Item 1.01.
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Entry into a Material Definitive Agreement.
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On September 12, 2018 in connection with the previously announced
complete legal and structural separation (the
Spin-Off
) of Garrett Motion Inc. (
Garrett)
from Honeywell International Inc. (the
Company
), the Company
entered into certain agreements, including an Indemnification and Reimbursement Agreement, by and among Honeywell ASASCO Inc., Honeywell ASASCO 2 Inc., and the Company (the
Indemnification and Reimbursement Agreement
), to which
relevant Garrett subsidiaries will become parties on or before the completion of the Spin-Off.
Indemnification and Reimbursement
Agreement
Pursuant to the Indemnification and Reimbursement, a subsidiary of Garrett has an obligation to
make cash payments to Honeywell in amounts equal to 90% of Honeywells asbestos-related liability payments and accounts payable, primarily related to the Bendix business in the United States, as well as certain environmental-related liability
payments and accounts payable and
non-United
States asbestos-related liability payments and accounts payable, in each case related to legacy elements of Garretts turbo business, including the legal costs
of defending and resolving such liabilities, less 90% of Honeywells net insurance receipts and, as may be applicable, certain other recoveries associated with such liabilities. The amount payable by such subsidiary in respect of such
liabilities arising in any given year will be subject to a cap of an amount equal to the
Euro-to-U.S.
dollar exchange rate (to be determined by the Company as of a date
within two business days prior to the completion of the
Spin-Off)
(the
Distribution Date Currency Exchange Rate
) equivalent of $175 million (exclusive of any late payment fees up to 5%
per annum).
In the event of a global settlement of all or substantially all of the asbestos-related Bendix claims in the United States,
Garretts subsidiary will be obligated to pay 90% of the amount paid or payable by the Company in connection with such global settlement payment, less 90% of insurance receipts relating to such liabilities, and in such event, the subsidiary
will be required to pay an amount equal to the Distribution Date Currency Exchange Rate equivalent of $175 million per year until the amount payable by the subsidiary in respect of such global settlement payment is less than an amount equal to
the Distribution Date Currency Exchange Rate equivalent of $175 million. During that time, the annual payment by Garretts subsidiary to Honeywell of an amount equal to the Distribution Date Currency Exchange Rate equivalent of
$175 million will be first allocated towards asbestos-related liabilities arising outside of the scope of the global settlement and environmental-related liabilities and then towards the global settlement payment.
Payment amounts will be deferred to the extent that the payment thereof would cause a specified event of default under certain indebtedness,
including Garretts principal credit agreement, or cause it to not be compliant with certain financial covenants in certain indebtedness, including its principal credit agreement on a pro forma basis, including the maximum total leverage ratio
(ratio of debt to EBITDA, which excludes any amounts owed to the Company under the Indemnification and Reimbursement Agreement), and the minimum interest coverage ratio. All amounts payable under the Indemnification and Reimbursement Agreement will
be guaranteed by certain of Garretts subsidiaries that act as guarantors under its principal credit agreement.
The obligation will
continue until the earlier of: (1) December 31, 2048; or (2) December 31 of the third consecutive year during which the annual payment obligation (including in respect of deferred payment amounts) has been less than an amount equal to
the Distribution Date Currency Exchange Rate equivalent of $25 million.
The descriptions of the Indemnification and Reimbursement
Agreement is qualified in its entirety by reference to the full text of such agreement, which is attached as Exhibit 2.1 to this Current Report on Form
8-K
and incorporated herein by reference.