alcoa
Corporation
     Alumina
Limited
    Total      Alcoa
Corporation
     Alumina
Limited
     Total  

Government investigations (1)

   $ 326       $ 58      $ 384       $ —         $ —         $ —     

Civil suit (1)

     —           —          —           51         34         85   

Reallocation of civil suit

     21         (21     —           —           —           —     

Reallocation of legal costs

     20         (20     —           —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes (2)

     367         17        384         51         34         85   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The amount in the Total column was recorded in Restructuring and other charges (see Note D).
(2) In 2013 and 2012, the amount for Alcoa Corporation was included in Net income (loss) attributable to Alcoa Corporation, and the amount for Alumina Limited was included in Net income (loss) attributable to noncontrolling interest.

Other Matters

On June 5, 2015, Alcoa World Alumina LLC (“AWA”) and St. Croix Alumina, L.L.C. (“SCA”) filed a complaint in Delaware Chancery Court for a declaratory judgment and injunctive relief to resolve a dispute between ParentCo and Glencore Ltd. (“Glencore”) with respect to claimed obligations under a 1995 asset purchase agreement between ParentCo and Glencore. The dispute arose from Glencore’s demand that ParentCo indemnify it for liabilities it may have to pay to Lockheed Martin (“Lockheed”) related to the St. Croix alumina refinery. Lockheed had earlier filed suit against Glencore in federal court in New York seeking indemnity for liabilities it had incurred and would incur to the U.S. Virgin Islands to remediate certain properties at the refinery property and claimed that Glencore was required by an earlier, 1989 purchase agreement to indemnify it. Glencore had demanded that ParentCo indemnify and defend it in the Lockheed case and threatened to claim against ParentCo in the New York action despite exclusive jurisdiction for resolution of disputes under the 1995 purchase agreement being in Delaware. After Glencore conceded that it was not seeking to add ParentCo to the New York action, AWA and SCA dismissed their complaint in the Chancery Court case and on August 6, 2015 filed a complaint for declaratory judgment in Delaware Superior Court. AWA and SCA filed a motion for judgment on the pleadings on September 16, 2015. Glencore answered AWA’s and SCA’s complaint and asserted counterclaims on August 27, 2015, and on October 2, 2015 filed its own motion for judgment on the pleadings. Argument on the parties’ motions was held by the court on December 7, 2015, and by order dated February 8, 2016, the court granted ParentCo’s motion and denied Glencore’s motion, resulting in ParentCo not being liable to indemnify Glencore for the Lockheed action. The decision also leaves for pretrial discovery and possible summary judgment or trial Glencore’s claims for costs and fees it incurred in defending and settling an earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On February 17,

 

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2016, Glencore filed notice of its application for interlocutory appeal of the February 8 ruling. AWA and SCA filed an opposition to that application on February 29, 2016. On March 10, 2016, the court denied Glencore’s motion for interlocutory appeal and on the same day entered judgment on claims other than Glencore’s claims for costs and fees it incurred in defending and settling the earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On March 29, 2016, Glencore filed a withdrawal of its notice of interlocutory appeal and also noted its intent to appeal the court’s March 10, 2016 judgment. Glencore filed its opening brief on its appeal on May 23, 2016. ParentCo filed its reply brief on June 22, 2016, with all further briefing to be concluded by July 7, 2016. At this time, the Company is unable to reasonably predict an outcome for this matter.

Before 2002, ParentCo purchased power in Italy in the regulated energy market and received a drawback of a portion of the price of power under a special tariff in an amount calculated in accordance with a published resolution of the Italian Energy Authority, Energy Authority Resolution n. 204/1999 (“204/1999”). In 2001, the Energy Authority published another resolution, which clarified that the drawback would be calculated in the same manner, and in the same amount, in either the regulated or unregulated market. At the beginning of 2002, ParentCo left the regulated energy market to purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority introduced regulation no. 148/2004, which set forth a different method for calculating the special tariff that would result in a different drawback for the regulated and unregulated markets. ParentCo challenged the new regulation in the Administrative Court of Milan and received a favorable judgment in 2006. Following this ruling, ParentCo continued to receive the power price drawback in accordance with the original calculation method, through 2009, when the European Commission declared all such special tariffs to be impermissible “state aid.” In 2010, the Energy Authority appealed the 2006 ruling to the Consiglio di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato ruled in favor of the Energy Authority and against ParentCo, thus presenting the opportunity for the energy regulators to seek reimbursement from ParentCo of an amount equal to the difference between the actual drawback amounts received over the relevant time period, and the drawback as it would have been calculated in accordance with regulation 148/2004. On February 23, 2012, ParentCo filed its appeal of the decision of the Consiglio di Stato (this appeal was subsequently withdrawn in March 2013). On March 26, 2012, ParentCo received a letter from the agency (Cassa Conguaglio per il Settore Eletrico (CCSE)) responsible for making and collecting payments on behalf of the Energy Authority demanding payment in the amount of approximately $110 (€85), including interest. By letter dated April 5, 2012, ParentCo informed CCSE that it disputes the payment demand of CCSE since (i) CCSE was not authorized by the Consiglio di Stato decisions to seek payment of any amount, (ii) the decision of the Consiglio di Stato has been appealed (see above), and (iii) in any event, no interest should be payable. On April 29, 2012, Law No. 44 of 2012 (“44/2012”) came into effect, changing the method to calculate the drawback. On February 21, 2013, ParentCo received a revised request letter from CSSE demanding ParentCo’s subsidiary, ParentCo Trasformazioni S.r.l., make a payment in the amount of $97 (€76), including interest, which reflects a revised calculation methodology by CCSE and represents the high end of the range of reasonably possible loss associated with this matter of $0 to $97 (€76). ParentCo has rejected that demand and has formally challenged it through an appeal before the Administrative Court on April 5, 2013. The Administrative Court scheduled a hearing for December 19, 2013, which was subsequently postponed until April 17, 2014, and further postponed until June 19, 2014. On this date, the Administrative Court listened to ParentCo’s oral argument, and on September 2, 2014, rendered its decision. The Administrative Court declared the payment request of CCSE and the Energy Authority to ParentCo to be unsubstantiated based on the 148/2004 resolution with respect to the January 19, 2007 through November 19, 2009 timeframe. On December 18, 2014, the CCSE and the Energy Authority appealed the Administrative Court’s September 2, 2014 decision; however, a date for the hearing has not been scheduled. As a result of the conclusion of the European Commission Matter on January 26, 2016 described below, management has modified its outlook with respect to a portion of the pending legal proceedings related to this matter. As such, a charge of $37 (€34) was recorded in Restructuring and other charges for the year ended December 31, 2015, on Alcoa Corporation’s Statement of Combined Operations to establish a partial reserve for this matter. At this time, Alcoa Corporation is unable to reasonably predict the ultimate outcome for this matter.

European Commission Matter. In July 2006, the European Commission (EC) announced that it had opened an investigation to establish whether an extension of the regulated electricity tariff granted by Italy to

 

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some energy-intensive industries complied with European Union (EU) state aid rules. The Italian power tariff extended the tariff that was in force until December 31, 2005 through November 19, 2009 (ParentCo had been incurring higher power costs at its smelters in Italy subsequent to the tariff end date through the end of 2012). The extension was originally through 2010, but the date was changed by legislation adopted by the Italian Parliament effective on August 15, 2009. Prior to expiration of the tariff in 2005, ParentCo had been operating in Italy for more than 10 years under a power supply structure approved by the EC in 1996. That measure provided a competitive power supply to the primary aluminum industry and was not considered state aid from the Italian Government. The EC’s announcement expressed concerns about whether Italy’s extension of the tariff beyond 2005 was compatible with EU legislation and potentially distorted competition in the European market of primary aluminum, where energy is an important part of the production costs.

On November 19, 2009, the EC announced a decision in this matter stating that the extension of the tariff by Italy constituted unlawful state aid, in part, and, therefore, the Italian Government is to recover a portion of the benefit ParentCo received since January 2006 (including interest). The amount of this recovery was to be based on a calculation prepared by the Italian Government (see below). In late 2009, after discussions with legal counsel and reviewing the bases on which the EC decided, including the different considerations cited in the EC decision regarding ParentCo’s two smelters in Italy, ParentCo recorded a charge of $250 (€173), which included $20 (€14) to write off a receivable from the Italian Government for amounts due under the now expired tariff structure and $230 (€159) to establish a reserve. On April 19, 2010, ParentCo filed an appeal of this decision with the General Court of the EU (see below). Prior to 2012, ParentCo was involved in other legal proceedings related to this matter that separately sought the annulment of the EC’s July 2006 decision to open an investigation alleging that such decision did not follow the applicable procedural rules and requested injunctive relief to suspend the effectiveness of the EC’s November 19, 2009 decision. However, the decisions by the General Court, and subsequent appeals to the European Court of Justice, resulted in the denial of these remedies.

In June 2012, ParentCo received formal notification from the Italian Government with a calculated recovery amount of $375 (€303); this amount was reduced by $65 (€53) for amounts owed by the Italian Government to ParentCo, resulting in a net payment request of $310 (€250). In a notice published in the Official Journal of the European Union on September 22, 2012, the EC announced that it had filed an action against the Italian Government on July 18, 2012 to compel it to collect the recovery amount (on October 17, 2013, the European Court of Justice ordered Italy to so collect). On September 27, 2012, ParentCo received a request for payment in full of the $310 (€250) by October 31, 2012. Following discussions with the Italian Government regarding the timing of such payment, ParentCo paid the requested amount in five quarterly installments of $69 (€50) beginning in October 2012 through December 2013.

On October 16, 2014, ParentCo received notice from the General Court of the EU that its April 19, 2010 appeal of the EC’s November 19, 2009 decision was denied. On December 27, 2014, ParentCo filed an appeal of the General Court’s October 16, 2014 ruling to the European Court of Justice (ECJ). Following submission of the EC’s response to the appeal, on June 10, 2015, ParentCo filed a request for an oral hearing before the ECJ; no decision on that request was received. On January 26, 2016, ParentCo was informed that the ECJ had dismissed ParentCo’s December 27, 2014 appeal of the General Court’s October 16, 2014 ruling. The dismissal of ParentCo’s appeal represents the conclusion of the legal proceedings in this matter. Prior to this dismissal, ParentCo had a noncurrent asset of $100 (€91) reflecting the excess of the total of the five payments made to the Italian Government over the reserve recorded in 2009. As a result, this noncurrent asset, along with the $58 (€53) for amounts owed by the Italian Government to ParentCo mentioned above plus $6 (€6) for interest previously paid, was written-off. A charge of $164 (€150) was recorded in Restructuring and other charges for the year ended December 31, 2015 on Alcoa Corporation’s Statement of Combined Operations (see Note D).

As a result of the EC’s November 19, 2009 decision, management had contemplated ceasing operations at its Italian smelters due to uneconomical power costs. In February 2010, management agreed to continue to operate its smelters in Italy for up to six months while a long-term solution to address increased power costs could be negotiated. Over a portion of this time, a long-term solution was not able to be reached related to the

 

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Fusina smelter, therefore, in May 2010, ParentCo and the Italian Government agreed to a temporary idling of the Fusina smelter. As of September 30, 2010, the Fusina smelter was fully curtailed (44,000 metric-tons-per-year). For the Portovesme smelter, ParentCo executed a new power agreement effective September 1, 2010 through December 31, 2012, replacing the short-term, market-based power contract that was in effect since early 2010. This new agreement along with interruptibility rights (i.e. compensation for power interruptions when grids are overloaded) granted to ParentCo for the Portovesme smelter provided additional time to negotiate a long-term solution (the EC had previously determined that the interruptibility rights were not considered state aid).

At the end of 2011, as part of a restructuring of ParentCo’s global smelting system, management decided to curtail operations at the Portovesme smelter during 2012 due to the uncertain prospects for viable, long-term power, along with rising raw materials costs and falling global aluminum prices (mid-2011 to late 2011). As of December 31, 2012, the Portovesme smelter was fully curtailed (150,000 metric-tons-per-year).

In June 2013 and August 2014, Alcoa Corporation decided to permanently shut down and demolish the Fusina and Portovesme smelters, respectively, due to persistent uneconomical conditions (see Note D).

Environmental Matters. ParentCo participates in environmental assessments and cleanups at more than 100 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)) sites.

A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.

Alcoa Corporation’s remediation reserve balance was $235 and $165 at December 31, 2015 and 2014 (of which $28 and $40 was classified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated for current and certain former Alcoa Corporation operating locations.

In 2015, the remediation reserve was increased by $107 due to a charge of $52 related to the planned demolition of the remaining structures at the Massena East smelter location (see Note D), a charge of $29 related to the planned demolition of the Poços de Caldas smelter and the Anglesea power station (see Note D), a charge of $12 related to the Mosjøen location (see below), a charge of $7 related to the Portovesme location (see below), and a net charge of $7 associated with a number of other sites. In 2014, the remediation reserve was increased by $37 due to a charge of $24 related to the planned demolition of certain structures at the Massena East, NY, Point Henry, Australia, and Portovesme, Italy locations (see Note D), a charge of $3 related to the Portovesme location (see below), and a net charge of $10 associated with a number of other sites. Of the changes to the remediation reserve in 2015 and 2014, $86 and $28, respectively, was recorded in Restructuring and other charges, while the remainder was recorded in Cost of goods sold on the accompanying Statement of Combined Operations.

Payments related to remediation expenses applied against the reserve were $24 and $26 in 2015 and 2014, respectively. These amounts include expenditures currently mandated, as well as those not required by any regulatory authority or third party. In 2015, the change in the reserve also reflects a decrease of $13 due to the effects of foreign currency translation. In 2014, the change in the reserve also reflects a net increase of $21 due to a reclassification of amounts included in other reserves within Other noncurrent liabilities and deferred credits on Alcoa Corporation’s Combined Balance Sheet as of December 31, 2013, and the effects of foreign currency translation.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 2% of cost of goods sold.

 

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The following discussion provides details regarding the current status of certain significant reserves related to current or former Alcoa Corporation sites.

Fusina and Portovesme, Italy— In 1996, ParentCo acquired the Fusina smelter and rolling operations and the Portovesme smelter, both of which are owned by ParentCo’s subsidiary Alcoa Trasformazioni S.r.l. (“Trasformazioni”), from Alumix, an entity owned by the Italian Government. At the time of the acquisition, Alumix indemnified ParentCo for pre-existing environmental contamination at the sites. In 2004, the Italian Ministry of Environment and Protection of Land and Sea (MOE) issued orders to Trasformazioni and Alumix for the development of a clean-up plan related to soil contamination in excess of allowable limits under legislative decree and to institute emergency actions and pay natural resource damages. Trasformazioni appealed the orders and filed suit against Alumix, among others, seeking indemnification for these liabilities under the provisions of the acquisition agreement. In 2009, Ligestra S.r.l. (“Ligestra”), Alumix’s successor, and Trasformazioni agreed to a stay of the court proceedings while investigations were conducted and negotiations advanced towards a possible settlement.

In December 2009, Trasformazioni and Ligestra reached an initial agreement for settlement of the liabilities related to Fusina while negotiations continued related to Portovesme (see below). The agreement outlined an allocation of payments to the MOE for emergency action and natural resource damages and the scope and costs for a proposed soil remediation project, which was formally presented to the MOE in mid-2010. The agreement was contingent upon final acceptance of the remediation project by the MOE. As a result of entering into this agreement, ParentCo increased the reserve by $12 in 2009 for Fusina. Based on comments received from the MOE and local and regional environmental authorities, Trasformazioni submitted a revised remediation plan in the first half of 2012; however, such revisions did not require any change to the existing reserve. In October 2013, the MOE approved the project submitted by ParentCo, resulting in no adjustment to the reserve.

In January 2014, in anticipation of ParentCo reaching a final administrative agreement with the MOE, ParentCo and Ligestra entered into a final agreement related to Fusina for allocation of payments to the MOE for emergency action and natural resource damages and the costs for the approved soil remediation project. The agreement resulted in Ligestra assuming 50% to 80% of all payments and remediation costs. On February 27, 2014, ParentCo and the MOE reached a final administrative agreement for conduct of work. The agreement includes both a soil and groundwater remediation project estimated to cost $33 (€24) and requires payments of $25 (€18) to the MOE for emergency action and natural resource damages. The remediation projects are slated to begin as soon as ParentCo receives final approval from the Ministry of Infrastructure. Based on the final agreement with Ligestra, ParentCo’s share of all costs and payments is $17 (€12), of which $9 (€6) related to the damages will be paid annually over a 10-year period, which began in April 2014, and was previously fully reserved.

Separately, in 2009, due to additional information derived from the site investigations conducted at Portovesme, ParentCo increased the reserve by $3. In November 2011, Trasformazioni and Ligestra reached an agreement for settlement of the liabilities related to Portovesme, similar to the one for Fusina. A proposed soil remediation project for Portovesme was formally presented to the MOE in June 2012. Neither the agreement with Ligestra nor the proposal to the MOE resulted in a change to the reserve for Portovesme. In November 2013, the MOE rejected the proposed soil remediation project and requested a revised project be submitted. In May 2014, Trasformazioni and Ligestra submitted a revised soil remediation project that addressed certain stakeholders’ concerns. ParentCo increased the reserve by $3 in 2014 to reflect the estimated higher costs associated with the revised soil remediation project, as well as current operating and maintenance costs of the Portovesme site.

In October 2014, the MOE required a further revised project be submitted to reflect the removal of a larger volume of contaminated soil than what had been proposed, as well as design changes for the cap related to the remaining contaminated soil left in place and the expansion of an emergency containment groundwater pump and treatment system that was previously installed. Trasformazioni and Ligestra submitted the further revised soil remediation project in February 2015. As a result, ParentCo increased the reserve by $7 in March 2015 to reflect

 

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the increase in the estimated costs of the project. In October 2015, ParentCo received a final ministerial decree approving the February 2015 revised soil remediation project. Work on the soil remediation project will commence in 2016 and is expected to be completed in 2019. ParentCo and Ligestra are now working on a final groundwater remediation project, which will be submitted to the MOE for review during 2016. The ultimate outcome of this matter may result in a change to the existing reserve for Portovesme.

Baie Comeau, Quebec, Canada— In August 2012, ParentCo presented an analysis of remediation alternatives to the Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks (MDDEP), in response to a previous request, related to known PCBs and polycyclic aromatic hydrocarbons (PAHs) contained in sediments of the Anse du Moulin bay. As such, ParentCo increased the reserve for Baie Comeau by $25 in 2012 to reflect the estimated cost of ParentCo’s recommended alternative, consisting of both dredging and capping of the contaminated sediments. In July 2013, ParentCo submitted the Environmental Impact Assessment for the project to the MDDEP. The MDDEP notified ParentCo that the project as it was submitted was approved and a final mistrial decree was issued in July 2015. As a result, no further adjustment to the reserve was required in 2015. The decree provides final approval for the project and allows ParentCo to start work on the final project design, which is expected to be completed in 2016 with construction on the project expected to begin in 2017. Completion of the final project design and bidding of the project may result in additional liability in a future period.

Mosjøen, Norway— In September 2012, ParentCo presented an analysis of remediation alternatives to the Norwegian Environmental Agency (NEA) (formerly the Norwegian Climate and Pollution Agency, or “Klif”), in response to a previous request, related to known PAHs in the sediments located in the harbor and extending out into the fjord. As such, ParentCo increased the reserve for Mosjøen by $20 in 2012 to reflect the estimated cost of the baseline alternative for dredging of the contaminated sediments. A proposed project reflecting this alternative was formally presented to the NEA in June 2014, and was resubmitted in late 2014 to reflect changes by the NEA. The revised proposal did not result in a change to the reserve for Mosjøen.

In April 2015, the NEA notified ParentCo that the revised project was approved and required submission of the final project design before issuing a final order. ParentCo completed and submitted the final project design, which identified a need to stabilize the related wharf structure to allow for the sediment dredging in the harbor. As a result, ParentCo increased the reserve for Mosjøen by $11 in June 2015 to reflect the estimated cost of the wharf stabilization. Also in June 2015, the NEA issued a final order approving the project as well as the final project design. In September 2015, ParentCo increased the reserve by $1 to reflect the potential need (based on prior experience with similar projects) to perform additional dredging if the results of sampling, which is required by the order, don’t achieve the required cleanup levels. Project construction will commence in 2016 and is expected to be completed by the end of 2017.

Tax. In September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment was received as a result of Spain’s tax authorities disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by ParentCo. An appeal of this assessment in Spain’s Central Tax Administrative Court by ParentCo was denied in October 2013. In December 2013, ParentCo filed an appeal of the assessment in Spain’s National Court.

Additionally, following a corporate income tax audit of the same Spanish tax group for the 2006 through 2009 tax years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In August 2013, ParentCo filed an appeal of this second assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. ParentCo filed an appeal of this second assessment in Spain’s National Court in March 2015.

The combined assessments (remeasured for a tax rate change enacted in November 2014—see Note T) total $263 (€241). ParentCo believes it has meritorious arguments to support its tax position and intends to vigorously litigate the assessments through Spain’s court system. However, in the event ParentCo is unsuccessful, a portion

 

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of the assessments may be offset with existing net operating losses available to the Spanish consolidated tax group. Additionally, it is possible that ParentCo may receive similar assessments for tax years subsequent to 2009. At this time, ParentCo is unable to reasonably predict an outcome for this matter.

In March 2013, Alcoa World Alumina Brasil (AWAB), a majority-owned subsidiary that is part of AWAC, was notified by the Brazilian Federal Revenue Office (RFB) that approximately $110 (R$220) of value added tax credits previously claimed are being disallowed and a penalty of 50% assessed. Of this amount, AWAB received $41 (R$82) in cash in May 2012. The value added tax credits were claimed by AWAB for both fixed assets and export sales related to the Juruti bauxite mine and São Luís refinery expansion. The RFB has disallowed credits they allege belong to the consortium in which AWAB owns an interest and should not have been claimed by AWAB. Credits have also been disallowed as a result of challenges to apportionment methods used, questions about the use of the credits, and an alleged lack of documented proof. AWAB presented defense of its claim to the RFB on April 8, 2013. If AWAB is successful in this administrative process, the RFB would have no further recourse. If unsuccessful in this process, AWAB has the option to litigate at a judicial level. Separately from the AWAB’s administrative appeal, in June 2015, new tax law was enacted repealing the provisions in the tax code that were the basis for the RFB assessing a 50% penalty in this matter. As such, the estimated range of reasonably possible loss is $0 to $27 (R$103), whereby the maximum end of this range represents the portion of the disallowed credits applicable to the export sales and excludes the 50% penalty. Additionally, the estimated range of disallowed credits related to AWAB’s fixed assets is $0 to $30 (R$117), which would increase the net carrying value of AWAB’s fixed assets if ultimately disallowed. It is management’s opinion that the allegations have no basis; however, at this time, management is unable to reasonably predict an outcome for this matter.

Between 2000 and 2002, Alcoa Alumínio (Alumínio), a Brazilian subsidiary of ParentCo that includes both Alcoa Corporation and Arconic operations, sold approximately 2,000 metric tons of metal per month from its Poços de Caldas facility, located in the State of Minas Gerais (the “State”), to Alfio, a customer also located in the State. Sales in the State were exempted from value-added tax (VAT) requirements. Alfio subsequently sold metal to customers outside of the State, but did not pay the required VAT on those transactions. In July 2002, Alumínio received an assessment from State auditors on the theory that Alumínio should be jointly and severally liable with Alfio for the unpaid VAT. In June 2003, the administrative tribunal found Alumínio liable, and Alumínio filed a judicial case in the State in February 2004 contesting the finding. In May 2005, the Court of First Instance found Alumínio solely liable, and a panel of a State appeals court confirmed this finding in April 2006. Alumínio filed a special appeal to the Superior Tribunal of Justice (STJ) in Brasilia (the federal capital of Brazil) later in 2006. In 2011, the STJ (through one of its judges) reversed the judgment of the lower courts, finding that Alumínio should neither be solely nor jointly and severally liable with Alfio for the VAT, which ruling was then appealed by the State. In August 2012, the STJ agreed to have the case reheard before a five-judge panel. A decision from this panel is pending, but additional appeals are likely. At December 31, 2015, the assessment totaled $35 (R$135), including penalties and interest. While ParentCo believes it has meritorious defenses, ParentCo is unable to reasonably predict an outcome.

Other. Sherwin Alumina Bankruptcy . In connection with the sale in 2001 of the Reynolds Metals Company (“Reynolds,” which is a subsidiary of ParentCo) alumina refinery in Gregory, Texas, Reynolds assigned an Energy Services Agreement (“ESA”) with Gregory Power Partners (“Gregory Power”) for purchase of steam and electricity by the refinery. On January 11, 2016, Sherwin Alumina Company, LLC (“Sherwin”), the current owner of the refinery, and an affiliate entity, filed bankruptcy petitions in Corpus Christi, Texas, for reorganization under Chapter 11 of the Bankruptcy Code. On January 26, 2016, Gregory Power delivered notice to Reynolds that Sherwin’s bankruptcy filing constitutes a breach of the ESA; on January 29, 2016, Reynolds responded that the filing does not constitute a breach. Sherwin informed the bankruptcy court that it intends to cease operations because it is not able to continue its bauxite supply agreement and thereafter Gregory Power filed a complaint in the bankruptcy case against Reynolds alleging breach of the ESA. The outcome of this matter is neither estimable nor probable.

 

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In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against ParentCo, or Alcoa Corporation, including those pertaining to environmental, product liability, safety and health, and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Company.

Commitments

Investments. Alcoa Corporation is a participant in four consortia that each owns a hydroelectric power project in Brazil. The purpose of Alcoa Corporation’s participation is to increase its energy self-sufficiency and provide a long-term, low-cost source of power for its two smelters (see below) and one refinery located in Brazil. These projects are known as Machadinho, Barra Grande, Serra do Facão, and Estreito.

Alcoa Corporation committed to taking a share of the output of the Machadinho and Barra Grande projects each for 30 years and the Serra do Facão and Estreito projects each for 26 years at cost (including cost of financing the project). In the event that other participants in any of these projects fail to fulfill their financial responsibilities, Alcoa Corporation may be required to fund a portion of the deficiency. In accordance with the respective agreements, if Alcoa Corporation funds any such deficiency, its participation and share of the output from the respective project will increase proportionately.

The Machadinho project reached full capacity in 2002. Alcoa Corporation’s investment in this project is 30.99%, which entitles Alcoa Corporation to approximately 120 megawatts of assured power. The Machadinho consortium is an unincorporated joint venture, and, therefore, Alcoa Corporation’s share of the assets and liabilities of the consortium are reflected in the respective lines on the accompanying Combined Balance Sheet.

The Barra Grande project reached full capacity in 2006. Alcoa Corporation’s investment in this project is 42.18% and is accounted for under the equity method. This entitles Alcoa Corporation to approximately 160 megawatts of assured power. Alcoa Corporation’s total investment in this project was $94 (R$374) and $132 (R$355) at December 31, 2015 and 2014, respectively.

The Serra do Facão project reached full capacity in 2010. Alcoa Corporation’s investment in this project is 34.97% and is accounted for under the equity method. This entitles Alcoa Corporation to approximately 65 megawatts of assured power. Alcoa Corporation’s total investment in this project was $52 (R$208) and $66 (R$178) at December 31, 2015 and 2014, respectively.

The Estreito project reached full capacity in March 2013. Alcoa Corporation’s investment in this project is 25.49%, which entitles Alcoa Corporation to approximately 150 megawatts of assured power. The Estreito consortium is an unincorporated joint venture, and, therefore, Alcoa Corporation’s share of the assets and liabilities of the consortium are reflected in the respective lines on the accompanying Combined Balance Sheet. As of December 31, 2015, construction of the Estreito project is essentially complete.

Prior to October 2013, Alcoa Corporation’s power self-sufficiency in Brazil satisfied approximately 70% of a total energy demand of approximately 690 megawatts from two smelters (São Luís (Alumar) and Poços de Caldas) and one refinery (Poços de Caldas) in Brazil. Since that time, the total energy demand has declined by approximately 675 megawatts due to capacity curtailments of both smelters in both 2013 and 2014, as well as the eventual permanent closure of the Poços de Caldas smelter in 2015.

 

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In 2004, Alcoa Corporation acquired a 20% interest in a consortium, which subsequently purchased the Dampier to Bunbury Natural Gas Pipeline (DBNGP) in Western Australia, in exchange for an initial cash investment of $17 (A$24). The investment in the DBNGP, which is classified as an equity investment, was made in order to secure a competitively priced long-term supply of natural gas to Alcoa Corporation’s refineries in Western Australia. Alcoa Corporation made additional contributions of $141 (A$176) for its share of the pipeline capacity expansion and other operational purposes of the consortium through September 2011. No further expansion of the pipeline’s capacity is planned at this time. In late 2011, the consortium initiated a three-year equity call plan to improve its capitalization structure. This plan required Alcoa Corporation to contribute $39 (A$40), all of which was made through December 31, 2014. Following the completion of the three-year equity call plan in December 2014, the consortium initiated a new equity call plan to further improve its capitalization structure. This plan requires Alcoa Corporation to contribute $30 (A$36) through mid 2016, of which $17 (A$22) was made through December 31, 2015, including $16 (A$21) in 2015. In addition to its equity ownership, Alcoa Corporation has an agreement to purchase gas transmission services from the DBNGP. At December 31, 2015, Alcoa Corporation has an asset of $268 (A$368) representing prepayments made under the agreement for future gas transmission services. Alcoa Corporation’s maximum exposure to loss on the investment and the related contract is approximately $380 (A$520) as of December 31, 2015. In April 2016, Alcoa Corporation sold its stake in DBP, the owner and operator of the Dampier to Bunbury Natural Gas Pipeline (DBNGP), to DUET Group (DUET) for AU $205 million (US $154 million). As part of the transaction, Alcoa Corporation will maintain its current access to approximately 30% of the DBNGP transmission capacity for gas supply to its three alumina refineries in Western Australia.

On April 8, 2015, Alcoa Corporation’s majority-owned subsidiary, Alcoa of Australia Limited (AofA), which is part of AWAC, secured a new 12-year gas supply agreement to power its three alumina refineries in Western Australia beginning in July 2020. This agreement was conditional on the completion of a third-party acquisition of the related energy assets from the then-current owner, which occurred in June 2015. The terms of AofA’s gas supply agreement require a prepayment of $500 to be made in two installments. The first installment of $300 was made at the time of the completion of the third-party acquisition and was reflected in Other noncurrent assets on the accompanying Combined Balance Sheet. The second installment of $200 was made in April 2016.

Purchase Obligations. Alcoa Corporation is party to unconditional purchase obligations for energy that expire between 2028 and 2036. Commitments related to these contracts total $66 in 2016, $122 in 2017, $124 in 2018, $126 in 2019, $129 in 2020, and $1,711 thereafter. Expenditures under these contracts totaled $125 in 2015, $172 in 2014, and $154 in 2013. Additionally, Alcoa Corporation has entered into other purchase commitments for energy, raw materials, and other goods and services, which total $2,608 in 2016, $1,675 in 2017, $1,478 in 2018, $1,407 in 2019, $1,313 in 2020, and $13,247 thereafter.

Operating Leases. Certain land and buildings, alumina refinery process control technology, plant equipment, vehicles, and computer equipment are under operating lease agreements. Total expense for all leases was $98 in 2015, $115 in 2014, and $120 in 2013. Under long-term operating leases, minimum annual rentals are $107 in 2016, $72 in 2017, $61 in 2018, $50 in 2019, $43 in 2020, and $56 thereafter.

Guarantees. At December 31, 2015, Alcoa Corporation has maximum potential future payments for guarantees issued on behalf of a third party of $478. These guarantees expire at various times between 2017 and 2024 and relate to project financing for the aluminum complex in Saudi Arabia (see Note I). Alcoa Corporation also has outstanding bank guarantees related to environmental obligations, workers compensation, tax matters, outstanding debt and energy contracts, among others. The total amount committed under these guarantees, which expire at various dates between 2016 and 2017 was $190 at December 31, 2015.

Letters of Credit. Alcoa Corporation has outstanding letters of credit primarily related to energy contracts (including $200 related to an expected prepayment under a gas supply contract that was made in April 2016 — see Investments above). The total amount committed under these letters of credit, which automatically renew or expire at various dates, mostly in 2016, was $363 at December 31, 2015.

 

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Surety Bonds. Alcoa Corporation has outstanding surety bonds primarily related to contract performance, workers compensation, environmental-related matters, and customs duties. The total amount committed under these bonds, which automatically renew or expire at various dates, mostly in 2016, was $43 at December 31, 2015.

O. Other Expenses (Income), Net

 

     Note      2015      2014      2013  

Equity loss

      $ 89       $ 94       $ 70   

Foreign currency gains, net

        (39      (16      (14

Net gain from asset sales

        (32      (34      (13

Net loss (gain) on mark-to-market derivative contracts

     X         26         13         (36

Other, net

        (2      1         7   
     

 

 

    

 

 

    

 

 

 
      $ 42       $ 58       $ 14   
     

 

 

    

 

 

    

 

 

 

In 2015, Net gain from asset sales included a $29 gain related to the sale of land around the Lake Charles, LA anode facility. In 2014, Net gain from asset sales included a $28 gain related to the sale of a mining interest in Suriname.

P. Cash Flow Information

Cash paid for interest and income taxes was as follows:

 

     2015      2014      2013  

Interest, net of amount capitalized

   $ 270       $ 310       $ 304   

Income taxes, net of amount refunded

   $ 265       $ 184       $ 106   

Q. Segment and Geographic Area Information

Alcoa Corporation is primarily a producer of bauxite, alumina, aluminum ingot, and aluminum sheet. Alcoa Corporation’s segments are organized by product on a worldwide basis. Segment performance under Alcoa Corporation’s management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the after-tax operating income (ATOI) of each segment. Certain items such as the impact of LIFO inventory accounting; metal price lag; interest expense; non-controlling interests; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit elimination; the impact of any discrete tax items, deferred tax valuation allowance adjustments and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income are excluded from segment ATOI. Segment assets exclude, among others, cash and cash equivalents; deferred income taxes; goodwill not allocated to businesses for segment reporting purposes; corporate fixed assets; and LIFO reserves.

The accounting policies of the segments are the same as those described in the Description of Business and Basis of Presentation (see Note A). Transactions among segments are established based on negotiation among the parties. Differences between segment totals and Alcoa Corporation’s combined totals for line items not reconciled are in Corporate.

Effective January 1, 2015, Alcoa Corporation redefined its segments concurrent with an internal reorganization for certain of its businesses. Following this reorganization, Alcoa Corporation’s operations consist of six reportable segments as follows:

Bauxite. This segment represents Alcoa Corporation’s global portfolio of bauxite mining assets. Bauxite is mined and sold primarily to internal customers within the Alumina segment, who then process it into alumina. A

 

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portion of this segment’s production is also sold to third parties. Bauxite is transferred to the Alumina segment at negotiated terms that are intended to approximate market prices; sales to third parties are conducted on both a spot and contract basis.

Alumina. This segment represents Alcoa Corporation’s worldwide refining system, which processes bauxite into alumina, which is mainly sold directly to internal and external smelter customers worldwide, or is sold to customers who process it into industrial chemical products. More than half of Alumina’s production is sold under supply contracts to third parties worldwide, while the remainder is used internally by the Aluminum segment. Alumina produced by this segment and used internally is transferred to the Aluminum segment at prevailing market prices. A portion of this segment’s third-party sales are completed through the use of agents, alumina traders, and distributors.

Aluminum. This segment represents Alcoa Corporation’s worldwide smelter system. Aluminum receives alumina, mostly from the Alumina segment, and produces molten primary aluminum. Virtually all of Aluminum’s production is sold internally to the Cast Products or Rolled Products segment, and is transferred at prevailing market prices.

Cast Products. This segment represents Alcoa Corporation’s worldwide cast house system. Cast products are made from molten aluminum, purchased primarily from Alcoa Corporation’s Aluminum segment, which is then formed into various value-add ingot products, including billet and slab, for use in fabrication operations in a variety of industries. Results from the sale of aluminum powder and scrap are also included in this segment. The majority of this segment’s products are sold to third parties; the remaining portion is sold to ParentCo’s aluminum fabrication businesses at prevailing market prices.

Energy. This segment represents Alcoa Corporation’s portfolio of energy assets, with power production capacity of approximately 1,685 megawatts. This power is sold to both internal customers within the Aluminum segment and external customers, and provides operational flexibility to maximize operating results during market cyclicality. During 2015, approximately 55% of this segment’s power was sold to external customers.

Rolled Products.   This segment primarily represents the Alcoa Corporation’s aluminum rolling mill in Warrick, Indiana, which produces aluminum sheet primarily sold directly to customers in the packaging end market for the production of aluminum cans (beverage, food and pet food). Seasonal increases in can sheet sales are generally experienced in the second and third quarters of the year.   This segment also includes Alcoa Corporation’s investment in the Ma’aden rolling mill (see Note I).

Under the applicable accounting guidance, when a Company changes its organizational structure, it should generally prepare its segment information based on the new segments and provide comparative information for related periods. However, in certain instances, changes to the structure of an internal organization could change the composition of its reportable segments and it may not be practical to retrospectively revise prior periods. In connection with the January 1, 2015 reorganization, Alcoa Corporation fundamentally altered the commercial nature of how certain internal businesses transact with each other, moving from a cost-based transfer pricing model to one based on estimated market pricing. As a result, certain operations (e.g., bauxite mining, smelting and casting) that had previously been measured and evaluated primarily based on costs incurred were transformed into separate businesses with full profit and loss information. In addition, this reorganization involved converting regional-based management responsibility to global responsibility for each business, which had a further impact on overall cost structures of the segments.

As a result of the significant changes associated with the reorganization (including substantial information system modifications), which were implemented on a prospective basis only, Alcoa Corporation does not have all of the information that would be necessary to present certain segment data, specifically ATOI, income taxes and total assets, for periods prior to 2015. This information is not available to Alcoa Corporation management for its own internal use, and it is impracticable to obtain or generate this information, as underlying commercial transactions between the segments, which are necessary to determine these income-based and asset-based segment measures, did not take place prior to 2015.

 

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The operating results and assets of Alcoa Corporation’s six reportable segments are as follows:

 

     Bauxite      Alumina     Aluminum     Cast
Products
     Energy      Rolled
Products
    Total  

2015

                 

Sales:

                 

Third-party sales

   $ 71       $ 3,343      $ 13      $ 5,127       $ 416       $ 985      $ 9,955   

Related party sales

     —           —          1        1,059         10         8        1,078   

Intersegment sales

     1,160         1,687        5,092        46         297         18        8,300   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total sales

   $ 1,231       $ 5,030      $ 5,106      $ 6,232       $ 723       $ 1,011      $ 19,333   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Profit and loss:

                 

Equity loss

     —           (41     (12     —           —           (32     (85

Depreciation, depletion, and amortization

     94         202        311        42         61         23        733   

Income taxes (benefit)

     103         191        (77     49         69         26        361   

ATOI

     258         476        1        110         145         20        1,010   

2014

                 

Sales:

                 

Third-party sales

     41         3,413        21        6,069         682         1,008        11,234   

Related party sales (1)

     —           —          —          1,758         —           25        1,783   

Intersegment sales (1)

     1,106         1,941        6,221        262         663         —          10,193   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total sales

     1,147         5,354        6,242        8,089         1,345         1,033        23,210   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Profit and loss:

                 

Equity loss

     —           (29     (34     —           —           (27     (90

Depreciation, depletion, and amortization

     120         201        365        47         68         24        825   

Income taxes

     *         *        *        *         *         27        *   

ATOI

     *         *        *        *         *         21        *   

2013

                 

Sales:

                 

Third-party sales

     90         3,237        —          6,174         299         1,040        10,840   

Related party sales (1)

     —           —          —          1,523         —           15        1,538   

Intersegment sales (1)

     1,032         2,235        6,433        287         655         —          10,642   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total sales

     1,122         5,472        6,433        7,984         954         1,055        23,020   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Profit and loss:

                 

Equity loss

     —           (4     (51     —           —           (13     (68

Depreciation, depletion, and amortization

     131         289        373        67         65         24        949   

Income taxes

     *         *        *        *         *         30        *   

ATOI

     *         *        *        *         *         52        *   

2015

                 

Assets:

                 

Capital expenditures

     30         154        108        32         16         52        392   

Equity investments

     164         503        497        —           137         217        1,518   

Goodwill

     2         4        —          —           —           —          6   

Total assets

     1,443         4,721        5,612        578         1,218         637        14,209   

2014

                 

Assets:

                 

Capital expenditures

     55         188        109        19         35         22        428   

Equity investments

     122         547        705        0         185         227        1,786   

Goodwill

     3         5        —          —           —           —          8   

Total assets

     *         *        *        *         *         677        *   

 

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(1) Amounts were estimated by Alcoa Corporation management in an effort to provide comparable revenue information for 2014 and 2013.
* This information is not available for periods prior to 2015 and it is impracticable to obtain.

The following tables reconcile certain segment information to combined totals for Alcoa Corporation:

 

     2015      2014 (2)      2013 (2)  

Sales:

        

Total segment sales

   $ 19,333       $ 23,210       $ 23,020   

Elimination of intersegment sales

     (8,300      (10,193      (10,642

Corporate and other

     166         130         195   
  

 

 

    

 

 

    

 

 

 

Combined sales

   $ 11,199       $ 13,147       $ 12,573   
  

 

 

    

 

 

    

 

 

 

 

(2) Amounts were estimated by Alcoa Corporation management in an effort to provide comparable revenue information for 2014 and 2013.

 

     2015  

Net (loss) income attributable to Alcoa Corporation:

  

Total segment ATOI (3)

   $ 1,010   

Unallocated amounts:

  

Impact of LIFO

     107   

Metal price lag

     (30

Interest expense

     (270

Non-controlling interest (net of tax)

     (124

Corporate expense

     (180

Restructuring and other charges

     (983

Income taxes

     (41

Other

     (352
  

 

 

 

Combined net loss attributable to Alcoa Corporation

   $ (863
  

 

 

 

 

(3) Segment ATOI information is not available for periods prior to 2015 and it is impracticable to obtain.

 

December 31,

   2015  

Assets:

  

Total segment assets (4)

   $ 14,209   

Elimination of intersegment receivables

     (709

Unallocated amounts:

  

Cash and cash equivalents

     557   

Deferred income taxes

     589   

Corporate goodwill

     147   

Corporate fixed assets, net

     454   

LIFO reserve

     (172

Fair value of derivative contracts

     1,078   

Other

     260   
  

 

 

 

Combined assets

     16,413   
  

 

 

 

 

(4) Total segment asset information is not available for periods prior to 2015 and it is impracticable to obtain.

 

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Sales by major product grouping were as follows:

 

     2015      2014      2013  

Sales:

        

Alumina

     3,343         3,413         3,237   

Primary aluminum

     6,200         7,848         7,697   

Flat-rolled products

     993         1,033         1,055   

Other

     663         853         584   
  

 

 

    

 

 

    

 

 

 
   $ 11,199       $ 13,147       $ 12,573   
  

 

 

    

 

 

    

 

 

 

As a result of the impracticability of providing all of the required disclosures for Alcoa Corporation’s current six segments, the following information regarding Alcoa Corporation’s historical segments is provided on a supplemental basis. Prior to January 1, 2015, Alcoa Corporation’s operations consisted of three reportable segments, as follows:

Alumina. This segment represented Alcoa Corporation’s worldwide refining system, and primarily comprised the combined Bauxite and Alumina segments described above. This segment encompassed the mining of bauxite, from which alumina is produced and sold directly to external smelter customers, as well as to the previous Primary Metals segment (see below), or to customers who process it into industrial chemical products. More than half of Alumina’s production was sold under supply contracts to third parties worldwide, while the remainder was used internally by the Primary Metals segments. Alumina produced by this segment and used internally was transferred to the Primary Metals segment at prevailing market prices. A portion of this segments third-party sales was completed through the use of agents, alumina traders and distributors.

Primary Metals. This segment represented Alcoa Corporation’s worldwide smelting system and associated cast houses, and primarily comprised the Aluminum and Cast Products segments that were established on January 1, 2015, described above. The majority of the power generation assets in the Energy segment that was established on January 1, 2015, were also included in Primary Metals. The Primary Metals segment purchased alumina, mostly from the former Alumina segment, from which primary aluminum was produced and then sold directly to external customers and traders, as well as to the Rolled Products segment and ParentCo’s aluminum fabrication businesses. Results from the sale of aluminum powder, scrap and excess energy were also included in this segment. Primary aluminum produced by this segment and used by the Rolled Products segment or by ParentCo’s aluminum fabrication businesses was transferred at prevailing market prices. The sale of primary aluminum represented approximately 90% of this segments third-party sales.

Rolled Products. This segment primarily represents Alcoa Corporation’s aluminum rolling mill in Warrick, Indiana, which produces aluminum sheet sold directly to customers in the packaging end market for the production of aluminum cans (beverage, food and pet food). Seasonal increases in can sheet sales are generally experienced in the second and third quarters of the year.   This segment also includes the investment in the Ma’aden rolling mill (see Note I).

 

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The operating results and assets of Alcoa Corporation’s reportable segments under the historical presentation format were as follows:

 

     Alumina      Primary
Metals
     Rolled
Products
     Total  

2015

           

Sales:

           

Sales to unrelated parties

   $ 3,455       $ 5,667       $ 985       $ 10,107   

Sales to related parties

     —           1,070         8         1,078   

Intersegment sales

     1,687         532         —           2,219   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total sales

   $ 5,142       $ 7,269       $ 993       $ 13,404   
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit and loss:

           

Equity loss

   $ (41    $ (12      (32    $ (85

Depreciation, depletion, and amortization

     296         429         23         748   

Income taxes

     300         (20      26         306   

ATOI

     746         136         20         902   

2014

           

Sales:

           

Sales to unrelated parties

   $ 3,509       $ 6,843       $ 1,008       $ 11,360   

Sales to related parties

     —           1,758         25         1,783   

Intersegment sales

     1,941         614         —           2,555   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total sales

   $ 5,450       $ 9,215       $ 1,033       $ 15,698   
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit and loss:

           

Equity loss

   $ (29    $ (34      (27    $ (90

Depreciation, depletion, and amortization

     387         494         24         905   

Income taxes

     153         214         27         394   

ATOI

     370         627         21         1,018   

2013

           

Sales:

           

Sales to unrelated parties

   $ 3,326       $ 6,668       $ 1,040       $ 11,034   

Sales to related parties

     —           1,523         15         1,538   

Intersegment sales

     2,235         610         —           2,845   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total sales

   $ 5,561       $ 8,801       $ 1,055       $ 15,417   
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit and loss:

           

Equity loss

   $ (4    $ (51      (13    $ (68

Depreciation, depletion, and amortization

     426         526         24         976   

Income taxes

     66         (81      30         15   

ATOI

     259         (36      52         275   

2015

           

Assets:

           

Capital expenditures

   $ 184       $ 156         52       $ 392   

Equity investments

     667         634         217         1,518   

Goodwill

     6         —           —           6   

Total assets

     6,165         7,134         637         13,936   

2014

           

Assets:

           

Capital expenditures

   $ 246       $ 176         22       $ 444   

Equity investments

     669         890         227         1,786   

Goodwill

     8         —           —           8   

Total assets

     7,350         9,246         677         17,273   

 

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The following tables reconcile certain historical segment information to combined totals for Alcoa Corporation:

 

     2015      2014      2013  

Sales:

        

Total segment sales

   $ 13,404       $ 15,698       $ 15,417   

Elimination of intersegment sales

     (2,219      (2,555      (2,845

Corporate and other

     14         4         1   
  

 

 

    

 

 

    

 

 

 

Combined sales

   $ 11,199       $ 13,147       $ 12,573   
  

 

 

    

 

 

    

 

 

 

 

     2015     2014     2013  

Net (loss) income attributable to Alcoa Corporation:

      

Total segment ATOI

   $ 902      $ 1,018      $ 275   

Unallocated amounts:

      

Impact of LIFO

     107        4        19   

Metal price lag

     (30     15        (5

Interest expense

     (270     (309     (305

Non-controlling interest (net of tax)

     (124     91        (39

Corporate expense

     (180     (208     (204

Impairment of goodwill

     —          —          (1,731

Restructuring and other charges

     (983     (863     (712

Income taxes

     (96     110        (108

Other

     (189     (114     (99
  

 

 

   

 

 

   

 

 

 

Combined net loss attributable to Alcoa Corporation

   $ (863   $ (256   $ (2,909
  

 

 

   

 

 

   

 

 

 

 

December 31,

   2015      2014  

Assets:

     

Total segment assets

   $ 13,936       $ 17,273   

Elimination of intersegment receivables

     (306      (471

Unallocated amounts:

     

Cash and cash equivalents

     557         266   

Deferred income taxes

     589         1,061   

Corporate goodwill

     147         153   

Corporate fixed assets, net

     454         544   

LIFO reserve

     (172      (279

Fair value of derivative contracts

     1,078         16   

Other

     130         114   
  

 

 

    

 

 

 

Combined assets

   $ 16,413       $ 18,677   
  

 

 

    

 

 

 

Geographic information for sales was as follows (based upon the country where the point of sale occurred):

 

     2015      2014      2013  

Sales:

        

United States (1)

   $ 5,386       $ 6,096       $ 5,851   

Spain (2)(3)

     2,852         3,198         2,098   

Australia

     2,147         2,656         2,887   

Brazil

     562         1,025         897   

Canada

     132         18         —     

Norway (2)

     31         32         284   

Netherlands (3)

     —           —           482   

Other

     89         122         74   
  

 

 

    

 

 

    

 

 

 

Total sales

   $ 11,199       $ 13,147       $ 12,573   
  

 

 

    

 

 

    

 

 

 

 

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(1) Sales of a portion of the alumina from Alcoa Corporation’s refineries in Suriname, Brazil, Australia, and Jamaica (prior to divestiture—see Note F) and most of the aluminum from Alcoa Corporation’s smelters in Canada occurred in the United States.
(2) In 2015, 2014, and 2013, sales of the aluminum from Alcoa Corporation’s smelters in Norway and the off-take from the Saudi Arabia joint venture (see Note I) occurred in Spain.
(3) In 2015 and 2014, sales of the aluminum from Alcoa Corporation’s smelter in Iceland occurred in Spain. In 2013, sales of the aluminum from Alcoa Corporation’s smelter in Iceland occurred in both Spain and the Netherlands.

Geographic information for long-lived assets was as follows (based upon the physical location of the assets):

 

December 31,

   2015      2014  

Long-lived assets:

     

Australia

   $ 2,158       $ 2,519   

Brazil

     1,922         2,983   

United States

     1,963         2,133   

Iceland

     1,397         1,459   

Canada

     1,177         1,204   

Norway

     463         588   

Spain

     293         337   

Other

     17         103   
  

 

 

    

 

 

 

Total long-lived assets

   $ 9,390       $ 11,326   
  

 

 

    

 

 

 

R. Stock-based Compensation

Until consummation of the separation, Alcoa Corporation’s employees will continue to participate in ParentCo’s stock-based compensation plan. The stock-based compensation expense recorded by Alcoa Corporation, in the periods presented, includes the expenses associated with employees historically attributable to Alcoa Corporation’s operations. Additionally, stock-based compensation expense for corporate employees have been allocated to Alcoa Corporation’s financial statements based on segment revenue (see Note T for further discussion on corporate cost allocations).

ParentCo has a stock-based compensation plan under which stock options and stock awards are granted in January each year to eligible employees. Most plan participants can choose whether to receive their award in the form of stock options, stock awards, or a combination of both. This choice is made before the grant is issued and is irrevocable. Stock options are granted at the closing market price of ParentCo’s common stock on the date of grant and vest over a three-year service period (1/3 each year) with a ten-year contractual term. Stock awards vest at the end of the three-year service period from the date of grant and certain of these awards also include performance conditions. In 2015, 2014, and 2013, the final number of performance stock awards earned will be based on ParentCo’s achievement of sales and profitability targets over the respective three-year period. One-third of the award will be earned each year based on the performance against the pre-established targets for that year. The performance stock awards earned over the three-year period vest at the end of the third year.

In 2015, 2014, and 2013, Alcoa Corporation recognized stock-based compensation expense, associated with employees historically attributable to Alcoa Corporation’s operations as well as a portion of the expense associated with corporate employees, of $35, $39, and $33, respectively, of which approximately 80%, 80%, and 70%, respectively, related to stock awards (there was no stock-based compensation expense capitalized in 2015, 2014, or 2013). The portion of this expense related to corporate employees, allocated based on segment revenue, was $21, $21, and $16 in 2015, 2014, and 2013, respectively. Alcoa Corporation did not recognize any tax benefit associated with this expense. At December 31, 2015, there was $11 (pretax) of unrecognized

 

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compensation expense related to non-vested stock option grants and non-vested stock award grants. This expense is expected to be recognized over a weighted average period of 1.6 years. As part of Alcoa Corporation’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month requisite service period in the year of grant. As a result, a larger portion of expense will be recognized in the first half of each year for these retirement-eligible employees. Of the total pretax compensation expense recognized by Alcoa Corporation in 2015, 2014, and 2013, $6, $8, and $8, respectively, pertains to the acceleration of expense related to retirement-eligible employees.

Stock-based compensation expense is based on the grant date fair value of the applicable equity grant. For stock awards, the fair value was equivalent to the closing market price of ParentCo’s common stock on the date of grant. For stock options, the fair value was estimated on the date of grant using a lattice-pricing model, which generated a result of $4.47, $2.84, and $2.24 per option in 2015, 2014, and 2013, respectively. The lattice-pricing model uses a number of assumptions to estimate the fair value of a stock option, including an average risk-free interest rate, dividend yield, volatility, annual forfeiture rate, exercise behavior, and contractual life. The following paragraph describes in detail the assumptions used to estimate the fair value of stock options granted in 2015 (the assumptions used to estimate the fair value of stock options granted in 2014 and 2013 were not materially different).

The range of average risk-free interest rates (0.07-1.83%) was based on a yield curve of interest rates at the time of the grant based on the contractual life of the option. The dividend yield (0.8%) was based on a one-year average. Volatility (32-41%) was based on historical and implied volatilities over the term of the option. ParentCo utilized historical option forfeiture data to estimate annual pre- and post-vesting forfeitures (7%). Exercise behavior (50%) was based on a weighted average exercise ratio (exercise patterns for grants issued over the number of years in the contractual option term) of an option’s intrinsic value resulting from historical employee exercise behavior. Based upon the other assumptions used in the determination of the fair value, the life of an option (5.9 years) was an output of the lattice-pricing model. The activity for stock options and stock awards during 2015 was as follows (options and awards in millions):

 

     Stock options      Stock awards  
     Number of
options
     Weighted
average
exercise price
     Number of
awards
     Weighted
average FMV
per award
 

Outstanding, January 1, 2015

     6       $ 11.39         4       $ 9.97   

Granted

     1         15.55         1         15.45   

Exercised

     (1      9.54         —           —     

Converted

     —           —           (1      10.12   

Other

     (1      11.49         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding, December 31, 2015

     5         11.99         4         11.41   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2015, the number of stock options outstanding had a weighted average remaining contractual life of 5.75 years and a total intrinsic value of $1. Additionally, 4 million of the stock options outstanding were fully vested and exercisable and had a weighted average remaining contractual life of 4.99 years, a weighted average exercise price of $11.94, and a total intrinsic value of $1 as of December 31, 2015. In 2015, 2014, and 2013, the cash received from stock option exercises was $5, $24, and $1, respectively. The total intrinsic value of stock options exercised during 2015 and 2014 was $3 and $13, respectively.

S. Income Taxes

The components of income (loss) before income taxes were as follows:

 

     2015      2014      2013  

United States

   $ (1,053    $ (709    $ (1,002

Foreign

     716         646         (1,745
  

 

 

    

 

 

    

 

 

 
   $ (337    $ (63    $ (2,747
  

 

 

    

 

 

    

 

 

 

 

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The provision for income taxes consisted of the following:

 

     2015      2014      2013  

Current:

        

Federal*

   $ 3       $ 1       $ 6   

Foreign

     313         333         127   

State and local

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     316         334         133   
  

 

 

    

 

 

    

 

 

 

Deferred:

        

Federal*

     (85      (5      (2

Foreign

     171         (45      (8

State and local

     —           —           —     
  

 

 

    

 

 

    

 

 

 
     86         (50      (10
  

 

 

    

 

 

    

 

 

 

Total

   $ 402       $ 284       $ 123   
  

 

 

    

 

 

    

 

 

 

 

* Includes U.S. taxes related to foreign income

A reconciliation of the U.S. federal statutory rate to Alcoa Corporation’s effective tax rate was as follows (the effective tax rate for all periods was a provision on a loss):

 

     2015     2014     2013  

U.S. federal statutory rate

     35.0     35.0     35.0

Taxes on foreign operations

     (6.7     (67.5     (1.1

Permanent differences on restructuring and other charges and asset disposals

     —          (19.4     (0.5

Noncontrolling interest (1)

     (8.5     (53.5     (2.0

Statutory tax rate and law changes (2)

     (0.3     (57.0     0.2   

Tax holidays (3)

     6.2        (61.8     —     

Changes in valuation allowances

     (62.6     3.4        (5.8

Impairment of goodwill

     —          —          (22.1

Equity income/loss

     (2.6     (23.0     (0.4

Impact of capitalization of intercompany debt

     3.3        38.1        1.4   

Losses and credits with no tax benefit (4)

     (82.0     (243.0     (9.9

Other

     (1.1     (2.1     0.7   
  

 

 

   

 

 

   

 

 

 

Effective tax rate

     (119.3 )%      (450.8 %)      (4.5 )% 
  

 

 

   

 

 

   

 

 

 

 

(1) In 2014, the noncontrolling interest’ impact on Alcoa Corporation’s effective tax rate was mostly due to the noncontrolling interest’s share of a loss on the divestiture of an ownership interest in a mining and refining joint venture in Jamaica (see Note F).
(2) In November 2014, Spain enacted corporate tax reform that changed the corporate tax rate from 30% in 2014 to 28% in 2015 and to 25% in 2016. As a result, Alcoa Corporation remeasured certain deferred tax assets related to its Spanish operations.
(3) In 2014, a tax holiday for a Brazilian entity of Alcoa Corporation became effective (see below).
(4) Hypothetical net operating losses and tax credits determined on a separate return basis for which it is more likely than not that a tax benefit will not be realized. The related deferred tax asset and offsetting valuation allowance have been adjusted to Net parent investment and, as such, are not reflected in subsequent deferred tax and valuation allowance tables.

 

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The components of net deferred tax assets and liabilities were as follows:

 

     2015      2014  

December 31,

   Deferred
tax
assets
     Deferred
tax
liabilities
     Deferred
tax
assets
     Deferred
tax
liabilities
 

Depreciation

   $ 264       $ 529       $ 180       $ 591   

Employee benefits

     286         39         364         28   

Loss provisions

     302         7         224         8   

Deferred income/expense

     48         312         41         252   

Tax loss carryforwards

     992         —           1,142         —     

Tax credit carryforwards

     15         —           19         —     

Derivatives and hedging activities

     —           216         3         23   

Other

     420         412         356         278   
  

 

 

    

 

 

    

 

 

    

 

 

 
     2,327         1,515         2,329         1,180   

Valuation allowance

     (712      —           (486      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $  1,615       $ 1,515       $ 1,843       $ 1,180   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table details the expiration periods of the deferred tax assets presented above:

 

December 31, 2015

   Expires
within
10 years
    Expires
within
11-20 years
    No
expiration*
    Other*     Total  

Tax loss carryforwards

   $ 240      $ 207      $ 545      $ —        $ 992   

Tax credit carryforwards

     15        —          —          —          15   

Other

     —          —          426        894        1,320   

Valuation allowance

     (229     (101     (282     (100     (712
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 26      $ 106      $ 689      $ 794      $ 1,615   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Deferred tax assets with no expiration may still have annual limitations on utilization. Other represents deferred tax assets whose expiration is dependent upon the reversal of the underlying temporary difference.

Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carryback periods, future reversals of taxable temporary differences, projections of taxable income, and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carryforward period, including from tax planning strategies, and Alcoa Corporation’s experience with similar operations. Existing favorable contracts and the ability to sell products into established markets are additional positive evidence. Negative evidence includes items such as cumulative losses, projections of future losses, or carryforward periods that are not long enough to allow for the utilization of a deferred tax asset based on existing projections of income. Deferred tax assets for which no valuation allowance is recorded may not be realized upon changes in facts and circumstances, resulting in a future charge to establish a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence. If it is determined that it is more likely than not that a deferred tax asset will be realized, the appropriate amount of the valuation allowance, if any, is

released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates due to law changes and the granting and lapse of tax holidays.

In 2013, Alcoa Corporation recognized a $128 discrete income tax charge for a valuation allowance on the full value of the deferred tax assets related to a Spanish consolidated tax group. These deferred tax assets have an expiration period ranging from 2016 (for certain credits) to an unlimited life (for operating losses). After

 

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weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that Alcoa Corporation will realize the tax benefit of these deferred tax assets. This was mainly driven by a decline in the outlook of the Primary Metals business (2013 realized prices were the lowest since 2009) combined with prior year cumulative losses of the Spanish consolidated tax group. During 2014, the underlying value of the deferred tax assets decreased due to a remeasurement as a result of the enactment of new tax rates in Spain beginning in 2016 (see Income Taxes in Earnings Summary under Results of Operations above), and a change in foreign currency exchange rates. As a result, the valuation allowance decreased by the same amount. At December 31, 2015, the amount of the valuation allowance was $91. This valuation allowance was reevaluated as of December 31, 2015, and no change to the allowance was deemed necessary based on all available evidence. The need for this valuation allowance will be assessed on a continuous basis in future periods and, as a result, a portion or all of the allowance may be reversed based on changes in facts and circumstances.

In 2015, Alcoa Corporation recognized an additional $141 discrete income tax charge for valuation allowances on certain deferred tax assets in Iceland and Suriname. Of this amount, an $85 valuation allowance was established on the full value of the deferred tax assets in Suriname, which were related mostly to employee benefits and tax loss carryforwards. These deferred tax assets have an expiration period ranging from 2016 to 2022. The remaining $56 charge relates to a valuation allowance established on a portion of the deferred tax assets recorded in Iceland. These deferred tax assets have an expiration period ranging from 2017 to 2023. After weighing all available positive and negative evidence, as described above, management determined that it was no longer more likely than not that Alcoa Corporation will realize the tax benefit of either of these deferred tax assets. This was mainly driven by a decline in the outlook of the Primary Metals business, combined with prior year cumulative losses and a short expiration period. The need for this valuation allowance will be assessed on a continuous basis in future periods and, as a result, a portion or all of the allowance may be reversed based on changes in facts and circumstances.

In December 2011, one of Alcoa Corporation’s subsidiaries in Brazil applied for a tax holiday related to its expanded mining and refining operations. During 2013, the application was amended and re-filed and, separately, a similar application was filed for another one of ParentCo’s subsidiaries in Brazil that has significant operations of Alcoa Corporation. The deadline for the Brazilian government to deny the application was July 11, 2014. Since Alcoa Corporation did not receive notice that its applications were denied, the tax holiday took effect automatically on July 12, 2014. As a result, the tax rate for these entities decreased significantly (from 34% to 15.25%), resulting in future cash tax savings over the 10-year holiday period (retroactively effective as of January 1, 2013). Additionally, a portion of the Alcoa Corporation subsidiary’s net deferred tax asset that reverses within the holiday period was remeasured at the new tax rate (the net deferred tax asset of the other entity was not remeasured since it could still be utilized against the subsidiary’s future earnings not subject to the tax holiday). This remeasurement resulted in a decrease to that entity’s net deferred tax asset and a noncash charge to earnings in Alcoa Corporation’s combined statement of operations of $52 ($31 after noncontrolling interest).

The following table details the changes in the valuation allowance:

 

December 31,

   Note      2015      2014      2013  

Balance at beginning of year

      $ (486    $ (517      (348

Increase to allowance

        (289      (19      (169

Release of allowance

        —           7         3   

U.S. state tax apportionment and tax rate changes

        30         15         —     

Foreign currency translation

        33         28         (3
     

 

 

    

 

 

    

 

 

 

Balance at end of year

      $ (712    $ (486    $ (517
     

 

 

    

 

 

    

 

 

 

The cumulative amount of Alcoa Corporation’s foreign undistributed net earnings for which no deferred taxes have been provided was approximately $2,000 at December 31, 2015. Alcoa Corporation has a number of

 

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commitments and obligations related to the Company’s growth strategy in foreign jurisdictions. As such, management has no plans to distribute such earnings in the foreseeable future, and, therefore, has determined it is not practicable to determine the related deferred tax liability. Alcoa Corporation is currently evaluating its local and global cash needs for future business operations and anticipated debt facilities, which may influence future repatriation decisions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) was as follows:

 

December 31,

   2015      2014      2013  

Balance at beginning of year

   $ 25       $ 52       $ 57   

Additions for tax positions of the current year

     2         2         1   

Additions for tax positions of prior years

     1         1         10   

Reductions for tax positions of prior years

     —           (1      (2

Settlements with tax authorities

     (2      (28      (8

Expiration of the statute of limitations

     —           —           (2

Foreign currency translation

     (4      (1      (4
  

 

 

    

 

 

    

 

 

 

Balance at end of year

   $ 22       $ 25       $ 52   
  

 

 

    

 

 

    

 

 

 

For all periods presented, a portion of the balance at end of year pertains to state tax liabilities, which are presented before any offset for federal tax benefits. The effect of unrecognized tax benefits, if recorded, that would impact the annual effective tax rate for 2015, 2014, and 2013 would be approximately 4%, 17% and 0%, respectively, of pretax book income (loss). Alcoa Corporation does not anticipate that changes in its unrecognized tax benefits will have a material impact on the Statement of Combined Operations during 2016 (see Other Matters in Note N for a matter for which no reserve has been recognized).

It is Alcoa Corporation’s policy to recognize interest and penalties related to income taxes as a component of the Provision for income taxes on the accompanying Statement of Combined Operations. In 2015, 2014, and 2013, Alcoa Corporation recognized $7, $1, and $2, respectively, in interest and penalties. Due to the expiration of the statute of limitations, settlements with tax authorities, and refunded overpayments, Alcoa also recognized interest income of $1, $5, and $12 in 2015, 2014, and 2013, respectively. As of December 31, 2015 and 2014, the amount accrued for the payment of interest and penalties was $7 and $7, respectively.

T. Related Party Transactions

Transactions between Alcoa Corporation and Arconic have been presented as related party transactions in these Combined Financial Statements of Alcoa Corporation. In 2015, 2014, and 2013, sales to Arconic from Alcoa Corporation were $1,078, $1,783, and $1,538, respectively.

Cash pooling arrangement

Alcoa Corporation engages in cash pooling arrangements with related parties that are managed centrally by ParentCo.

Corporate allocations and Net parent investment

ParentCo’s operating model includes a combination of standalone and combined business functions between Alcoa Corporation and Arconic, varying by country and region. The Combined Financial Statements of Alcoa Corporation include allocations related to these costs applied on a fully allocated cost basis, in which shared business functions are allocated between Alcoa Corporation and Arconic. Such allocations are estimates, and also do not represent the costs of such services if performed on a standalone basis.

 

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The Combined Financial Statements of Alcoa Corporation include general corporate expenses of ParentCo that were not historically charged to Alcoa Corporation for certain support functions that are provided on a centralized basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance, facilities, employee benefits and compensation, and research and development (“R&D”) activities. For purposes of the Combined Financial Statements, a portion of these general corporate expenses has been allocated to Alcoa Corporation, and is included in the combined statement of operations within Cost of goods sold, Research and development expenses, and Selling, general administrative and other expenses. These expenses have been allocated to Alcoa Corporation on the basis of direct usage when identifiable, with the remainder allocated based on Alcoa Corporation’s segment revenue as a percentage of ParentCo’s total segment revenue for both Alcoa Corporation and Arconic. The total general corporate expenses allocated to Alcoa Corporation during the fiscal years ended December 31, 2015, 2014 and 2013, were $268, $260, and $278 respectively.

All external debt not directly attributable to Alcoa Corporation has been excluded from the Combined Balance Sheet of Alcoa Corporation. Financing costs related to these debt obligations have been allocated to Alcoa Corporation based on the ratio of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, and are included in the Statement of Combined Operations within Interest expense. The total financing costs allocated to Alcoa Corporation during the fiscal years ended December 31, 2015, 2014 and 2013, were $245, $278, and $272 respectively.

Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing costs are reasonable.

Nevertheless, the Combined Financial Statements of Alcoa Corporation may not reflect the actual expenses that would have been incurred and may not reflect Alcoa Corporation’s combined results of operations, financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Alcoa Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between Alcoa Corporation and ParentCo, including sales to Arconic, have been included as related party transactions in these 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 transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as Net parent investment.

U. Equity Investments

A summary of financial information for all investees accounted for by the equity method of accounting is as follows (amounts represent 100% of investee financial information):

 

(in millions)    2015      2014      2013  

Income data—year ended December 31

        

Sales

   $ 4,119       $ 3,350       $ 2,394   

Cost of goods sold

     3,209         2,503         1,679   

Income (loss) before income taxes

     125         (76      75   

Net income (loss)

     43         (144      (19

Balance Sheet—as of December 31

        

Current assets

   $ 1,555       $ 1,472      

Noncurrent assets

     13,357         14,246      

Current liabilities

     1,661         1,793      

Noncurrent liabilities

     8,972         8,829      

 

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Financial information for equity method investees that were significant to Alcoa Corporation’s results for the years ended December 31 are as follows:

 

(Dollars in millions)   Energetica
Barra
Grande
SA
    Halco
Mining
    Ma’aden
Rolling
Co.
    Ma’aden
Smelting
Co.
    Ma’aden
Bauxite
and
Alumina
Co.
    Manicouagan
Power L.P.
    Pechiney
Reynolds
Quebec
    Others     Total  

Income data—year ended December 31, 2015

                 

Sales

    130        487        286        1,481        258        106        486        885        4,119   

Cost of goods sold

    98        236        352        1,317        401        16        288        501        3,209   

Income before income taxes

    27        86        (125     (52     (185     91        113        170        125   

Net income

    7        80        (125     (56     (185     90        104        128        43   

Alcoa Corporation’s percentage of ownership in equity investees

    42.2     45.0     25.1     25.1     25.1     40.0     49.8    

Equity in net income of affiliated companies, before reconciling adjustments

    3        36        (31     (14     (46     36        52        24        60   

Other

    (1     (2     (1     (1     —          —          4        (6     (7

Alcoa Corporation’s equity in net income of affiliated companies

    2        34        (32     (15     (46     36        56        18        53   

Balance Sheet—as of December 31, 2015

                 

Current assets

    27        40        389        469        305        23        107        195        1,555   

Noncurrent assets

    288        165        1,659        4,696        3,005        62        109        3,373        13,357   

Current liabilities

    50        28        254        909        122        6        54        238        1,661   

Noncurrent liabilities

    43        16        1,329        2,913        2,206        —          (21     2,486        8,972   

Income data—year ended December 31, 2014

                 

Sales

    170        487        42        1,260        3        120        318        950        3,350   

Cost of goods sold

    118        260        102        1,073        4        18        280        648        2,503   

Income before income taxes

    44        76        (109     (149     (135     103        39        55        (76

Net income

    19        72        (109     (149     (135     102        28        28        (144

Alcoa Corporation’s percentage of ownership in equity investees

    42.2     45.0     25.1     25.1     25.1     40.0     49.8    

Equity in net income of affiliated companies, before reconciling adjustments

    8        32        (27     (37     (34     41        14        3        —     

Other

    —          (1     —          —          —          (1     4        —          2   

Alcoa Corporation’s equity in net income of affiliated companies

    8        31        (27     (37     (34     40        18        3        2   

Balance Sheet—as of December 31, 2014

                 

Current assets

    27        38        186        405        182        22        439        173        1,472   

Noncurrent assets

    427        150        1,619        4,841        2,951        72        107        4,079        14,246   

Current liabilities

    50        29        59        683        121        7        50        794        1,793   

Noncurrent liabilities

    92        12        1,191        3,164        1,849        1        16        2,504        8,829   

Income data—year ended December 31, 2013

                 

Sales

    130        493        —          349        —          124        326        972        2,394   

Cost of goods sold

    78        250        —          479        —          19        288        565        1,679   

Income before income taxes

    42        81        (51     (215     (48     105        37        124        75   

Net income

    14        76        (51     (215     (48     105        26        74        (19

Alcoa Corporation’s percentage of ownership in equity investees

    42.2     45.0     25.1     25.1     25.1     40.0     49.8    

Equity in net income of affiliated companies, before reconciling adjustments

    6        34        (13     (54     (12     42        13        16        32   

Other

    (1     (1     —          —          —          —          6        (12     (8

Alcoa Corporation’s equity in net income of affiliated companies

    5        33        (13     (54     (12     42        19        4        24   

 

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Investees accounted for using the equity method include:

 

Investee

   Country    Ownership
Interest 1
 

Consorcio Serra Do Facao

   Brazil      35.0

DBNGP Trust

   Australia      20.0 % 2  

Energetica Barra Grande SA

   Brazil      42.2

Halco Mining

   Guinea      45.0 % 2  

Ma’aden Rolling Company

   Saudi Arabia      25.1

Ma’aden Smelting Company

   Saudi Arabia      25.1

Ma’aden Bauxite and Alumina Company

   Saudi Arabia      25.1 % 2  

Manicouagan Power Limited Partnership

   Canada      40.0

Mineracão Rio Do Norte S.A. (MRN)

   Brazil      18.2

Pechiney Reynolds Quebec

   Canada      49.8

 

1 This table shows the ownership of Alcoa Corporation or AWAC, as appropriate. Ownership percentages have not changed from January 2013 through December 2015.
2 This investment is part of the AWAC group of companies that are owned 60% by Alcoa Corporation and 40% by Alumina Limited

V. Interest Cost Components

 

     2015      2014      2013  

Amount charged to expense

   $ 270       $ 309       $ 305   

Amount capitalized

     30         34         65   
  

 

 

    

 

 

    

 

 

 
   $ 300       $ 343       $ 370   
  

 

 

    

 

 

    

 

 

 

W. Pension and Other Postretirement Benefits

Certain Alcoa Corporation employees participate in defined benefit pension plans sponsored by ParentCo (“Shared Pension Plans”), which include Arconic and ParentCo corporate participants. Alcoa Corporation accounts for Shared Pension Plans as multiemployer benefit plans. Accordingly, Alcoa Corporation does not record an asset or liability to recognize the funded status of the Shared Pension Plans. However, the related pension expenses allocated to Alcoa Corporation are based primarily on pensionable compensation of active Alcoa Corporation participants. Multiemployer contribution expenses attributable to Alcoa Corporation for the Shared Pension Plans were $64, $64, and $64 in 2015, 2014, and 2013, respectively.

Certain Alcoa Corporation employees also participate in health care and life insurance postretirement benefit plans sponsored by ParentCo (“Shared OPEB Plans”, and, together with the Shared Pension Plans, the “Shared Plans”) which include Arconic and ParentCo corporate participants as well as eligible U.S. retired employees and certain retirees from foreign locations. Generally, the medical plans are unfunded and pay a percentage of medical expenses, reduced by deductibles and other coverages. Life insurance benefits are generally provided by insurance contracts. ParentCo retains the right, subject to existing agreements, to change or eliminate these benefits. All salaried and certain non-bargaining hourly U.S. employees hired after January 1, 2002 and certain bargaining hourly U.S. employees hired after July 1, 2010 are not eligible for postretirement health care benefits. All salaried and certain hourly U.S. employees that retire on or after April 1, 2008 are not eligible for postretirement life insurance benefits. Alcoa Corporation accounts for Shared OPEB Plans as multiemployer benefit plans. Accordingly, Alcoa Corporation does not record an asset or liability to recognize the funded status of the Shared OPEB Plans. Multiemployer contribution expenses attributable to Alcoa Corporation for the Shared OPEB Plans are based primarily on estimated interest costs and were $32, $39, and $39 in 2015, 2014, and 2013, respectively.

The Combined Financial Statements also include an allocation of expenses for the Shared Plans attributable to ParentCo corporate participants as well as to closed and sold operations (see Cost Allocations discussion in Note A). Including the multiemployer expenses disclosed above, the total expenses associated with the Shared Plans reflected in the Combined Financial Statements were $191, $183, and $219 in 2015, 2014 and 2013, respectively.

 

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Certain ParentCo plans that are specific to Alcoa Corporation employees (“Direct Plans”) are accounted for as defined benefit pension and other postretirement benefit plans. Accordingly, the funded status of each Direct Plan is recorded in the accompanying Combined Balance Sheet. Actuarial gains and losses that have not yet been recognized in earnings are recorded in Accumulated other comprehensive loss until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and recognition of expenses related to Direct Plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each of the plans.

The funded status of all of Alcoa Corporation’s Direct Plans are measured as of December 31 each calendar year. The following information is applicable to only the Direct Plans, all of which are non-U.S. plans.

The funded status of all of Alcoa Corporation’s Direct Plans are measured as of December 31 each calendar year. The following information is applicable to only the Direct Plans, all of which are non-U.S. plans.

Obligations and Funded Status

 

            Pension benefits     Other
postretirement benefits
 

December 31,

   Note      2015     2014     2015     2014  

Change in benefit obligation

           

Benefit obligation at beginning of year

      $ 2,508      $ 2,451      $ 98      $ 99   

Service cost

        63        69        —          1   

Interest cost

        95        122        4        5   

Amendments

        16        11        —          (11

Actuarial losses (gains)

        27        269        (7     12   

Divestitures

     F         —          (52     —          (1

Settlements

        (65     (117     —          —     

Curtailments

        (13     —          (5     —     

Benefits paid, net of participants’ contributions

        (66     (65     (5     (5

Foreign currency translation impact

        (319     (181     (3     (2
     

 

 

   

 

 

   

 

 

   

 

 

 

Benefit obligation at end of year

      $ 2,246      $ 2,507      $ 82      $ 98   
     

 

 

   

 

 

   

 

 

   

 

 

 

Change in plan assets

           

Fair value of plan assets at beginning of year

      $ 2,091      $ 2,086      $ —        $ —     

Actual return on plan assets

        110        215        —          —     

Employer contributions

        76        160        —          —     

Participants’ contributions

        19        24        —          —     

Benefits paid

        (76     (78     —          —     

Administrative expenses

        (6     (8     —          —     

Divestitures

     F         —          (47     —          —     

Settlements

        (65     (117     —          —     

Foreign currency translation impact

        (258     (145     —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of plan assets at end of year

      $ 1,891      $ 2,090      $ —        $ —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Funded status

      $ (355   $ (417   $ (82   $ (98

Less: Amounts attributed to joint venture partners

        (30     (34     —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net funded status

      $ (325   $ (383   $ (82   $ (98
     

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in the Combined Balance Sheet consist of:

           

Noncurrent assets

      $ 35      $ 35      $ —        $ —     

Current liabilities

        (1     (1     (4     (5

 

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            Pension benefits     Other
postretirement benefits
 

December 31,

   Note      2015     2014     2015     2014  

Noncurrent liabilities

        (359     (417     (78     (93
     

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized

      $ (325   $ (383   $ (82   $ (98
     

 

 

   

 

 

   

 

 

   

 

 

 

Amounts recognized in Accumulated Other Comprehensive Loss consist of:

           

Net actuarial loss

      $ 625      $ 731      $ 1      $ 6   

Prior service cost (benefit)

        35        58        —          (10
     

 

 

   

 

 

   

 

 

   

 

 

 

Total, before tax effect

        660        789        1        (4

Less: Amounts attributed to joint venture partners

        39        44        —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized, before tax effect

      $ 621      $ 745      $ 1      $ (4
     

 

 

   

 

 

   

 

 

   

 

 

 

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss consist of:

           

Net actuarial (benefit) loss

      $ (64   $ 118      $ (12   $ 13   

Amortization of accumulated net actuarial (loss) benefit

        (42     (34     7        2   

Prior service (benefit) cost

        (17     5        1        (12

Amortization of prior service (cost) benefit

        (6     (8     9        2   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total, before tax effect

        (129     81        5        5   

Less: Amounts attributed to joint venture partners

        (5     7        —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net amount recognized, before tax effect

      $ (124   $ 74      $ 5      $ 5   
     

 

 

   

 

 

   

 

 

   

 

 

 

Pension Plan Benefit Obligations

 

     2015      2014  

The projected benefit obligation and accumulated benefit obligation for all defined benefit pension plans was as follows:

     

Projected benefit obligation

   $ 2,246       $ 2,507   

Accumulated benefit obligation

     2,049         2,267   

The aggregate projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets was as follows:

     

Projected benefit obligation

     2,175         2,434   

Fair value of plan assets

     1,789         1,983   

The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets was as follows:

     

Accumulated benefit obligation

     1,467         1,602   

Fair value of plan assets

     1,252         1,357   

Components of Net Periodic Benefit Cost

 

     Pension benefits     Other postretirement benefits  
     2015     2014     2013         2015             2014             2013      

Service cost

   $ 51      $ 55      $ 72      $ —        $ 1      $ 1   

Interest cost

     89        114        111        4        5        4   

Expected return on plan assets

     (121     (134     (131     —          —          —     

Recognized net actuarial loss (benefit)

     42        34        61        (3     (2     (1

Amortization of prior service cost (benefit)

     6        8        9        (9     (2     —     

 

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     Pension benefits      Other postretirement benefits  
     2015      2014      2013          2015             2014              2013      

Settlements (1)

     14         24         —           —          —           —     

Curtailments (2)

     9         —           6         (4     —           —     

Special termination benefits (3)

     16         —           77         —          —           —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Net periodic benefit cost (4)

   $ 106       $ 101       $ 205       $ (12   $ 2       $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) In 2015 and 2014, settlements were due to workforce reductions (see Note D) and the payment of lump sum benefits.
(2) In 2015 and 2013, curtailments were due to elimination of benefits or workforce reductions (see Note D).
(3) In 2015 and 2013, special termination benefits were due to workforce reductions (see Note D).
(4) Amounts attributed to joint venture partners are not included.

Amounts Expected to be Recognized in Net Periodic Benefit Cost

 

     Pension benefits      Other postretirement benefits  
     2016      2016  

Net actuarial loss recognition

   $ 37       $ —     

Prior service cost (benefit) recognition

     5         —     

Assumptions

Weighted average assumptions used to determine benefit obligations for Direct Plans were as follows:

 

December 31,

   2015     2014  

Discount rate

     4.03     4.09

Rate of compensation increase

     3.65        3.74   

The discount rates for the plans are primarily determined by using yield curve models developed with the assistance of an external actuary. The cash flows of the plans’ projected benefit obligations are discounted using a single equivalent rate derived from yields on high-quality corporate bonds, which represent a broad diversification of issuers in various sectors. The yield curve model parallels the plans’ projected cash flows, which have an average duration ranging from 11 to 15 years. The underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy plans’ obligations multiple times. If a deep market of high quality corporate bonds does not exist in a country, then the yield on government bonds plus a corporate bond yield spread is used.

The rate of compensation increase is based upon anticipated salary increases and estimated inflation. For 2016, the rate of compensation increase will be 3.65%.

Weighted average assumptions used to determine net periodic benefit cost for Direct Plans were as follows:

 

     2015     2014     2013  

Discount rate*

     4.09     5.14     4.63

Expected long-term rate of return on plan assets

     6.91     6.91     6.98

Rate of compensation increase

     3.74     3.79     3.81

 

* In all periods presented, the respective discount rates were used to determine net periodic benefit cost for most Direct Plans for the full annual period. However, the discount rates for a limited number of plans were updated during 2015, 2014, and 2013 to reflect the remeasurement of these plans due to settlements, and/or curtailments. The updated discount rates used were not significantly different from the discount rates presented.

 

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The expected long-term rate of return on plan assets is generally applied to a four-year or five-year average value of plan assets for certain plans, or the fair value at the plan measurement date. The process used by management to develop this assumption is one that relies on forward-looking returns by asset class. Management incorporates expected future returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment. For 2015, 2014, and 2013, management used 6.91%, 6.91% and 6.98%, respectively, as its expected long-term rate of return. For 2016, management anticipates that 6.92% will be the expected long-term rate of return.

Assumed health care cost trend rates for other postretirement benefit plans were as follows:

 

     2015     2014     2013  

Health care cost trend rate assumed for next year

     5.5     5.5     5.5

Rate to which the cost trend rate gradually declines

     4.5     4.5     4.5

Year that the rate reaches the rate at which it is assumed to remain

     2019        2018        2017   

The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by Alcoa Corporation’s other postretirement benefit plans. For 2016, a 5.5% trend rate will be used, reflecting management’s best estimate of the change in future health care costs covered by the plans. The plans’ actual annual health care cost trend experience over the past three years has ranged from 4.0% to 9.6% Management does not believe this three-year range is indicative of expected increases for future health care costs over the long-term.

Assumed health care cost trend rates have an effect on the amounts reported for the health care plan. A one-percentage point change in these assumed rates would have the following effects:

 

     1%
increase
     1%
decrease
 

Effect on other postretirement benefit obligations

   $ 12       $ (10

Effect on total of service and interest cost components

     1         (1

Plan Assets

Alcoa Corporation’s pension plans’ investment policy and weighted average asset allocations at December 31, 2015 and 2014, by asset class, were as follows:

 

           Plan assets
at
December 31,
 

Asset class

   Policy range     2015     2014  

Equities

     20–50     39     42

Fixed income

     25–55     37     39

Other investments

     15–40     24     19
    

 

 

   

 

 

 

Total

       100     100
    

 

 

   

 

 

 

The principal objectives underlying the investment of the pension plans’ assets are to ensure that Alcoa Corporation can properly fund benefit obligations as they become due under a broad range of potential economic and financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments across and within various asset classes to protect asset values against adverse movements.

Investment practices comply with the requirements of applicable laws and regulations in the respective jurisdictions. The use of derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. Currently, the use of derivative instruments is not significant when compared to the overall investment portfolio.

 

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The following section describes the valuation methodologies used by the trustees to measure the fair value of pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified (see Note X for the definition of fair value and a description of the fair value hierarchy).

Equities. These securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans’ share of commingled funds that are invested in the stock of publicly traded companies and are valued at the net asset value of shares held at December 31 (included in Level 1 if quoted in an active market, otherwise these investments are included in Level 2); and (iii) direct investments in long/short equity hedge funds and private equity (limited partnerships and venture capital partnerships) and are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data (generally classified as Level 3).

Fixed income. These securities consist of: (i) U.S. government debt and are generally valued using quoted prices (included in Level 1); (ii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds and debentures) and are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data (included in Level 2); and (iii) cash and cash equivalents, which consist of government securities in commingled funds, and are generally valued using observable market data (included in Level 2).

Other investments. These investments include, among others: (i) exchange traded funds, such as gold, and real estate investment trusts and are valued based on the closing price reported in an active market on which the investments are traded (included in Level 1); (ii) the plans’ share of commingled funds that are invested in real estate investment trusts and are valued at the net asset value of shares held at December 31 (generally included in Level 3, however, if fair value is able to be determined through the use of quoted market prices of similar assets or other observable market data, then the investments are classified in Level 2); and (iii) direct investments of discretionary and systematic macro hedge funds and private real estate (includes limited partnerships) and are valued by investment managers based on the most recent financial information available, which typically represents significant unobservable data (generally classified as Level 3, however, if fair value is able to be determined through the use of quoted market prices of similar assets or other observable market data, then the investments are classified in Level 2).

The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while Alcoa Corporation believes the valuation methods used by the plans’ trustees are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table presents the fair value of pension plan assets classified under the appropriate level of the fair value hierarchy:

 

December 31, 2015

   Level 1      Level 2      Level 3      Total  

Equities:

           

Equity securities

   $ 160       $ 475       $ 5       $ 640   

Long/short equity hedge funds

     —           —           26         26   

Private equity

     —           —           64         64   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 160       $ 475       $ 95       $ 730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed income:

           

Intermediate and long duration government/credit

   $ 152       $ 383       $ —         $ 535   

Other

     —           163         —           163   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 152       $ 546       $ —         $ 698   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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December 31, 2015

   Level 1      Level 2      Level 3      Total  

Other investments:

           

Real estate

   $ 4       $ 16       $ 169       $ 189   

Discretionary and systematic macro hedge funds

     —           —           46         46   

Other

     4         —           224         228   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 8       $ 16       $ 439       $ 463   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 320       $ 1,037       $ 534       $ 1,891   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2014

   Level 1      Level 2      Level 3      Total  

Equities

           

Equity securities

   $ 230       $ 541       $ 5       $ 776   

Long/short equity hedge funds

     —           —           27         27   

Private equity

     —           —           73         73   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 230       $ 541       $ 105       $ 876   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed income:

           

Intermediate and long duration government/credit

   $ 166       $ 445       $ —         $ 611   

Other

     —           200         —           200   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 166       $ 645       $ —         $ 811   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other investments:

           

Real estate

   $ 4       $ 18       $ 157       $ 179   

Discretionary and systematic macro hedge funds

     —           —           39         39   

Other

     4         —           181         185   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 8       $ 18       $ 377       $ 403   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 404       $ 1,204       $ 482       $ 2,090   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pension plan assets classified as Level 3 in the fair value hierarchy represent investments in which the trustees have used significant unobservable inputs in the valuation model. The following table presents a reconciliation of activity for such investments:

 

     2015      2014  

Balance at beginning of year

   $ 482       $ 379   

Realized gains

     7         14   

Unrealized gains

     99         9   

Purchases

     75         143   

Sales

     (19      (39

Issuances

     —           —     

Settlements

     —           —     

Foreign currency translation impact

     (110      (24

Transfers in and/or out of Level 3*

     —           —     
  

 

 

    

 

 

 

Balance at end of year

   $ 534       $ 482   
  

 

 

    

 

 

 

 

* In 2015 and 2014, there were no transfers of financial instruments into or out of Level 3.

Funding and Cash Flows

It is Alcoa Corporation’s policy to fund amounts for Direct Plans sufficient to meet the minimum requirements set forth in applicable country benefits laws and tax laws. From time to time, Alcoa Corporation (through ParentCo) contributes additional amounts as deemed appropriate. In 2015 and 2014, cash contributions to Alcoa Corporation’s pension plans were $69 and $154. The minimum required contribution to pension plans in 2016 is estimated to be $51.

 

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Benefit payments expected to be paid to pension and other postretirement benefit plans’ participants are as follows:

 

Year ended December 31,

   Pension
benefits
     Other post-
retirement
benefits
 

2016

   $ 116       $ 5   

2017

     117         4   

2018

     122         4   

2019

     125         5   

2020

     131         5   

2021 through 2025

     712         24   
  

 

 

    

 

 

 

Total

     1,323         47   
  

 

 

    

 

 

 

Defined Contribution Plans

Alcoa Corporation employees participate in ParentCo-sponsored savings and investment plans in several countries, including the United States and Australia. Alcoa Corporation’s expenses related to these plans were $59 in 2015, $68 in 2014, and $73 in 2013. In the United States, Alcoa Corporation’s employees may contribute a portion of their compensation to the plans, and ParentCo matches a portion of these contributions in equivalent form of the investments elected by the employee. Prior to January 1, 2014, ParentCo’s match was mostly in ParentCo stock.

X. Derivatives and Other Financial Instruments

Fair value . Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

    Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted 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, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

    Level 3—Inputs that are both significant to the fair value measurement and unobservable.

Derivatives. Alcoa Corporation is exposed to certain risks relating to its ongoing business operations, including financial, market, political, and economic risks. The following discussion provides information regarding Alcoa Corporation’s exposure to the risks of changing commodity prices, and foreign currency exchange rates.

Alcoa Corporation’s commodity and derivative activities are subject to the management, direction, and control of ParentCo’s Strategic Risk Management Committee (SRMC), which is composed of the chief executive officer, the chief financial officer, and other officers and employees that the chief executive officer selects. The SRMC meets on a periodic basis to review derivative positions and strategy and reports to ParentCo’s Board of Directors on the scope of its activities.

 

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Alcoa Corporation has nine derivative instruments classified as Level 3 under the fair value hierarchy. These instruments are composed of seven embedded aluminum derivatives, an energy contract, and an embedded credit derivative, all of which relate to energy supply contracts associated with eight smelters and three refineries. Five of the embedded aluminum derivatives and the energy contract were designated as cash flow hedging instruments and two of the embedded aluminum derivatives and the embedded credit derivative were not designated as hedging instruments.

The following section describes the valuation methodologies used by Alcoa Corporation to measure its Level 3 derivative instruments at fair value. Derivative instruments classified as Level 3 in the fair value hierarchy represent those in which management has used at least one significant unobservable input in the valuation model. Alcoa Corporation uses a discounted cash flow model to fair value all Level 3 derivative instruments. Where appropriate, the description below includes the key inputs to those models and any significant assumptions. These valuation models are reviewed and tested at least on an annual basis.

Inputs in the valuation models for Level 3 derivative instruments are composed of the following: (i) quoted market prices (e.g., aluminum prices on the 10-year London Metal Exchange (LME) forward curve and energy prices), (ii) significant other observable inputs (e.g., information concerning time premiums and volatilities for certain option type embedded derivatives and regional premiums for aluminum contracts), and (iii) unobservable inputs (e.g., aluminum and energy prices beyond those quoted in the market). For periods beyond the term of quoted market prices for aluminum, Alcoa Corporation estimates the price of aluminum by extrapolating the 10-year LME forward curve. Additionally, for periods beyond the term of quoted market prices for energy, management has developed a forward curve based on independent consultant market research. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence (Level 2). In the absence of such evidence, management’s best estimate is used (Level 3). If a significant input that is unobservable in one period becomes observable in a subsequent period, the related asset or liability would be transferred to the appropriate classification (Level 1 or 2) in the period of such change (there were no such transfers in the periods presented).

Alcoa Corporation has embedded derivatives in two power contracts that index the price of power to the LME price of aluminum. Additionally, in late 2014, Alcoa Corporation renewed three power contracts, each of which contain an embedded derivative that indexes the price of power to the LME price of aluminum plus the Midwest premium. The embedded derivatives in these five power contracts are primarily valued using observable market prices; however, due to the length of the contracts, the valuation models also require management to estimate the long-term price of aluminum based upon an extrapolation of the 10-year LME forward curve and/or 5-year Midwest premium curve. Significant increases or decreases in the actual LME price beyond 10 years and/or the Midwest premium beyond 5 years would result in a higher or lower fair value measurement. An increase in actual LME price and/or the Midwest premium over the inputs used in the valuation models will result in a higher cost of power and a corresponding decrease to the derivative asset or increase to the derivative liability. The embedded derivatives have been designated as cash flow hedges of forward sales of aluminum. Unrealized gains and losses were included in Other comprehensive loss on the accompanying Combined Balance Sheet while realized gains and losses were included in Sales on the accompanying Statement of Combined Operations.

Also, Alcoa Corporation has a power contract separate from above that contains an LME-linked embedded derivative. The embedded derivative is valued using the probability and interrelationship of future LME prices, Australian dollar to U.S. dollar exchange rates, and the U.S. consumer price index. Significant increases or decreases in the LME price would result in a higher or lower fair value measurement. An increase in actual LME price over the inputs used in the valuation model will result in a higher cost of power and a corresponding decrease to the derivative asset. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses from the embedded derivative were included in Other expenses, net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods

 

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sold on the accompanying Statement of Combined Operations as electricity purchases were made under the contract. At the time this derivative asset was recognized, an equivalent amount was recognized as a deferred credit in Other noncurrent liabilities and deferred credits on the accompanying Combined Balance Sheet (see Note L). This deferred credit is recognized in Other expenses, net on the accompanying Statement of Combined Operations as power is received over the life of the contract. Alcoa Corporation had a similar power contract and related embedded derivative associated with another smelter; however, the contract and related derivative instrument matured in July 2014.

Additionally, Alcoa Corporation has a natural gas supply contract, which has an LME-linked ceiling. This embedded derivative is valued using probabilities of future LME aluminum prices and the price of Brent crude oil (priced on Platts), including the interrelationships between the two commodities subject to the ceiling. Any change in the interrelationship would result in a higher or lower fair value measurement. An LME ceiling was embedded into the contract price to protect against an increase in the price of oil without a corresponding increase in the price of LME. An increase in oil prices with no similar increase in the LME price would limit the increase of the price paid for natural gas. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses from the embedded derivative were included in Other expenses, net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods sold on the accompanying Statement of Combined Operations as gas purchases were made under the contract.

Furthermore, Alcoa Corporation has an embedded derivative in a power contract that indexes the difference between the long-term debt ratings of Alcoa Corporation and the counterparty from any of the three major credit rating agencies. Management uses market prices, historical relationships, and forecast services to determine fair value. Significant increases or decreases in any of these inputs would result in a lower or higher fair value measurement. A wider credit spread between Alcoa Corporation and the counterparty would result in a higher cost of power and a corresponding increase in the derivative liability. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses were included in Other expenses, net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods sold on the accompanying Statement of Combined Operations as electricity purchases were made under the contract.

Finally, Alcoa Corporation has a derivative contract that will hedge the anticipated power requirements at one of its smelters once the existing power contract expires in September 2016. Beyond the term where market information is available, management has developed a forward curve, for valuation purposes, based on independent consultant market research. Significant increases or decreases in the power market may result in a higher or lower fair value measurement. Lower prices in the power market would cause a decrease in the derivative asset. The derivative contract has been designated as a cash flow hedge of future purchases of electricity. Unrealized gains and losses on this contract were recorded in Other comprehensive loss on the accompanying Combined Balance Sheet. Once the designated hedge period begins in September 2016, realized gains and losses will be recorded in Cost of goods sold as electricity purchases are made under the power contract. Alcoa Corporation had a similar contract related to another smelter once the prior existing contract expired in 2014, but elected to terminate the new contract in early 2013. This election was available to Alcoa Corporation under the terms of the contract and was made due to a projection that suggested the contract would be uneconomical. Prior to termination, the new contract was accounted for in the same manner.

 

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The fair values of Level 3 derivative instruments recorded as assets and liabilities in the accompanying Combined Balance Sheet is as follows:

 

     Fair value at
December 31, 2015
    

Unobservable
input

  

Range

($ in full amounts)

Assets:

        

 

Embedded aluminum derivatives

  

 

 

 

 

 

$1,060

 

 

  

  

 

 

Price of aluminum beyond forward curve

  

 

 

Aluminum: $2,060 per metric ton in 2026 to $2,337 per metric ton in 2029 (two contracts) and $2,534 per metric ton in 2036 (one contract)

 

Midwest premium: $0.0940 per pound in 2021 to $0.0940 per pound in 2029 (two contracts) and 2036 (one contract)

 

Embedded aluminum derivative

  

 

 

 

 

 

69

 

 

  

  

 

 

Interrelationship of future aluminum prices, foreign currency exchange rates, and the U.S. consumer price index (CPI)

  

 

 

Aluminum: $1,525 per metric ton in 2016

 

Foreign currency: A$1 = $0.73 in 2016

 

CPI: 1982 base year of 100 and 233 in January 2016 to 236 in September 2016

 

Embedded aluminum derivative

  

 

 

 

 

 

6

 

 

  

  

 

 

Interrelationship of LME price to overall energy price

  

 

 

Aluminum: $1,512 per metric ton in 2016 to $1,686 per metric ton in 2019

 

Embedded aluminum derivative

  

 

 

 

 

 

—  

 

 

  

  

 

 

Interrelationship of future aluminum and oil prices

  

 

 

Aluminum: $1,525 per metric ton in 2016 to $1,652 per metric ton in 2018

 

Oil: $38 per barrel in 2016 to $53 per barrel in 2018

Liabilities:

        

 

Embedded aluminum derivative

  

 

 

 

 

 

169

 

 

  

  

 

 

Price of aluminum beyond forward curve

  

 

 

Aluminum: $2,060 per metric ton in 2026 to $2,128 per metric ton in 2027

 

Embedded credit
derivative

  

 

 

 

 

 

35

 

 

  

  

 

 

Credit spread between Alcoa Corporation and counterparty

  

 

 

3.41% to 4.29%
(3.85% median)

 

Energy contract

  

 

 

 

2

 

  

  

 

Price of electricity beyond forward curve

  

 

Electricity: $45 per megawatt hour in 2019 to $121 per megawatt hour in 2036

 

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* The fair value of embedded aluminum derivatives reflected as assets and liabilities in this table are both lower by $2 compared to the respective amounts reflected in the Level 3 tables presented below. This is due to the fact that Alcoa Corporation has one derivative that is in a liability position for the current portion but is in an asset position for the noncurrent portion, and is reflected as such on the accompanying Combined Balance Sheet. However, this derivative is reflected as a net liability in the above table for purposes of presenting the assumptions utilized to measure the fair value of the derivative instruments in their entirety.

The fair values of Level 3 derivative instruments recorded as assets and liabilities in the accompanying Combined Balance Sheet were as follows:

 

Asset Derivatives

  December 31,
2015
    December 31,
2014
 

Derivatives designated as hedging instruments:

   

Prepaid expenses and other current assets:

   

Embedded aluminum derivatives

  $ 72      $ 24   

Other noncurrent assets:

   

Embedded aluminum derivative

    994        73   

Energy contract

    2        2   
 

 

 

   

 

 

 

Total derivatives designated as hedging instruments

  $ 1,068      $ 99   
 

 

 

   

 

 

 

Derivatives not designated as hedging instruments:

   

Prepaid expenses and other current assets:

   

Embedded aluminum derivatives

  $ 69      $ 98   

Other noncurrent assets:

   

Embedded aluminum derivatives

    —          71   
 

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

  $ 69      $ 169   
 

 

 

   

 

 

 

Total Asset Derivatives

  $ 1,137      $ 268   
 

 

 

   

 

 

 

Liability Derivatives

   

Derivatives designated as hedging instruments:

   

Other current liabilities:

   

Embedded aluminum derivative

  $ 9      $ 24   

Energy contract

    4        —     

Other noncurrent liabilities and deferred credits:

   

Embedded aluminum derivatives

    160        352   
 

 

 

   

 

 

 

Total derivatives designated as hedging instruments

  $ 173      $ 376   
 

 

 

   

 

 

 

Derivatives not designated as hedging instruments:

   

Other current liabilities:

   

Embedded credit derivative

  $ 6      $ 2   

Other noncurrent liabilities and deferred credits:

   

Embedded credit derivative

    29        16   
 

 

 

   

 

 

 

Total derivatives not designated as hedging instruments

  $ 35      $ 18   
 

 

 

   

 

 

 

Total Liability Derivatives

  $ 208      $ 394   
 

 

 

   

 

 

 

The following table shows the net fair values of the Level 3 derivative instruments at December 31, 2015 and the effect on these amounts of a hypothetical change (increase or decrease of 10%) in the market prices or rates that existed as of December 31, 2015:

 

     Fair value
asset/(liability)
     Index change
of + / - 10%
 

Embedded aluminum derivatives

   $ 966       $ 340   

Embedded credit derivative

     (35      4   

Energy contract

     (2      136   

 

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The following tables present a reconciliation of activity for Level 3 derivative contracts:

 

     Assets     Liabilities  

2015

   Embedded
aluminum
derivatives
    Energy
contract
    Embedded
aluminum
derivatives
    Embedded
credit
derivative
    Energy
contract
 

Opening balance—January 1, 2015

   $ 266      $ 2      $ 376      $ 18      $ —     

Total gains or losses (realized and unrealized) included in:

          

Sales

     5        —          (16     —          —     

Cost of goods sold

     (99     —          —          —          —     

Other expenses, net

     (8     (2     —          17        1   

Other comprehensive loss

     964        1        (191     —          3   

Purchases, sales, issuances, and settlements*

     —          —          —          —          —     

Transfers into and/or out of Level 3*

     —          —          —          —          —     

Foreign currency translation

     7        1        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closing balance—December 31, 2015

   $ 1,135      $ 2      $ 169      $ 35      $ 4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gains or losses included in earnings for derivative contracts held at December 31, 2015:

          

Sales

   $ —        $ —        $ —        $ —        $ —     

Cost of goods sold

     —          —          —          —          —     

Other expenses, net

     (8     (2     —          (17     1   

 

* In 2015, there were no purchases, sales, issuances or settlements of Level 3 derivative instruments. Additionally, there were no transfers of derivative instruments into or out of Level 3.

 

     Assets     Liabilities  

2014

   Embedded
aluminum
derivatives
    Energy
contract
    Embedded
aluminum
derivatives
    Embedded
credit
derivative
 

Opening balance—January 1, 2014

   $ 349      $ 6      $ 410      $ 21   

Total gains or losses (realized and unrealized) included in:

        

Sales

     (1     —          (27     —     

Cost of goods sold

     (163     —          —          (1

Other expenses, net

     (15     —          —          (2

Other comprehensive loss

     71        (4     (7     —     

Purchases, sales, issuances, and settlements*

     —          —          —          —     

Transfers into and/or out of Level 3*

     —          —          —          —     

Foreign currency translation

     25        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Closing balance—December 31, 2014

   $ 266      $ 2      $ 376      $ 18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in unrealized gains or losses included in earnings for derivative contracts held at December 31, 2014:

        

Sales

   $ —        $ —        $ —        $ —     

Cost of goods sold

     —          —          —          —     

Other expenses, net

     (15     —          —          (2

 

* In November 2014, three new embedded derivatives were contained within renewed power contracts; however, there was no amount included for issuances as the fair value on the date of issuance was zero. There were no purchases, sales or settlements of Level 3 derivative instruments. Additionally, there were no transfers of derivative instruments into or out of Level 3.

 

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Derivatives Designated As Hedging Instruments – Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of unrealized gains or losses on the derivative is reported as a component of other comprehensive income (OCI). Realized gains or losses on the derivative are reclassified from OCI into earnings in the same period or periods during which the hedge transaction impacts earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized directly in earnings immediately. Alcoa Corporation has five embedded aluminum derivatives and one energy contract (a second one was terminated in early 2013) that have been designated as cash flow hedges, all of which are classified as Level 3 in the fair value hierarchy.

Embedded aluminum derivatives.

Alcoa Corporation has entered into energy supply contracts that contain pricing provisions related to the LME aluminum price. The LME-linked pricing features are considered embedded derivatives. Five of these embedded derivatives have been designated as cash flow hedges of forward sales of aluminum, three of which were new derivatives contained in three power contracts that were renewed in late 2014. At December 31, 2015 and 2014, these embedded aluminum derivatives hedge forecasted aluminum sales of 3,307 kmt and 3,610 kmt, respectively.

In 2015, 2014, and 2013, Alcoa Corporation recognized an unrealized gain of $1,155, $78, and $190, respectively, in Other comprehensive loss related to these five derivative instruments. Additionally, Alcoa Corporation reclassified a realized loss of $21, $28, and $29 from Accumulated other comprehensive loss to Sales in 2015, 2014, and 2013, respectively. There was no ineffectiveness related to these five derivative instruments in 2015, 2014, and 2013. Assuming market rates remain constant with the rates at December 31, 2015, a realized gain of $45 is expected to be recognized in Sales over the next 12 months.

Energy contract.

Alcoa Corporation has a derivative contract that will hedge the anticipated power requirements at one of its smelters once the existing power contract expires in 2016. Alcoa Corporation had a similar contract related to another smelter once the prior existing contract expired in 2014, but elected to terminate the new contract in early 2013 (see additional information in description of Level 3 derivative contracts above). At December 31, 2015 and 2014, this energy contract hedges forecasted electricity purchases of 59,409,328 megawatt hours. In 2015, 2014, and 2013, Alcoa Corporation recognized an unrealized loss of $2, an unrealized loss of $4, and an unrealized gain of $3, respectively, in Other comprehensive loss. Additionally, Alcoa Corporation recognized a loss of $3 in Other expenses, net related to hedge ineffectiveness in 2015. There was no ineffectiveness related to the respective energy contracts outstanding in 2014 and 2013.

Derivatives Not Designated As Hedging Instruments

Alcoa Corporation has two Level 3 embedded aluminum derivatives and one Level 3 embedded credit derivative that do not qualify for hedge accounting treatment. As such, gains and losses related to the changes in fair value of these instruments are recorded directly in earnings. In 2015, 2014, and 2013, Alcoa Corporation recognized a loss of $25, a loss of $13, and a gain of $36, respectively, in Other expenses, net, of which a loss of $8, a loss of $15, and a gain of $28, respectively, related to the two embedded aluminum derivatives and a loss of $17, a gain of $2, and a gain of $8, respectively, related to the embedded credit derivative.

Material Limitations

The disclosures with respect to commodity prices and foreign currency exchange risk do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on the futures contracts may be offset. Actual results will be determined by a number of factors that are not under Alcoa Corporation’s control and could vary significantly from those factors disclosed.

 

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Other Financial Instruments. The carrying values and fair values of Alcoa Corporation’s other financial instruments were as follows:

 

December 31,

   2015      2014  
   Carrying
value
     Fair
value
     Carrying
value
     Fair
value
 

Cash and cash equivalents

   $ 557       $ 557       $ 266       $ 266   

Long-term debt due within one year

     18         18         29         29   

Long-term debt, less amount due within one year

     207         207         313         313   

The following methods were used to estimate the fair values of other financial instruments:

Cash and cash equivalents . The fair value approximates carrying value because of the short maturity of the instruments and was classified in Level 1 of the fair value hierarchy.

Long-term debt due within one year and Long-term debt, less amount due within one year. The fair value was based on interest rates that are currently available to Alcoa Corporation for issuance of debt with similar terms and maturities. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.

Y. Separation Costs

ParentCo is incurring costs to evaluate, plan, and execute the separation, and Alcoa Corporation is allocated a pro rata portion of those costs based on segment revenue. In 2015, ParentCo recognized $24 for costs related to the proposed separation transaction, of which $12 was allocated to Alcoa Corporation and was included in Selling, general administrative, and other expenses on the accompanying Statement of Combined Operations.

Z. Subsequent Events

Management evaluated all activity of Alcoa Corporation through June 29, 2016 (the date on which the Combined Financial Statements were issued), and concluded that no subsequent events have occurred that would require recognition in the Combined Financial Statements or disclosure in the Notes to the Combined Financial Statements, except as described below.

On January 26, 2016, the European Court of Justice issued a decision in connection with legal proceedings related to whether the extension of energy tariffs by Italy to Alcoa Corporation constituted unlawful state aid (see European Commission Matters in Note N). In addition, a separate but related matter was also updated as a result of the aforementioned decision (see Other Matters in the Litigation section of Note N).

 

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Report of Independent Registered Public Accounting Firm *

To the Shareholders and Board of Directors of Alcoa Inc.

We have reviewed the accompanying combined balance sheet of Alcoa Upstream Corporation as of June 30, 2016, and the related statements of combined operations, combined comprehensive (loss) income, changes in combined equity, and combined cash flows for the six-month periods ended June 30, 2016 and 2015. These combined interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) or in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying combined interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance with auditing standards generally accepted in the United States of America, the combined balance sheet as of December 31, 2015, and the related statements of combined operations, combined comprehensive loss, changes in combined equity, and combined cash flows for the year then ended (not presented herein), and in our report dated June 29, 2016, we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet information as of December 31, 2015, is fairly stated in all material respects in relation to the combined balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Pittsburgh, Pennsylvania

September 1, 2016

 

*   This report should not be considered a “report” within the meanings of Sections 7 and 11 of the Securities Act of 1933, and the independent registered public accounting firm’s liability under Section 11 does not extend to it.

 

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Alcoa Upstream Corporation

Statement of Combined Operations

(in millions—unaudited)

 

For the six months ended June 30,

   Note      2016     2015  

Sales to unrelated parties

      $ 3,953      $ 5,422   

Sales to related parties

     M        499        647   
     

 

 

   

 

 

 

Total sales

     I         4,452        6,069   
     

 

 

   

 

 

 

Cost of goods sold (exclusive of expenses below)

        3,797        4,643   

Selling, general administrative, and other expenses

        175        166   

Research and development expenses

        28        58   

Provision for depreciation, depletion, and amortization

        355        404   

Restructuring and other charges

     D         92        243   

Interest expense

        130        139   

Other expenses (income), net

     H         16        (13
     

 

 

   

 

 

 

Total costs and expenses

        4,593        5,640   
     

 

 

   

 

 

 

(Loss) income before income taxes

        (141     429   

Provision for income taxes

        86        233   
     

 

 

   

 

 

 

Net (loss) income

        (227     196   

Less: Net income attributable to noncontrolling interest

        38        127   
     

 

 

   

 

 

 

Net (loss) income attributable to Alcoa Upstream Corporation

     I       $ (265   $ 69   
     

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Combined Comprehensive (Loss) Income

(in millions—unaudited)

 

            Alcoa Upstream
Corporation
    Noncontrolling
interest
    Total  

For the six months ended June 30,

   Note      2016     2015     2016      2015     2016     2015  

Net (loss) income

      $ (265   $ 69      $ 38       $ 127      $ (227   $ 196   

Other comprehensive income (loss), net of tax:

     C                 

Change in unrecognized net actuarial loss and prior service cost/benefit related to pension and other postretirement benefits

        (1     41        3         5        2        46   

Foreign currency translation adjustments

        414        (614     139         (218     553        (832

Net change in unrecognized gains/losses on cash flow hedges

        (269     391        14         (4     (255     387   
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total Other comprehensive income (loss), net of tax

        144        (182     156         (217     300        (399
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

      $ (121   $ (113   $ 194       $ (90   $ 73      $ (203
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Combined Balance Sheet

(in millions—unaudited)

 

     Note      June 30, 2016
Pro Forma
(Note A)
    June 30,
2016
    December 31,
2015
 

Assets

         

Current assets:

         

Cash and cash equivalents

      $ 332      $ 332      $ 557   

Receivables from customers

        426        426        380   

Other receivables

        181        181        124   

Inventories

     F         1,166        1,166        1,172   

Prepaid expenses and other current assets

        281        281        333   
     

 

 

   

 

 

   

 

 

 

Total current assets

        2,386        2,386        2,566   

Properties, plants, and equipment, net

        9,569        9,569        9,390   

Goodwill

        155        155        152   

Investments

     G & J         1,376        1,376        1,472   

Deferred income taxes

        673        673        589   

Fair value of derivative contracts

        720        720        997   

Other noncurrent assets

     G         1,495        1,495        1,247   
     

 

 

   

 

 

   

 

 

 

Total assets

      $ 16,374      $ 16,374      $ 16,413   
     

 

 

   

 

 

   

 

 

 

Liabilities

         

Current liabilities:

         

Accounts payable, trade

      $ 1,277      $ 1,277      $ 1,379   

Accrued compensation and retirement costs

        291        291        313   

Taxes, including income taxes

        64        64        136   

Distribution payable to ParentCo

     A         908                 

Other current liabilities

        477        477        558   

Long-term debt due within one year

     L         22        22        18   
     

 

 

   

 

 

   

 

 

 

Total current liabilities

        3,039        2,131        2,404   

Long-term debt, less amount due within one year

     L         233        233        207   

Noncurrent income taxes

        396        396        508   

Accrued pension benefits

        346        346        359   

Accrued other postretirement benefits

        78        78        78   

Environmental remediation

        206        206        207   

Asset retirement obligations

        553        553        539   

Other noncurrent liabilities and deferred credits

        570        570        598   
     

 

 

   

 

 

   

 

 

 

Total liabilities

        5,421        4,513        4,900   
     

 

 

   

 

 

   

 

 

 

Contingencies and commitments

     G          

Equity

         

Net parent investment

        10,229        11,137        11,042   

Accumulated other comprehensive loss

     C         (1,456     (1,456     (1,600
     

 

 

   

 

 

   

 

 

 

Total net parent investment and accumulated other comprehensive loss

        8,773        9,681        9,442   
     

 

 

   

 

 

   

 

 

 

Noncontrolling interest

        2,180        2,180        2,071   
     

 

 

   

 

 

   

 

 

 

Total equity

        10,953        11,861        11,513   
     

 

 

   

 

 

   

 

 

 

Total liabilities and equity

      $ 16,374      $ 16,374      $ 16,413   
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Combined Cash Flows

(in millions—unaudited)

 

For the six months ended June 30,

   Note      2016     2015  

Cash From Operations

       

Net (loss) income

      $ (227   $ 196   

Adjustments to reconcile net (loss) income to cash from operations:

       

Depreciation, depletion, and amortization

        355        404   

Deferred income taxes

        (28     (18

Equity income, net of dividends

        20        50   

Restructuring and other charges

     D         92        243   

Net gain from investing activities—asset sales

     H         (32     (31

Net periodic pension benefit cost

     K         23        36   

Stock-based compensation

        18        22   

Other

        89        88   

Changes in assets and liabilities, excluding effects of acquisitions, divestitures, and foreign currency translation adjustments:

       

(Increase) decrease in receivables

        (24     1   

Decrease in inventories

        32        10   

(Increase) in prepaid expenses and other current assets

        (11     (18

(Decrease) in accounts payable, trade

        (133     (72

(Decrease) in accrued expenses

        (288     (292

Increase in taxes, including income taxes

        (125     213   

Pension contributions

        (33     (27

(Increase) in noncurrent assets

        (179     (318

Increase in noncurrent liabilities

        —          24   
     

 

 

   

 

 

 

Cash (used for) provided from operations

        (451     511   
     

 

 

   

 

 

 

Financing Activities

       

Net parent investment

        345        (242

Net change in short-term borrowings (original maturities of three months or less)

        (1     2   

Payments on debt (original maturities greater than three months)

        (10     (15

Distributions to noncontrolling interest

        (84     (71
     

 

 

   

 

 

 

Cash provided from (used for) financing activities

        250        (326
     

 

 

   

 

 

 

Investing Activities

       

Capital expenditures

        (172     (157

Proceeds from the sale of assets and businesses

        (13     70   

Additions to investments

        (3     (24

Sales of investments

        146        —     

Other

        (1     —     
     

 

 

   

 

 

 

Cash used for investing activities

        (43     (111
     

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

        19        (25
     

 

 

   

 

 

 

Net change in cash and cash equivalents

        (225     49   

Cash and cash equivalents at beginning of year

        557        266   
     

 

 

   

 

 

 

Cash and cash equivalents at end of period

      $ 332      $ 315   
     

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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Alcoa Upstream Corporation

Statement of Changes in Combined Equity

(in millions—unaudited)

 

     Note    Net parent
investment
    Accumulated
other
comprehensive
loss
    Noncontrolling
interest
    Total
equity
 

Balance at December 31, 2014

      $ 11,915      $ (1,316   $ 2,474      $ 13,073   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income

        69        —          127        196   

Other comprehensive loss

   C      —          (182     (217     (399

Change in Net parent investment

        (221     —          —          (221

Distributions

        —          —          (71     (71

Other

        —          —          (2     (2
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

      $ 11,763      $ (1,498   $ 2,311      $ 12,576   
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2015

      $ 11,042      $ (1,600   $ 2,071      $ 11,513   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

        (265     —          38        (227

Other comprehensive income

   C      —          144        156        300   

Change in Net parent investment

        360        —          —          360   

Distributions

        —          —          (84     (84

Other

        —          —          (1     (1
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

      $ 11,137      $ (1,456   $ 2,180      $ 11,861   
     

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of the combined financial statements of Alcoa Upstream Corporation.

 

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ALCOA UPSTREAM CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

(Dollars in millions—unaudited)

A. Basis of Presentation

The interim Combined Financial Statements of Alcoa Upstream Corporation (“Alcoa Corporation” or the “Company”) are unaudited. These Combined Financial Statements include all adjustments, consisting only of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows. The results reported in these Combined Financial Statements are not necessarily indicative of the results that may be expected for the entire year. The 2015 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). These interim Combined Financial Statements should be read in conjunction with the Combined Financial Statements for the three years ended December 31, 2015, included elsewhere in this Form 10.

References in these Notes to “ParentCo” refer to Alcoa Inc., a Pennsylvania corporation and its consolidated subsidiaries.

The Proposed Separation. On September 28, 2015, ParentCo announced that its Board of Directors preliminarily approved a plan (the “separation”) to separate into two standalone, publicly-traded companies: Alcoa Corporation, which will primarily comprise the historical bauxite mining, alumina refining, aluminum production and energy operations of ParentCo, as well as the rolling mill at the Warrick, IN, operations and ParentCo’s 25.1% stake in the Ma’aden Rolling Company in Saudi Arabia; and a value-add company, that will principally include the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments (collectively, the “Value-Add Businesses”) of ParentCo.

The separation will occur by means of a pro rata distribution by ParentCo of at least 80.1% of the outstanding shares of Alcoa Corporation. ParentCo, the existing publicly-traded company, will continue to own the Value-Add Businesses, and will become the value-add company. In conjunction with the separation, ParentCo will change its name to Arconic Inc. (“Arconic”).

The separation transaction, which is expected to be completed in the second half of 2016, is subject to a number of conditions, including, but not limited to: final approval by ParentCo’s Board of Directors; the continuing validity of the private letter ruling from the Internal Revenue Service regarding certain U.S. federal income tax matters relating to the transaction; receipt of an opinion of legal counsel regarding the qualification of the distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes; and the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this information statement forms a part. Upon completion of the separation, ParentCo shareholders will own at least 80.1% of the outstanding shares of Alcoa Corporation, and Alcoa Corporation will be a separate company from Arconic. Arconic will retain no more than 19.9% of the outstanding shares of common stock of Alcoa Corporation following the distribution.

Alcoa Corporation and Arconic will enter into an agreement (the “Separation Agreement”) that will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of Alcoa Corporation and Arconic as part of the separation of ParentCo into two companies, and will provide for when and how these transfers and assumptions will occur.

ParentCo may, at any time and for any reason until the proposed transaction is complete, abandon the separation plan or modify its terms.

Alcoa Corporation expects to pay a cash distribution to ParentCo upon separation from the net proceeds to be received from the issuance of additional third-party indebtedness. This distribution is estimated to be $908 as of June 30, 2016. The accompanying unaudited pro forma balance sheet gives effect to such planned distribution.

 

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Basis of Presentation . The Combined Financial Statements of Alcoa Corporation are prepared in conformity with GAAP and require management to make certain judgments, estimates, and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They also may affect the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Combined Financial Statements of Alcoa Corporation include the accounts of Alcoa Corporation and companies in which Alcoa Corporation has a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which Alcoa Corporation has significant influence but does not have effective control. Investments in affiliates in which Alcoa Corporation cannot exercise significant influence are accounted for on the cost method.

Principles of Combination. The Combined Financial Statements include certain assets and liabilities that have historically been held at ParentCo’s corporate level but are specifically identifiable or otherwise attributable to Alcoa Corporation. All significant transactions and accounts within Alcoa Corporation have been eliminated. All significant intercompany transactions between ParentCo and Alcoa Corporation have been included within Net parent investment in these Combined Financial Statements.

Cost Allocations. The Combined Financial Statements of Alcoa Corporation include general corporate expenses of ParentCo that were not historically charged to Alcoa Corporation for certain support functions that are provided on a centralized basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance, facilities, employee benefits and compensation, and research and development activities. These general corporate expenses are included in the Statement of Combined Operations within Cost of goods sold, Selling, general administrative and other expenses, and Research and development expenses. These expenses have been allocated to Alcoa Corporation on the basis of direct usage when identifiable, with the remainder allocated based on Alcoa Corporation’s segment revenue as a percentage of ParentCo’s total segment revenue for both Alcoa Corporation and Arconic.

All external debt not directly attributable to Alcoa Corporation has been excluded from the Combined Balance Sheet of Alcoa Corporation. Financing costs related to these debt obligations have been allocated to Alcoa Corporation based on the ratio of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, and are included in the Statement of Combined Operations within Interest expense.

The following table reflects the allocations of those detailed above:

 

     Amount allocated to Alcoa
Corporation
 

For the six months ended June 30,

       2016              2015  

Cost of goods sold (1)

   $ 26       $ 48   

Selling, general administrative, and other expenses

     77         69   

Research and development expenses

     12         28   

Provision for depreciation, depletion, and amortization

     10         12   

Restructuring and other charges (2)

     —           10   

Interest expense

     119         127   

Other (income) expenses, net

     (9      2   

 

(1) Allocation principally relates to ParentCo’s retained pension and other postemployment benefits expenses for closed and sold operations.
(2) Allocation primarily relates to layoff programs for ParentCo employees.

Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing costs are reasonable.

Nevertheless, the Combined Financial Statements of Alcoa Corporation may not include all of the actual expenses that would have been incurred and may not reflect Alcoa Corporation’s combined results of operations,

 

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financial position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Alcoa Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between Alcoa Corporation and ParentCo, including sales to Arconic, have been included as related party transactions in these 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 transactions is reflected in the Statements of Combined Cash Flows as a financing activity and in the Combined Balance Sheet as Net parent investment.

Cash is managed centrally with certain net earnings reinvested locally and working capital requirements met from existing liquid funds. Accordingly, the cash and cash equivalents held by ParentCo at the corporate level were not attributed to Alcoa Corporation for any of the periods presented. Only cash amounts specifically attributable to Alcoa Corporation are reflected in the Combined Balance Sheet. Transfers of cash, both to and from ParentCo’s centralized cash management system, are reflected as a component of Net parent investment in Alcoa Corporation’s Combined Balance Sheet and as a financing activity on the accompanying Combined Statement of Cash Flows.

The income tax provision in the Combined Statement of Operations has been calculated as if Alcoa Corporation was operating on a standalone basis and filed separate tax returns in the jurisdictions in which it operates. Therefore cash tax payments and items of current and deferred taxes may not be reflective of Alcoa Corporation’s actual tax balances prior to or subsequent to the planned separation.

B. Recently Adopted and Recently Issued Accounting Guidance

Adopted

On January 1, 2016, Alcoa Corporation adopted changes issued by the Financial Accounting Standards Board (FASB) to the presentation of extraordinary items. Such items are defined as transactions or events that are both unusual in nature and infrequent in occurrence, and, previously, were required to be presented separately in an entity’s income statement, net of income tax, after income from continuing operations. The changes eliminate the concept of an extraordinary item and, therefore, the presentation of such items is no longer required. Notwithstanding this change, an entity is still required to present and disclose a transaction or event that is both unusual in nature and infrequent in occurrence in the notes to the financial statements. The adoption of these changes had no impact on the Combined Financial Statements.

On January 1, 2016, Alcoa Corporation adopted changes issued by the FASB to the analysis an entity must perform to determine whether it should consolidate certain types of legal entities. These changes (i) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with variable interest entities, particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The adoption of these changes had no impact on the Combined Financial Statements.

On January 1, 2016, Alcoa Corporation adopted changes issued by the FASB to the presentation of debt issuance costs. Previously, such costs were required to be presented as a noncurrent asset in an entity’s balance sheet and amortized into interest expense over the term of the related debt instrument. The changes require that debt issuance costs be presented in an entity’s balance sheet as a direct deduction from the carrying value of the related debt liability. The amortization of debt issuance costs remains unchanged. The FASB issued an update to these changes based on an announcement of the staff of the U.S. Securities and Exchange Commission. This update provides an exception to the FASB changes allowing debt issuance costs related to line-of-credit

 

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arrangements to continue to be presented as an asset regardless of whether there are any outstanding borrowings under such arrangement. The adoption of these changes had no impact on the Combined Financial Statements.

Issued

In March 2016, the FASB issued changes to employee share-based payment accounting. Currently, an entity must determine for each share-based payment award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency. Excess tax benefits are recognized in additional paid-in capital; tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement. Excess tax benefits are not recognized until the deduction reduces taxes payable. The changes require all excess tax benefits and tax deficiencies related to share-based payment awards to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Additionally, the presentation of excess tax benefits related to share-based payment awards in the statement of cash flows is changed. Currently, excess tax benefits must be separated from other income tax cash flows and classified as a financing activity. The changes require excess tax benefits to be classified along with other income tax cash flows as an operating activity. Also, the changes require cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity. Currently, there is no specific guidance on the classification in the statement of cash flows of cash paid by an employer to the tax authorities when directly withholding shares for tax-withholding purposes. Additionally, for a share-based award to qualify for equity classification it cannot partially settle in cash in excess of the employer’s minimum statutory withholding requirements. The changes permit equity classification of share-based awards for withholdings up to the maximum statutory tax rates in applicable jurisdictions. These changes become effective for Alcoa Corporation on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements of Alcoa Corporation.

In March 2016, the FASB issued changes eliminating the requirement for an investor to adjust an equity method investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held as a result of an increase in the level of ownership interest or degree of influence. Additionally, an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting must recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. These changes become effective for Alcoa Corporation on January 1, 2017. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements of Alcoa Corporation.

In March 2016, the FASB issued changes to derivative instruments designated as hedging instruments. These changes clarify that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. These changes become effective for Alcoa Corporation on January 1, 2017. Management does not expect these changes to have a material impact on the Combined Financial Statements of Alcoa Corporation.

In February 2016, the FASB issued changes to the accounting and presentation of leases. These changes require lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. These changes become effective for Alcoa Corporation on January 1, 2019. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements of Alcoa Corporation.

 

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In January 2016, the FASB issued changes to equity investments. These changes require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Additionally, the impairment assessment of equity investments without readily determinable fair values has been simplified by requiring a qualitative assessment to identify impairment. These changes become effective for Alcoa Corporation on January 1, 2018. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements of Alcoa Corporation.

In July 2015, the FASB issued changes to the subsequent measurement of inventory. Currently, an entity is required to measure its inventory at the lower of cost or market, whereby market can be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The changes require that inventory be measured at the lower of cost and net realizable value, thereby eliminating the use of the other two market methodologies. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. These changes do not apply to inventories measured using LIFO (last-in, first-out) or the retail inventory method. Currently, Alcoa Corporation applies the net realizable value market option to measure non-LIFO inventories at the lower of cost or market. These changes become effective for Alcoa Corporation on January 1, 2017. Management has determined that the adoption of these changes will not have an impact on the Combined Financial Statements of Alcoa Corporation.

In May 2014, the FASB issued changes to the recognition of revenue from contracts with customers. These changes created a comprehensive framework for all entities in all industries to apply in the determination of when to recognize revenue, and, therefore, supersede virtually all existing revenue recognition requirements and guidance. This framework is expected to result in less complex guidance in application while providing a consistent and comparable methodology for revenue recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services. To achieve this principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB deferred the effective date by one year, making these changes effective for Alcoa Corporation on January 1, 2018. In March 2016, the FASB issued amendments to clarify the implementation guidance on principal versus agent considerations. Management is currently evaluating the potential impact of these changes on the Combined Financial Statements of Alcoa Corporation.

In August 2014, the FASB issued changes to the disclosure of uncertainties about an entity’s ability to continue as a going concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Because there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related note disclosures, there is diversity in practice whether, when, and how an entity discloses the relevant conditions and events in its financial statements. As a result, these changes require an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. If management has concluded that substantial doubt exists, then the following disclosures should be made in the financial statements: (i) principal conditions or events that raised the substantial doubt, (ii) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, (iii) management’s plans that alleviated the initial substantial doubt or, if substantial doubt was not alleviated, management’s plans that are intended to at least mitigate the conditions or events that raise substantial

 

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doubt, and (iv) if the latter in (iii) is disclosed, an explicit statement that there is substantial doubt about the entity’s ability to continue as a going concern. These changes become effective for Alcoa Corporation for the 2016 annual financial statements. Management has determined that the adoption of these changes will not have an impact on the Combined Financial Statements. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the Combined Financial Statements of Alcoa Corporation in a given reporting period.

C. Accumulated Other Comprehensive Loss

The following table details the activity of the three components that comprise Accumulated other comprehensive loss for both Alcoa Corporation and noncontrolling interest:

 

            Alcoa Corporation     Noncontrolling interest  
            Six months ended
June 30,
    Six months ended
June 30,
 
     Note      2016     2015         2016             2015      

Pension and other postretirement benefits

     K            

Balance at beginning of period

      $ (352   $ (424   $ (56   $ (64

Other comprehensive (loss) income:

           

Unrecognized net actuarial loss and prior service cost/benefit

        (22     41        1        3   

Tax benefit (expense)

        8        (10     —          —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive (loss) income before reclassifications, net of tax

        (14     31        1        3   
     

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of net actuarial loss and prior service cost/benefit (1)

        20        16        2        4   

Tax expense (2)

        (7     (6     —          (2
     

 

 

   

 

 

   

 

 

   

 

 

 

Total amount reclassified from Accumulated other comprehensive loss, net of tax (6)

        13        10        2        2   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive (loss) income

        (1     41        3        5   
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      $ (353   $ (383   $ (53   $ (59
     

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation

           

Balance at beginning of period

      $ (1,851   $ (668   $ (779   $ (351

Other comprehensive income (loss) (3)

        414        (614     139        (218
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      $ (1,437   $ (1,282   $ (640   $ (569
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow hedges

     L            

Balance at beginning of period

      $ 603      $ (224   $ (3   $ (2

Other comprehensive (loss) income:

           

Net change from periodic revaluations

        (345     511        15        (5

Tax benefit (expense)

        75        (137     (4     1   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive (loss) income before reclassifications, net of tax

        (270     374        11        (4
     

 

 

   

 

 

   

 

 

   

 

 

 

Net amount reclassified to earnings:

           

Aluminum contracts (4)

        (5     23        —          —     

Interest rate contracts (5)

        7        —          5        —     

Sub-total

        2        23        5        —     

Tax expense (2)

        (1     (6     (2     —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Total amount reclassified from Accumulated other comprehensive loss, net of tax (6)

        1        17        3        —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Other comprehensive (loss) income

        (269     391        14        (4
     

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

      $ 334      $ 167      $ 11      $ (6
     

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) These amounts were included in the computation of net periodic benefit cost for pension and other postretirement benefits (see Note K).
(2) These amounts were included in Provision for income taxes on the accompanying Statement of Combined Operations.
(3) In all periods presented, there were no tax impacts related to rate changes and no amounts were reclassified to earnings.
(4) These amounts were included in Sales on the accompanying Statement of Combined Operations.
(5) These amounts were included in Other expenses, net on the accompanying Statement of Combined Operations.
(6) A positive amount indicates a corresponding charge to earnings and a negative amount indicates a corresponding benefit to earnings. These amounts were reflected on the accompanying Statement of Combined Operations in the line items indicated in footnotes 1 through 5.

D. Restructuring and Other Charges

In the 2016 six-month period, Alcoa Corporation recorded Restructuring and other charges of $92, which were comprised of the following components: $86 for additional net costs related to decisions made in the fourth quarter of 2015 to permanently close and demolish the Warrick (Indiana) smelter and to curtail the Wenatchee (Washington) smelter and Point Comfort (Texas) refinery (see below); $11 for layoff costs related to cost reduction initiatives and the planned separation of ParentCo, including the separation of approximately 30 employees in the Aluminum segment; and $5 for the reversal of a number of small layoff reserves related to prior periods.

In the 2016 six-month period, costs related to the closure and curtailment actions included accelerated depreciation of $70 related to the Warrick smelter as it continued to operate during the 2016 first quarter; $20 for the reversal of severance costs initially recorded in the 2015 fourth quarter; and $36 in other costs. Additionally in the 2016 six-month period, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $5 which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other costs of $36 represent $27 for contract termination, $7 in asset retirement obligations for the rehabilitation of a coal mine related to the Warrick smelter, and $2 in other related costs. Additional charges may be recognized in future periods related to these actions.

In the six-month period of 2015, Alcoa Corporation recorded Restructuring and other charges of $243, which were comprised of the following components: $179 for exit costs related to decisions to permanently shut down and demolish a smelter and a power station (see below); $24 related to post-closing adjustments associated with two December 2014 divestitures; $34 for the separation of approximately 800 employees (680 in the Aluminum segment and 120 combined in the Alumina and Bauxite segments), supplier contract-related costs, and other charges associated with the decisions to temporarily curtail certain capacity at the São Luís smelter and the refinery in Suriname; $11 for layoff costs, including the separation of approximately 150 employees in the Aluminum segment; $4 for the reversal of a number of small layoff reserves related to prior periods; and a net credit of $1 related to Corporate restructuring allocated to Alcoa Corporation.

In the second quarter of 2015, management approved the permanent shutdown and demolition of the Poços de Caldas smelter (capacity of 96,000 metric-tons-per-year) in Brazil and the Anglesea power station (includes the closure of a related coal mine) in Australia. The entire capacity at Poços de Caldas has been temporarily idled since May 2014 and the Anglesea power station was shut down at the end of August 2015. Demolition and remediation activities related to the Poços de Caldas smelter and the Anglesea power station began in late 2015 and are expected to be completed by the end of 2026 and 2020, respectively.

The decision on the Poços de Caldas smelter was due to management’s conclusion that the smelter was no longer competitive as a result of challenging global market conditions for primary aluminum that have not dissipated, which led to the initial curtailment, and higher costs. For the Anglesea power station, the decision was

 

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made because a sale process did not result in a sale and there would be imminent operating costs and financial constraints related to this site in the remainder of 2015 and beyond, including significant costs to source coal from available resources, necessary maintenance costs, and a depressed outlook for forward electricity prices. The Anglesea power station previously supplied approximately 40 percent of the power needs for the Point Henry smelter, which was closed in August 2014.

In the 2015 six-month period, costs related to the shutdown actions included asset impairments of $86, representing the write-off of the remaining book value of all related properties, plants, and equipment; $11 for the layoff of approximately 100 employees (80 in the Aluminum segment and 20 in the Energy segment); and $82 in other exit costs. Additionally in the 2015 six-month period, remaining inventories, mostly operating supplies and raw materials, were written down to their net realizable value, resulting in a charge of $4, which was recorded in Cost of goods sold on the accompanying Statement of Combined Operations. The other exit costs of $82 represent $45 in asset retirement obligations and $29 in environmental remediation, both of which were triggered by the decisions to permanently shut down and demolish the aforementioned structures in Brazil and Australia (includes the rehabilitation of a related coal mine), and $8 in supplier and customer contract-related costs.

Alcoa Corporation does not include Restructuring and other charges in the results of its reportable segments. The pretax impact of allocating such charges to segment results would have been as follows:

 

     Six months ended
June 30,
 
         2016              2015      

Bauxite

   $ —        $ 2   

Alumina

     2         13   

Aluminum

     68         147   

Cast Products

     —           —     

Energy

     22         52   

Rolled Products

     —          —     
  

 

 

    

 

 

 

Segment total

     92         214   

Corporate

     —           29   
  

 

 

    

 

 

 

Total restructuring and other charges

   $ 92       $ 243   
  

 

 

    

 

 

 

As of June 30, 2016, approximately 26 of the 30 employees associated with 2016 restructuring programs and approximately 2,400 of the 2,700 employees associated with 2015 restructuring programs were separated. As of March 31, 2016 the separations associated with the 2014 restructuring programs were essentially complete. Most of the remaining separations for the 2016 restructuring programs and all of the remaining separations for the 2015 restructuring programs are expected to be completed by the end of 2016.

In the 2016 six-month period, cash payments of $3, $51, and $1 were made against the layoff reserves related to 2016, 2015, and 2014, respectively, restructuring programs.

 

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Activity and reserve balances for restructuring charges were as follows:

 

     Layoff costs      Other exit
costs
     Total  

Reserve balances at December 31, 2014

   $ 50       $ 13       $ 63   
  

 

 

    

 

 

    

 

 

 

2015 :

        

Cash payments

     (65      (1      (66

Restructuring charges

     199         423         622   

Other*

     (47      (420      (467
  

 

 

    

 

 

    

 

 

 

Reserve balances at December 31, 2015

     137         15         152   
  

 

 

    

 

 

    

 

 

 

2016 :

        

Cash payments

     (56      (17      (73

Restructuring charges

     11         37         48   

Other*

     (31      2         (29
  

 

 

    

 

 

    

 

 

 

Reserve balances at June 30, 2016

   $ 61       $ 37       $ 98   
  

 

 

    

 

 

    

 

 

 

 

* Other includes reversals of previously recorded restructuring charges and the effects of foreign currency translation. In the 2016 six-month period, Other for other exit costs also included a reclassification of $7 in asset retirement obligations, as this liability was included in Alcoa Corporation’s separate reserve for asset retirement obligations. In 2015, Other for layoff costs also included a reclassification of $35 in pension and other postretirement benefits costs, as these obligations were included in Alcoa Corporation’s separate liability for pension and other postretirement benefits obligations. Additionally in 2015, Other for other exit costs also included a reclassification of the following restructuring charges: $76 in asset retirement and $86 in environmental obligations, as these liabilities were included in Alcoa Corporation’s separate reserves for asset retirement obligations and environmental remediation.

The remaining reserves are expected to be paid in cash during the remainder of 2016, with the exception of approximately $20 to $25, which is expected to be paid over the next several years for penalties under certain contracts as a result of the curtailment of a U.S. smelter and ongoing site remediation work.

E. Acquisitions and Divestitures

In July 2016, Alcoa Corporation’s wholly-owned subsidiary, Alcoa Power Generating Inc., reached an agreement to sell its 215-megawatt Yadkin Hydroelectric Project (Yadkin) to ISQ Hydro Aggregator LLC. Yadkin encompasses four hydroelectric power developments (reservoirs, dams and powerhouses), known as High Rock, Tuckertown, Narrows and Falls, situated along a 38-mile stretch of the Yadkin River through the central part of North Carolina. This transaction is expected to close in the second half of 2016, subject to customary federal and state regulatory approvals. The power generated by Yadkin is primarily sold into the open market. Yadkin generated sales of approximately $20 in 2015, and had approximately 35 employees as of June 30, 2016. The carrying value of the net assets to be sold was $128 and $127 as of June 30, 2016 and December 31, 2015, respectively, which consist mostly of properties, plants, and equipment.

F. Inventories

 

     June 30,
2016
     December 31,
2015
 

Finished goods

   $ 155       $ 139   

Work-in-process

     176         171   

Bauxite and alumina

     416         445   

Purchased raw materials

     291         295   

Operating supplies

     128         122   
  

 

 

    

 

 

 
   $ 1,166       $ 1,172   

 

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At June 30, 2016 and December 31, 2015, the total amount of inventories valued on a LIFO basis was $305 and $361, respectively. If valued on an average-cost basis, total inventories would have been $145 and $172 higher at June 30, 2016 and December 31, 2015, respectively.

G. Contingencies and Commitments

Contingencies

The matters discussed within this section are those of ParentCo that are associated directly or indirectly with Alcoa Corporation’s operations. For those matters where the outcome remains uncertain, the ultimate allocation of any potential future costs between Alcoa Corporation and Arconic will be addressed in the Separation Agreement.

Litigation.

On June 5, 2015, Alcoa World Alumina LLC (“AWA”) and St. Croix Alumina, L.L.C. (“SCA”) filed a complaint in Delaware Chancery Court for a declaratory judgment and injunctive relief to resolve a dispute between ParentCo and Glencore Ltd. (“Glencore”) with respect to claimed obligations under a 1995 asset purchase agreement between ParentCo and Glencore. The dispute arose from Glencore’s demand that ParentCo indemnify it for liabilities it may have to pay to Lockheed Martin (“Lockheed”) related to the St. Croix alumina refinery. Lockheed had earlier filed suit against Glencore in federal court in New York seeking indemnity for liabilities it had incurred and would incur to the U.S. Virgin Islands to remediate certain properties at the refinery property and claimed that Glencore was required by an earlier, 1989 purchase agreement to indemnify it. Glencore had demanded that ParentCo indemnify and defend it in the Lockheed case and threatened to claim against ParentCo in the New York action despite exclusive jurisdiction for resolution of disputes under the 1995 purchase agreement being in Delaware. After Glencore conceded that it was not seeking to add ParentCo to the New York action, AWA and SCA dismissed their complaint in the Chancery Court case and on August 6, 2015 filed a complaint for declaratory judgment in Delaware Superior Court. AWA and SCA filed a motion for judgment on the pleadings on September 16, 2015. Glencore answered AWA’s and SCA’s complaint and asserted counterclaims on August 27, 2015, and on October 2, 2015 filed its own motion for judgment on the pleadings. Argument on the parties’ motions was held by the court on December 7, 2015, and by order dated February 8, 2016, the court granted ParentCo’s motion and denied Glencore’s motion, resulting in ParentCo not being liable to indemnify Glencore for the Lockheed action. The decision also leaves for pretrial discovery and possible summary judgment or trial Glencore’s claims for costs and fees it incurred in defending and settling an earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On February 17, 2016, Glencore filed notice of its application for interlocutory appeal of the February 8, 2016 ruling. AWA and SCA filed an opposition to that application on February 29, 2016. On March 10, 2016, the court denied Glencore’s motion for interlocutory appeal and on the same day entered judgment on claims other than Glencore’s claims for costs and fees it incurred in defending and settling the earlier Superfund action brought against Glencore by the Government of the Virgin Islands. On March 29, 2016, Glencore filed a withdrawal of its notice of interlocutory appeal, and on April 6, 2016, Glencore filed an appeal of the court’s March 10, 2016 judgement to the Delaware Supreme Court. Glencore filed its opening brief on its appeal on May 23, 2016. ParentCo’s filed its reply brief on June 22, 2016, and all further briefing was concluded by July 7, 2016. The court has not yet set a date for argument. At this time, the Company is unable to reasonably predict the ultimate outcome for this matter.

Before 2002, ParentCo purchased power in Italy in the regulated energy market and received a drawback of a portion of the price of power under a special tariff in an amount calculated in accordance with a published resolution of the Italian Energy Authority, Energy Authority Resolution n. 204/1999 (“204/1999”). In 2001, the Energy Authority published another resolution, which clarified that the drawback would be calculated in the same manner, and in the same amount, in either the regulated or unregulated market. At the beginning of 2002, ParentCo left the regulated energy market to purchase energy in the unregulated market. Subsequently, in 2004, the Energy Authority introduced regulation no. 148/2004 which set forth a different method for calculating the special tariff that would result in a different drawback for the regulated and unregulated markets. ParentCo challenged the new regulation in the Administrative Court of Milan and received a favorable judgment in 2006.

 

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Following this ruling, ParentCo continued to receive the power price drawback in accordance with the original calculation method, through 2009, when the European Commission declared all such special tariffs to be impermissible “state aid.” In 2010, the Energy Authority appealed the 2006 ruling to the Consiglio di Stato (final court of appeal). On December 2, 2011, the Consiglio di Stato ruled in favor of the Energy Authority and against ParentCo, thus presenting the opportunity for the energy regulators to seek reimbursement from ParentCo of an amount equal to the difference between the actual drawback amounts received over the relevant time period, and the drawback as it would have been calculated in accordance with regulation 148/2004. On February 23, 2012, ParentCo filed its appeal of the decision of the Consiglio di Stato (this appeal was subsequently withdrawn in March 2013). On March 26, 2012, ParentCo received a letter from the agency (Cassa Conguaglio per il Settore Eletrico (CCSE)) responsible for making and collecting payments on behalf of the Energy Authority demanding payment in the amount of approximately $110 (€85), including interest. By letter dated April 5, 2012, ParentCo informed CCSE that it disputes the payment demand of CCSE since (i) CCSE was not authorized by the Consiglio di Stato decisions to seek payment of any amount, (ii) the decision of the Consiglio di Stato has been appealed (see above), and (iii) in any event, no interest should be payable. On April 29, 2012, Law No. 44 of 2012 (“44/2012”) came into effect, changing the method to calculate the drawback. On February 21, 2013, ParentCo received a revised request letter from CCSE demanding ParentCo’s subsidiary, Alcoa Trasformazioni S.r.l., make a payment in the amount of $97 (€76), including interest, which reflects a revised calculation methodology by CCSE and represents the high end of the range of reasonably possible loss associated with this matter of $0 to $97 (€76). ParentCo rejected that demand and formally challenged it through an appeal before the Administrative Court on April 5, 2013. The Administrative Court scheduled a hearing for December 19, 2013, which was subsequently postponed until April 17, 2014, and further postponed until June 19, 2014. On that date, the Administrative Court listened to ParentCo’s oral argument, and on September 2, 2014, rendered its decision. The Administrative Court declared the payment request of CCSE and the Energy Authority to ParentCo to be unsubstantiated based on the 148/2004 resolution with respect to the January 19, 2007 through November 19, 2009 timeframe. On December 18, 2014, the CCSE and the Energy Authority appealed the Administrative Court’s September 2, 2014 decision; however, a date for the hearing has not been scheduled. As a result of the conclusion of the European Commission Matter on January 26, 2016 (see Note N in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015), management modified its outlook with respect to a portion of the pending legal proceedings related to this matter. As such, a charge of $37 (€34) was recorded in Restructuring and other charges for the year ended December 31, 2015 to establish a partial reserve for this matter. At this time, the Company is unable to reasonably predict the ultimate outcome for this matter.

Environmental Matters. ParentCo participates in environmental assessments and cleanups at more than 100 locations. These include owned or operating facilities and adjoining properties, previously owned or operating facilities and adjoining properties, and waste sites, including Superfund (Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)) sites.

A liability is recorded for environmental remediation when a cleanup program becomes probable and the costs can be reasonably estimated. As assessments and cleanups proceed, the liability is adjusted based on progress made in determining the extent of remedial actions and related costs. The liability can change substantially due to factors such as the nature and extent of contamination, changes in remedial requirements, and technological changes, among others.

Alcoa Corporation’s remediation reserve balance was $233 and $235 at June 30, 2016 and December 31, 2015 (of which $27 and $28 was classified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated for current and certain former Alcoa Corporation operating locations.

In the 2016 six-month period, the remediation reserve was increased by $6. The change was due to a net charge associated with a number of sites and was recorded in Cost of goods sold on the accompanying Statement of Combined Operations.

 

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Payments related to remediation expenses applied against the reserve were $17 in the 2016 six-month period. This amount includes expenditures currently mandated, as well as those not required by any regulatory authority or third party. In the 2016 six-month period, the change in the reserve also reflects an increase of $9 due to the effects of foreign currency translation.

Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be approximately 2% of Cost of goods sold.

The following discussion provides details regarding the current status of certain significant reserves related to current or former Alcoa Corporation sites.

Fusina and Portovesme, Italy— In 1996, ParentCo acquired the Fusina smelter and rolling operations and the Portovesme smelter, both of which are owned by ParentCo’s subsidiary Alcoa Trasformazioni S.r.l. (“Trasformazioni”), from Alumix, an entity owned by the Italian Government. At the time of the acquisition, Alumix indemnified ParentCo for pre-existing environmental contamination at the sites. In 2004, the Italian Ministry of Environment and Protection of Land and Sea (MOE) issued orders to Trasformazioni and Alumix for the development of a clean-up plan related to soil contamination in excess of allowable limits under legislative decree and to institute emergency actions and pay natural resource damages. Trasformazioni appealed the orders and filed suit against Alumix, among others, seeking indemnification for these liabilities under the provisions of the acquisition agreement. In 2009, Ligestra S.r.l. (“Ligestra”), Alumix’s successor, and Trasformazioni agreed to a stay of the court proceedings while investigations were conducted and negotiations advanced towards a possible settlement.

In December 2009, Trasformazioni and Ligestra reached an initial agreement for settlement of the liabilities related to Fusina while negotiations continued related to Portovesme (see below). The agreement outlined an allocation of payments to the MOE for emergency action and natural resource damages and the scope and costs for a proposed soil remediation project, which was formally presented to the MOE in mid-2010. The agreement was contingent upon final acceptance of the remediation project by the MOE. As a result of entering into this agreement, ParentCo increased the reserve by $12 in 2009 for Fusina. Based on comments received from the MOE and local and regional environmental authorities, Trasformazioni submitted a revised remediation plan in the first half of 2012; however, such revisions did not require any change to the existing reserve. In October 2013, the MOE approved the project submitted by ParentCo, resulting in no adjustment to the reserve.

In January 2014, in anticipation of ParentCo reaching a final administrative agreement with the MOE, ParentCo and Ligestra entered into a final agreement related to Fusina for allocation of payments to the MOE for emergency action and natural resource damages and the costs for the approved soil remediation project. The agreement resulted in Ligestra assuming 50% to 80% of all payments and remediation costs. On February 27, 2014, ParentCo and the MOE reached a final administrative agreement for conduct of work. The agreement includes both a soil and groundwater remediation project estimated to cost $33 (€24) and requires payments of $25 (€18) to the MOE for emergency action and natural resource damages. The remediation projects are slated to begin as soon as ParentCo receives final approval from the Ministry of Infrastructure. Based on the final agreement with Ligestra, ParentCo’s share of all costs and payments is $17 (€12), of which $9 (€6) related to the damages will be paid annually over a 10-year period, which began in April 2014, and was previously fully reserved.

Separately, in 2009, due to additional information derived from the site investigations conducted at Portovesme, ParentCo increased the reserve by $3. In November 2011, Trasformazioni and Ligestra reached an agreement for settlement of the liabilities related to Portovesme, similar to the one for Fusina. A proposed soil remediation project for Portovesme was formally presented to the MOE in June 2012. Neither the agreement with Ligestra nor the proposal to the MOE resulted in a change to the reserve for Portovesme. In November 2013, the MOE rejected the proposed soil remediation project and requested a revised project be submitted. In May 2014, Trasformazioni and Ligestra submitted a revised soil remediation project that addressed certain stakeholders’ concerns. ParentCo increased the reserve by $3 in 2014 to reflect the estimated higher costs associated with the revised soil remediation project, as well as current operating and maintenance costs of the Portovesme site.

 

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In October 2014, the MOE required a further revised project be submitted to reflect the removal of a larger volume of contaminated soil than what had been proposed, as well as design changes for the cap related to the remaining contaminated soil left in place and the expansion of an emergency containment groundwater pump and treatment system that was previously installed. Trasformazioni and Ligestra submitted the further revised soil remediation project in February 2015. As a result, ParentCo increased the reserve by $7 in March 2015 to reflect the increase in the estimated costs of the project. In October 2015, ParentCo received a final ministerial decree approving the February 2015 revised soil remediation project. Work on the soil remediation project commenced in the second quarter of 2016 and is expected to be completed in 2019. ParentCo and Ligestra are now working on a final groundwater remediation project, which will be submitted to the MOE for review during the second half of 2016. The ultimate outcome of this matter may result in a change to the existing reserve for Portovesme.

Baie Comeau, Quebec, Canada— In August 2012, ParentCo presented an analysis of remediation alternatives to the Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks (MDDEP), in response to a previous request, related to known PCBs and polycyclic aromatic hydrocarbons (PAHs) contained in sediments of the Anse du Moulin bay. As such, ParentCo increased the reserve for Baie Comeau by $25 in 2012 to reflect the estimated cost of ParentCo’s recommended alternative, consisting of both dredging and capping of the contaminated sediments. In July 2013, ParentCo submitted the Environmental Impact Assessment for the project to the MDDEP. The MDDEP notified ParentCo that the project as it was submitted was approved and a final ministerial decree was issued in July 2015. As a result, no further adjustment to the reserve was required in 2015. The decree provides final approval for the project and allows ParentCo to start work on the final project design, which is expected to be completed in the second half of 2016 with construction on the project expected to begin in 2017. Completion of the final project design and bidding of the project may result in additional liability in a future period.

Mosjøen, Norway— In September 2012, ParentCo presented an analysis of remediation alternatives to the Norwegian Environmental Agency (NEA) (formerly the Norwegian Climate and Pollution Agency, or “Klif”), in response to a previous request, related to known PAHs in the sediments located in the harbor and extending out into the fjord. As such, ParentCo increased the reserve for Mosjøen by $20 in 2012 to reflect the estimated cost of the baseline alternative for dredging of the contaminated sediments. A proposed project reflecting this alternative was formally presented to the NEA in June 2014, and was resubmitted in late 2014 to reflect changes by the NEA. The revised proposal did not result in a change to the reserve for Mosjøen.

In April 2015, the NEA notified ParentCo that the revised project was approved and required submission of the final project design before issuing a final order. ParentCo completed and submitted the final project design, which identified a need to stabilize the related wharf structure to allow for the sediment dredging in the harbor. As a result, ParentCo increased the reserve for Mosjøen by $11 in June 2015 to reflect the estimated cost of the wharf stabilization. Also in June 2015, the NEA issued a final order approving the project as well as the final project design. In September 2015, ParentCo increased the reserve by $1 to reflect the potential need (based on prior experience with similar projects) to perform additional dredging if the results of sampling, which is required by the order, don’t achieve the required cleanup levels. Project construction commenced in the first quarter of 2016 and is expected to be completed by the end of 2017.

Tax. In September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment was received as a result of Spain’s tax authorities disallowing certain interest deductions claimed by a Spanish consolidated tax group owned by ParentCo. An appeal of this assessment in Spain’s Central Tax Administrative Court by ParentCo was denied in October 2013. In December 2013, ParentCo filed an appeal of the assessment in Spain’s National Court.

Additionally, following a corporate income tax audit of the same Spanish tax group for the 2006 through 2009 tax years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In August 2013, ParentCo filed an appeal of this second assessment in Spain’s Central Tax Administrative Court, which was denied in January 2015. ParentCo filed an appeal of this second assessment in Spain’s National Court in March 2015.

 

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At June 30, 2016, the combined assessments total $269 (€243), including interest. ParentCo believes it has meritorious arguments to support its tax position and intends to vigorously litigate the assessments through Spain’s court system. However, in the event ParentCo is unsuccessful, a portion of the assessments may be offset with existing net operating losses available to the Spanish consolidated tax group. Additionally, it is possible that ParentCo may receive similar assessments for tax years subsequent to 2009. At this time, ParentCo is unable to reasonably predict an outcome for this matter.

In March 2013, Alcoa World Alumina Brasil (AWAB), a majority-owned subsidiary that is part of AWAC, was notified by the Brazilian Federal Revenue Office (RFB) that approximately $110 (R$220) of value added tax credits previously claimed are being disallowed and a penalty of 50% assessed. Of this amount, AWAB received $41 (R$82) in cash in May 2012. The value added tax credits were claimed by AWAB for both fixed assets and export sales related to the Juruti bauxite mine and São Luís refinery expansion. The RFB has disallowed credits they allege belong to the consortium in which AWAB owns an interest and should not have been claimed by AWAB. Credits have also been disallowed as a result of challenges to apportionment methods used, questions about the use of the credits, and an alleged lack of documented proof. AWAB presented defense of its claim to the RFB on April 8, 2013. If AWAB is successful in this administrative process, the RFB would have no further recourse. If unsuccessful in this process, AWAB has the option to litigate at a judicial level. Separately from AWAB’s administrative appeal, in June 2015, new tax law was enacted repealing the provisions in the tax code that were the basis for the RFB assessing a 50% penalty in this matter. As such, the estimated range of reasonably possible loss is $0 to $32 (R$103), whereby the maximum end of the range represents the portion of the disallowed credits applicable to the export sales and excludes the 50% penalty. Additionally, the estimated range of disallowed credits related to AWAB’s fixed assets is $0 to $36 (R$117), which would increase the net carrying value of AWAB’s fixed assets if ultimately disallowed. It is management’s opinion that the allegations have no basis; however, at this time, management is unable to reasonably predict an outcome for this matter.

Between 2000 and 2002, Alcoa Alumínio (Alumínio), a Brazil subsidiary of ParentCo that includes both Alcoa Corporation and Arconic operations, sold approximately 2,000 metric tons of metal per month from its Poços de Caldas facility, located in the State of Minas Gerais (the “State”), to Alfio, a customer also located in the State. Sales in the State were exempted from value-added tax (VAT) requirements. Alfio subsequently sold metal to customers outside of the State, but did not pay the required VAT on those transactions. In July 2002, Alumínio received an assessment from State auditors on the theory that Alumínio should be jointly and severally liable with Alfio for the unpaid VAT. In June 2003, the administrative tribunal found Alumínio liable, and Alumínio filed a judicial case in the State in February 2004 contesting the finding. In May 2005, the Court of First Instance found Alumínio solely liable, and a panel of a State appeals court confirmed this finding in April 2006. Alumínio filed a special appeal to the Superior Tribunal of Justice (STJ) in Brasilia (the federal capital of Brazil) later in 2006. In 2011, the STJ (through one of its judges) reversed the judgment of the lower courts, finding that Alumínio should neither be solely nor jointly and severally liable with Alfio for the VAT, which ruling was then appealed by the State. In August 2012, the STJ agreed to have the case reheard before a five-judge panel. A decision from this panel is pending, but additional appeals are likely. At June 30, 2016, the assessment totaled $43 (R$139), including penalties and interest. While ParentCo believes it has meritorious defenses, ParentCo is unable to reasonably predict an outcome.

Other. Sherwin Alumina Bankruptcy . In connection with the sale in 2001 of the Reynolds Metals Company (“Reynolds,” which is a subsidiary of ParentCo) alumina refinery in Gregory, Texas, Reynolds assigned an Energy Services Agreement (“ESA”) with Gregory Power Partners (“Gregory Power”) for purchase of steam and electricity by the refinery. On January 11, 2016, Sherwin Alumina Company, LLC (“Sherwin”), the current owner of the refinery, and an affiliate entity, filed bankruptcy petitions in Corpus Christi, Texas, for reorganization under Chapter 11 of the Bankruptcy Code. On January 26, 2016, Gregory Power delivered notice to Reynolds that Sherwin’s bankruptcy filing constitutes a breach of the ESA; on January 29, 2016, Reynolds responded that the filing does not constitute a breach. Sherwin informed the bankruptcy court that it intends to cease operations because it is not able to continue its bauxite supply agreement and thereafter Gregory Power filed a complaint in the bankruptcy case against Reynolds alleging breach of the ESA. The outcome of this matter is neither estimable nor probable.

 

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In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be instituted or asserted against ParentCo or Alcoa Corporation, including those pertaining to environmental, product liability, safety and health, and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity or results of operations in a particular period could be materially affected by one or more of these other matters. However, based on facts currently available, management believes that the disposition of these other matters that are pending or asserted will not have a material adverse effect, individually or in the aggregate, on the financial position of the Company.

Commitments

Investments. ParentCo has an investment in a joint venture for the development, construction, ownership, and operation of an integrated aluminum complex (bauxite mine, alumina refinery, aluminum smelter, and rolling mill) in Saudi Arabia. The joint venture is owned 74.9% by the Saudi Arabian Mining Company (known as “Ma’aden”) and 25.1% by ParentCo and consists of three separate companies as follows: one each for the mine and refinery, the smelter, and the rolling mill. ParentCo accounts for its investment in the joint venture under the equity method. Capital investment in the project is expected to total approximately $10,800 (SAR 40.5 billion) and has been funded through a combination of equity contributions by the joint venture partners and project financing by the joint venture, which has been guaranteed by both partners (see below). Both the equity contributions and the guarantees of the project financing are based on the joint venture’s partners’ ownership interests. Originally, it was estimated that ParentCo’s total equity investment in the joint venture would be approximately $1,100, of which ParentCo has contributed $982, including $1 in the 2016 six-month period. Based on changes to both the project’s capital investment and equity and debt structure from the initial plans, the estimated $1,100 equity contribution may be reduced. As of June 30, 2016 and December 31, 2015, the carrying value of the investment in this project was $883 and $928, respectively, which is reflected in the accompanying Combined Balance Sheet of Alcoa Corporation.

The smelting and rolling mill companies have project financing totaling $4,227 (reflects principal repayments made through June 30, 2016), of which $1,061 represents ParentCo’s share (the equivalent of ParentCo’s 25.1% interest in the smelting and rolling mill companies). In conjunction with the financings, ParentCo issued guarantees on behalf of the smelting and rolling mill companies to the lenders in the event that such companies default on their debt service requirements through 2017 and 2020 for the smelting company and 2018 and 2021 for the rolling mill company (Ma’aden issued similar guarantees for its 74.9% interest). ParentCo’s guarantees for the smelting and rolling mill companies cover total debt service requirements of $142 in principal and up to a maximum of approximately $30 in interest per year (based on projected interest rates). At June 30, 2016 and December 31, 2015, the combined fair value of the guarantees was $4 and $7, respectively, which was included in Other noncurrent liabilities and deferred credits on the accompanying Combined Balance Sheet.

The mining and refining company has project financing totaling $2,232, of which $560 represents AWAC’s 25.1% interest in the mining and refining company. In conjunction with the financings, ParentCo, on behalf of AWAC, issued guarantees to the lenders in the event that the mining and refining company defaults on its debt service requirements through 2019 and 2024 (Ma’aden issued similar guarantees for its 74.9% interest). ParentCo’s guarantees for the mining and refining company cover total debt service requirements of $120 in principal and up to a maximum of approximately $30 in interest per year (based on projected interest rates). At June 30, 2016 and December 31, 2015, the combined fair value of the guarantees was $3 in both periods, which was included in Other noncurrent liabilities and deferred credits on the accompanying Combined Balance Sheet. In the event ParentCo would be required to make payments under the guarantees, 40% of such amount would be contributed to ParentCo by Alumina Limited, consistent with its ownership interest in AWAC.

In 2004, AofA acquired a 20% interest in a consortium, which subsequently purchased the Dampier to Bunbury Natural Gas Pipeline (DBNGP) in Western Australia, in exchange for an initial cash investment of $17 (A$24). The investment in the DBNGP, which was classified as an equity investment, was made in order to

 

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secure a competitively priced long-term supply of natural gas to AofA’s refineries in Western Australia. AofA made additional contributions of $141 (A$176) for its share of the pipeline capacity expansion and other operational purposes of the consortium through September 2011. In late 2011, the consortium initiated a three-year equity call plan to improve its capitalization structure. This plan required AofA to contribute $39 (A$40), all of which was made through December 2014. Following the completion of the three-year equity call plan in December 2014, the consortium initiated a new equity call plan to further improve its capitalization structure. This plan required AofA to contribute $30 (A$36) through mid-2016, of which $20 (A$27) was made through March 31, 2016, including $3 (A$5) in the 2016 first quarter.

In April 2016, AofA sold its interest in the consortium (see Note J), effectively terminating its remaining obligation to make contributions under the current equity call plan. As part of the sale transaction, AofA will maintain its current access to approximately 30% of the DBNGP transmission capacity for gas supply to its three alumina refineries in Western Australia under an existing agreement to purchase gas transmission services from the DBNGP. At June 30, 2016, AofA has an asset of $275 (A$372) representing prepayments made under the agreement for future gas transmission services.

On April 8, 2015, AofA secured a new 12-year gas supply agreement to power its three alumina refineries in Western Australia beginning in July 2020. This agreement was conditional on the completion of a third-party acquisition of the related energy assets from the then-current owner, which occurred in June 2015. The terms of AofA’s gas supply agreement required a prepayment of $500 to be made in two installments. The first installment of $300 was made at the time of completion of the third-party acquisition in June 2015 and the second installment of $200 was made in April 2016. Both of these amounts were included in (Increase) in noncurrent assets on the accompanying Statement of Combined Cash Flows in the respective periods. At June 30, 2016 and December 31, 2015, Alcoa Corporation has an asset of $484 (A$654) and $288 (A$395), respectively, representing the respective prepayments made under this agreement, which were included in Other noncurrent assets on the accompanying Combined Balance Sheet.

H. Other Expenses (Income), Net

 

            Six months ended
June 30,
 
     Note          2016              2015      

Equity loss

      $ 41       $ 45   

Foreign currency losses (gains), net

        13         (27

Net gain from asset sales

        (32      (31

Net loss on mark-to-market derivative contracts

     L         9         2   

Other, net

        (15      (2
     

 

 

    

 

 

 
      $ 16       $ (13

In the 2016 six-month period, Net gain from assets sales included a $27 gain related to the sale of an equity interest in a natural gas pipeline in Australia (see Note J). In the 2015 six-month period, Net gain from assets sales included a $29 gain related to the sale of land around the Lake Charles, LA anode facility.

 

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I. Segment Information

The operating results of Alcoa Corporation’s six reportable segments were as follows (differences between segment totals and combined totals are in Corporate):

 

     Bauxite      Alumina     Aluminum     Cast
Products
    Energy      Rolled
Products
    Total  

Six months ended June 30, 2016

                

Sales:

                

Third-party sales

   $ 131       $ 1,097      $ 15      $ 2,072      $ 131       $ 446      $ 3,892   

Related party sales

     —           —          —          498        1         —          499   

Intersegment sales

     357         613        1,889        106        86         —          3,051   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total sales

   $ 488       $ 1,710      $ 1,904      $ 2,676      $ 218       $ 446      $ 7,442   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Profit and loss:

                

Equity (loss) income

     —           (21     7        (3     —           (21     (38

Depreciation, depletion, and amortization

     36         95        150        21        28         12        342   

Income taxes

     39         —          (34     31        13         (2     47   

After-tax operating income (ATOI)

     101         5        (26     89        36         (16     189   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Six months ended June 30, 2015

                

Sales:

                

Third-party sales

   $ 29       $ 1,758      $ 1      $ 2,811      $ 238       $ 508      $ 5,345   

Related party sales

     —           —          1        633        6         7        647   

Intersegment sales

     570         934      $ 2,908        23        154         —          4,589   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total sales

   $ 599       $ 2,692      $ 2,910      $ 3,467      $ 398       $ 515      $ 10,581   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Profit and loss:

                

Equity (loss) income

     —           (18     23        (31     —           (16     (42

Depreciation, depletion, and amortization

     50         107        157        21        31         12        378   

Income taxes

     41         135        35        25        41         14        291   

ATOI

     106         324        185        43        79         11        748   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

The following table reconciles total segment ATOI to combined net (loss) income attributable to Alcoa Corporation:

 

     Six months ended
June 30,
 
     2016      2015  

Total segment ATOI

   $ 189       $ 748   

Unallocated amounts:

     

Impact of LIFO

     27         43   

Metal price lag

     4         (12

Interest expense

     (130      (139

Noncontrolling interest (net of tax)

     (38      (127

Corporate expense

     (96      (102

Restructuring and other charges

     (92      (243

Income taxes

     (39      58   

Other

     (90      (157
  

 

 

    

 

 

 

Combined net (loss) income attributable to Alcoa Corporation

   $ (265    $ 69   
  

 

 

    

 

 

 

 

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Items required to reconcile total segment ATOI to combined net (loss) income attributable to Alcoa Corporation include: the impact of LIFO inventory accounting; metal price lag; interest expense; noncontrolling interest; corporate expense (primarily comprising general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities, along with depreciation and amortization on corporate-owned assets); restructuring and other charges; intersegment profit eliminations; the impact of any discrete tax items, deferred tax valuation allowance adjustments, and other differences between tax rates applicable to the segments and the combined effective tax rate; and other non-operating items such as foreign currency transaction gains/losses and interest income.

J. Equity Investments

A summary of financial information for Alcoa Corporation’s equity investments is as follows (amounts represent 100% of investee financial information):

 

For the six months ended June 30,

   2016      2015  

Sales

   $ 1,796       $ 1,857   

Cost of goods sold

     1,360         1,557   

Net income (loss)

     29         (86

In April 2016, Alcoa Corporation’s majority-owned subsidiary, Alcoa of Australia Limited (AofA), sold its 20% interest in a consortium, DBP, the owner and operator of the Dampier to Bunbury Natural Gas Pipeline (DBNGP) in Western Australia, to the only other member of the consortium, DUET Group. AofA received $145 (A$192) in cash, which was included in Sales of investments on the accompanying Statement of Combined Cash Flows, and recorded a gain of $27 (A$35) ($11 (A$15) after-tax and noncontrolling interest) in Other income, net on the accompanying Statement of Combined Operations. Prior to this transaction, AofA’s 20% interest was previously classified as an equity investment on Alcoa Corporation’s Combined Balance Sheet. As part of the transaction, AofA will maintain its current access to approximately 30% of the DBNGP transmission capacity for gas supply to its three alumina refineries in Western Australia. AofA is part of Alcoa World Alumina and Chemicals (AWAC), an unincorporated joint venture that consists of a group of companies, which are owned 60% by Alcoa Corporation and 40% by Alumina Limited of Australia.

K. Pension and Other Postretirement Benefits

The components of net periodic benefit cost were as follows:

 

     Pension benefits      Other postretirement benefits  

Six months ended June 30,

       2016              2015              2016              2015      

Service cost

   $ 24       $ 28       $ —         $ —     

Interest cost

     37         46         2         2   

Expected return on plan assets

     (60      (63      —           —     

Amortization of prior service cost (benefit)

     3         4         —           (4

Recognized actuarial loss (gain)

     19         22         —           (2

Special termination benefits*

     1         11         —           1   

Settlements*

     —           1         —           —     

Curtailments

     —           —           —           (1
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 24       $ 49       $ 2       $ (4

 

* These amounts were recorded in Restructuring and other charges on the accompanying Statement of Combined Operations (see Note D).

Effective in the first quarter of 2016, management elected to change the manner in which the interest cost component of net periodic benefit cost is calculated for Alcoa Corporation’s pension and other postretirement benefit plans. In the 2016 six-month period, this change resulted in a decrease in net periodic benefit cost of $6.

 

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L. Derivatives and Other Financial Instruments

Fair Value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

 

    Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted 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, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

    Level 3—Inputs that are both significant to the fair value measurement and unobservable.

Derivatives. Alcoa Corporation is exposed to certain risks relating to its ongoing business operations, including financial, market, political, and economic risks. The following discussion provides information regarding Alcoa Corporation’s exposure to the risks of changing commodity prices and foreign currency exchange rates.

Alcoa Corporation’s commodity and derivative activities are subject to the management, direction, and control of the Strategic Risk Management Committee (SRMC), which is composed of the chief executive officer, the chief financial officer, and other officers and employees that the chief executive officer selects. The SRMC meets on a periodic basis to review derivative positions and strategy and reports to ParentCo’s Board of Directors on the scope of its activities.

Alcoa Corporation has ten derivative instruments classified as Level 3 under the fair value hierarchy. These instruments are composed of eight embedded aluminum derivatives, an energy contract, and an embedded credit derivative, all of which relate to energy supply contracts associated with nine smelters and three refineries. Five of the embedded aluminum derivatives and the energy contract were designated as cash flow hedging instruments and three of the embedded aluminum derivatives and the embedded credit derivative were not designated as hedging instruments.

The following section describes the valuation methodologies used by Alcoa Corporation to measure its Level 3 derivative instruments at fair value. Derivative instruments classified as Level 3 in the fair value hierarchy represent those in which management has used at least one significant unobservable input in the valuation model. Alcoa Corporation uses a discounted cash flow model to fair value all Level 3 derivative instruments. Where appropriate, the description below includes the key inputs to those models and any significant assumptions. These valuation models are reviewed and tested at least on an annual basis.

Inputs in the valuation models for Level 3 derivative instruments are composed of the following: (i) quoted market prices (e.g., aluminum prices on the 10-year London Metal Exchange (LME) forward curve and energy prices), (ii) significant other observable inputs (e.g., information concerning time premiums and volatilities for certain option type embedded derivatives and regional premiums for aluminum contracts), and (iii) unobservable inputs (e.g., aluminum and energy prices beyond those quoted in the market). For periods beyond the term of quoted market prices for aluminum, Alcoa Corporation estimates the price of aluminum by extrapolating the 10-year LME forward curve. Additionally, for periods beyond the term of quoted market prices for energy,

 

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management has developed a forward curve based on independent consultant market research. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence (Level 2). In the absence of such evidence, management’s best estimate is used (Level 3). If a significant input that is unobservable in one period becomes observable in a subsequent period, the related asset or liability would be transferred to the appropriate classification (Level 1 or 2) in the period of such change (there were no such transfers in the periods presented).

Alcoa Corporation has two power contracts, each of which contain an embedded derivative that indexes the price of power to the LME price of aluminum. Additionally, Alcoa Corporation has three power contracts, each of which contain an embedded derivative that indexes the price of power to the LME price of aluminum plus the Midwest premium. The embedded derivatives in these five power contracts are primarily valued using observable market prices; however, due to the length of the contracts, the valuation models also require management to estimate the long-term price of aluminum based upon an extrapolation of the 10-year LME forward curve and/or 5-year Midwest premium curve. Significant increases or decreases in the actual LME price beyond 10 years and/or the Midwest premium beyond 5 years would result in a higher or lower fair value measurement. An increase in actual LME price and/or the Midwest premium over the inputs used in the valuation models will result in a higher cost of power and a corresponding decrease to the derivative asset or increase to the derivative liability. The embedded derivatives have been designated as cash flow hedges of forward sales of aluminum. Unrealized gains and losses were included in Other comprehensive (loss) income on the accompanying Combined Balance Sheet while realized gains and losses were included in Sales on the accompanying Statement of Combined Operations.

Also, Alcoa Corporation has a power contract (expires in September 2016—see below) separate from above that contains an LME-linked embedded derivative. The embedded derivative is valued using the probability and interrelationship of future LME prices, Australian dollar to U.S. dollar exchange rates, and the U.S. consumer price index. Significant increases or decreases in the LME price would result in a higher or lower fair value measurement. An increase in actual LME price over the inputs used in the valuation model will result in a higher cost of power and a corresponding decrease to the derivative asset. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses from the embedded derivative were included in Other income, net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods sold on the accompanying Statement of Combined Operations as electricity purchases were made under the contract. At the time this derivative asset was recognized, an equivalent amount was recognized as a deferred credit in Other noncurrent liabilities and deferred credits on the accompanying Combined Balance Sheet. This deferred credit is recognized in Other income, net on the accompanying Statement of Combined Operations as power is received over the life of the contract.

Additionally, Alcoa Corporation has a natural gas supply contract, which has an LME-linked ceiling. This embedded derivative is valued using probabilities of future LME aluminum prices and the price of Brent crude oil (priced on Platts), including the interrelationships between the two commodities subject to the ceiling. Any change in the interrelationship would result in a higher or lower fair value measurement. An LME ceiling was embedded into the contract price to protect against an increase in the price of oil without a corresponding increase in the price of LME. An increase in oil prices with no similar increase in the LME price would limit the increase of the price paid for natural gas. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses from the embedded derivative were included in Other expenses (income), net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods sold on the accompanying Statement of Combined Operations as gas purchases were made under the contract.

In the second quarter of 2016, Alcoa Corporation and the related counterparty elected to modify the pricing of an existing power contract for a smelter in the United States. This amendment contains an embedded derivative that now indexes the price of power to the LME price of aluminum plus the Midwest premium. The

 

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embedded derivative is valued using the interrelationship of future metal prices (LME base plus Midwest premium) and the amount of megawatt hours of energy needed to produce the forecasted metric tons of aluminum at the smelter. Significant increases or decreases in the metal price would result in a higher or lower fair value measurement. An increase in actual metal price over the inputs used in the valuation model will result in a higher cost of power and a corresponding increase to the derivative liability. Management elected not to qualify the embedded derivative for hedge accounting treatment. Unrealized gains and losses from the embedded derivative will be included in Other income, net on the accompanying Statement of Combined Operations while realized gains and losses will be included in Cost of goods sold on the accompanying Statement of Combined Operations as electricity purchases are made under the contract. At the time this derivative liability was recognized, an equivalent amount was recognized as a deferred charge in Other noncurrent assets on the accompanying Combined Balance Sheet. This deferred charge will be recognized in Other income, net on the accompanying Statement of Combined Operations as power is received over the life of the contract.

Furthermore, Alcoa Corporation has a power contract, which contains an embedded derivative that indexes the difference between the long-term debt ratings of Alcoa Corporation and the counterparty from any of the three major credit rating agencies. Management uses market prices, historical relationships, and forecast services to determine fair value. Significant increases or decreases in any of these inputs would result in a lower or higher fair value measurement. A wider credit spread between Alcoa Corporation and the counterparty would result in a higher cost of power and a corresponding increase in the derivative liability. This embedded derivative did not qualify for hedge accounting treatment. Unrealized gains and losses were included in Other expenses (income), net on the accompanying Statement of Combined Operations while realized gains and losses were included in Cost of goods sold on the accompanying Statement of Combined Operations as electricity purchases were made under the contract.

Finally, Alcoa Corporation has a derivative contract that will hedge the anticipated power requirements at one of its smelters once the existing power contract expires in September 2016 (see above). Beyond the term where market information is available, management has developed a forward curve, for valuation purposes, based on independent consultant market research. Significant increases or decreases in the power market may result in a higher or lower fair value measurement. Lower prices in the power market would cause a decrease in the derivative asset. The derivative contract has been designated as a cash flow hedge of future purchases of electricity. Unrealized gains and losses on this contract were recorded in Other comprehensive (loss) income on the accompanying Combined Balance Sheet. Once the designated hedge period begins in September 2016, realized gains and losses will be recorded in Cost of goods sold as electricity purchases are made under the power contract.

 

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The following table presents quantitative information related to the significant unobservable inputs described above for Level 3 derivative contracts:

 

     Fair value at
June 30, 2016*
    

Unobservable
input

  

Range

($ in full amounts)

Assets:

        

 

Embedded aluminum derivatives

  

 

$

 

718

 

  

  

 

Price of aluminum beyond forward curve

  

 

Aluminum: $2,093 per metric ton in 2026 to $2,245 per metric ton in 2029 (two contracts) and $2,540 per metric ton in 2036 (one contract)

Midwest premium: $0.0775 per pound in 2021 to $0.0775 per pound in 2029 (two contracts) and 2036 (one contract)

 

Embedded aluminum derivative

  

 

 

 

23

 

  

  

 

Interrelationship of future aluminum prices, foreign currency exchange rates, and the U.S. consumer price index (CPI)

  

 

Aluminum: $1,631 per metric ton in July 2016 to $1,637 per metric ton in September 2016

Foreign currency: A$1 = $0.74 in 2016 (July through September)

CPI: 1982 base year of 100 and 236 in 2016 (July through September)

 

Embedded aluminum derivative

  

 

 

 

4

 

  

  

 

Interrelationship of LME price to overall energy price

  

 

Aluminum: $1,614 per metric ton in 2016 to $1,755 per metric ton in 2019

 

Embedded aluminum derivative

  

 

 

 

—  

 

  

  

 

Interrelationship of future aluminum and oil prices

  

 

Aluminum: $1,631 per metric ton in 2016 to $1,710 per metric ton in 2018

Oil: $49 per barrel in 2016 to $55 per barrel in 2018

 

Energy contract

  

 

 

 

40

 

  

  

 

Price of electricity beyond forward curve

  

 

Electricity: $48 per megawatt hour in 2019 to $116 per megawatt hour in 2036

 

 

Liabilities:

        

 

Embedded aluminum derivative

  

 

 

 

196

 

  

  

 

Price of aluminum beyond forward curve

  

 

Aluminum: $2,093 per metric ton in 2026 to $2,137 per metric ton in 2027

 

Embedded aluminum derivative

  

 

 

 

32

 

  

  

 

Interrelationship of LME price to the amount of megawatt hours of energy needed to produce the forecasted metric tons of aluminum

  

 

Aluminum: $1,631 per metric ton in 2016 to $1,729 per metric ton in 2019

Midwest premium: $0.0725 per pound in 2016 to $0.0775 per pound in 2019

Electricity: rate of 2 million megawatt hours per year

 

Embedded credit derivative

  

 

 

 

33

 

  

  

 

Credit spread between Alcoa Corporation and counterparty

  

 

3.45% to 3.81% (3.63% median)

 

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* The fair value of the energy contract reflected as an asset in this table is lower by $9 compared to the respective amount reflected in the Level 3 tables presented below. This is due to the fact that this contract is in a liability position for the current portion but is in an asset position for the noncurrent portion, and is reflected as such on the accompanying Combined Balance Sheet. However, this derivative is reflected as a net asset in the above table for purposes of presenting the assumptions utilized to measure the fair value of the derivative instrument in its entirety.

The fair values of Level 3 derivative instruments recorded as assets and liabilities in the accompanying Combined Balance Sheet were as follows:

 

Asset Derivatives

   June 30,
2016
     December 31,
2015
 

Derivatives designated as hedging instruments:

     

Prepaid expenses and other current assets:

     

Embedded aluminum derivatives

   $ 51       $ 72   

Other noncurrent assets:

     

Embedded aluminum derivatives

     671         994   

Energy contract

     49         2   
  

 

 

    

 

 

 

Total derivatives designated as hedging instruments

   $ 771       $ 1,068   
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Prepaid expenses and other current assets:

     

Embedded aluminum derivative

   $ 23       $ 69   

Total derivatives not designated as hedging instruments

   $ 23       $ 69   
  

 

 

    

 

 

 

Total Asset Derivatives

   $ 794       $ 1,137   
  

 

 

    

 

 

 

Liability Derivatives

     

Derivatives designated as hedging instruments:

     

Other current liabilities:

     

Embedded aluminum derivative

   $ 14       $ 9   

Energy contract

     9         4   

Other noncurrent liabilities and deferred credits:

     

Embedded aluminum derivative

     182         160   
  

 

 

    

 

 

 

Total derivatives designated as hedging instruments

   $ 205       $ 173   
  

 

 

    

 

 

 

Derivatives not designated as hedging instruments:

     

Other current liabilities:

     

Embedded aluminum derivative

   $ 8       $ —     

Embedded credit derivative

     5         6   

Other noncurrent liabilities and deferred credits:

     

Embedded aluminum derivative

     24         —     

Embedded credit derivative

     28         29   
  

 

 

    

 

 

 

Total derivatives not designated as hedging instruments

   $ 65       $ 35   
  

 

 

    

 

 

 

Total Liability Derivatives

   $ 270       $ 208   
  

 

 

    

 

 

 

 

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The following table presents a reconciliation of activity for Level 3 derivative contracts:

 

     Assets      Liabilities  

Six months ended June 30, 2016

   Embedded
aluminum
derivatives
    Energy
contract
     Embedded
aluminum
derivative
    Embedded
credit
derivative
    Energy
contract
 

Opening balance—January 1, 2016

   $ 1,135      $ 2       $ 169      $ 35      $ 4   

Total gains or losses (realized and unrealized) included in:

           

Sales

     (10     —           (5     —          —     

Cost of goods sold

     (61     —           —          (3     —     

Other expenses (income), net

     (8     2         —          1        (1

Other comprehensive income (loss)

     (336     39         32        —          —     

Purchases, sales, issuances, and settlements*

     —          —           32        —          —     

Transfers into and/or out of Level 3*

     —          —           —          —          —     

Other

     25        6         —          —          6   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Closing balance—June 30, 2016

   $ 745      $ 49       $ 228      $ 33      $ 9   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Change in unrealized gains or losses included in earnings for derivative contracts held at June 30, 2016:

           

Sales

   $ —        $ —         $ —        $ —        $ —     

Cost of goods sold

     —          —           —          —          —     

Other expenses (income), net

     (8     2         —          1        (1

 

* In the 2016 six-month period, there was an issuance of a new embedded derivative contained in an amendment to an existing power contract. There were no purchases, sales or settlements of Level 3 derivative instruments. Additionally, there were no transfers of derivative instruments into or out of Level 3.

Derivatives Designated As Hedging Instruments—Cash Flow Hedges.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of unrealized gains or losses on the derivative is reported as a component of other comprehensive income (OCI). Realized gains or losses on the derivative are reclassified from OCI into earnings in the same period or periods during which the hedged transaction impacts earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized directly in earnings immediately.

Alcoa Corporation has five Level 3 embedded aluminum derivatives and one Level 3 energy contract that have been designated as cash flow hedges as follows.

Embedded aluminum derivatives.

Alcoa Corporation has entered into energy supply contracts that contain pricing provisions related to the LME aluminum price. The LME-linked pricing features are considered embedded derivatives. Five of these embedded derivatives have been designated as cash flow hedges of forward sales of aluminum. At June 30, 2016 and December 31, 2015, these embedded aluminum derivatives hedge forecasted aluminum sales of 3,261 kmt and 3,307 kmt, respectively.

Alcoa Corporation recognized a net unrealized loss of $368 in the 2016 six-month period and a net unrealized gain of $518 in the 2015 six-month period in Other comprehensive (loss) income related to these five derivative instruments. Additionally, Alcoa Corporation reclassified a realized gain of $5 in the 2016 six-month

 

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period and a realized loss of $24 in the 2015 six-month period from Accumulated other comprehensive loss to Sales. Assuming market rates remain constant with the rates at June 30, 2016, a realized gain of $25 is expected to be recognized in Sales over the next 12 months.

Also, Alcoa Corporation recognized a gain of less than $1 in the 2016 six-month period and a gain of $1 in the 2015 six-month period in Other income, net related to the amount excluded from the assessment of hedge effectiveness. There was no ineffectiveness related to these five derivative instruments in the 2015 six-month period.

Energy contract.

Alcoa Corporation has a derivative contract that will hedge the anticipated power requirements at one of its smelters once the existing power contract expires in September 2016. At June 30, 2016 and December 31, 2015, this energy contract hedges forecasted electricity purchases of 59,409,328 megawatt hours. Alcoa Corporation recognized an unrealized gain of $39 in the 2016 six-month period, and an unrealized loss of $11 in the 2015 six-month period in Other comprehensive (loss) income. Additionally, Alcoa Corporation recognized a gain of $3 in Other income, net related to hedge ineffectiveness in the 2016 six-month period. There was no ineffectiveness related to the energy contract in the 2015 six-month period.

Derivatives Not Designated As Hedging Instruments.

Alcoa Corporation has three Level 3 embedded aluminum derivatives and one Level 3 embedded credit derivative that do not qualify for hedge accounting treatment. As such, gains and losses related to the changes in fair value of these instruments are recorded directly in earnings. In the six-month period of 2016 and 2015, Alcoa Corporation recognized a loss of $9 and $2, respectively, in Other income, net, of which a loss of $8 and $1, respectively, related to the embedded aluminum derivatives and a loss of $1 and $1, respectively, related to the embedded credit derivative.

Material Limitations.

The disclosures with respect to commodity prices, interest rates, and foreign currency exchange risk do not take into account the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on the futures contracts may be offset. Actual results will be determined by a number of factors that are not under Alcoa Corporation’s control and could vary significantly from those factors disclosed.

Alcoa Corporation is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well as credit or performance risk with respect to its hedged customers’ commitments. Although nonperformance is possible, Alcoa Corporation does not anticipate nonperformance by any of these parties. Contracts are with creditworthy counterparties and are further supported by cash, treasury bills, or irrevocable letters of credit issued by carefully chosen banks. In addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and losses on these contracts.

Other Financial Instruments. The carrying values and fair values of Alcoa Corporation’s other financial instruments were as follows:

 

     June 30, 2016      December 31, 2015  
     Carrying
value
     Fair
value
     Carrying
value
     Fair
value
 

Cash and cash equivalents

   $ 332       $ 332       $ 557       $ 557   

Restricted cash

     2         2         —           —     

Long-term debt due within one year

     22         22         18         18   

Long-term debt, less amount due within one year

     233         233         207         207   

 

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Cash and cash equivalents, Restricted cash, and Short-term borrowings. The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents and Restricted cash were classified in Level 1.

Long-term debt due within one year and Long-term debt, less amount due within one year. The fair value was based on interest rates that are currently available to Alcoa Corporation for issuance of debt with similar terms and maturities. The fair value amounts for all Long-term debt were classified in Level 2 of the fair value hierarchy.

M. Related Party Transactions

Transactions between Alcoa Corporation and Arconic have been presented as related party transactions in these Combined Financial Statements of Alcoa Corporation. In the six-month period of 2016 and 2015, sales to Arconic from Alcoa Corporation were $499 and $647, respectively.

Cash pooling arrangement

Alcoa Corporation engages in cash pooling arrangements with related parties that are managed centrally by ParentCo.

Corporate allocations and Net parent investment

ParentCo’s operating model includes a combination of standalone and combined business functions between Alcoa Corporation and Arconic, varying by country and region. The Combined Financial Statements of Alcoa Corporation include allocations related to these costs applied on a fully allocated cost basis, in which shared business functions are allocated between Alcoa Corporation and Arconic. Such allocations are estimates, and also do not represent the costs of such services if performed on a standalone basis.

The Combined Financial Statements of Alcoa Corporation include general corporate expenses of ParentCo that were not historically charged to Alcoa Corporation for certain support functions that are provided on a centralized basis, such as expenses related to finance, audit, legal, information technology, human resources, communications, compliance, facilities, employee benefits and compensation, and research and development activities. For purposes of the Combined Financial Statements, a portion of these general corporate expenses has been allocated to Alcoa Corporation, and is included in the combined statement of operations within Cost of goods sold, Selling, general administrative and other expenses, and Research and development expenses. These expenses have been allocated to Alcoa Corporation on the basis of direct usage when identifiable, with the remainder allocated based on Alcoa Corporation’s segment revenue as a percentage of ParentCo’s total segment revenue for both Alcoa Corporation and Arconic. The total general corporate expenses allocated to Alcoa Corporation during the six-months ended June 30, 2016 and 2015, were $106 and $147, respectively.

All external debt not directly attributable to Alcoa Corporation has been excluded from the Combined Balance Sheet of Alcoa Corporation. Financing costs related to these debt obligations have been allocated to Alcoa Corporation based on the ratio of capital invested in Alcoa Corporation to the total capital invested by ParentCo in both Alcoa Corporation and Arconic, and are included in the Statement of Combined Operations within Interest expense. The total financing costs allocated to Alcoa Corporation during the six months ended June 30, 2016 and 2015, were $119 and $127, respectively.

Management believes the assumptions regarding the allocation of ParentCo’s general corporate expenses and financing costs are reasonable.

Nevertheless, the Combined Financial Statements of Alcoa Corporation may not reflect the actual expenses that would have been incurred and may not reflect Alcoa Corporation’s combined results of operations, financial

 

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position and cash flows had it been a standalone company during the periods presented. Actual costs that would have been incurred if Alcoa Corporation had been a standalone company would depend on multiple factors, including organizational structure, capital structure, and strategic decisions made in various areas, including information technology and infrastructure. Transactions between Alcoa Corporation and ParentCo, including sales to Arconic, have been included as related party transactions in these 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 transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as Net parent investment.

N. Income taxes —The effective tax rate for the six-month period of 2016 and 2015 was 61% (provision on a loss) and 54% (provision on income), respectively.

The rate for the 2016 six-month period differs (by (96) percentage points) from the U.S. federal statutory rate of 35% primarily due to U.S. losses and tax credits with no tax benefit realizable in Alcoa Corporation, a $5 discrete income tax charge for valuation allowances of certain deferred tax assets in Australia, somewhat offset by foreign income taxed in lower rate jurisdictions.

The rate for the 2015 six-month period differs from the U.S. federal statutory rate of 35% primarily due to an $85 discrete income tax charge ($51 after noncontrolling interest) for a valuation allowance on certain deferred tax assets in Suriname, which were mostly related to employee benefits and tax loss carryforwards.

O. Separation Costs —ParentCo is incurring costs to evaluate, plan, and execute the separation, and Alcoa Corporation is allocated a pro rata portion of those costs based on segment revenue. In the 2016 six-month period, ParentCo recognized $63 for costs related to the proposed separation transaction, of which $31 was allocated to Alcoa Corporation and was included in Selling, general administrative, and other expenses on the accompanying Statement of Combined Operations.

P. Subsequent Events —Management evaluated all activity of Alcoa Corporation through September 1, 2016 (the date on which the Combined Financial Statements were issued), and concluded that no subsequent events have occurred that would require recognition in the Combined Financial Statements or disclosure in the Notes to the Combined Financial Statements.

 

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