Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
Upon the terms and subject to the conditions set forth in the Share Purchase Agreement, the Company has agreed to purchase (the
Combination
) all of the outstanding share capital (the
Shares
) of Houghton from the Sellers. The Shares will be sold for an aggregate purchase price (subject to adjustment as provided in the Share Purchase
Agreement) of: (1) $172,500,000 in cash; and (2) a number of shares (the
Consideration Shares
) of common stock, $1.00 par value per share, of the Company (the
Common Stock
) comprising 24.5% of the Common
Stock outstanding immediately after the closing of the Combination (the
Closing
), which based on the closing stock price of shares of our Common Stock on the New York Stock Exchange on the record date, had a value of approximately
[ ]. There can be no assurance as to what the value of the Consideration Shares will be at the Closing. If the proposed Charter Amendment, as described below, is not approved by
the Companys shareholders at the Meeting (as defined below), the Company will instead issue, as the Consideration Shares, shares of a new series of voting preferred stock of the Company (the
Preferred Stock
) having economic,
voting and other rights equivalent to the shares of Common Stock that would have been issued if the Charter Amendment had been approved. The terms of the Share Purchase Agreement and other aspects of the Combination are more fully described in the
accompanying proxy statement.
We are seeking shareholder approval of the Issuance in connection with the Combination to satisfy the rules of
the New York Stock Exchange, which require shareholder approval before the issuance of common shares in connection with any transaction or series of related transactions if: (1) the common shares have, or will have upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding before the issuance of such shares; or (2) the number of common shares to be issued is, or will be upon issuance, equal to or in excess of 20% of the number of common shares
outstanding before the issuance of the common shares. Because it is contemplated that the shares of Common Stock to be issued in the Combination will exceed the 20% threshold, the Issuance requires shareholder approval. Under the rules of the New
York Stock Exchange, approval of the proposal requires the affirmative vote of the holders of a majority in voting power of the shares of Common Stock present or represented and voting on the proposal (provided that a quorum is present at the
Meeting). Shareholder approval of the Issuance in connection with the Combination is a required condition to the completion of the Combination. We are also seeking approval of the other matters summarized above and described in further detail in
this proxy statement.
We urge you to read carefully the accompanying proxy statement (and the documents incorporated by reference into it) which includes important information
about the Combination, the Company, Houghton, the Sellers and the Meeting. You may obtain additional information about us from the documents we file with the U.S. Securities and Exchange Commission (the
SEC
).
Please pay
particular attention to the section titled
Risk Factors
beginning on page 20 of the accompanying proxy statement.
These proxy materials are being mailed to shareholders of record on or about [●], 2017.
Your continued support and interest in the Company are sincerely appreciated.
Michael F. Barry
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF QUAKER CHEMICAL CORPORATION.
-111-
Table of Contents
F-1
Report of Independent Auditors
To the Board of Directors of Global Houghton Ltd.
We have
audited the accompanying consolidated financial statements of Global Houghton Ltd. and its subsidiaries, which comprise the consolidated statement of financial position as of December 31, 2016 and 2015, and the related consolidated statements
of operations, comprehensive loss, changes in equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the
Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of Global Houghton Ltd. and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2016 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 1 to the
consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation and the manner in which it presents debt issuance costs in 2016. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 21, 2017, except for the effects of the revision discussed in Note 1 to the consolidated financial statements, as to which the date is June 5,
2017
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Net sales
|
|
$
|
766,806
|
|
|
$
|
781,792
|
|
|
$
|
840,787
|
|
Cost of goods sold
|
|
|
499,934
|
|
|
|
516,166
|
|
|
|
561,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
266,872
|
|
|
|
265,626
|
|
|
|
279,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
218,246
|
|
|
|
211,206
|
|
|
|
212,037
|
|
Restructuring
|
|
|
1,797
|
|
|
|
5,161
|
|
|
|
1,285
|
|
Goodwill and intangibles impairment loss
|
|
|
40,922
|
|
|
|
|
|
|
|
|
|
Other operating expense
|
|
|
1,780
|
|
|
|
5,425
|
|
|
|
5,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4,127
|
|
|
|
43,834
|
|
|
|
60,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(4,869
|
)
|
|
|
(7,613
|
)
|
|
|
(11,112
|
)
|
Interest expense
|
|
|
(50,312
|
)
|
|
|
(50,268
|
)
|
|
|
(50,179
|
)
|
Affiliate interest expense
|
|
|
|
|
|
|
|
|
|
|
(8,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net income of investee
|
|
|
(51,054
|
)
|
|
|
(14,047
|
)
|
|
|
(8,793
|
)
|
Income tax (benefit) expense
|
|
|
(5,188
|
)
|
|
|
(5,966
|
)
|
|
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in net income of investee
|
|
|
(45,866
|
)
|
|
|
(8,081
|
)
|
|
|
(11,168
|
)
|
Equity in net income of investee
|
|
|
9,255
|
|
|
|
7,815
|
|
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(36,611
|
)
|
|
|
(266
|
)
|
|
|
(5,468
|
)
|
Net loss attributable to
non-controlling
interest
|
|
|
(48
|
)
|
|
|
(231
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Global Houghton Ltd.
|
|
$
|
(36,563
|
)
|
|
$
|
(35
|
)
|
|
$
|
(5,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Net loss
|
|
$
|
(36,611
|
)
|
|
$
|
(266
|
)
|
|
$
|
(5,468
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax benefit of $958, $2,088 and $1,476
|
|
|
(23,380
|
)
|
|
|
(49,267
|
)
|
|
|
(39,995
|
)
|
Pension adjustments, net of tax benefit of $1,151, $627 and $6,063
|
|
|
(4,067
|
)
|
|
|
(720
|
)
|
|
|
(12,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
|
(27,447
|
)
|
|
|
(49,987
|
)
|
|
|
(52,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(64,058
|
)
|
|
$
|
(50,253
|
)
|
|
$
|
(58,221
|
)
|
Comprehensive income (loss) attributable to
non-controlling
interest
|
|
|
2,192
|
|
|
|
(272
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Global Houghton Ltd.
|
|
$
|
(66,250
|
)
|
|
$
|
(49,981
|
)
|
|
$
|
(58,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-4
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of U.S. Dollars except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44,001
|
|
|
$
|
47,766
|
|
Restricted cash
|
|
|
61
|
|
|
|
936
|
|
Accounts receivable, net
|
|
|
130,731
|
|
|
|
127,870
|
|
Inventories
|
|
|
76,253
|
|
|
|
73,695
|
|
Prepaid expense and other assets
|
|
|
17,495
|
|
|
|
18,556
|
|
Assets held for sale
|
|
|
1,620
|
|
|
|
2,744
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
270,161
|
|
|
|
271,567
|
|
|
|
|
Property, plant and equipment, net
|
|
|
76,080
|
|
|
|
73,766
|
|
|
|
|
Goodwill
|
|
|
254,118
|
|
|
|
263,320
|
|
Customer relationships and other intangible assets, net
|
|
|
402,039
|
|
|
|
463,382
|
|
Investment in equity investee
|
|
|
42,783
|
|
|
|
39,457
|
|
Non-current
deferred tax asset
|
|
|
11,843
|
|
|
|
9,485
|
|
Other
non-current
assets
|
|
|
218
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,057,242
|
|
|
$
|
1,121,456
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-5
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of U.S. Dollars except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
4,610
|
|
|
$
|
4,737
|
|
Short-term debt
|
|
|
7,318
|
|
|
|
|
|
Accounts payable
|
|
|
79,758
|
|
|
|
71,251
|
|
Accrued employee related costs
|
|
|
25,843
|
|
|
|
22,198
|
|
Affiliate accounts payable
|
|
|
23
|
|
|
|
773
|
|
Other current liabilities
|
|
|
24,851
|
|
|
|
29,304
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
142,403
|
|
|
|
128,263
|
|
|
|
|
Long-term debt
|
|
|
703,035
|
|
|
|
706,114
|
|
|
|
|
Other
non-current
liabilities:
|
|
|
|
|
|
|
|
|
Liability for pension benefits
|
|
|
35,316
|
|
|
|
35,273
|
|
Noncurrent deferred income tax liabilities
|
|
|
48,966
|
|
|
|
66,367
|
|
Other
non-current
liabilities
|
|
|
21,645
|
|
|
|
20,408
|
|
|
|
|
|
|
|
|
|
|
Total other
non-current
liabilities
|
|
|
105,927
|
|
|
|
122,048
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
951,365
|
|
|
|
956,425
|
|
|
|
|
Commitments and Contingencies (Note 21)
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Stock
|
|
|
3,666
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Global Houghton Ltd. shareholders equity
|
|
|
|
|
|
|
|
|
Common Stock par value $0.01 per share; 5,000,000 authorized; 3,136,937 issued
and 3,113,020 outstanding at December 31, 2016 and 3,125,566 issued and 3,115,420 outstanding at December 31, 2015
|
|
|
31
|
|
|
|
31
|
|
Additional
paid-in
capital
|
|
|
315,753
|
|
|
|
313,663
|
|
Accumulated deficit
|
|
|
(74,695
|
)
|
|
|
(37,667
|
)
|
Accumulated other comprehensive (loss)
|
|
|
(138,085
|
)
|
|
|
(108,398
|
)
|
Treasury stock at cost; 24,502 shares at December 31, 2016 and 10,146 at
December 31, 2015
|
|
|
(793
|
)
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
Total Global Houghton Ltd. shareholders equity
|
|
|
102,211
|
|
|
|
167,107
|
|
Non-controlling
interest
|
|
|
|
|
|
|
(2,076
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
102,211
|
|
|
|
165,031
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,057,242
|
|
|
$
|
1,121,456
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(36,611
|
)
|
|
$
|
(266
|
)
|
|
$
|
(5,468
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,032
|
|
|
|
56,469
|
|
|
|
61,140
|
|
Non-cash
debt discount/issuance cost amortization
|
|
|
5,829
|
|
|
|
5,576
|
|
|
|
5,707
|
|
Non-cash
affiliate debt issuance cost amortization
|
|
|
|
|
|
|
|
|
|
|
1,224
|
|
Non-cash
tax indemnification asset
|
|
|
|
|
|
|
3,073
|
|
|
|
4,467
|
|
(Gain) loss on disposal of property, plant, and equipment
|
|
|
(423
|
)
|
|
|
89
|
|
|
|
470
|
|
Goodwill and intangibles impairment loss
|
|
|
40,922
|
|
|
|
|
|
|
|
|
|
Asset impairments
|
|
|
|
|
|
|
951
|
|
|
|
967
|
|
Non-cash
foreign exchange gains on debt
|
|
|
|
|
|
|
|
|
|
|
(876
|
)
|
Equity in net income of investee, net of dividends received
|
|
|
(5,212
|
)
|
|
|
(4,745
|
)
|
|
|
(3,419
|
)
|
Pension benefits
|
|
|
(3,379
|
)
|
|
|
(7,015
|
)
|
|
|
(8,214
|
)
|
Stock compensation expense
|
|
|
2,848
|
|
|
|
2,638
|
|
|
|
1,762
|
|
Deferred income taxes
|
|
|
(23,916
|
)
|
|
|
(21,059
|
)
|
|
|
(12,558
|
)
|
Adjustment to
earn-out
|
|
|
|
|
|
|
(490
|
)
|
|
|
|
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in due to/from affiliate
|
|
|
(672
|
)
|
|
|
1,300
|
|
|
|
2,818
|
|
(Increase) in receivables
|
|
|
(4,548
|
)
|
|
|
(2,236
|
)
|
|
|
(5,780
|
)
|
(Increase) in inventories
|
|
|
(2,448
|
)
|
|
|
(2,333
|
)
|
|
|
(7,394
|
)
|
(Increase) decrease in other assets
|
|
|
(1,737
|
)
|
|
|
3,086
|
|
|
|
(160
|
)
|
Increase (decrease) in accounts payable
|
|
|
10,088
|
|
|
|
(9,302
|
)
|
|
|
9,135
|
|
Increase (decrease) in other liabilities
|
|
|
7,341
|
|
|
|
12,277
|
|
|
|
(8,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
43,114
|
|
|
|
38,013
|
|
|
|
35,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(9,201
|
)
|
|
|
(12,633
|
)
|
|
|
(10,991
|
)
|
Cost of companies acquired, net of cash acquired
|
|
|
(39,363
|
)
|
|
|
(6,737
|
)
|
|
|
(12,637
|
)
|
Lending to affiliate
|
|
|
|
|
|
|
(12,000
|
)
|
|
|
|
|
Repayments of affiliate short-term debt
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
Proceeds from disposal of property, plant and equipment
|
|
|
1,517
|
|
|
|
36
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(47,047
|
)
|
|
|
(19,334
|
)
|
|
|
(23,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings of short-term debt
|
|
|
7,990
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) on revolver
|
|
|
56
|
|
|
|
(11,000
|
)
|
|
|
11,877
|
|
Repayments on capital lease obligations
|
|
|
(212
|
)
|
|
|
(296
|
)
|
|
|
(186
|
)
|
Repayments of long-term debt
|
|
|
(4,551
|
)
|
|
|
(4,550
|
)
|
|
|
(24,358
|
)
|
Borrowings of affiliate loans
|
|
|
|
|
|
|
|
|
|
|
7,730
|
|
Repayments of affiliate long-term debt
|
|
|
|
|
|
|
|
|
|
|
(318,885
|
)
|
Payment of contingent consideration
|
|
|
|
|
|
|
(2,433
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
(1,921
|
)
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Net cash settlement of stock options
|
|
|
(7
|
)
|
|
|
(56
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
(264
|
)
|
|
|
(466
|
)
|
|
|
|
|
Repurchase of subsidiary common stock
|
|
|
|
|
|
|
(403
|
)
|
|
|
|
|
Capital contributions received
|
|
|
|
|
|
|
|
|
|
|
307,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
3,023
|
|
|
|
(21,125
|
)
|
|
|
(16,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(910
|
)
|
|
$
|
(2,446
|
)
|
|
$
|
(4,646
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,855
|
)
|
|
|
(4,148
|
)
|
|
|
(3,335
|
)
|
BEGINNING CASH AND CASH EQUIVALENTS
|
|
|
47,766
|
|
|
|
54,360
|
|
|
|
62,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDING CASH AND CASH EQUIVALENTS
|
|
$
|
44,001
|
|
|
$
|
47,766
|
|
|
$
|
54,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
23,487
|
|
|
$
|
15,319
|
|
|
$
|
15,675
|
|
Cash paid for interest
|
|
$
|
44,624
|
|
|
$
|
44,923
|
|
|
$
|
51,707
|
|
Purchased property, plant and equipment not yet paid for in cash
|
|
$
|
1,215
|
|
|
$
|
958
|
|
|
$
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-7
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Thousands of U.S. Dollars except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Income
(Deficit)
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Shares
|
|
|
Treasury
Stock
|
|
|
Non-controlling
interests
|
|
|
Total
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
3,074,270
|
|
|
$
|
31
|
|
|
|
3,336
|
|
|
|
(32,265
|
)
|
|
|
(7,897
|
)
|
|
|
|
|
|
|
|
|
|
|
2,897
|
|
|
$
|
(33,898
|
)
|
Capitalization of Global Houghton Ltd
|
|
|
|
|
|
|
|
|
|
|
307,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,235
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101
|
)
|
|
|
(5,468
|
)
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762
|
|
|
|
1,762
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
3,074,270
|
|
|
$
|
31
|
|
|
$
|
310,571
|
|
|
$
|
(37,632
|
)
|
|
$
|
(60,650
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
4,558
|
|
|
$
|
216,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
(266
|
)
|
Stock exchange
|
|
|
45,230
|
|
|
|
|
|
|
|
4,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,390
|
)
|
|
|
|
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
2,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
2,638
|
|
Management share market adjustment
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
752
|
|
Modification to stock-compensation liability
|
|
|
|
|
|
|
|
|
|
|
(4,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,876
|
)
|
Stock-compensation liability market adjustment
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
Repurchase of subsidiary shares
|
|
|
|
|
|
|
|
|
|
|
(403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403
|
)
|
Net cash settlement of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,066
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
Repurchase of management shares
|
|
|
(4,080
|
)
|
|
|
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
4,080
|
|
|
|
(466
|
)
|
|
|
|
|
|
|
|
|
Reclassify accumulated foreign currency translation associated with NCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
|
(2,198
|
)
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,946
|
)
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
(49,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
3,115,420
|
|
|
$
|
31
|
|
|
$
|
313,663
|
|
|
$
|
(37,667
|
)
|
|
$
|
(108,398
|
)
|
|
|
10,146
|
|
|
$
|
(522
|
)
|
|
$
|
(2,076
|
)
|
|
$
|
165,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
(36,611
|
)
|
Stock compensation
|
|
|
|
|
|
|
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
626
|
|
Stock compensation adjustment for forfeitures
|
|
|
|
|
|
|
|
|
|
|
715
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Stock compensation liability market adjustment
|
|
|
|
|
|
|
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,027
|
|
Redeemable stock market adjustment
|
|
|
|
|
|
|
|
|
|
|
(669
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(669
|
)
|
Net cash settlement of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,856
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Exercise of stock options
|
|
|
100
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Repurchase of management shares
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
Purchase
non-controlling
interest
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
|
|
|
|
1,796
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,775
|
)
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
(27,447
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
3,113,020
|
|
|
$
|
31
|
|
|
$
|
315,753
|
|
|
$
|
(74,695
|
)
|
|
$
|
(138,085
|
)
|
|
|
24,502
|
|
|
$
|
(793
|
)
|
|
$
|
|
|
|
$
|
102,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Financial Statements.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of U.S. Dollars, except share and per share amounts)
1. Summary of Significant Accounting Policies
Background and Basis of Presentation
Global Houghton Ltd
(the Company, Houghton, we, us or our) is a global supplier of industrial fluids and chemical management services, primarily for the metalworking industry through its wholly-owned
subsidiaries. The principal markets for the Companys products and services are the Americas, Europe, the Middle East and Africa (together, EMEA), North Asia and South Asia.
The Company is a Cayman Island corporation that was formed in February 2014 and is a member of the Hinduja group of companies. In August 2014, GHG London
Limited (GHG), a private limited company organized under the laws of England and Wales and parent company to GHG Lubricants Ltd Holdings (GHG Lubricants), GH Holdings Inc. (GH) and Houghton International, Inc. and
subsidiaries (HII), was contributed to the Company through a series of transactions. The series of transactions were deemed to be a reorganization of entities under common control. As a result, the financial statements are retroactively
adjusted in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP) as if the Company had acquired GHG and its wholly-owned subsidiaries for the entire period that the entities have been under common control
(February 2014). For periods prior to February 2014 these financial statements reflect the activity of GHG and its wholly-owned subsidiaries.
On
December 20, 2012, GHG, the wholly-owned subsidiary of the Company, acquired the outstanding equity interests of HII (Gulf Transaction). As a result of the Gulf Transaction, the assets and liabilities were adjusted to their
estimated fair values as of December 20, 2012. This resulted in a significant increase in the carrying value of our identifiable intangible assets and goodwill. In addition, we revalued our pension obligations, recorded significant deferred tax
liabilities and certain deferred tax assets and we incurred substantial additional indebtedness.
During the fourth quarter of 2013, certain members of
Management purchased from GHG Lubricants outstanding shares of GH. These shares contain certain call and put option terms (see Note 1, Management Shareholders).
Effective June 15, 2015, the Board of Directors and stockholders of the Company approved an amendment to the Companys certificate of incorporation
to effectuate a stock split of the Companys common stock. As a result of the stock split, common shares issued and outstanding was reduced from 308,839,803 at December 31, 2014 to 3,074,270 at June 30, 2015 and par value was reduced
from $1.00 to $0.01 per share.
In July 2015, the Company conducted an exchange offer which allowed holders of GH common stock, stock options and stock
appreciation rights to exchange their shares and options for a like number of common stock, stock options and stock appreciation rights in Houghton. As of December 31, 2016 and December 31, 2015, these shares represented 1.24% and 1.32% of
the total outstanding shares of Houghton, respectively.
During July 2015, the Company amended its 2012 Senior Credit Facilities primarily to make
guarantor, covenant and other verbiage changes as disclosed in Note 15. In connection with the amendment, GHG acquired the remaining 0.1% of outstanding equity interests of GHG Lubricants not already owned by GHG for $403.
Investments in entities over which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method
of accounting. All significant intercompany transactions and balances have been eliminated. Prior to acquiring the remaining 40% of its Japan joint venture in March 2016, the Company had
non-controlling
interests which were included in the financial statements.
The Financial Accounting Standards Boards (FASBs) guidance regarding
the consolidation of certain Variable Interest Entities (VIEs) generally requires that assets, liabilities and results of the activities of a VIE
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be included in the financial statements of the enterprise that is considered the primary beneficiary. The financial statements include the accounts of the Company and all of its subsidiaries in
which a controlling interest is maintained and would include any VIEs if the Company was the primary beneficiary pursuant to the provisions of the applicable guidance. The Company is not the primary beneficiary of any VIEs.
The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). In the opinion of management, all adjustments necessary, which are of a normal recurring nature, have been made to present fairly the financial position, the results of operations and cash flows.
Investments in Unconsolidated Joint Ventures
Investments
in unconsolidated joint ventures are included at cost plus its equity in undistributed earnings in accordance with the equity method of accounting and reflected as investment in equity investee in the balance sheets. The Company received dividends
of $4,043 and $3,070 from the equity investee in 2016 and 2015, respectively.
Non-controlling
interest
In March 2016, the Company acquired the remaining 40% of its Japan joint venture for a de minimis amount. This resulted in a reduction of
Non-controlling
interest and an increase in Additional
paid-in
capital and Accumulated other comprehensive loss.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make extensive estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions.
Changes in
Classifications
Certain reclassifications of prior period amounts have been made to conform to current period presentation.
Revisions
During 2017, management determined that
certain management shareholdings should be classified as mezzanine equity (Redeemable stock) effective June 2016 and recorded a corresponding reclassification of the balance (previously presented in Other long-term liabilities) as of
December 31, 2016. Such change in classification was determined to be immaterial to any period impacted, and the prior period presented has been revised to reflect this change in classification of the management shareholdings.
Revenue Recognition
Sales of products and services are
recorded (i) upon shipment if title passes to the customer upon shipment, or upon delivery if title passes to the customer upon delivery or when services are rendered, (ii) when persuasive evidence of an arrangement exists with the
customer, (iii) when the sales price is fixed and determinable, and (iv) when the collectability of the sales price is reasonably assured. Revenue is recognized net of discounts and allowances, which are comprised of trade allowances, cash
discounts and sales returns and value added tax. Freight costs and any directly related costs of shipping finished product to customers are recorded in Cost of goods sold. Billings to customers for shipping fees are included in net sales in
accordance with ASC
605-45.
Handling costs are incurred from the point the product is removed from inventory until it is provided to the
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shipper. Handling costs are recorded in Cost of goods sold. For consigned inventory, revenue is recognized after the customer has consumed consignment inventory in their manufacturing process.
Consigned inventory mainly relates to our Fluidcare and Metal Finishing businesses, in which our inventory is maintained at customer locations for use as needed in their manufacturing processes.
Cash, Cash Equivalents and Restricted Cash
Cash and cash
equivalents represent cash in banks and cash equivalents, which includes highly liquid short-term investments and bank drafts with original maturities of three months or less. Bank deposits and other cash equivalents that are restricted by agreement
or that have been clearly designated for a specific purpose are recorded as restricted cash. Such restriction on cash is primarily a result of certain foreign retirement benefits and social plans, taxes, security deposits, and bank drafts.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are reported at the gross outstanding amount adjusted for an allowance for doubtful accounts. Accounts receivable collectability is
evaluated using a combination of factors, including past due status based on contractual terms, trends in write-offs, the age of the receivable, industry, country specific economics and political conditions and counterparty creditworthiness.
Significant events, such as bankruptcies, are also considered. Accounts receivables are written off in the period in which the receivable is deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when amounts
are collected.
Inventories
The Company accounts for
inventories under the
first-in,
first-out
(FIFO) method, stated at the lower of cost or market.
Assets Held for Sale
Properties that are expected to be
sold within the next 12 months and meet the other relevant held for sale criteria are classified as long-lived assets held for sale. An impairment loss is recorded when the carrying amount of the asset exceeds its fair value less costs to sell.
Assets held for sale are not depreciated.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, and presented net of accumulated depreciation. Significant expenditures which extend the useful lives of
existing assets are capitalized. Maintenance and repair costs are charged to Cost of goods sold in the period incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
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Asset Class
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Useful Lives
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Land and buildings
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Buildings
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10-40 years
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Buildings and improvements
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3-15
years
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Machinery and equipment
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Manufacturing machinery and equipment
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3-25
years
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Furniture and fixtures
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5-7
years
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Leasehold improvements
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Lesser of lease term or estimated useful life
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Vehicles and computer equipment
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3-5
years
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Property, plant and equipment is tested for recoverability whenever events or changes in circumstances indicate that carrying
values may not be recoverable. An impairment loss would be recognized if the carrying amount is
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not recoverable and exceeds the fair value of the asset. Fair value is based on estimated future undiscounted cash flows. In connection with the annual impairment test, the Company considered the
estimated fair value of property, plant and equipment determined within the Step 2 analysis prepared as of October 1, 2016. There was no impairment assessed on Property, plant and equipment.
The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are
reflected in Other expense, net in the period of sale.
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination. Goodwill and
other indefinite-lived intangible assets that are not subject to amortization are reviewed for impairment annually as of October 1 or when events or circumstances indicate that the carrying amount exceeds the fair value, including potential
triggering events such as decline in actual or projected operating profits. Each of our operating segments represents a reporting unit.
The Company
assesses goodwill for impairment by first comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. If the fair value is less than the carrying value, then the Company would perform
a second test for that reporting unit to determine the amount of impairment loss, if any. The Company determines the fair value of its reporting units utilizing the Companys best estimate of long-term future revenues, operating expense, cash
flows, market and general economic conditions, including discount rates, cost of capital long term growth rates and foreign currency movements. The Company believes these assumptions are consistent with those a hypothetical market participant would
utilize given the circumstances present at the time estimates were made. When available and as appropriate, the Company uses comparative market multiples and other factors to corroborate the discounted cash flow results.
As of October 1, 2016, the Company performed a valuation of goodwill and indefinite-lived intangible assets to test for impairment. The fair value
exceeded carrying value by 1.2% (Americas), 7.4% (EMEA), and 67.4% (North Asia). However, the South Asia reporting unit recognized a goodwill impairment loss of $15,116. The decline in the fair value of the South Asia reporting unit and resulting
impairment charge was due to a decline in earnings since the 2012 acquisition resulting from changes in economic outlook within the region. We believe the estimates and assumptions used in the goodwill impairment assessment are reasonable and based
on available market information, including assumptions regarding foreign currency movement, but variations in any of the assumptions could result in materially different calculations of fair value and determination of whether or not an impairment
charge is indicated for the remaining reporting units or the value of the impairment determined for the South Asia reporting unit.
Other acquired
intangible assets are initially measured based on their fair value. The Houghton trade name has been assigned an indefinite life due to the over 150 year history of the Houghton brand and considering the results of the annual impairment test
prepared as of October 1, 2016, there were no events or circumstances that indicated that the carrying amount exceeded fair value. The fair value exceeded the carrying value by 2.8%. In connection with the annual impairment test and the Step 2
analysis prepared to measure the fair value of the finite-lived intangible assets, the South Asia reporting unit recorded an impairment loss of $25,806 related to customer relationships. Finite-lived intangible assets are amortized over their
economic lives based on terms of the economic benefit as follows:
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Intangible Asset
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Useful Lives
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Trade name (Houghton)
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Indefinite
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Trade name (Products)
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2-20 years
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Technological
know-how
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9-15
years
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Customer relationships
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11-13 years
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Long-lived assets subject to amortization are reviewed for impairment using the relief-from-royalty method when
events or circumstances indicate carrying amounts may not be recoverable. In connection with annual impairment test and the Step 2 analysis prepared to measure the fair value of the assets, there were no events or circumstances that indicated that
the carrying amount exceeded fair value. If such analysis indicates that the carrying value of these assets is not recoverable, then the carrying value of such assets is reduced to fair value through a charge to the Companys Consolidated
Statements of Operations.
Leases
The Company has
both capital and operating leases. A lease is capitalized as a capital lease if any of the following criteria are met: transfer of ownership to the lessee by the end of the lease term; the lease contains a bargain purchase option; the lease term is
equal to 75% or greater of the assets useful economic life; or the present value of the future minimum lease payments is equal to or greater than 90% of the assets fair market value. Capital leases are capitalized at the lower of the net
present value of the total amount of rent payable under the leasing agreement (excluding finance charges) or fair market value of the leased asset. Capital lease assets are depreciated on a straight-line basis, over a period consistent with our
normal depreciation policy for tangible fixed assets, but not exceeding the lease term. Operating lease expense is recognized over the life of the lease on a straight line basis.
Income Taxes
The Company accounts for income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect upon deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment date.
Significant judgment is required in determining income tax provisions and evaluating tax provisions under the accounting guidance for income taxes. The
Company establishes additional provisions for income taxes based upon the technical merits of the tax positions using applicable accounting guidance. Unrecognized tax benefits are generated when there are differences between tax positions taken in a
tax return and amounts recognized in the consolidated financial statements. Tax benefits are recognized in the consolidated financial statements when it is
more-likely-than-not
that a tax position will be
sustained upon examination. Tax benefits are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. The Company regularly assesses the potential outcomes of these examinations and any future
examinations for the current or prior years in determining the adequacy of the provision for income taxes. Interest accrued related to unrecognized tax benefits and income tax related penalties are both included as a component of the provision for
taxes and adjust the income tax provision, the current tax liability and deferred taxes in the period of which the facts that give rise to a revision become known.
The Company follows the accounting guidance for income taxes that prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, the guidance provides rules on
de-recognition,
classification, interest and penalties, accounting in
interim periods, disclosure, and transition.
Environmental and Legal Liabilities and Expenditures
Liabilities are recorded when the Company determines that it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. If no amount in the possible range of liability is considered more probable than any other amount, the Company records the lowest amount in the range. Due to the nature of the
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monitoring requirements and the impact of remediation efforts, the Company has a policy of reserving monitoring costs for a period of three to five years. Any activity beyond that period cannot
be reasonably estimated. Considering the magnitude of the reserves and duration of the accrual policy, liabilities are not recorded at a discount. Environmental expenditures are included in Selling, general and administrative expenses.
Asset Retirement Obligation
The Company follows the
FASBs guidance regarding asset retirement obligations, which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. Also, the Company follows the
FASBs guidance for conditional asset retirement obligations (CARO), which relates to legal obligations 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 the control of the entity. At December 31, 2016 and December 31, 2015, the exposure to such obligations is immaterial to the Company.
Foreign Currency Translation
Substantially all
non-U.S.
subsidiaries and affiliates use the local currency as the functional currency. For those operations, assets and liabilities are translated into U.S. dollars at the exchange rate end of the period and
revenues and expenses are translated into U.S. dollars at the average exchange rates during the period. Such adjustments are reported, net of their related tax effects, as a component of Accumulated other comprehensive income (loss)
(AOCI).
Assets and liabilities denominated in currencies other than the local currency are remeasured into the local currency prior to
translation into U.S. dollars and the resultant exchange gains or losses are recorded in the period in which they occur. Gains and losses from remeasurement and foreign currency transactions are included in Other expense, net, except for those
covered by net investment hedges or resulting from the dissolution of holding companies, which are recorded to AOCI.
Fair Value Measurements
The Company values certain financial and nonfinancial assets and liabilities at 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 dates (exit price). The Company uses various valuation techniques to measure the fair value of an asset or liability incorporating
inputs that are observable, independent market data and unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability.
The Company classifies fair value measurements within one of three levels on the fair value hierarchy. The level assigned to a fair value measurement is based
on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities for which quoted prices are
accessible at the measurement date.
Level 2 inputs other than quoted prices included within Level 1 that are either
directly or indirectly observable. These include quoted prices in active markets for similar assets or liabilities or quoted prices in inactive markets for identical assets or liabilities accessible at the measurement date.
Level 3 unobservable inputs that management believes are predicated on the assumptions market participants would use to
measure the asset or liability at fair value.
The Company values pension assets, stock-based compensation liability and management shares under the fair
value guidelines. The details of the fair value measurements and required disclosures are included within Note 3 Stock-based Compensation and Other Compensation Arrangements and Note 16 Employee Benefit Plans.
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Credit Concentrations
Credit risk represents the accounting loss that would be recognized at the reporting date if counter-parties failed to perform as contracted. Concentrations of
credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions. Financial instruments with potential credit risk include cash and cash equivalents, accounts receivable and bank drafts.
The Company maintains cash and cash equivalents and bank drafts with various major financial institutions which provides potential credit risk exposure. The
Company has not experienced losses from this activity. Concentrations of credit risk with respect to receivables are generally limited with no individual customers in excess of 5% of total revenue.
Restructuring
Actions associated with restructuring
plans include, but are not limited to, workforce reduction, plant or facility closures and sales. Costs associated with these actions may include, but are not limited to, employee severance, accelerated post-employment benefits, plant deactivations
and asset impairments.
Post-employment benefits accrued for workforce reduction related to restructuring activities are recorded in the period which a
liability is incurred, except for
one-time
employee termination benefits that are incurred over time. Other restructuring costs are recorded when the costs are incurred. Restructuring reserves are included in
Accrued expenses and other. Reserves are reviewed at least quarterly for adequacy and any necessary adjustments are recorded in the period the adjustment is determinable. Should the actual amounts differ from estimates, the amount of the
restructuring costs could be materially impacted.
Hedges
The Company is exposed to the impact of changes in interest rates, foreign currency, commodity prices and credit risk. The Company does not currently use
derivative instruments to mitigate the risks associated with changes in interest rates, foreign currency, commodity prices or credit risk but used interest rate derivative instruments to hedge the exposures to fluctuating interest rates during 2015.
There are no interest rate derivative instruments at December 31, 2016. The Company does not enter into speculative derivative contracts for trading purposes.
During 2015, the Company entered into a £1.95 million intercompany loan and designated the loan as a hedge against the net investment as the loan
will offset the change in economic value of the investment attributable to changes in the exchange rates between the euro and Great Britain pound. The Company recognizes foreign currency fluctuations on the loan in Other comprehensive income. In
December 2016, the subsidiary was dissolved, the intercompany loan was forgiven and the $470 of related cumulative foreign currency fluctuations remains in Other comprehensive income. The Company recognizes all derivatives on the balance sheet.
Employee Benefit Plans
The Company applies the
recognition and disclosure provisions of the accounting rules on pensions. This standard requires employers to recognize the funded status (i.e., the difference between the fair value of the plan assets and projected benefit obligation) of all
Pension Plans in the Statements of Financial Position, with corresponding adjustments to AOCI. The adjustments of AOCI at adoption represents the net unrecognized actuarial gains and losses, prior service costs and unrecognized transition amounts
which were previously netted against the plans funded status pursuant to prior accounting provisions. This amount will be subsequently recognized as the net pension (income) expense in accordance with the Companys accounting policy for
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amortizing such amounts. Further, unrecognized actuarial gains and losses, prior service costs and unrecognized transaction amounts that arise in subsequent periods and are not recognized as net
pension (income) expense in the same periods will be recognized as a component of AOCI.
The Company contributes to two multi-employer defined benefit
pension plans under the terms of the collective bargaining union contracts assumed through the Wallover Combination. The Companys contribution rate to the multi-employer pension plans is specified in the collective bargaining union contracts
and contributions are made monthly.
Stock-based Compensation
On October 16, 2013, the Board of Directors of GH approved the Stock Option Plan (the GH Plan) that provided for GH to grant stock-based
compensation to their employees in the form of stock options based on service and performance vesting over a five year term. On July 16, 2014, GH amended and restated the Plan to authorize the Company to grant stock appreciation rights
(SARs) to employees. A SAR is the right to receive upon exercise, shares of common stock equal in value to the excess of: (i) the Fair Market Value (as of the time of exercise) of a share of common stock, over (ii) the SAR Base
Value (defined as grant date fair value of a share of common stock) per share of common stock. This difference is often referred to as the spread amount or the amount by which the SAR is in the money. A SAR confers the same
economic benefit and provides the same number of shares to a holder of a SAR as the net exercise of a stock option by an optionee. The service based SARs vest at a rate of 20% per year while performance based options vest based on annual and
cumulative targets, both awards having a contractual term of ten years.
In July 2015, the Company conducted an exchange offer which allowed holders of GH
stock options and SARS to exchange their options for a like number of share options in Houghton (Exchange Offer). In conjunction with the exchange, the Board of Directors approved the Global Houghton Ltd. Share Option and Share
Appreciation Rights Plan (the Houghton Plan). The awards granted with performance vesting are deemed granted upon approval of the targets, which occurs annually, generally in the first quarter of each plan year. The number of shares of
Houghton common stock that were reserved for issuance under the stock option plan at December 31, 2016 was 70,580.
Prior to the Exchange Offer, the
Company applied the accounting guidance for stock-based compensation, which required the Company to expense the fair value of employee stock options granted. Compensation expense was measured at the grant date based on the fair value of the award on
an accelerated basis. If awards contain certain performance conditions in order to vest, the Company recognized the cost of the award when achievement of the performance condition was probable. The Company recorded stock-based compensation expense
in Selling, general and administrative expense. Stock compensation expense incurred under the GH Plan was reflected as an increase of $141 in
Non-controlling
interest through the date of the Exchange Offer.
Upon the effective date of the Exchange Offer, the stock compensation expense accumulated in
non-controlling
interest was reclassified into Additional
paid-in
capital.
Subsequent to the Exchange Offer, the Company demonstrated the intent for allowing net cash settlements of stock-based awards as well as the removal of
the six month holding period for recipients of stock-based awards. This intent triggered liability accounting for stock-based compensation, which requires outstanding options and SARS to be classified as liability-based awards and valued at fair
value. The liability is remeasured and adjusted until the options are exercised, expire, or payment is made to the employees. The stock-based compensation liability is included in Other
non-current
liabilities
and was $5,720 and $4,525 at December 31, 2016 and December 31, 2015, respectively. Compensation expense of stock-based awards granted prior to the liability accounting modification (July 2015) is recognized over the applicable vesting
period based upon the greater of the awards grant date fair value (the Floor) or fair value at the reporting period. Corresponding fair value adjustments to the liability balance of awards subject to the Floor are recorded through
Additional
paid-in
capital. Compensation expense of stock-based awards granted subsequent to the liability accounting modification is
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recognized over the applicable vesting period based upon fair value at the reporting period, and subsequent fair value adjustments to the corresponding liability recorded through compensation
expense.
The service based options vest at a rate of 20% per year while performance based options vest based on annual and cumulative targets, both
awards having a contractual term of ten years. The awards granted contain a put option, which gives the recipient the ability to sell shares back to the Company upon certain events. The put option expires at the earliest of nine months from employee
termination (15 months from employee termination for death, disability, or retirement); initial public offering; change in control; or 10 years and 9 months from the associated option or SAR grant date. The shares put to the Company will be valued
at fair market value as of the date of the contingent event, except for the trigger related to potential termination. Contingent events triggering the ability to put the shares include the passage of time.
The awards granted also contain a call option, which gives the Company the right to call shares upon employee termination. The call expires at the earliest of
nine months from the employment termination date, an initial public offering, or a change in control. The shares called by the Company will be valued at fair value as of the date of the call for any holder voluntarily terminated other than on
account of good reason of retirement or the lesser of cost or fair value as of the date of the call for any holder terminated for cause.
Redeemable
Stock
During the fourth quarter of 2013, 1.86% of the outstanding shares of GH were purchased from GHG Lubricants by certain members of management. In
July 2015, the Company conducted an exchange offer which allowed shareholders of GH to exchange their shares for a like number of shares in Houghton, with the same terms and conditions as the GH share agreement. As of December 31, 2016 and
December 31, 2015, these shares represented 1.24% and 1.32% of the total outstanding shares of Houghton. These shares contain certain call and put option terms which provide the Company with the right, but not the obligation, to call the shares
upon certain events and provides the management shareholder the ability to sell shares back to the Company upon certain events.
The put option provides
each management shareholder the ability to sell shares back to the Company upon certain events. The put option expires at the earliest of nine months from employee termination (15 months from employee termination for death, disability or
retirement); initial public offering; or change in control. The shares put to the Company will be valued at fair value as of the put date related to a voluntary termination or if no initial public offering or change in control occurs prior to
December 20, 2017.
The call option provides the Company the right to call shares upon employee termination. The call expires at the earliest of six
months from the employment termination date, an initial public offering or a change in control. Shares that become callable by the Company will be valued at fair value as of the date of the call for any holder terminated other than on account of
good reason of retirement or the lesser of cost or fair value as of the date of the call for any holder terminated for cause.
The shares put to or called
by the Company will be valued at fair value. Prior to December 20, 2015, the call provision allowed the Company to repurchase the management shares at the lessor of cost plus deemed interest or fair value. Such provision limited the management
shareholders ability to share in the risk and rewards of equity ownership, creating a vesting or service period for the management shareholder and resulting in liability classification of such shares in accordance with accounting guidance for
stock-based compensation. After June 20, 2016, upon maturity of the management shares (6 months from expiration of the Company call provision for an amount other than fair value), the management shares are classified as Redeemable stock in
Mezzanine equity and recorded at fair value (redemption value). As the Company is in an accumulated deficit position, changes in fair value (redemption value) of the management shares are recognized in Additional
paid-in
capital at each period end.
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At December 31, 2016, the fair market value of the management shares was $94.86, resulting in an equity
adjustment of $669 and no impact on expense. For the years ended December 31, 2016 and 2015 there was no compensation expense as the fair value was less than the initial purchase price. For the year ended December 31, 2014, there was $57
of compensation expense recorded. Through June 30, 2015, GH repurchased 13,000 shares from former members of management. Post stock exchange, through December 31, 2016, Houghton repurchased 6,580 shares from former members of management in
accordance shareholder agreements and accounted for these shares as treasury stock.
Advertising Expense
Advertising costs are expensed in the period incurred. Advertising expense is recorded within Selling, general and administrative expense. Advertising costs
for the years ended December 31, 2016, 2015 and 2014 were $2,014, $2,222 and $2,246, respectively.
Research, Development and Engineering Expense
Research, development and engineering costs are expensed as incurred. Research and development costs for the years ended December 31, 2016, 2015
and 2014 were $20,843, $19,509 and $19,598, respectively.
Long-Term Incentive Plan
Under the GH Holdings, Inc. Long-Term Incentive Plan (GH LTIP) certain members of executive management are eligible to receive a cash-based award
based on achievement of certain performance targets. The performance and service periods are from January 1, 2013 through December 31, 2017 and the required service period is from January 27, 2014 through December 31, 2017. At
December 31, 2016, there is no liability recorded related to this plan as the targets are not anticipated to be met.
In July 2015, the Global
Houghton Ltd Long-Term Incentive Plan (LTIP) was created with the same terms and conditions as the GH LTIP, except the performance targets are established annually and the performance and service periods are from January 1, 2015
through December 31, 2017. Under the terms of both plans, the participants award shall be forfeited in the event of participants termination for cause as defined in the agreement or upon voluntary resignation. Also under the terms,
the participants awards shall fully vest upon change in control. As the participants provide service during the required service period, the Company ratably recognizes expense within Selling, general and administrative expense, based upon the
Companys estimated level of achievement. The Company records the LTIP liability in Other
non-current
liabilities.
Adopted Guidance
In January 2016, the Company adopted
ASU
2014-15,
Presentation of Financial Statements
Going Concern
, which provides guidance that explicitly requires an entitys management to assess the
entitys ability to continue as a going concern. The new guidance requires an entity to evaluate, at each interim and annual period, whether there are conditions or events that raise substantial doubt about the entitys ability to continue
as a going concern within one year after the date the financial statements are issued (or are available to be issued) and to provide related disclosures, if applicable. No conditions or events were identified requiring additional disclosures.
In January 2016, the Company adopted ASU
2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which
requires entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with the presentation of debt discounts. This guidance has been applied
retrospectively. As a result, total assets and total liabilities were reduced by $17,653 at December 31, 2015.
In January 2016, the Company adopted
ASU
2015-05,
Internal-Use
Software, Customers Accounting Fees Paid in a Cloud Computing Arrangement
, which clarifies how customers in cloud computing
arrangements should
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determine whether the arrangement includes a software license. The guidance also eliminates the existing requirement for customers to account for software licenses, which will now be accounted
for as licenses of intangible assets. There was no effect to the Companys consolidated financial statements.
In January 2016, the Company adopted
ASU
2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires companies to classify all deferred tax assets and liabilities, and related valuation allowances, as noncurrent on the balance
sheet instead of separating into current and noncurrent. This guidance has been applied retrospectively. As a result, $6,497 of current deferred income tax assets and $70 of current deferred income tax liabilities were reclassed to
non-current
at December 31, 2015.
In January 2016, the Company adopted ASU
2016-09,
Compensation
Stock Compensation, Improvements to Employee Share-Based Payment Accounting
, which will require entities to recognize the income tax
effects of awards on the income statement when the awards vest or are settled and allows for a policy elections to recognize forfeitures as they occur. In connection with adoption, the Company did not elect the
non-public
practical expedient related to the expected term or intrinsic value. As a result of the adoption, the Company recognized a loss of $715, net of tax benefit of $250, in Accumulated Deficit related to
prior year forfeitures during 2016. The application of the remaining transition items related to tax were not deemed to have a significant impact on the consolidated financial statements.
Recent Accounting Standards
In July 2015, the FASB
issued ASU
2015-11,
S
implifying the Measurement of Inventory,
which requires inventory to be measured at the lower of cost and net realizable value. For publicly traded companies, the guidance is
effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842),
which will increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For publicly traded companies, the guidance is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating
ASU 2016-02
and has not determined the impact it may
have on the Companys consolidated financial statements nor decided upon the method of adoption.
In May 2014, the FASB issued ASU
No. 2014-9,
Revenue from Contracts with Customers.
The objective of
ASU 2014-09
is to establish a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance. The core principle of
ASU 2014-09
is that an entity recognizes revenue at 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. In applying the new guidance, the Company must (1) identify the
contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contracts performance obligations; and (5) recognize revenue
when the Company satisfies a performance obligation.
ASU 2014-09
applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards
Codification.
In August 2015, the FASB issued ASU
No. 2015-14,
Revenue from Contracts with Customers,
Deferral of the Effective Date
.
ASU 2015-14
is effective for interim and annual reporting periods beginning after December 15, 2017 for publicly traded companies and can be adopted by the
Company using either a full retrospective or modified retrospective approach, with early adoption prohibited.
In March 2016, the FASB issued ASU
2016-08,
Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies how an entity should identify the unit of accounting for the
principal versus agent evaluation and how it should apply the control principle to certain types of arrangements.
F-19
In April 2016, the FASB amended ASU
2016-10,
Revenue from Contracts
with Customers, Identifying Performance Obligations and Licensing.
This amended FASBs new recognition guidance on identifying performance obligations to allow entities to disregard items that are immaterial in the context of the contract,
clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been
transferred to the customer as a fulfillment cost (i.e., an expense).
In May 2016, the FASB amended ASU
2016-12,
Revenue from Contracts with Customers, Narrow-Scope improvements and Practical Expedients
which amended its new revenue recognition guidance on transition, collectability, noncash consideration and the presentation of sales and other similar
taxes. The amendments clarify that, for a contract to be considered completed at transaction, all (or substantially all) of the revenue must have been recognized under legacy GAAP.
In December 2016, the FASB issued ASU
2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from
Contracts with Customers
.
The amendments allow entities to not make quantitative disclosures about remaining performance obligations in certain cases and require entities that use any of the new or previously existing optional exemptions
to expand their qualitative disclosures.
This revenue guidance (ASU
2014-9,
ASU
2015-14,
ASU
2016-08,
ASU
2016-10,
ASU
2016-12
and ASU
2016-20)
is effective for interim and annual reporting periods beginning after December 15, 2017 for publicly traded companies and can be adopted by the Company using either a full retrospective or
modified retrospective approach, with early adoption prohibited. The Company is currently evaluating this revenue guidance and has not determined the impact it may have on the Companys consolidated financial statements nor decided upon the
method of adoption.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows, Classification of
Certain Cash Receipts and Cash Payments
, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. This guidance is effective for publicly traded companies for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. The Company does not expect this guidance to have a material impact on its consolidated Statement of Cash Flows.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes, Intra-Entity Transfers of Assets Other than
Inventory
, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. This guidance is effective for publicly traded
companies for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company is currently evaluating ASU
2016-16
and has not determined the impact it may have on the
Companys consolidated financial statements.
In November 2016, the FASB issued ASU
2016-18,
Statement of
Cash Flows, Restricted Cash,
which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present
transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017 for publicly traded
companies and must be adopted using a retrospective approach. The Company is currently evaluating ASU
2016-18
and has not determined the impact it may have on the Companys consolidated Statement of Cash
Flows.
In December 2016, the FASB issued ASU
2016-19,
Technical Corrections and Improvements
, which
corrects errors and makes minor improvements affecting a variety of topics in the ASC. Most of the amendments are not expected to have a significant effect on practice. The Company does not expect this guidance to have a material impact on its
consolidated financial statements.
In January 2017, the FASB issued ASU
2017-01,
Clarifying the Definition of
a Business
, to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
F-20
be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and
consolidation. This guidance is effective for publicly traded companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating ASU
2017-01
and its impact on the accounting for future acquisitions.
In January 2017 the FASB issued ASU
2017-04,
Simplifying the Test for Goodwill Impairment
, to simplify the subsequent measurement of goodwill and eliminate the Step 2 from the goodwill impairment test. Under the amendments in this Update, an
entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the
reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the
amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or
any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. The Company is currently evaluating ASU
2017-04
and will assess the impact on future goodwill impairment tests.
2. Business Acquisitions and Divestitures
Acquisition of Wallover Enterprises, Inc.
On
July 6, 2016, the Company completed the acquisition of Wallover Enterprises, Inc. (Wallover) and subsidiaries, in the United States and Canada (Wallover Acquisition). Wallover is based in Strongsville, Ohio. Wallover is
a branded manufacturer of consumable, custom oil and water-based industrial lubricants and metalworking fluids which are used in a broad array of manufacturing applications. Products manufactured using Wallovers industrial lubricants and
metalworking fluids include: automotive components, products for the oil & gas industries, appliances, consumer and commercial electronics, aerospace components, medical devices, and various metals. Under the terms of the Wallover
Acquisition, the Company acquired certain assets, including trade receivables, equipment and customer lists and also assumed certain liabilities for consideration of $39,363 net of cash received. Management believes that the acquisition will enable
the Company to strengthen our market position in the consumable, custom oil and water-based industrial lubricants, as well as metalworking fluids and will complement our services in the United States and Canada.
The Company incurred and expensed transaction costs of $800 for the year ended December 31, 2016.
The preliminary purchase price allocation is based upon the estimated fair values as of the date of the acquisition, and is summarized as follows:
|
|
|
|
|
Consideration
|
|
|
|
Cash paid to the sellers, net of cash acquired
|
|
$
|
39,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Trade receivables
|
|
$
|
4,364
|
|
|
Accounts payable
|
|
$
|
1,543
|
|
Inventories
|
|
|
3,773
|
|
|
Accrued expenses
|
|
|
210
|
|
Plant property & equipment
|
|
|
6,395
|
|
|
Deferred tax liabilities
|
|
|
8,722
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
15,280
|
|
|
Liabilities assumed
|
|
|
10,475
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
19,240
|
|
|
Net Assets Acquired
|
|
$
|
39,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
49,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Of the $19,240 of acquired intangible assets, $15,000 was preliminarily assigned to customer lists with an 11
year useful life, $3,600 was assigned to technology and intellectual property with a 9 year useful life, $510 was assigned to
non-compete
agreements with a 5 year useful life, and $130 was assigned to
trademarks with a 2 years useful life. The fair value of the identifiable intangible asset was determined based on an income approach. The excess of the purchase price over the fair value of the assets acquired was recorded as Goodwill.
Recognition of inventory fair value adjustments were $298 for the year ended December 31, 2016 and were included in Cost of goods sold. Realization of
the inventory fair value adjustments related to the Wallover Acquisition were recognized ratably over the estimated inventory turnover period. Amortization of the inventory fair value adjustments related to the Wallover Acquisition was completed in
September 2016.
Acquisition of Braemar UK Ltd.
On
March 20, 2015 the Company completed the acquisition of Braemar UK Ltd. (Braemar) in the United Kingdom (Braemar Acquisition). Braemar is a supplier of metalworking fluids and lubricants, specializing in water based
systems primarily supplying to the automotive component sector and high technology aerospace industries. Under the terms of the Braemar Acquisition, the Company acquired certain assets, including trade receivables, equipment and customer lists and
also assumed certain liabilities for consideration of $6,737. Management believes that the acquisition will enable the Company to strengthen the market position in the metalworking industry and will complement our services in the United Kingdom.
The Company incurred and expensed transaction costs of $118 for the year ended December 31, 2015.
The final purchase price allocation is based upon the estimated fair values as of the date of the acquisition, and is summarized as follows:
|
|
|
|
|
Consideration
|
|
|
|
Cash paid to the sellers, net of cash acquired
|
|
$
|
6,737
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Trade receivables
|
|
$
|
612
|
|
|
Accounts payable
|
|
$
|
153
|
|
Inventories
|
|
|
427
|
|
|
Accrued expenses
|
|
|
170
|
|
Other current assets
|
|
|
384
|
|
|
Income taxes payable
|
|
|
64
|
|
Customer Relationship Intangible
|
|
|
2,110
|
|
|
Deferred income taxes
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,048
|
|
|
Liabilities assumed
|
|
$
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
7,581
|
|
|
Net Assets Acquired
|
|
$
|
6,737
|
|
|
|
|
|
|
|
|
|
|
|
|
The $2,110 acquired intangible asset was customer lists with a 13 year useful life. The excess of the purchase price over
the fair value of the assets acquired was recorded as Goodwill.
Acquisition of Envirotek Management Services, Inc.
On December 1, 2014, the Company completed the acquisition of Envirotek Management Services, Inc. (Envirotek) in the United States
(Envirotek Acquisition). Envirotek is a provider of chemical management services including fluid management, recycling and lubrication and filtration services to the automotive and other industries. Under the terms of the Envirotek
Acquisition, the Company acquired certain assets, including trade receivables, equipment and customer lists and also assumed certain liabilities for consideration of $1,700 net of cash acquired. Management believes that the acquisition will enable
the Company to strengthen the market position in the chemical management services industry and will complement our Fluidcare services in North America.
F-22
The Company incurred and expensed all related transaction costs of $57 for the year ended December 31, 2014.
The final purchase price allocation is based upon the estimated fair values as of the date of the acquisition, and is summarized as follows:
|
|
|
|
|
Consideration
|
|
|
|
Cash paid to the sellers, net of cash acquired
|
|
$
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Trade receivables
|
|
$
|
1,091
|
|
|
Accounts payable
|
|
$
|
631
|
|
Inventories
|
|
|
10
|
|
|
Accrued expenses
|
|
|
56
|
|
Other current assets
|
|
|
2
|
|
|
Income taxes payable
|
|
|
162
|
|
Plant, property and equipment
|
|
|
200
|
|
|
Deferred income taxes
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship intangible
|
|
|
1,184
|
|
|
Liabilities assumed
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
547
|
|
|
Net Assets Acquired
|
|
$
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
3,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1,184 acquired intangible asset was customer lists with a nine year useful life. The excess of the purchase price
over the fair value of the assets acquired was recorded as Goodwill.
Acquisition of Henkel Corporation Oil and Cleaner Product Line
On March 31, 2014, the Company completed the acquisition of the Henkel Corporation (Henkel), North American Steel Mill business (Henkel
Acquisition). The business manufactures products such as rolling oil, pickle oil, wet temper fluids and steel mill specific cleaners. Under the terms of the Henkel Acquisition, the Company assumed certain liabilities and acquired certain
assets, including finished goods inventories, equipment, customer lists, and other intangible assets such as technology and intellectual property for consideration of $10,937 in cash and an
earn-out
estimated
at $3,720. Management believes that the acquisition will enable the Company to strengthen the market position in the steel rolling market position in North America.
The
earn-out
for Henkel was based upon the cumulative revenues associated with the acquired product lines for fourteen
months following the close of the transaction as defined by the purchase agreement. In 2015, the Company paid $2,433 for the
earn-out.
This was a $490 reduction from the $2,923 accrued as component of Other
current liabilities and other as of December 31, 2014. In 2014, the Company had reduced the estimated earn out by $777 based upon an analysis of forecasted revenues and the probability of achieving the forecasted cumulative revenue target. The
reductions in
earn-out
were recorded to Other expense, net.
The Company incurred and expensed all related
transaction costs of $215 for the year ended December 30, 2014.
The purchase price allocation is based upon the estimated fair values as of the date
of the acquisition, and is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Consideration
|
|
|
|
|
Assets Acquired
|
|
|
|
Cash paid to the sellers
|
|
$
|
10,937
|
|
|
Inventories
|
|
$
|
575
|
|
Earn-out
|
|
|
3,720
|
|
|
Other current assets
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,657
|
|
|
Property, plant and equipment
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
10,020
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,657
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
Of the $10,020 of acquired intangible assets, $6,390 was assigned to customer lists with a 12 year useful life
and $3,630 was assigned to technology and intellectual property with a 12 year useful life. The Other current asset amount of $2,250 relates to a transition services agreement. Under the transition services agreement, Henkel continued to manufacture
certain products for the Company through May 2015 and the costs were recognized to cost of goods sold. The excess of the purchase price over the fair value of the assets acquired was recorded as Goodwill.
Recognition of inventory fair value adjustments were $132 for the year ended December 31, 2014 and were included in Cost of goods sold. Realization of
the inventory fair value adjustments related to the Henkel Acquisition were recognized ratably over the estimated inventory turnover period. Amortization of the inventory fair value adjustment related to the Henkel Acquisition was completed in April
2014.
3. Stock-based Compensation and Other Compensation Arrangements
Stock Option Plan
Stock options have been provided under
two plans. The GH Plan was in effect from October 16, 2013 through June 26, 2015, when the Company conducted an exchange offer which allowed holders of GH stock options and SARS to exchange their options for a like number of share options
in Houghton. In conjunction with the exchange, the Board of Directors approved the Houghton Plan.
In 2015, the Company demonstrated the intent for
allowing net cash settlements of stock-based awards as well as the removal of the six month waiting period for recipients of stock-based awards. This intent triggered a modification to liability accounting for stock-based compensation, which
requires the outstanding options and SARS to be measured at fair value as of the grant date and
re-measured
at fair value at the end of each reporting period. Compensation expense associated with service
awards is recognized over the requisite service period, while performance based options are recognized over the performance period based upon achievement of targets. Under modification accounting, the cumulative expense recognized is equal to the
greater of the grant-date fair value of the equity award or the fair value of the modified liability award when it is settled, which is generally determined using the Black-Scholes method. Compensation expense associated with stock options awarded
subsequent to modification accounting is measured at the fair value at the end of each reporting period.
The following weighted average assumptions were
used in the pricing models to estimate the fair value of options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Range of risk-free interest rate
|
|
|
1.46-1.87
|
%
|
|
|
1.43-1.91
|
%
|
|
|
1.72
|
%
|
Range of expected term (Years)
|
|
|
3.52-5.55
|
|
|
|
4.24-6.53
|
|
|
|
5.39
|
|
Volatility
|
|
|
50
|
%
|
|
|
55
|
%
|
|
|
32.3
|
%
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value per option granted service
|
|
$
|
23.41-29.38
|
|
|
$
|
27.77-35.08
|
|
|
$
|
30.97
|
|
Estimated fair value per option granted performance
|
|
$
|
23.39-31.27
|
|
|
$
|
27.72-36.78
|
|
|
$
|
30.97
|
|
The risk-free interest rate is based on the U.S Treasury yield curve. The Company considered the contractual term and the
vesting schedule of the stock options to determine the expected term. Expected volatility is based on an analysis of stock price data for guideline companies. Compensation expense recognized is net of actual forfeitures.
F-24
The following table provides stock-based compensation expense for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Stock options
|
|
$
|
1,228
|
|
|
$
|
1,545
|
|
|
$
|
1,144
|
|
Performance shares
|
|
|
1,534
|
|
|
|
997
|
|
|
|
560
|
|
Stock appreciation rights
|
|
|
85
|
|
|
|
96
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
2,848
|
|
|
$
|
2,638
|
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit
|
|
$
|
631
|
|
|
$
|
692
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table lists option grant activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Based Stock Options
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
contractual
life (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2014
|
|
|
136,443
|
|
|
$
|
105.22
|
|
|
|
8.80
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
2,693
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
6,021
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
1,200
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under GH Plan as of June 26, 2015
|
|
|
126,529
|
|
|
$
|
105.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GH options exchanged for Houghton options
|
|
|
126,529
|
|
|
|
105.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
28,800
|
|
|
|
109.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
3,600
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
5,400
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2015
|
|
|
146,329
|
|
|
$
|
105.99
|
|
|
|
8.27
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
18,500
|
|
|
|
104.61
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
6,944
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
12,150
|
|
|
|
105.62
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
300
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2016
|
|
|
145,435
|
|
|
$
|
105.90
|
|
|
|
7.55
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
100,728
|
|
|
$
|
105.52
|
|
|
|
7.28
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Based Stock Options
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
contractual
life (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2014
|
|
|
135,227
|
|
|
$
|
105.20
|
|
|
|
8.80
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
2,021
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
7,912
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
822
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under GH Plan as of June 26, 2015
|
|
|
124,472
|
|
|
$
|
105.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GH options exchanged for Houghton options
|
|
|
67,268
|
|
|
|
105.13
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
4,667
|
|
|
|
110.02
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
2,466
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
6,534
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2015
|
|
|
62,935
|
|
|
$
|
105.51
|
|
|
|
7.99
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
42,073
|
|
|
|
106.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
5,004
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
235
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2016
|
|
|
99,769
|
|
|
$
|
105.92
|
|
|
|
7.42
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
53,196
|
|
|
$
|
105.59
|
|
|
|
7.02
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Houghton Plan establishes performance targets for performance based stock options on an annual basis. The performance
awards included 139,292 options, of which 99,769 have been granted. The remaining 39,523 options are expected to be granted as 2017 performance targets are defined, which occurs annually, generally in the first quarter of each plan year.
The weighted-average grant-date fair value of service based options granted during 2016, 2015 and 2014 was $36.56, $37.50, and $33.16, respectively. The
weighted-average grant-date fair value of performance based options granted during 2016, 2015 and 2014 was $36.56, $36.73, and $33.07, respectively. The total fair value of stock options vested during 2016 was $1,189 for the service based stock
options and $1,364 for the performance based stock options.
During 2016, 11,856 options were net cash settled at an exercise price of $105.00 and a fair
value of $105.66. As such, $7 was paid out of the Houghton Plan and 11,856 shares were recorded as treasury stock.
As of December 31, 2016, there
was approximately $732 of expected future
pre-tax
stock-based compensation expense related to
non-vested
service stock options outstanding, which is expected to be
recognized over the remaining period of 1.55 years. These expected future expenses were calculated assuming no change in fair value. Given that the stock options are deemed a liability instrument, a change in fair value will result in a
corresponding change to future
pre-tax
stock-based compensation expense.
F-26
The following table lists SARs activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Based SARS
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
contractual
life (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2014
|
|
|
4,500
|
|
|
$
|
105.00
|
|
|
|
8.80
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
400
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
100
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under GH Plan as of June 26, 2015
|
|
|
4,000
|
|
|
$
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GH SARS exchanged for Houghton SARS
|
|
|
4,000
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,100
|
|
|
|
114.30
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2015
|
|
|
6,100
|
|
|
$
|
108.20
|
|
|
|
8.98
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
1,200
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2016
|
|
|
4,900
|
|
|
$
|
108.99
|
|
|
|
8.08
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
2,420
|
|
|
$
|
106.61
|
|
|
|
7.77
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Based SARS
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
contractual
life (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2014
|
|
|
4,500
|
|
|
$
|
105.00
|
|
|
|
8.80
|
|
|
$
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
439
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
61
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under GH Plan as of June 26, 2015
|
|
|
4,000
|
|
|
$
|
105.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GH SARS exchanged for Houghton SARS
|
|
|
1,516
|
|
|
|
105.00
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
466
|
|
|
|
114.30
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2015
|
|
|
1,982
|
|
|
$
|
107.19
|
|
|
|
8.85
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
966
|
|
|
|
109.34
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding under Houghton Plan as of December 31, 2016
|
|
|
2,948
|
|
|
$
|
107.87
|
|
|
|
7.95
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2016
|
|
|
1,918
|
|
|
$
|
107.14
|
|
|
|
7.95
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
The Houghton Plan establishes performance targets for performance based SARS on an annual basis. The SARS awards
included 4,133 awards, of which 2,948 have been granted. The remaining 1,185 awards are expected to be granted as 2017 performance targets are defined, which occurs annually, generally in the first quarter of each plan year.
The total fair value of SARS vested during 2016 was $38 for the service based SARS and $46 for the performance based SARS.
As of December 31, 2016 there was approximately $53 of expected future
pre-tax
compensation expense related to
nonvested service SARS outstanding, which is expected to be recognized over the remaining period of 2.18 years. These expected future expenses were calculated assuming no change in fair value. Given that the SARS are deemed a liability instrument, a
change in fair value will results in a corresponding change to the future
pre-tax
stock-based compensation expense.
Long-Term Incentive Plan
Long-term incentive plans exist
under both GH Holdings, Inc. and Global Houghton Ltd. The performance and service periods under the GH LTIP are from January 1, 2013 through December 31, 2017 and the required service period is from January 27, 2014 through
December 31, 2017. The performance and service periods under the LTIP are from January 1, 2015 through December 31, 2017.
At
December 31, 2016 and December 31, 2015, the Company had a liability recorded of $5,000 and $2,438, respectively, as a component of Other
non-current
liabilities based upon the estimated achievement
of the performance goal. For the year ended December 31, 2016, LTIP expense was $2,562. For the year ended December 31, 2015, LTIP expense was $1,577, which includes $2,438 associated with the Global Houghton Ltd LTIP Plan and the reversal
of $861 of expense due to performance goals not being met under the GH Holdings, Inc. LTIP Plan. For the year ending December 31, 2014, $861 of expense was recognized under the GH Holdings, Inc. LTIP Plan. LTIP expense was recognized as a
component of Selling, general and administrative expenses.
4. Other Expenses
Other Operating Expense
Other operating expenses were
$1,780 for year ended December 31, 2016. This primarily consisted of $1,355 related to strategic headcount reductions and the remainder related to other corporate activities.
Other operating expenses were $5,425 for year ended December 31, 2015. This primarily consisted of $3,288 in costs associated with a potential initial
public offering, a fixed asset impairment of $814 related to the expected sale of the Genoa, Italy manufacturing facility adjusted for recent offers from potential buyers in declining market conditions and $521 in strategic headcount reductions. The
remainder related to other corporate activities.
Other operating expenses were $5,623 for the year ended December 31, 2014. This primarily consisted
of $3,206 in costs associated with a potential initial public offering, $1,180 in strategic headcount reductions and $425 in employee related costs. The remainder related to other corporate activities.
Other Expense, net
Other expense was $4,869 for the year
ended December 31, 2016. This primarily related to a $2,096 claim pending with Brazilian tax authorities specific to VAT taxes, $1,537 in foreign currency transaction losses, $605 of royalties expense, $526 in other
non-income
related tax expense, and $332 paid to a consultant to the Board of Directors. The remainder related to other
non-operating
expenses and income.
F-28
Other expense was $7,613 for the year ended December 31, 2015. This primarily consisted of $4,202 in foreign
currency transaction losses, $3,073 reduction of tax indemnification asset, $637 of royalties expense and $636 in
non-income
related tax expense, offset by $636 increase in amounts received in settlement and
$490 reduction to the estimated earn out related to the 2014 acquisition of the Henkel Corporation (Henkel) North American steel mill business. The remainder related to other
non-operating
expenses.
Other expense was $11,112 for the year ended December 31, 2014. This primarily consisted of $4,467 related to the reduction of a tax
indemnification asset for tolling of
pre-acquisition
statutes net of accrued interest, $3,420 in foreign currency transaction losses, $1,578 in
non-income
related tax
expense, $893 of royalty expense and $470 loss on disposals of property, plant and equipment. The remainder related to other
non-operating
expenses.
5. Restructuring
During the acquisition of Wallover in
July 2016, the Company made strategic decisions to close two plant facilities and reduce headcount in East Liverpool, Ohio and Hamilton, Ohio. The Company expects to complete these activities within twelve months, except for ongoing legal costs
associated with employee matters connected to these activities. Also in 2016, an $815 environmental accrual related to the Genoa, Italy facility was recorded as other income as a result of the reversal of the accrual, as this property was sold in
January 2017 with no further obligations.
During 2015, the Company made strategic decisions resulting in restructuring activities related to significant
headcount reduction programs in the United States and Europe. The Company continues to incur ongoing legal costs associated with employee matters connected to these activities. In 2015, based on offers from potential buyers in declining market
conditions, a fixed asset impairment for $136 was recorded related to the expected sale of the Rouen, France manufacturing facility, which was part of a 2013 restructuring event.
During 2014, the Company continued strategic headcount reduction programs and restructuring activities initiated in 2012 related to the Shell MWO acquisition
and 2013 related to headcount reduction programs in Europe and Canada. In 2014, fixed asset impairment of $967 was recorded, of which, $398 was related to the expected sale of the Rouen, France manufacturing facility and $569 was related to the
expected sale of the Genoa, Italy facility adjusted for recent offers from potential buyers in declining market conditions.
The following table
summarizes restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Severance cost
|
|
$
|
2,190
|
|
|
$
|
4,464
|
|
|
$
|
(150
|
)
|
Facility closing costs
|
|
|
(393
|
)
|
|
|
560
|
|
|
|
468
|
|
Fixed asset impairments
|
|
|
|
|
|
|
137
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,797
|
|
|
$
|
5,161
|
|
|
$
|
1,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the movements in the accrued liabilities relating to the cost categories described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
Provisions
|
|
|
Non-cash
Transactions
|
|
|
Cash
Reductions
|
|
|
December 31,
2016
|
|
Severance cost
|
|
$
|
2,648
|
|
|
$
|
2,190
|
|
|
$
|
(47
|
)
|
|
$
|
(3,306
|
)
|
|
$
|
1,485
|
|
Facility closing costs
|
|
|
1,431
|
|
|
|
(393
|
)
|
|
|
(50
|
)
|
|
|
(557
|
)
|
|
|
431
|
|
Fixed asset impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,079
|
|
|
$
|
1,797
|
|
|
$
|
(97
|
)
|
|
$
|
(3,863
|
)
|
|
$
|
1,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2014
|
|
|
Provisions
|
|
|
Non-cash
Transactions
|
|
|
Cash
Reductions
|
|
|
December 31,
2015
|
|
Severance cost
|
|
$
|
425
|
|
|
$
|
4,464
|
|
|
$
|
(53
|
)
|
|
$
|
(2,188
|
)
|
|
$
|
2,648
|
|
Facility closing costs
|
|
|
1,361
|
|
|
|
560
|
|
|
|
(131
|
)
|
|
|
(359
|
)
|
|
|
1,431
|
|
Fixed asset impairments
|
|
|
|
|
|
|
137
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,786
|
|
|
$
|
5,161
|
|
|
$
|
(321
|
)
|
|
$
|
(2,547
|
)
|
|
$
|
4,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Income Taxes
The
provision for (benefit from) income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal and state
|
|
$
|
1,874
|
|
|
$
|
126
|
|
|
$
|
(859
|
)
|
Foreign
|
|
|
16,854
|
|
|
|
14,967
|
|
|
|
15,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
18,728
|
|
|
|
15,093
|
|
|
|
14,933
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal and state
|
|
|
(9,416
|
)
|
|
|
(8,178
|
)
|
|
|
(4,157
|
)
|
Foreign
|
|
|
(14,500
|
)
|
|
|
(12,881
|
)
|
|
|
(8,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(23,916
|
)
|
|
|
(21,059
|
)
|
|
|
(12,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5,188
|
)
|
|
$
|
(5,966
|
)
|
|
$
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Domestic
|
|
$
|
(20,428
|
)
|
|
$
|
(24,709
|
)
|
|
$
|
(21,935
|
)
|
Foreign
|
|
|
(30,626
|
)
|
|
|
10,662
|
|
|
|
13,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
(loss) income
|
|
$
|
(51,054
|
)
|
|
$
|
(14,047
|
)
|
|
$
|
(8,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Differences between income tax expense (benefit) at the U.S. Federal statutory rate of 35% and the Companys
continuing operations effective tax rate for 2014, 2015 and 2016 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Tax at statutory rate
|
|
$
|
(17,869
|
)
|
|
$
|
(4,917
|
)
|
|
$
|
(3,079
|
)
|
Permanent differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees
|
|
|
770
|
|
|
|
700
|
|
|
|
700
|
|
Indemnification asset
|
|
|
|
|
|
|
1,076
|
|
|
|
1,403
|
|
Meals & entertainment
|
|
|
343
|
|
|
|
323
|
|
|
|
333
|
|
Non-deductible
interest expense
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
Non-deductible
acquisition costs
|
|
|
535
|
|
|
|
(1,114
|
)
|
|
|
20
|
|
Non-deductible
foreign currency losses
|
|
|
|
|
|
|
|
|
|
|
761
|
|
Transfer pricing
|
|
|
258
|
|
|
|
113
|
|
|
|
503
|
|
Domestic production activities deduction
|
|
|
(250
|
)
|
|
|
(360
|
)
|
|
|
|
|
Goodwill Impairment
|
|
|
5,291
|
|
|
|
|
|
|
|
|
|
All other permanent differences
|
|
|
1,643
|
|
|
|
1,214
|
|
|
|
1,615
|
|
State tax expense (benefit) Net of federal benefit
|
|
|
294
|
|
|
|
490
|
|
|
|
(238
|
)
|
Adjustment to the deferred tax asset valuation allowance
|
|
|
1,410
|
|
|
|
242
|
|
|
|
698
|
|
Foreign rate differential
|
|
|
1,270
|
|
|
|
(2,344
|
)
|
|
|
(1,670
|
)
|
R&D Credit
|
|
|
(932
|
)
|
|
|
|
|
|
|
|
|
Taxes on foreign earnings
|
|
|
3,443
|
|
|
|
2,908
|
|
|
|
3,425
|
|
Unrecognized tax benefits
|
|
|
(1,080
|
)
|
|
|
(1,788
|
)
|
|
|
(2,966
|
)
|
Change in enacted tax rates
|
|
|
(314
|
)
|
|
|
(2,509
|
)
|
|
|
(871
|
)
|
Change in enacted tax law
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(5,188
|
)
|
|
$
|
(5,966
|
)
|
|
$
|
2,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Company had the following federal, state and foreign net operating loss carryforwards:
|
|
|
|
|
Expiration
|
|
2016
|
|
2017
|
|
$
|
2,183
|
|
2018
|
|
|
3,276
|
|
2019
|
|
|
2,556
|
|
2020-2034
|
|
|
94,201
|
|
Indefinite
|
|
|
12,918
|
|
|
|
|
|
|
Total
|
|
$
|
115,134
|
|
|
|
|
|
|
In addition to $285 of
non-US
foreign tax credits which are not subject to expiration,
the Company had excess U.S. foreign tax credits of $56,689 as of December 31, 2016 subject to the following expirations:
|
|
|
|
|
Expiration
|
|
2016
|
|
2017
|
|
|
2,575
|
|
2018
|
|
|
6,161
|
|
2019
|
|
|
7,072
|
|
2020-2026
|
|
|
40,881
|
|
|
|
|
|
|
Total
|
|
$
|
56,689
|
|
|
|
|
|
|
Deferred income taxes arise due to certain items being includable in the determination of taxable income in periods different
than for financial reporting purposes. The tax effect of significant types of temporary
F-31
differences and carryforwards that gave rise to the Companys deferred tax assets and liabilities as of December 31, 2016 and 2015 follow:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
6,948
|
|
|
$
|
5,762
|
|
Capitalized income and expenditures
|
|
|
3,354
|
|
|
|
3,650
|
|
Accrued pensions and post-retirement benefits
|
|
|
11,271
|
|
|
|
11,503
|
|
Tax loss carry forwards
|
|
|
8,320
|
|
|
|
9,135
|
|
Foreign and other tax credit carryforwards
|
|
|
56,974
|
|
|
|
49,216
|
|
Advance royalties
|
|
|
5,734
|
|
|
|
8,380
|
|
Other deferred tax asset
|
|
|
7,175
|
|
|
|
5,783
|
|
Transaction costs
|
|
|
2,213
|
|
|
|
2,419
|
|
Environmental and restructuring reserves
|
|
|
767
|
|
|
|
849
|
|
Foreign Exchange
|
|
|
49
|
|
|
|
|
|
Inventory
|
|
|
1,410
|
|
|
|
1,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,215
|
|
|
|
97,837
|
|
Valuation allowance
|
|
|
(9,320
|
)
|
|
|
(8,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
94,895
|
|
|
|
89,836
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable and amortizable assets
|
|
|
(121,983
|
)
|
|
|
(135,162
|
)
|
Investment in subsidiary
|
|
|
(9,927
|
)
|
|
|
(11,367
|
)
|
Foreign exchange difference
|
|
|
|
|
|
|
(55
|
)
|
Other
|
|
|
(108
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,018
|
)
|
|
|
(146,718
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(37,123
|
)
|
|
$
|
(56,882
|
)
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, management considers whether it is
more-likely-than-not
that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and
tax-planning
strategies and the Companys ability to implement tax planning in a timely manner when making this assessment. Based upon the level of historical taxable income, projections for future taxable
income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is
more-likely-than-not
that the Company will realize the benefits
of these deductible differences, net of the existing valuation allowances at December 31, 2015 and 2016. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
U.S. foreign tax credit carryforwards of $56,689 and $48,894 in 2016 and 2015, respectively, can be
carried forward up to 10 years and expire through 2026 whereas
non-US
foreign tax credit carryforwards of $285 and $322, respectively, are not subject to expiration. During 2016, a valuation allowance of
$2,575 was recorded against foreign tax credit related deferred tax assets due to the uncertainty regarding the utilization of these credits prior to expiration. The valuation allowances of $9,320 and $8,001 at December 31, 2016 and 2015,
respectively, were primarily related to federal, state and foreign net operating loss U.S. and foreign tax credit carryforwards that, in the judgment of management, are not
more-likely-than-not
to be realized.
The Company recognizes the tax benefits of an uncertain tax position only if those benefits are more-
likely-than-not
to be sustained based on existing tax law. Additionally, the Company establishes a reserve for tax
F-32
positions that are
more-likely-than-not
to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination
by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the
more-likely-than-not
recognition threshold is met, the tax matter is effectively settled or the statute
of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.
The Company had
approximately $4,444 and $5,555 of total gross unrecognized tax benefits as of December 31, 2016 and December 31, 2015 respectively. The gross unrecognized tax benefits relate primarily to state income taxes and intercompany transactions.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Gross unrecognized tax benefits at beginning of year
|
|
$
|
5,555
|
|
|
$
|
7,041
|
|
Gross increase for tax positions of prior years
|
|
|
585
|
|
|
|
41
|
|
Gross decrease for tax positions of prior years
|
|
|
(464
|
)
|
|
|
(795
|
)
|
Gross increase for tax positions of current year
|
|
|
968
|
|
|
|
1,518
|
|
Gross decreases for tax positions due to settlements
|
|
|
(1,935
|
)
|
|
|
(411
|
)
|
Gross decreases for tax positions due to lapse of statute of limitations
|
|
|
(265
|
)
|
|
|
(1,839
|
)
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at end of year
|
|
$
|
4,444
|
|
|
$
|
5,555
|
|
|
|
|
|
|
|
|
|
|
The Company accounts for interest and penalties related to income tax matters as income tax expense. The Company had accrued
$1,960 and $1,843 for interest and penalties at December 31, 2016 and 2015, respectively.
The Company has operations in approximately 27 states and
over 30 foreign taxing jurisdictions. The Company files income tax returns in the US federal jurisdiction and various state and local jurisdictions. The Companys number of open tax years vary by jurisdiction. Interest and penalties accrued
during the year were not material as the primary change during the year related to the movement of foreign exchange rates. The Companys returns are no longer subject to US federal tax examinations for years ended before December 31, 2012
except to the extent of deductions of net operating losses originating prior to 2012.
In connection with the Gulf Transaction, the Company recognized a
tax indemnification asset of $11,447 in the opening balance sheet to reflect an offsetting asset for the recorded uncertain tax liability. Pursuant to the indemnification agreement, the Company was entitled to cash proceeds in connection with any
negative outcome related to uncertain tax positions within the three year period following acquisition. During the periods ended December 31, 2016, 2015 and 2014, the Company recorded charges of $0, $3,073 and $4,467, respectively, to
operations related to reduction to indemnification asset for tolling of
pre-acquisition
statutes net of increases for accrued interest. An offsetting benefit is reflected in income tax expense. The
indemnification asset of $3,989 as of December 31, 2014 fully reversed in 2015 through combination of tolling of
pre-acquisition
statutes and termination of tax indemnification in 2015.
The Company has not provided US deferred taxes on cumulative earnings of
non-US
affiliates and associated companies
that have been reinvested indefinitely. These earnings relate to ongoing operations and, at December 31, 2016, were $391,734. These earnings have been reinvested in active
non-US
business operations and
the Company does not intend to repatriate these earnings to fund US operations. Because of the availability of US foreign tax credits, it is not practicable to determine the US federal income tax liability that would be payable if such earnings were
not reinvested indefinitely. Deferred taxes have been provided for earnings of
non-US
affiliates and associated companies where the Company plans to remit those earnings.
7. Accounts Receivable, net
Accounts receivables at
December 31, 2016 and 2015 were $137,195 and $133,113, respectively, which were offset by an allowance for doubtful accounts of $6,464 and $5,243, respectively.
F-33
Total expense related to the reserve for doubtful accounts for the year ended December 31, 2016, 2015 and
2014 were $1,547, $1,083, and $737.
8. Inventories
The Companys total inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Raw materials
|
|
$
|
26,558
|
|
|
$
|
24,722
|
|
Work in process
|
|
|
374
|
|
|
|
534
|
|
Finished goods
|
|
|
49,321
|
|
|
|
48,439
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,253
|
|
|
$
|
73,695
|
|
|
|
|
|
|
|
|
|
|
9. Other Current Assets
The Companys other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Prepaid expenses
|
|
$
|
863
|
|
|
$
|
2,080
|
|
Total refundable taxes
|
|
|
3,530
|
|
|
|
3,362
|
|
Marketable securities
|
|
|
10,035
|
|
|
|
10,331
|
|
Current deposits
|
|
|
892
|
|
|
|
895
|
|
Other current assets
|
|
|
2,175
|
|
|
|
1,888
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,495
|
|
|
$
|
18,556
|
|
|
|
|
|
|
|
|
|
|
10. Assets Held for Sale
Assets held for sale are reported at the lower of the carrying amount or the fair value less costs to sell. Assets held for sale were $1,620 and $2,744 as of
December 31, 2016 and December 31, 2015, respectively, and represented Genoa, Italy in 2016 and both the Genoa, Italy and Wuppertal, Germany manufacturing plants in 2015. The fair value of the assets was determined by the Company based
upon prices for similar assets. In 2015 a fixed asset impairment of $815 related to the expected sale of the Genoa, Italy manufacturing facility was recorded to Other operating expense based upon recent offers from potential buyers in declining
market conditions. The Wuppertal, Germany site was sold during March 2016 with the gain of $56 included in Other expense, net. The Genoa property was sold in January 2017. No gain or loss was recorded as the property was sold at an amount equal to
the carrying value.
11. Property, Plant and Equipment
Property, plant and equipment comprise of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Land and buildings
|
|
$
|
43,875
|
|
|
$
|
40,784
|
|
Machinery and equipment
|
|
|
68,069
|
|
|
|
60,445
|
|
Construction in progress
|
|
|
2,666
|
|
|
|
1,770
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
114,610
|
|
|
$
|
102,999
|
|
Less: Accumulated depreciation
|
|
|
(38,530
|
)
|
|
|
(29,233
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,080
|
|
|
$
|
73,766
|
|
|
|
|
|
|
|
|
|
|
F-34
Depreciation expense, including depreciation on assets under capital leases, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Depreciation Expense
|
|
$
|
11,175
|
|
|
$
|
11,721
|
|
|
$
|
13,032
|
|
The gain (loss) on disposal of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
(Gain) loss on disposal
|
|
$
|
(423
|
)
|
|
$
|
89
|
|
|
$
|
470
|
|
12. Goodwill & Intangible Assets
Goodwill
The changes in the carrying amount of Goodwill
are as follows:
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
263,320
|
|
|
|
Wallover acquisition
|
|
|
15,280
|
|
South Asia impairment loss
|
|
|
(15,116
|
)
|
Currency translation adjustments
|
|
|
(9,366
|
)
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
254,118
|
|
|
|
|
|
|
In 2016, the Company recognized an impairment of goodwill in the amount of $15,116 related to the annual impairment review of
its South Asia operations. The goodwill impairment loss represented substantially all of the goodwill reported in South Asias operations.
Intangible Assets
Intangible assets are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Customer relationships
|
|
$
|
476,869
|
|
|
$
|
517,067
|
|
|
$
|
(140,868
|
)
|
|
$
|
(119,519
|
)
|
Technological
know-how
|
|
|
57,906
|
|
|
|
54,306
|
|
|
|
(14,657
|
)
|
|
|
(10,776
|
)
|
Trade name (Houghton)
|
|
|
21,115
|
|
|
|
21,115
|
|
|
|
|
|
|
|
|
|
Trade name (Products)
|
|
|
1,530
|
|
|
|
1,400
|
|
|
|
(315
|
)
|
|
|
(211
|
)
|
Non-Compete
Covenants
|
|
|
510
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
557,930
|
|
|
$
|
593,888
|
|
|
$
|
(155,891
|
)
|
|
$
|
(130,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2016, the Company recognized an impairment of customer relationships in the amount of $25,806 related to the annual
impairment review of its South Asia reporting unit.
Amortization expense for the year ended December 31, 2016, 2015 and 2014 was $43,857, $44,748,
and $48,302, respectively.
F-35
As of December 31, 2016, expected amortization expense for each of the next five years and thereafter was as
follows:
|
|
|
|
|
2017
|
|
|
40,721
|
|
2018
|
|
|
40,721
|
|
2019
|
|
|
40,721
|
|
2020
|
|
|
40,721
|
|
2021
|
|
|
40,721
|
|
Thereafter
|
|
|
177,319
|
|
|
|
|
|
|
Total
|
|
$
|
380,924
|
|
|
|
|
|
|
13. Investments in Equity Investee
As of December 31, 2016 the Company held a 49.99% investment in Korea Houghton Corporation (South Korea).The carrying amount of the Companys equity
investment in Korea Houghton Corporation at December, 31, 2016 was $42,783.
Summarized financial information of Korea Houghton Corporation is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Current assets
|
|
$
|
98,517
|
|
|
$
|
94,768
|
|
Non-current
assets
|
|
|
28,490
|
|
|
|
29,080
|
|
Current liabilities
|
|
|
28,829
|
|
|
|
31,336
|
|
Non-current
liabilities
|
|
|
10,720
|
|
|
|
11,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Net sales
|
|
$
|
173,087
|
|
|
$
|
180,571
|
|
|
$
|
196,325
|
|
Gross margin
|
|
|
56,421
|
|
|
|
54,688
|
|
|
|
48,406
|
|
Income before taxes
|
|
|
22,800
|
|
|
|
20,969
|
|
|
|
14,449
|
|
Net income
|
|
|
18,275
|
|
|
|
16,504
|
|
|
|
11,865
|
|
During 2016, 2015 and 2014, the company received dividend distributions from Korea Houghton Corporation of approximately
$4,043, $3,070, and $2,281, which were accounted for as reductions of the Companys investment in equity investee.
At December 31, 2016 and
December 31, 2015 the Companys share of undistributed earnings from Korea Houghton were $41,376 and $38,224, respectively.
F-36
14. Other Current Liabilities
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Other accrued expense
|
|
$
|
6,303
|
|
|
$
|
5,588
|
|
Non-employee
commissions
|
|
|
1,217
|
|
|
|
1,188
|
|
Accrued environmental costs
|
|
|
1,919
|
|
|
|
2,129
|
|
Accrued professional fees
|
|
|
2,430
|
|
|
|
1,791
|
|
Deferred revenue
|
|
|
2,235
|
|
|
|
1,707
|
|
Other accrued taxes
|
|
|
5,056
|
|
|
|
4,667
|
|
Accrued restructuring and other costs
|
|
|
2,776
|
|
|
|
4,931
|
|
Accrued income taxes
|
|
|
1,618
|
|
|
|
5,923
|
|
Other
|
|
|
1,297
|
|
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,851
|
|
|
$
|
29,304
|
|
|
|
|
|
|
|
|
|
|
15. Financing Activities
Credit Arrangements
Credit Arrangements consists of
borrowings under unsecured bank lines of credit and discounting facilities. The bank lines of credit were not collateralized and the discounting facilities were collateralized by the underlying accounts receivable. The total available under these
facilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Capacity
|
|
$
|
23,670
|
|
|
$
|
13,853
|
|
Outstanding borrowed
|
|
|
7,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused capacity
|
|
$
|
16,352
|
|
|
$
|
13,853
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
|
|
|
4.07
|
%
|
|
|
|
|
Debt
Debt is comprised
of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
2012 Senior Credit Facilities
|
|
|
|
|
|
|
|
|
First Lien U.S. Term Loans
|
|
$
|
436,800
|
|
|
$
|
441,350
|
|
First Lien Dutch Term Loans
|
|
|
88,121
|
|
|
|
92,511
|
|
Second Lien U.S. Term Loans
|
|
|
200,000
|
|
|
|
200,000
|
|
Revolving Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
724,921
|
|
|
|
733,861
|
|
Less: Debt Discounts
|
|
|
(4,199
|
)
|
|
|
(5,629
|
)
|
Less: Debt Issuance Costs
|
|
|
(13,147
|
)
|
|
|
(17,653
|
)
|
|
|
|
|
|
|
|
|
|
2012 Senior Credit Facilities, net
|
|
|
707,575
|
|
|
|
710,579
|
|
|
|
|
Obligations under capital leases
|
|
|
70
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
707,645
|
|
|
|
710,851
|
|
Less: Current portion of long-term debt
|
|
|
(4,610
|
)
|
|
|
(4,737
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
703,035
|
|
|
$
|
706,114
|
|
|
|
|
|
|
|
|
|
|
F-37
Fixed maturities of the Companys debt are as follows:
|
|
|
|
|
2017
|
|
$
|
4,550
|
|
2018
|
|
|
4,550
|
|
2019
|
|
|
515,821
|
|
2020
|
|
|
200,000
|
|
|
|
|
|
|
Total
|
|
|
724,921
|
|
|
|
|
|
|
The Company incurred the following debt related expenses that are included within Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Interest Expense
|
|
$
|
44,661
|
|
|
$
|
44,860
|
|
|
$
|
44,808
|
|
Amortization of debt issuance costs
|
|
$
|
4,419
|
|
|
$
|
4,167
|
|
|
$
|
4,105
|
|
Amortization of debt discounts
|
|
$
|
1,409
|
|
|
$
|
1,409
|
|
|
$
|
1,440
|
|
Senior Credit Facilities
On December 20, 2012, in connection with the GH Transaction, the Company entered into credit facilities (2012 Senior Credit Facilities) which
included the first and second lien facilities. The first lien consisted of $455,000 in U.S. dollar denominated Term Loans (First Lien U.S. Term Loan), 100,000 in euro-denominated Term Loans (First Lien Dutch Term Loan),
and dollar and multicurrency revolving facilities with a net capacity of $50,000 (Revolving Credit Facility). The second lien facility consisted of $200,000 in U.S. Term Loans (Second Lien U.S. Term Loan).
Borrowings under the 2012 Senior Credit Facilities provide for a selection of interest rates, at the option of the Company, based upon the prevailing LIBOR or
prime rate, plus applicable margin, subject to a 1.25% floor. In addition to paying interest on outstanding principal under the First Lien U.S. Term Loans, Dutch Term Loan, and Second Lien U.S. Term Loan, the Company pays a commitment fee to the
lenders under the 2012 Revolving Credit Facility in respect of unutilized commitments. Commitment fees paid to the lender were $204, $172, and $168 for 2016, 2015 and 2014, respectively. The line of credit is subject to normal terms related to
default and change of control.
Subject to voluntary prepayments, the Company is required to pay 0.25% of the funded initial principal balances on the
First Lien U.S. Term Loans and Dutch Term Loans quarterly through the maturity date, at which time the remaining aggregate principal balance is due. The 2012 Revolving Credit Facility matures in December 2017. The First Lien U.S. Term Loan and First
Lien Dutch Term Loan mature in December 2019. The Second Lien U.S. Term Loan matures in December 2020.
The net proceeds from the 2012 Senior Credit
Facilities were used to repay the 2011 Senior Credit Facility, with the balance of the borrowings used to fund the GH Transaction. In conjunction with obtaining the 2012 Senior Credit Facilities, the Company capitalized debt issuance costs of
$22,557 to Other
non-current
assets in the period ended December 31, 2012. The Company also capitalized $10,111 of debt discount, in the period ended December 31, 2012, related to the 2012 Senior
Credit Facilities.
During May 2013, the Company amended the 2012 Senior Credit Facilities, which resulted in a reduction in the interest rates applicable
to the First Lien U.S. and Dutch Term Loans of 1.25% and Revolving Credit Facility of 0.25%. Also, the LIBOR floor following the amendment was 1.00% in the case of the First Lien U.S. Term Loan and the First Lien Dutch Term Loan and 1.25% in the
case of the Second Lien U.S. Term Loan. The Company paid fees of $6,672 in connection with this amendment. The Company accounted for the amendment in accordance with accounting guidance for debt modifications and extinguishments. Accordingly,
amendment fees of $5,834 were capitalized and included in Other
non-current
assets, and third party fees of $838 were expensed as Interest expense. Capitalized fees will be amortized through the debt maturity
in 2019.
F-38
During July 2015, the Company amended its 2012 Senior Credit Facilities primarily to make guarantor, covenant and
other verbiage changes. In conjunction with the amendment, the Company incurred a 0.25% increase in the interest rate margin on its First Lien and Second Lien Term Loans. The Company also incurred approximately $1,921 in amendment fees paid at
closing to the lenders and approximately $1,149 in attorney, arrangement and accounting fees. The other terms and conditions of the credit facilities, discussed herein, were unchanged. The Company accounted for the amendment in accordance with
accounting guidance for debt modifications and extinguishments. The Company considered the limited changes presented by the amendment and reviewed the old and new lenders on a creditor by creditor basis and determined that the amendment was a
modification. Therefore the amendment fees of $1,921 were capitalized as additional debt issuance costs within Other
non-current
assets with all other fees being expensed as Interest
expense. Capitalized fees will be amortized through the debt maturity in 2019.
In March 2017, the Company extended the maturity date of the
Revolving Credit Facility from December 2017 to September 2019. The extended facility was reduced to capacity of $41,000. No other changes were made to the terms of the agreement. The Company paid $195 in fees related to the amendment.
The Company is required to make mandatory repayments on the first and second lien loans based upon a 1% loan amortization rate. Additional payments are
required if net proceeds from assets sales exceed $5,000 individually or $10,000 cumulatively per annum. Further additional payments are required per annum based on an excess cash flow calculation that adjusts net income for working capital and
other items, 50% of the calculated amount must be used to make a payment on the debt. Mandatory repayments may be deferred due to voluntary prepayments. As of December 31, 2016, an excess cash flow payment is not required. Covenants include
requirements for quarterly reporting to the lenders regarding compliance based upon interest and leverage ratios, reporting of environmental matters exceeding $15,000, limitation on dividend amounts, certain limitations on additional indebtedness,
and restrictions on asset sales in excess of $35,000.
The Company has unused capacity under the Revolving Credit Facility of $45,410 and $43,230 net of
bank letters of credit of $4,590 and $6,770 as of December 31, 2016 and December 31, 2015, respectively.
The interest rates on the 2012 Senior
Credit Facilities, as amended, were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
First Lien U.S. Term Loan
|
|
|
4.25
|
%
|
|
|
4.25
|
%
|
Revolving Credit Facility
|
|
|
5.00
|
%
|
|
|
4.20
|
%
|
First Lien Dutch Term Loan
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
Second Lien U.S. Term Loan
|
|
|
9.75
|
%
|
|
|
9.75
|
%
|
As of December 31, 2016 and December 31, 2015, the Company was in compliance with its financial covenants. The
Company also pledged as collateral to its lenders substantially all U.S. assets, specific
Non-U.S.
assets and stock of certain subsidiaries.
Long-term debt is reported at carrying value of $707,575, with a face value of $724,921. The fair value as of December 31, 2016 was $728,514.
Affiliate Debt
On December 12, 2012, in connection
with the Gulf Transaction, the Company entered into a loan agreement with HGHL Holdings Limited (HGHL), an affiliated entity, to borrow $313,275 at a rate of 5.60% per annum. The terms of the loan called for repayment of the loan by
December 18, 2019. Additionally, the Company incurred a debt guarantee fee of $1,500 related to the financing transaction, which was amortized over the life of the loan to affiliate interest expense.
F-39
During the second quarter of 2013, Gulf International Lubricants Ltd (GILLC), a Cayman Islands
corporation and an affiliate member of the Hinduja Group of companies, lent the Company $120,000 on an interest free basis
The Company repaid and
re-borrowed
principal amounts under these affiliate loans from time to time. During 2014, total payments of principal under these loans were $318,885 and total
re-borrowings
of principal under these loans were $7,730.
During the third quarter of 2014, Gulf Houghton Lubricants Limited (GHLL), a Cayman Islands exempted company
and an affiliate member of the Hinduja Group of companies, made a capital contribution to the Company of $307,235. The proceeds from this capital contribution were used to repay the remaining loan balance, and accrued interest, of the HGHL and GILLC
loans. Interest expense related to the HGHL loan for the year ended December 31, 2014 was $8,283. Amortization of the HGHL debt guarantee fee included within affiliate interest expense was $1,224 for the year ended 2014.
16. Employee Benefit Plans
The Company has defined
benefit pension plans (Pension Plans) covering certain U.S. salaried and hourly employees (U.S. Plans) as well as certain employees in the United Kingdom, France and Germany
(Non-U.S.
Plans). The U.S. Plans provide benefits based on an employees years of service and compensation received for the highest five consecutive years of earnings. The Company made the
decision to freeze benefits for
non-union
employees as of March 31, 2009 for the U.S. Plans. The
Non-U.S.
Plans provide benefits based on a formula of years of
service and a percentage of compensation which varies among the
Non-U.S.
Plans. The Company made the decision to freeze its United Kingdom
Non-U.S.
plan benefits as of
May 1, 2013. In 2015 the Company annuitized the assets in the Canada plan in order to remove Houghton as the primary risk bearer and the annuity company now makes direct payments to the pension plan members. The Companys funding
policy is consistent with funding requirements of applicable government laws and regulations.
The components of net pension expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Net pension (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on net assets
|
|
$
|
(3,717
|
)
|
|
$
|
(4,305
|
)
|
|
$
|
(4,476
|
)
|
Service cost-benefits earned during period
|
|
|
45
|
|
|
|
55
|
|
|
|
43
|
|
Interest cost on projected benefit obligation
|
|
|
3,389
|
|
|
|
3,234
|
|
|
|
3,397
|
|
Net amortization and deferral
|
|
|
|
|
|
|
|
|
|
|
(661
|
)
|
Amortization of prior service cost
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(280
|
)
|
|
$
|
(1,013
|
)
|
|
$
|
(1,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non U.S. Plans
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
Net pension (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on net assets
|
|
$
|
(3,259
|
)
|
|
$
|
(3,536
|
)
|
|
$
|
(3,696
|
)
|
Service cost-benefits earned during period
|
|
|
65
|
|
|
|
64
|
|
|
|
57
|
|
Interest cost on projected benefit obligation
|
|
|
2,753
|
|
|
|
3,048
|
|
|
|
3,703
|
|
Net amortization and deferral
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Settlement (gain) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(441
|
)
|
|
$
|
(423
|
)
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
The Company made the following contributions to its Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Employer contributions
|
|
$
|
44
|
|
|
$
|
1,266
|
|
|
$
|
3,056
|
|
|
$
|
2,614
|
|
|
$
|
4,313
|
|
|
$
|
3,421
|
|
Employee contributions
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Benefit payments
|
|
$
|
(3,981
|
)
|
|
$
|
(3,775
|
)
|
|
$
|
(3,517
|
)
|
|
$
|
(3,458
|
)
|
|
$
|
(3,331
|
)
|
|
$
|
(4,364
|
)
|
A reconciliation of the funded status of the Companys Pension Plans to amounts recognized in the balance sheets is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Accumulated benefit obligation
|
|
$
|
(83,305
|
)
|
|
$
|
(82,015
|
)
|
|
$
|
(84,268
|
)
|
|
$
|
(83,388
|
)
|
|
|
|
|
|
Fair value of plan assets
|
|
|
60,389
|
|
|
|
59,466
|
|
|
|
71,735
|
|
|
|
70,528
|
|
Projected benefit obligation
|
|
|
(83,305
|
)
|
|
|
(82,015
|
)
|
|
|
(84,268
|
)
|
|
|
(83,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(22,916
|
)
|
|
$
|
(22,549
|
)
|
|
$
|
(12,533
|
)
|
|
$
|
(12,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(64
|
)
|
|
$
|
(64
|
)
|
|
$
|
(69
|
)
|
|
$
|
(72
|
)
|
Non-current
liability
|
|
|
(22,852
|
)
|
|
|
(22,485
|
)
|
|
|
(12,464
|
)
|
|
|
(12,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(22,916
|
)
|
|
$
|
(22,549
|
)
|
|
$
|
(12,533
|
)
|
|
$
|
(12,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts, net of tax, recognized in Other comprehensive income as a component of net pension income (expense) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
U.S. and Non U.S. Plans
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Unrecognized prior service cost
|
|
$
|
18
|
|
|
$
|
(5
|
)
|
Unrecognized net actuarial gain (loss)
|
|
|
4,049
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,067
|
|
|
$
|
720
|
|
|
|
|
|
|
|
|
|
|
The amounts, net of tax, in AOCI that have not yet been recognized as a component of net pension income (expense) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
U.S. and Non U.S. Plans
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Unrecognized prior service cost
|
|
$
|
38
|
|
|
$
|
15
|
|
Unrecognized net actuarial gain (loss)
|
|
|
1,332
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,370
|
|
|
$
|
976
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine benefit obligations for years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
4.00
|
%
|
|
|
4.25
|
%
|
|
|
2.57
|
%
|
|
|
3.69
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
F-41
Weighted average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.25
|
%
|
|
|
3.85
|
%
|
|
|
4.75
|
%
|
|
|
2.57
|
%
|
|
|
3.69
|
%
|
|
|
3.43
|
%
|
Expected long-term return on plan assets
|
|
|
7.25
|
%
|
|
|
7.25
|
%
|
|
|
8.00
|
%
|
|
|
4.23
|
%
|
|
|
4.97
|
%
|
|
|
4.78
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
Historical and future expected returns of multiple asset classes were analyzed to develop a risk-free real rate of return and
risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted average rate was developed based on
those overall rates and the target asset allocation of the plan.
As of December 31, 2016 and 2015, the asset allocations of the Companys
Pension Plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
U.S. Pension Assets
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
U.S. equity securities
|
|
|
40.5
|
%
|
|
|
40.1
|
%
|
|
|
37.5
|
%
|
|
|
39.1
|
%
|
International equity securities
|
|
|
13.5
|
%
|
|
|
13.5
|
%
|
|
|
12.5
|
%
|
|
|
11.8
|
%
|
Balanced asset allocation
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
4.7
|
%
|
Fixed income securities
|
|
|
40.0
|
%
|
|
|
40.4
|
%
|
|
|
40.0
|
%
|
|
|
38.7
|
%
|
Real Estate
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
10.0
|
%
|
|
|
5.7
|
%
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Non U.S. Pension Assets
|
|
Target
|
|
|
Actual
|
|
|
Target
|
|
|
Actual
|
|
Cash
|
|
|
16.7
|
%
|
|
|
6.7
|
%
|
|
|
7.5
|
%
|
|
|
2.4
|
%
|
Diversified equity securities
|
|
|
39.5
|
%
|
|
|
38.1
|
%
|
|
|
17.1
|
%
|
|
|
41.1
|
%
|
Fixed income securities
|
|
|
41.5
|
%
|
|
|
53.5
|
%
|
|
|
63.2
|
%
|
|
|
52.3
|
%
|
Insurance contracts
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
|
|
3.9
|
%
|
Other
|
|
|
2.3
|
%
|
|
|
1.6
|
%
|
|
|
12.2
|
%
|
|
|
0.3
|
%
|
U.S. and Non U.S. Plans investments are measured at fair value on a recurring basis. The following tables present the
fair values of the U.S. and Non U.S. Plan investments as of December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
U.S. Pension Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
U.S. equity securities
|
|
$
|
23,513
|
|
|
$
|
710
|
|
|
|
|
|
|
$
|
24,223
|
|
International equity securities
|
|
|
6,352
|
|
|
|
1,779
|
|
|
|
18
|
|
|
|
8,149
|
|
Balanced asset allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
4,862
|
|
|
|
19,540
|
|
|
|
|
|
|
|
24,402
|
|
Real estate
|
|
|
42
|
|
|
|
176
|
|
|
|
3,397
|
|
|
|
3,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Pension Assets
|
|
$
|
34,769
|
|
|
$
|
22,205
|
|
|
$
|
3,415
|
|
|
$
|
60,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non U.S. Pension Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
4,778
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,778
|
|
Diversified equity securities
|
|
|
11,801
|
|
|
|
,14,237
|
|
|
|
1,301
|
|
|
|
27,339
|
|
Fixed income securities
|
|
|
29,489
|
|
|
|
8,879
|
|
|
|
|
|
|
|
38,368
|
|
Insurance contracts
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
114
|
|
Other
|
|
|
|
|
|
|
1,136
|
|
|
|
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non U.S. Pension Assets
|
|
$
|
46,068
|
|
|
$
|
24,366
|
|
|
$
|
1,301
|
|
|
$
|
71,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
U.S. Pension Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
U.S. equity securities
|
|
$
|
22,487
|
|
|
$
|
758
|
|
|
$
|
|
|
|
$
|
23,245
|
|
International equity securities
|
|
|
7,026
|
|
|
|
10
|
|
|
|
|
|
|
|
7,036
|
|
Balanced asset allocation
|
|
|
2,786
|
|
|
|
|
|
|
|
|
|
|
|
2,786
|
|
Fixed income securities
|
|
|
4,361
|
|
|
|
18,634
|
|
|
|
|
|
|
|
22,995
|
|
Real estate
|
|
|
44
|
|
|
|
60
|
|
|
|
3,300
|
|
|
|
3,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Pension Assets
|
|
$
|
36,704
|
|
|
$
|
19,462
|
|
|
$
|
3,300
|
|
|
$
|
59,466
|
|
|
|
|
|
|
Non U.S. Pension Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash
|
|
$
|
1,674
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,674
|
|
Diversified equity securities
|
|
|
27,267
|
|
|
|
1,711
|
|
|
|
26
|
|
|
|
29,004
|
|
Fixed income securities
|
|
|
19,940
|
|
|
|
16,946
|
|
|
|
|
|
|
|
36,886
|
|
Insurance contracts
|
|
|
|
|
|
|
2,771
|
|
|
|
|
|
|
|
2,771
|
|
Other
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non U.S. Pension Assets
|
|
$
|
48,881
|
|
|
$
|
21,621
|
|
|
$
|
26
|
|
|
$
|
70,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Pension Plans hold Level 3 assets primarily comprised of funds holding real estate and unquoted funds.
Fair value is determined based upon the Companys units in the fund and net asset value of the Companys share of total fund value. The table below presents a roll forward of activity for these assets between December 31, 2014 and
2015 and December 31, 2015 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
Assets
|
|
|
Alternative
Assets
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
3,190
|
|
|
$
|
8
|
|
|
$
|
3,198
|
|
Purchases, sales, settlements, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
|
110
|
|
|
|
18
|
|
|
|
128
|
|
Currency Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
3,300
|
|
|
$
|
26
|
|
|
$
|
3,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, settlements, net
|
|
|
1,344
|
|
|
|
|
|
|
|
1,344
|
|
Gains (losses)
|
|
|
68
|
|
|
|
(17
|
)
|
|
|
51
|
|
Currency Adjustment
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
4,712
|
|
|
$
|
4
|
|
|
$
|
4,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investment strategy is to develop an efficient, well-diversified portfolio based on a long-term, strategic outlook of the
investment markets. The investment market outlook utilizes both historical-based and forward-looking return forecasts to establish future return expectations for various asset classes. These return expectations are used to develop a core asset
allocation based on the needs of the plan. The core asset allocation utilizes investment portfolios of various asset classes and multiple investment managers in order to help maximize the plans return while providing multiple layers of
diversification to help minimize risk.
The Company expects to contribute $1,558 to the U.S. Plan and $1,971 to the Non U.S. Plans in 2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non U.S. Plans
|
|
2017
|
|
$
|
4,386
|
|
|
$
|
2,469
|
|
2018
|
|
$
|
4,485
|
|
|
$
|
2,616
|
|
2019
|
|
$
|
4,574
|
|
|
$
|
2,763
|
|
2020
|
|
$
|
4,723
|
|
|
$
|
3,017
|
|
2021
|
|
$
|
4,721
|
|
|
$
|
3,069
|
|
Thereafter
|
|
$
|
24,766
|
|
|
$
|
18,060
|
|
F-43
Multiemployer Benefit Plans
The Company contributes to two multiemployer defined benefit pension plans under terms of the collective bargaining union contracts acquired during the
Wallover Acquisition. The Companys contribution rate to the multiemployer pension plans is specified in the collective bargaining union contracts and contributions are made to the plans based on its union employee payroll. While the Company
may also have additional liabilities imposed by law as a result of its participation in multiemployer defined benefit pension plans, there is no liability as of December 31, 2016. The Employee Retirement Income Security Act of 1974, as amended
by the Multi-Employer Pension Plan Amendments Act of 1980, imposes certain contingent liabilities upon an employer who is a contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences
a mass withdrawal. The Company has not taken any action to terminate, withdraw or partially withdraw from these plans as of December 31, 2016.
The
Pension Protection Act of 2006 (the PPA) also added special funding and operational rules generally applicable to plan years beginning after 2007 for multi-employer plans that are classified as endangered, seriously
endangered or critical status based on a multitude of factors (including, for example, the plans funded percentage, cash flow position and whether the plan is projected to experience a minimum funding deficiency).
Plans in the endangered, seriously endangered or critical status classifications must adopt measures to improve their
funded status through a funding improvement or rehabilitation plan which may require additional contributions from employers (which may take the form of a surcharge on benefit contributions) and/or modifications to retiree benefits. The plans to
which the Company contributes are in critical status. The amount of additional funds that the Company may be obligated to contribute to these plans in the future cannot be estimated as such amounts will be likely based on future levels
of work that require the specific use of those union employees covered by these plans, and the amount of that future work and the number of affected employees that may be needed cannot reasonably be estimated.
The following table contains a summary of plan information relating to the Companys participation in multiemployer defined benefit pension plans,
including Company contributions for the last two years, the status under the PPA of the plans, and whether the plans are subject to a funding improvement or rehabilitation plan or contribution surcharges. The most recent PPA zone status available
relates to the plans fiscal
year-end
in 2015. Forms 5500 were not yet available for the plan years ending in 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
Employer
Identification
Number
|
|
|
PPA Zone Status
|
|
|
FIP/RP Status
|
|
|
Contributions
for the six
months ended
December 31,
2016
|
|
|
Expiration
Date of
Collective
Bargaining
Contracts
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Central States, Southeast and Southwest Areas Pension Funds
|
|
|
36-6044243-001
|
|
|
|
Red
|
|
|
|
Red
|
|
|
|
Red
|
|
|
|
Implemented
|
|
|
$
|
13
|
|
|
|
01/31/2019
|
|
Cleveland Bakers and Teamsters Pension Fund
|
|
|
34-0904419-001
|
|
|
|
Red
|
|
|
|
Red
|
|
|
|
Red
|
|
|
|
Implemented
|
|
|
$
|
52
|
|
|
|
05/01/2019
|
|
Multiemployer Health and Welfare Benefit Plan
The Company also contributes to union sponsored multi-employer health and welfare benefit plans that was adopted with the acquisition. Plan benefits include
medical, sickness, prescription, dental, vision, hearing, life, and accident or disability benefits. Total contributions to these multi-employer health and welfare benefit plans were approximately $90 and $169 for the six months and years ended
December 31, 2016 and 2015, respectively.
Other Benefit Plans
The Company has a Houghton International Inc. Tax Advantage Capital Accumulation Plan and Trust (the Profit Sharing/401(k) Plan) whereby regular
U.S. employees of Houghton International Inc. who have
F-44
completed certain minimum service requirements can defer a portion of their income through contributions to the Profit Sharing/401(k) Plan. The Profit Sharing/401(k) Plan provides for HII
contributions to the Profit Sharing/401(k) Plan, as follows: 1) matching contributions to each participant up to 50% of the first 6% of compensation contributed by the participant and 2) a discretionary
non-elective
contribution in an amount up to 3% of eligible compensation. The Companys contributions are subject to overall employer contribution limits and may not exceed the amount deductible for
income tax purposes. The Profit Sharing/401(k) Plan may be amended or discontinued at any time by the Company.
In addition, the Company acquired a
defined contribution retirement plan, during the Wallover Acquisition, that covers substantially all
non-union
employees in the Wallover segment and all employees of Commonwealth who meet certain age and
length of service requirements. Under the plan, the Company will make a matching contribution for Wallover employees equal to 50% of the first 6% of an employees elective deferral and matches contributions to a maximum of 2% of annual wages
for Commonwealth employees. In addition to the matching contribution, the Company may make discretionary contributions.
The Companys contribution
expenses for all Retirement Plans are as followed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Houghton International Profit Sharing/ 401(k) Plan
|
|
$
|
2,078
|
|
|
$
|
1,979
|
|
|
$
|
1,930
|
|
Wallover Defined Contribution Plan
|
|
|
165
|
|
|
|
|
|
|
|
|
|
Commonwealth Defined Contribution Plan
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,249
|
|
|
$
|
1,979
|
|
|
$
|
1,930
|
|
17. Operating Leases
The
future minimum rental payments required under operating leases that have initial or remaining
non-cancelable
lease terms in excess of one year as of December 31, 2016 are as follows:
|
|
|
|
|
2017
|
|
$
|
4,634
|
|
2018
|
|
|
3,725
|
|
2019
|
|
|
2,364
|
|
2020
|
|
|
1,655
|
|
2021
|
|
|
1,406
|
|
Thereafter
|
|
|
1,611
|
|
|
|
|
|
|
Total
|
|
$
|
15,395
|
|
|
|
|
|
|
Rent expense on operating leases was $5,033, $5,727 and $6,147 for the years ended December 31, 2016, 2015 and 2014,
respectively.
18. Other
Non-Current
Liabilities
Other
non-current
liabilities consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Unrecognized tax benefits
|
|
$
|
6,403
|
|
|
$
|
7,398
|
|
Deferred compensation
|
|
|
7,055
|
|
|
|
4,748
|
|
Management shares
|
|
|
|
|
|
|
3,261
|
|
Stock-based compensation liability
|
|
|
5,720
|
|
|
|
4,525
|
|
Other liabilities
|
|
|
2,467
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,645
|
|
|
$
|
20,408
|
|
|
|
|
|
|
|
|
|
|
F-45
Unrecognized tax benefits are generated when there are differences between tax positions taken in a tax return
and amounts recognized in the financial statements. Tax benefits are recognized in the financial statements when it is
more-likely-than-not
that a tax position will be sustained upon examination. See Note 6,
Income Taxes.
Deferred compensation consists of LTIP of $5,000 and $2,438 at December 31, 2016 and 2015, respectively, and government mandated
resignation and retirement payments. The LTIP service period ends December 31, 2017, with a maximum payout of $7,500 in the first quarter of 2018.
See Note 21, Commitments and Contingencies for discussion of the $2,096 related to a pending claim with Brazilian tax authorities accrued as a component of
Other liabilities within Other
non-current
liabilities.
See Note 1, Summary of Significant Accounting Policies,
Management Shareholders for discussion of the $3,261 component of Management shares within Other
non-current
liabilities.
19. Accumulated Other Comprehensive Loss
The cumulative
balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation
adjustments
|
|
|
Defined
benefit
pension
plans
|
|
|
Total
|
|
Balance at December 31, 2013
|
|
$
|
(13,911
|
)
|
|
$
|
6,014
|
|
|
$
|
(7,897
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(41,471
|
)
|
|
|
(18,821
|
)
|
|
|
(60,292
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax amounts
|
|
|
1,476
|
|
|
|
6,063
|
|
|
|
7,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(53,906
|
)
|
|
$
|
(6,744
|
)
|
|
$
|
(60,650
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(51,355
|
)
|
|
|
(1,347
|
)
|
|
|
(52,702
|
)
|
CTA attributable to
non-controlling
interest
|
|
|
2,239
|
|
|
|
|
|
|
|
2,239
|
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax amounts
|
|
|
2,088
|
|
|
|
627
|
|
|
|
2,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(100,934
|
)
|
|
$
|
(7,464
|
)
|
|
$
|
(108,398
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(24,338
|
)
|
|
|
(5,218
|
)
|
|
|
(29,556
|
)
|
CTA attributable to
non-controlling
interest
|
|
|
(328
|
)
|
|
|
|
|
|
|
(328
|
)
|
Amounts reclassified from AOCI
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
(1,912
|
)
|
Related tax amounts
|
|
|
958
|
|
|
|
1,151
|
|
|
|
2,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(126,554
|
)
|
|
$
|
(11,531
|
)
|
|
$
|
(138,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications of pension and other post-retirement actuarial items out of AOCI are included in the computation of net
periodic benefit cost.
20. Related Party Transactions
The Company has related party transactions with sales and purchases to and from certain affiliates. For the year ended December 31, 2016, related party
sales were $1,028, and related party purchases were $522. For year ended December 31, 2015 related party sales were $1,436, while related party purchases were $715 for the same periods. For the year ended December 31, 2014 related party
sales were $2,301, and related party purchases were $1,435. At December 31, 2016 and December 31, 2015 amounts payable to affiliated companies for these transactions were $23 and $48, respectively.
F-46
The former Chief Executive Officer (CEO) of the Company was also the CEO of an affiliate, Gulf Oil International,
Ltd. (GOIL) until March 2015. During that time, the Company paid the salary of the Chief Executive Officer and was reimbursed by GOIL for services provided. The CEO retired from Houghton on December 31, 2015 and the current CEO does
not have a similar type of role with any affiliates.
The Company also provides management services to certain affiliates, including technical services,
blending and packaging, corporate advice and project management. Amounts outstanding and included in accounts receivable at December 31, 2016 and December 31, 2015 were $172 and $90, respectively.
In addition, there are various management service agreements with certain affiliates. Total management fees incurred by the Company relating to these
agreements amounted to and $2,200 for the year ended December 31, 2016 and $2,000 for the years ended December 31, 2015 and 2014. These management fees are included under Selling, general and administrative expenses. Services performed
relate to integration, business introduction, promotional and corporate governance services. At December 31, 2016 and 2015, $0 and $725 was outstanding, respectively, and included in Affiliates accounts payable.
In March 2015, the Company loaned $12,000 to an affiliate. This balance was repaid in April 2015.
In conjunction with the amendment to the Companys 2012 Senior Credit Facilities (see Note 15. Financing Activities), GHG acquired the remaining 0.1% of
outstanding equity interests of GHG Lubricants not already owned by GHG for $403.
21. Commitments and Contingencies
The Company participates in certain payments in connection with environmental consent orders related to certain hazardous waste cleanup activities under the
U.S. Federal Superfund statute and also has obligations to perform certain cleanup activities related to properties currently or previously owned. The Company has made accruals for these costs as well as costs associated with other environmental
issues of which it is aware. The Company continually evaluates its obligations related to such matters and has estimated the range of costs to be between $1,919 and $3,583. As of December 31, 2016 and 2015, the Company had accrued $1,919 and
$2,985, respectively, for these activities. These accruals are included under Other current liabilities. The Company paid $984 for the year ended December 31, 2016, $690 for the year ended December 31, 2015, and $298 during the year ended
December 31, 2014 for such activities. The Company continually evaluates its obligations related to such matters and updates estimates as necessary.
Due to the nature of the Companys activities, it is also, at times, subject to pending and threatened legal actions that arise out of the ordinary
course of business. The Company continually evaluates its obligations to such matters and has accrued $2,096 in Other
non-current
liabilities related to a pending claim with Brazilian tax authorities specific
to VAT taxes. In the opinion of management, based in part upon advice of legal counsel, the disposition of any such matters is not expected to have a material effect on the Companys results of operations, financial condition or cash flows.
The Company approved incentive awards from a cash pool contingent upon future events. The total pool of $5,400 includes awards for multiple milestones
and are contingent upon multiple future events, including future service and completion of potential transactions. Due to the contingencies, the pool does not represent an accounting liability of the Company as of December 31, 2016 and;
therefore is not reflected in the Companys Statement of Operations, Cash Flows or Financial Position.
Under the GH Holdings, Inc. Severance and
Change in Control Plan for Senior Management (Severance Plan), certain members of executive management are eligible to receive severance benefits. The Severance Plan provides severance pay to certain eligible employees if employment is
terminated by the Company for any reason other than good cause, death or disability, or by the employee on account of good reason. Severance pay provides
F-47
an eligible employee with an amount equal to twelve months of annual base salary plus a pro rata portion of the employees targeted annual bonus. In addition, a continuation of eligibility
to participate in the Companys medical benefits plans. The Severance Plan also provides for change in control severance to certain eligible employees if employment is terminated by the Company during a change in control period or if employment
is terminated by the Company for any reason other than good cause, death or disability, or by the employee on account of good reason. Change in control severance pay provides each eligible employee with an amount equal to 1.5 times the sum of the
eligible employees base salary plus the employees targeted annual bonus, paid in a lump sum on or after the 30th day that follows the employees termination date. The employee is also eligible for continued participation in the
Companys medical benefit plans for eighteen months immediately following termination. The estimated cost of the change in control severance of $7,434 does not represent an accounting liability of the Company as of December 31, 2016 due to
the severance being contingent upon future events, including completion of potential transactions and therefore is not reflected in the Companys Statement of Operations, Cash Flows or Financial Position.
The Company had letters of credit outstanding for $4,590 and $6,770 as of December 31, 2016 and 2015, respectively, which guarantee funding of certain
activities, some of which are still under negotiation with regulators. These letters of credit reduce the capacity under the 2012 Revolving Credit Facility (see Note 15).
Local laws and regulations in certain countries require that the Company obtain letters of credit or bank guarantees in connection with certain legal
proceedings and general business purposes. These letters of credit or bank guarantee do not represent accounting liabilities of the Company and; therefore, are not reflected in the Companys Statement of Operations, Cash Flows or Balance
Sheets. The amount of these letters of bank guarantee was $892 and $4,066 as of December 31, 2016 and December 31, 2015, respectively.
In January 2017, the Company sold its Genoa, Italy manufacturing plant for $1,656.
The facility was classified as an Asset held for sale on the Consolidated Statements of Financial Position at December 31, 2016.
In March 2017, the
Company extended the maturity date of the Revolving Credit Facility from December 2017 to September 2019. The extended facility was reduced to capacity of $41,000. No other changes were made to the terms of the agreement. The Company paid $195 in
fees related to the amendment.
The Companys management has evaluated all activity of the Company through June [●], 2017 and concluded that
there were no additional subsequent events required to be reflected in the Companys consolidated financial statements or notes as required by standards for accounting disclosure of subsequent events.
F-48
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks during the normal course of our business, such as the risk arising from fluctuations in commodity
prices, interest rates and currency exchange rates, as well as the risk of credit concentration. In attempts to manage these risks, we employ certain strategies to mitigate the effect of these fluctuations.
Commodity Price Risk
As a manufacturer
of petroleum-based products, we have exposure to market pricing for raw materials used in our products sold and in the manufacturing process in the future; however, we do not typically enter into long-term fixed price contracts with our suppliers.
In order to realize value from our processing capacity, a positive spread between the cost of raw materials and the value of finished products must be achieved (i.e., gross margin). Prices are negotiated on a continuous basis and we do not use
commodity derivative contracts to economically hedge future cash flows or product inventory costs. We generally pass on some or all of the increases in the cost of raw materials to customers through higher prices. Although our product price
increases lag raw material cost increases, historically we have been able to recover such cost increases over time.
Interest Rate Risk
Our interest rate risk management strategy is to use interest rate cap agreements to minimize significant unanticipated earnings fluctuations
that may arise from increases in interest rates of our borrowings and to manage the interest rate sensitivity of our debt in accordance with the requirements of our credit facilities. We do not enter into financial instruments for trading or
speculative purposes.
As of December 31, 2016 and December 31, 2015, we had $724.9 million and $733.9 million, respectively, of
variable rate debt outstanding under our 2012 Senior Credit Facilities. All interest rate cap agreements to protect against increases in interest rates, as required by our 2012 Senior Credit Facilities have terminated prior to December 31, 2015.
The calculation of interest within our long-term debt instruments is based upon a LIBOR floor plus a stipulated margin. Throughout the
reporting periods the actual LIBOR rates have been significantly below the stipulated LIBOR floor levels. For example, the actual three-month LIBOR rate at December 31, 2016 and December 31, 2015 was 0.93% and 0.42%, respectively; however, the LIBOR
floor for our 2012 Senior Credit Facilities following the amendment in May 2013 was 1.00% in the case of the First Lien U.S. Term Loan and the First Lien Dutch Term Loan and 1.25% in the case of the Second Lien U.S. Term Loan. As a result, LIBOR
rates would have to increase approximately 32 basis points (or 34%) to have a significant impact on interest expense. An increase in actual three-month LIBOR rates by 100 basis points would result in additional annual interest expense of
$7.7 million based on outstanding borrowings as of December 31, 2016.
Foreign Exchange Risk
A significant portion of our revenues are generated by our foreign operations. We translate non-U.S. dollar denominated results of operations,
assets, and liabilities of our non-U.S. subsidiaries to U.S. dollars in our financial statements. Consequently, increases and decreases in the value of the U.S. dollar as compared to the respective non-U.S. currencies, particularly the British
pound, the euro, the Chinese renminbi, the Brazilian real, and the Japanese yen will affect our reported results of operations and the value of our assets and liabilities. We do not use currency exchange rate derivative contracts to economically
hedge future cash flows. We are exposed to numerous currencies and cannot reasonably estimate the impact of the fluctuations on our future results of operations or financial position. As exchange rates vary, our results can be materially affected.
Concentration of Credit Risk
We
maintain cash and cash equivalents, marketable securities and certain other financial instruments with various financial institutions. These financial institutions are generally highly rated and geographically dispersed.
F-49
Our sales are not materially dependent on any single customer. We do not have any customers that
constitute 10% or more of our revenues. Our largest customer represented approximately 4% of sales in 2016, 2015 and 2014.
Credit risk
associated with its receivables balance is representative of the geographic, industry and customer diversity associated with our regions. We also maintain strong credit controls in evaluating and granting customer credit. As a result, it may require
that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by industry and region. As of December 31, 2016 and December 31, 2015, we had no significant concentrations of credit risk.
F-50
Table of Contents
F-51
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of U.S. Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
Net sales
|
|
$
|
196,622
|
|
|
$
|
186,376
|
|
Cost of goods sold
|
|
|
129,190
|
|
|
|
121,927
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
67,432
|
|
|
|
64,449
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
|
58,627
|
|
|
|
52,019
|
|
Restructuring
|
|
|
103
|
|
|
|
300
|
|
Other operating expense
|
|
|
199
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8,503
|
|
|
|
12,013
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(397
|
)
|
|
|
(305
|
)
|
Interest expense
|
|
|
(12,441
|
)
|
|
|
(12,407
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and equity in net income of Investee
|
|
|
(4,335
|
)
|
|
|
(699
|
)
|
Income tax expense
|
|
|
36
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Net loss before equity in net income of investee
|
|
|
(4,371
|
)
|
|
|
(784
|
)
|
Equity in net income of investee
|
|
|
2,236
|
|
|
|
2,159
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,135
|
)
|
|
|
1,375
|
|
|
|
|
Net loss attributable to
non-controlling
interest
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Global Houghton Ltd.
|
|
$
|
(2,135
|
)
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-52
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Thousands of U.S. Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
Net (loss) income
|
|
$
|
(2,135
|
)
|
|
$
|
1,375
|
|
Other comprehensive income :
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax
|
|
|
13,478
|
|
|
|
8,152
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
13,478
|
|
|
|
8,152
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
11,343
|
|
|
$
|
9,527
|
|
Comprehensive income attributable to
non-controlling
interest
|
|
|
|
|
|
|
2,192
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Global Houghton Ltd.
|
|
$
|
11,343
|
|
|
$
|
7,335
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-53
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of U.S. Dollars except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
50,988
|
|
|
$
|
44,001
|
|
Restricted cash
|
|
|
161
|
|
|
|
61
|
|
Accounts receivable, net
|
|
|
144,212
|
|
|
|
130,731
|
|
Inventories
|
|
|
81,723
|
|
|
|
76,253
|
|
Prepaid expense and other assets
|
|
|
20,949
|
|
|
|
17,495
|
|
Assets held for sale
|
|
|
|
|
|
|
1,620
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
298,033
|
|
|
|
270,161
|
|
|
|
|
Property, plant and equipment, net
|
|
|
75,543
|
|
|
|
76,080
|
|
|
|
|
Goodwill
|
|
|
259,164
|
|
|
|
254,118
|
|
Customer relationships and other intangible assets, net
|
|
|
396,672
|
|
|
|
402,039
|
|
Investment in equity investee
|
|
|
48,510
|
|
|
|
42,783
|
|
Non-current
deferred tax assets
|
|
|
13,483
|
|
|
|
11,843
|
|
Other
non-current
assets
|
|
|
250
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,091,655
|
|
|
$
|
1,057,242
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-54
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of U.S. Dollars except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
22,593
|
|
|
$
|
4,610
|
|
Short-term debt
|
|
|
6,965
|
|
|
|
7,318
|
|
Accounts payable
|
|
|
89,242
|
|
|
|
79,781
|
|
Accrued employee related costs
|
|
|
14,655
|
|
|
|
25,843
|
|
Other current liabilities
|
|
|
30,008
|
|
|
|
24,851
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
163,463
|
|
|
|
142,403
|
|
|
|
|
Long-term debt
|
|
|
705,487
|
|
|
|
703,035
|
|
|
|
|
Other
non-current
liabilities:
|
|
|
|
|
|
|
|
|
Liability for pension benefits
|
|
|
34,751
|
|
|
|
35,316
|
|
Noncurrent deferred tax liabilities
|
|
|
48,895
|
|
|
|
48,966
|
|
Other
non-current
liabilities
|
|
|
29,210
|
|
|
|
21,645
|
|
|
|
|
|
|
|
|
|
|
Total other
non-current
liabilities
|
|
|
112,856
|
|
|
|
105,927
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
981,806
|
|
|
|
951,365
|
|
|
|
|
Commitments and Contingencies (note 19)
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Stock
|
|
|
6,637
|
|
|
|
3,666
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Global Houghton Ltd. shareholders equity
|
|
|
|
|
|
|
|
|
Common Stock par value $0.01 per share; 5,000,000 authorized; 3,142,952 issued
and 3,113,995 outstanding at March 31, 2017 and 3,137,522 issued and 3,113,020 outstanding at December 31, 2016
|
|
|
31
|
|
|
|
31
|
|
Additional
paid-in
capital
|
|
|
305,414
|
|
|
|
315,753
|
|
Accumulated deficit
|
|
|
(76,830
|
)
|
|
|
(74,695
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(124,607
|
)
|
|
|
(138,085
|
)
|
Treasury stock at cost; 28,957 shares at March 31, 2017 and 24,502 at
December 31, 2016
|
|
|
(796
|
)
|
|
|
(793
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
103,212
|
|
|
|
102,211
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,091,655
|
|
|
$
|
1,057,242
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-55
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of U.S. Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,135
|
)
|
|
$
|
1,375
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,363
|
|
|
|
13,356
|
|
Non-cash
debt discount/issuance cost amortization
|
|
|
1,455
|
|
|
|
1,456
|
|
(Gain) loss on disposal of property, plant, and equipment
|
|
|
2
|
|
|
|
(49
|
)
|
Equity in net income of investee
|
|
|
(2,236
|
)
|
|
|
(2,159
|
)
|
Pension benefits
|
|
|
(740
|
)
|
|
|
(1,002
|
)
|
Stock compensation expense
|
|
|
4,396
|
|
|
|
757
|
|
Deferred income taxes
|
|
|
(3,722
|
)
|
|
|
(1,374
|
)
|
Changes in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Increase in due to/from affiliate
|
|
|
(234
|
)
|
|
|
(946
|
)
|
Increase in receivables, net
|
|
|
(10,198
|
)
|
|
|
(11,210
|
)
|
Increase in inventories
|
|
|
(3,582
|
)
|
|
|
(4,810
|
)
|
(Increase) decrease in other assets
|
|
|
(2,831
|
)
|
|
|
2,126
|
|
Increase in accounts payable
|
|
|
7,909
|
|
|
|
6,830
|
|
Decrease in other liabilities
|
|
|
(9,281
|
)
|
|
|
(10,529
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,834
|
)
|
|
|
(6,179
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(1,319
|
)
|
|
|
(1,493
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
1,674
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
355
|
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net repayments of short-term debt
|
|
|
(421
|
)
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1,137
|
)
|
|
|
(3,203
|
)
|
Repayments on capital lease obligations
|
|
|
(24
|
)
|
|
|
(55
|
)
|
Net borrowings on revolver
|
|
|
18,000
|
|
|
|
7,558
|
|
Dividends paid
|
|
|
(2,839
|
)
|
|
|
|
|
Debt issuance costs
|
|
|
(181
|
)
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
102
|
|
|
|
|
|
Net cash settlement of stock options
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
13,497
|
|
|
|
4,300
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,018
|
|
|
|
(2,265
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
969
|
|
|
|
137
|
|
BEGINNING CASH AND CASH EQUIVALENTS
|
|
|
44,001
|
|
|
|
47,766
|
|
|
|
|
|
|
|
|
|
|
ENDING CASH AND CASH EQUIVALENTS
|
|
$
|
50,988
|
|
|
$
|
45,638
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
2,193
|
|
|
$
|
5,317
|
|
Cash paid for interest
|
|
$
|
11,007
|
|
|
$
|
9,862
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-56
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
(Thousands of U.S. Dollars except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Treasury
Shares
|
|
|
Treasury
Stock
|
|
|
Total
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
3,113,020
|
|
|
$
|
31
|
|
|
$
|
315,753
|
|
|
$
|
(74,695
|
)
|
|
$
|
(138,085
|
)
|
|
|
24,502
|
|
|
$
|
(793
|
)
|
|
$
|
102,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,135
|
)
|
Net cash settlement of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,455
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Stock-compensation liability market adjustment
|
|
|
|
|
|
|
|
|
|
|
(4,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,631
|
)
|
Redeemable stock market adjustment
|
|
|
|
|
|
|
|
|
|
|
(2,971
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,971
|
)
|
Exercise of stock options
|
|
|
975
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
Payment of dividends
|
|
|
|
|
|
|
|
|
|
|
(2,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,839
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,478
|
|
|
|
|
|
|
|
|
|
|
|
13,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
|
3,113,995
|
|
|
$
|
31
|
|
|
$
|
305,414
|
|
|
$
|
(76,830
|
)
|
|
$
|
(124,607
|
)
|
|
|
28,957
|
|
|
$
|
(796
|
)
|
|
$
|
103,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Consolidated Financial Statements
F-57
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of U.S Dollars, except share and per share amounts)
(Unaudited)
1. Summary of Significant Accounting Policies
Background and Basis of Presentation
Global
Houghton Ltd (the Company, Houghton, we, us or our) is a global supplier of industrial fluids and chemical management services, primarily for the metalworking industry through its
wholly-owned subsidiaries. The principal markets for the Companys products and services are the Americas, Europe, the Middle East and Africa (together, EMEA), North Asia and South Asia.
The Company is a Cayman Island corporation that was formed in February 2014 and is a member of the Hinduja group of companies. In August 2014, GHG London
Limited (GHG), a private limited company organized under the laws of England and Wales and parent company to GHG Lubricants Ltd Holdings (GHG Lubricants), GH Holdings Inc. (GH) and Houghton International, Inc. and
subsidiaries (HII), was contributed to the Company through a series of transactions.
In July 2015, the Company conducted an exchange offer
which allowed certain management holders of GH common stock, stock options and stock appreciation rights to exchange their shares and options for a like number of common stock, stock options and stock appreciation rights in Houghton. As of
March 31, 2017 and December 31, 2016, these shares represented 1.24% of the total outstanding shares of Houghton.
Investments in entities over
which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All significant intercompany transactions and balances have been eliminated. Prior to acquiring the
remaining 40% of its Japan joint venture in March 2016, the Company had
non-controlling
interests which were included in the financial statements.
The Financial Accounting Standards Boards (FASBs) guidance regarding the consolidation of certain Variable Interest Entities
(VIEs) generally requires that assets, liabilities and results of the activities of a VIE be included in the financial statements of the enterprise that is considered the primary beneficiary. The financial statements include the accounts
of the Company and all of its subsidiaries in which a controlling interest is maintained and would include any VIEs if the Company was the primary beneficiary pursuant to the provisions of the applicable guidance. The Company is not the primary
beneficiary of any VIEs.
The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP). In the opinion of management, all adjustments necessary, which are of a normal recurring nature, have been made to state fairly the financial position, the results of operations and cash flows.
The
year-end
condensed consolidated balance sheet data was derived from audited financial statements, but does not
include all disclosures required by GAAP.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the
financial statements and related notes of the Company for the year ended December 31, 2016. The interim period results are not necessarily indicative of the results to be expected for the full year.
Investments in Unconsolidated Joint Ventures
Investments
in unconsolidated joint ventures are included at cost plus its equity in undistributed earnings in accordance with the equity method of accounting and reflected as investment in equity investee in the balance sheets.
F-58
Non-controlling
Interest
In March 2016, the Company acquired the remaining 40% of its Japan joint venture for a de minimis amount. This resulted in a reduction of
Non-controlling
interest and an increase in Additional
paid-in
capital and Accumulated other comprehensive loss.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make extensive estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions.
Changes in
Classifications
Certain reclassifications of prior period amounts have been made to conform to current period presentation.
Revisions
During 2017, management determined that
certain management shareholdings should be classified as mezzanine equity (Redeemable stock) effective June 2016 and recorded a corresponding reclassification of the balance (previously presented in Other long-term liabilities) as of
December 31, 2016. Such change in classification was determined to be immaterial to any period impacted, and the prior period presented has been revised to reflect this change in classification of the management shareholdings.
Revenue Recognition
Sales of products and services are
recorded (i) upon shipment if title passes to the customer upon shipment, or upon delivery if title passes to the customer upon delivery or when services are rendered, (ii) when persuasive evidence of an arrangement exists with the
customer, (iii) when the sales price is fixed and determinable, and (iv) when the collectability of the sales price is reasonably assured. Revenue is recognized net of discounts and allowances, which are comprised of trade allowances, cash
discounts and sales returns and value added tax. Freight costs and any directly related costs of shipping finished product to customers are recorded in Cost of goods sold. Billings to customers for shipping fees are included in net sales in
accordance with ASC
605-45.
Handling costs are incurred from the point the product is removed from inventory until it is provided to the shipper. Handling costs are recorded in Cost of goods sold. For
consigned inventory, revenue is recognized after the customer has consumed consignment inventory in their manufacturing process. Consigned inventory mainly relates to our Fluidcare and Metal Finishing businesses, in which our inventory is maintained
at customer locations for use as needed in their manufacturing processes.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents represent cash in banks and cash equivalents, which includes highly liquid short-term investments and bank drafts with original
maturities of three months or less. Bank deposits and other cash equivalents that are restricted by agreement or that have been clearly designated for a specific purpose are recorded as restricted cash. Such restriction on cash is primarily a result
of certain foreign retirement benefits and social plans, taxes, security deposits, and bank drafts.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivables are reported at the gross outstanding amount adjusted for an allowance for doubtful accounts. Accounts receivable
collectability is evaluated using a combination of factors, including past due status
F-59
based on contractual terms, trends in write-offs, the age of the receivable, industry, country specific economics and political conditions and counterparty creditworthiness. Significant events,
such as bankruptcies, are also considered. Accounts receivables are written off in the period in which the receivable is deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when amounts are collected.
Inventories
The Company accounts for inventories under
the
first-in,
first-out
(FIFO) method, stated at the lower of cost or market.
Assets Held for Sale
Properties that are expected to be
sold within the next 12 months and meet the other relevant held for sale criteria are classified as long-lived assets held for sale. An impairment loss is recorded when the carrying amount of the asset exceeds its fair value less costs to sell.
Assets held for sale are not depreciated.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, and presented net of accumulated depreciation. Significant expenditures which extend the useful lives of
existing assets are capitalized. Maintenance and repair costs are charged to Cost of goods sold in the period incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
|
|
|
|
|
Asset Class
|
|
Useful Lives
|
|
Land and buildings
|
|
|
|
|
Buildings
|
|
|
10-40
years
|
|
Buildings and improvements
|
|
|
3-15
years
|
|
Machinery and equipment
|
|
|
|
|
Manufacturing machinery and equipment
|
|
|
3-25
years
|
|
Furniture and fixtures
|
|
|
5-7
years
|
|
Leasehold improvements
|
|
|
Lesser of lease term or estimated useful life
|
|
Vehicles and computer equipment
|
|
|
3-5
years
|
|
Property, plant and equipment is tested for recoverability whenever events or changes in circumstances indicate that carrying
values may not be recoverable. An impairment loss would be recognized if the carrying amount is not recoverable and exceeds the fair value of the asset. Fair value is based on estimated future undiscounted cash flows. In connection with the annual
impairment test, the Company considered the estimated fair value of property, plant and equipment determined within the Step 2 analysis prepared as of October 1, 2016. There was no impairment assessed on Property, plant and equipment.
The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are
reflected in Other expense, net in the period of sale.
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill represents the excess of the purchase price paid over the fair value of the identifiable net assets acquired in a business combination. Goodwill
and other indefinite-lived intangible assets that are not subject to amortization are reviewed for impairment annually as of October 1 or when events or circumstances indicate that the carrying amount exceeds the fair value, including potential
triggering events such as decline in actual or projected operating profits. Each of our operating segments represents a reporting unit.
The Company
assesses goodwill for impairment by first comparing the carrying value of each reporting unit to its fair value using the present value of expected future cash flows. If the fair value is less than the carrying
F-60
value, then the Company would perform a second test for that reporting unit to determine the amount of impairment loss, if any. The Company determines the fair value of its reporting units
utilizing the Companys best estimate of long-term future revenues, operating expense, cash flows, market and general economic conditions, including discount rates, cost of capital long term growth rates and foreign currency movements. The
Company believes these assumptions are consistent with those a hypothetical market participant would utilize given the circumstances present at the time estimates were made. When available and as appropriate, the Company uses comparative market
multiples and other factors to corroborate the discounted cash flow results.
As of October 1, 2016, the Company performed a valuation of goodwill
and indefinite-lived intangible assets to test for impairment. The fair value exceeded carrying value by 1.2% (Americas), 7.4% (EMEA), and 67.4% (North Asia). However, the South Asia reporting unit recognized a goodwill impairment loss of $15,116 in
December 2016. The decline in the fair value of the South Asia reporting unit and resulting impairment charge was due to a decline in earnings since the 2012 acquisition resulting from changes in economic outlook within the region. We believe the
estimates and assumptions used in the goodwill impairment assessment are reasonable and based on available market information, including assumptions regarding foreign currency movement, but variations in any of the assumptions could result in
materially different calculations of fair value and determination of whether or not an impairment charge is indicated for the remaining reporting units or the value of the impairment determined for the South Asia reporting unit.
Other acquired intangible assets are initially measured based on their fair value. The Houghton trade name has been assigned an indefinite life due to the
over 150 year history of the Houghton brand and considering the results of the annual impairment test prepared as of October 1, 2016, there were no events or circumstances that indicated that the carrying amount exceeded fair value. The fair
value exceeded the carrying value by 2.8%. In connection with the annual impairment test and the Step 2 analysis prepared to measure the fair value of the finite-lived intangible assets, the South Asia reporting unit recorded an impairment loss of
$25,806 related to customer relationships.
Long-lived assets subject to amortization are reviewed for impairment using the relief-from-royalty method
when events or circumstances indicate carrying amounts may not be recoverable. In connection with annual impairment test and the Step 2 analysis prepared to measure the fair value of the assets, there were no events or circumstances that indicated
that the carrying amount exceeded fair value. If such analysis indicates that the carrying value of these assets is not recoverable, then the carrying value of such assets is reduced to fair value through a charge to the Companys Consolidated
Statements of Operations.
Leases
The Company has
both capital and operating leases. A lease is capitalized as a capital lease if any of the following criteria are met: transfer of ownership to the lessee by the end of the lease term; the lease contains a bargain purchase option; the lease term is
equal to 75% or greater of the assets useful economic life; or the present value of the future minimum lease payments is equal to or greater than 90% of the assets fair market value. Capital leases are capitalized at the lower of the net
present value of the total amount of rent payable under the leasing agreement (excluding finance charges) or fair market value of the leased asset. Capital lease assets are depreciated on a straight-line basis, over a period consistent with our
normal depreciation policy for tangible fixed assets, but not exceeding the lease term. Operating lease expense is recognized over the life of the lease on a straight line basis.
Income Taxes
The Company accounts for income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
F-61
taxable income in the years in which temporary differences are expected to be recovered or settled. The effect upon deferred tax assets and liabilities of a change in tax rate is recognized in
the period that includes the enactment date.
Significant judgment is required in determining income tax provisions and evaluating tax provisions under
the accounting guidance for income taxes. The Company establishes additional provisions for income taxes based upon the technical merits of the tax positions using applicable accounting guidance. Unrecognized tax benefits are generated when
there are differences between tax positions taken in a tax return and amounts recognized in the consolidated financial statements. Tax benefits are recognized in the consolidated financial statements when it is
more-likely-than-not
that a tax position will be sustained upon examination. Tax benefits are measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.
The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of the provision for income taxes. Interest accrued related to unrecognized tax
benefits and income tax related penalties are both included as a component of the provision for taxes and adjust the income tax provision, the current tax liability and deferred taxes in the period of which the facts that give rise to a revision
become known.
The Company follows the accounting guidance for income taxes that prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, the guidance provides rules on
de-recognition,
classification, interest and
penalties, accounting in interim periods, disclosure, and transition.
Environmental and Legal Liabilities and Expenditures
Liabilities are recorded when the Company determines that it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. If no amount in the possible range of liability is considered more probable than any other amount, the Company records the lowest amount in the range. Due to the nature of the monitoring requirements and the impact of remediation efforts,
the Company has a policy of reserving monitoring costs for a period of three to five years. Any activity beyond that period cannot be reasonably estimated. Considering the magnitude of the reserves and duration of the accrual policy, liabilities are
not recorded at a discount. Environmental expenditures are included in Selling, general and administrative expenses.
Asset Retirement Obligation
The Company follows the FASBs guidance regarding asset retirement obligations, which addresses the accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated retirement costs. Also, the Company follows the FASBs guidance for conditional asset retirement obligations (CARO), which relates to legal obligations
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 the control of the entity. At March 31, 2017 and December 31, 2016, the exposure to
such obligations is immaterial to the Company.
Foreign Currency Translation
Substantially all
non-U.S.
subsidiaries and affiliates use the local currency as the functional currency. For those
operations, assets and liabilities are translated into U.S. dollars at the exchange rate end of the period and revenues and expenses are translated into U.S. dollars at the average exchange rates during the period. Such adjustments are reported, net
of their related tax effects, as a component of Accumulated other comprehensive income (loss) (AOCI).
Assets and liabilities denominated in
currencies other than the local currency are remeasured into the local currency prior to translation into U.S. dollars and the resultant exchange gains or losses are recorded in the period
F-62
in which they occur. Gains and losses from remeasurement and foreign currency transactions are included in Other expense, net, except for those covered by net investment hedges or resulting from
the dissolution of holding companies, which are recorded to AOCI.
Fair Value Measurements
The Company values certain financial and nonfinancial assets and liabilities at 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 dates (exit price). The Company uses various valuation techniques to measure the fair value of an asset or liability incorporating
inputs that are observable, independent market data and unobservable data that management believes are predicated on the assumptions market participants would use to price an asset or liability.
The Company classifies fair value measurements within one of three levels on the fair value hierarchy. The level assigned to a fair value measurement is based
on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:
Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities for which quoted prices are
accessible at the measurement date.
Level 2 inputs other than quoted prices included within Level 1 that are either
directly or indirectly observable. These include quoted prices in active markets for similar assets or liabilities or quoted prices in inactive markets for identical assets or liabilities accessible at the measurement date.
Level 3 unobservable inputs that management believes are predicated on the assumptions market participants would use to
measure the asset or liability at fair value.
The Company values pension assets, stock-based compensation liability and management shares under the fair
value guidelines. The details of the fair value measurements and required disclosures are included within Note 3 Stock-based Compensation and Other Compensation Arrangements, Note 14 Financing Activities and Note
15 Employee Benefit Plans.
Credit Concentrations
Credit risk represents the accounting loss that would be recognized at the reporting date if counter-parties failed to perform as contracted. Concentrations of
credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions. Financial instruments with potential credit risk include cash and cash equivalents, accounts receivable and bank drafts.
The Company maintains cash and cash equivalents and bank drafts with various major financial institutions which provides potential credit risk exposure. The
Company has not experienced losses from this activity. Concentrations of credit risk with respect to receivables are generally limited with no individual customers in excess of 5% of total revenue.
Restructuring
Actions associated with restructuring
plans include, but are not limited to, workforce reduction, plant or facility closures and sales. Costs associated with these actions may include, but are not limited to, employee severance, accelerated post-employment benefits, plant deactivations
and asset impairments.
Post-employment benefits accrued for workforce reduction related to restructuring activities are recorded in the period which a
liability is incurred, except for
one-time
employee termination benefits that are incurred over
F-63
time. Other restructuring costs are recorded when the costs are incurred. Restructuring reserves are included in Other current liabilities. Reserves are reviewed at least quarterly for adequacy
and any necessary adjustments are recorded in the period the adjustment is determinable. Should the actual amounts differ from estimates, the amount of the restructuring costs could be materially impacted.
Derivatives
The Company is exposed to the impact of
changes in interest rates, foreign currency, changes in commodity prices and credit risk. The Company does not currently use derivative instruments to mitigate these risks. The Company does not enter into speculative derivative contracts for trading
purposes.
During 2015, the Company entered into a £1.95 million intercompany loan and designated the loan as a hedge against the net investment
as the loan will offset the change in economic value of the investment attributable to changes in the exchange rates between the euro and Great Britain pound. The Company recognizes foreign currency fluctuations on the loan in AOCI. In December
2016, the subsidiary was dissolved, the intercompany loan was forgiven and the $470 of related cumulative foreign currency fluctuations remains in AOCI.
The Company recognizes all derivatives on the balance sheet.
Employee Benefit Plans
The Company applies the
recognition and disclosure provisions of the accounting rules on pensions. This standard requires employers to recognize the funded status (i.e., the difference between the fair value of the plan assets and projected benefit obligation) of all
Pension Plans in the Statements of Financial Position, with corresponding adjustments to AOCI. The adjustments of AOCI at adoption represents the net unrecognized actuarial gains and losses, prior service costs and unrecognized transition amounts
which were previously netted against the plans funded status pursuant to prior accounting provisions. This amount will be subsequently recognized as the net pension (income) expense in accordance with the Companys accounting policy for
amortizing such amounts. Further, unrecognized actuarial gains and losses, prior service costs and unrecognized transaction amounts that arise in subsequent periods and are not recognized as net pension (income) expense in the same periods will be
recognized as a component of AOCI.
The Company contributes to two multi-employer defined benefit pension plans under the terms of the collective
bargaining union contracts assumed through the Wallover Acquisition. The Companys contribution rate to the multi-employer pension plans is specified in the collective bargaining union contracts and contributions are made monthly.
Stock-based Compensation
On October 16, 2013, the
Board of Directors of GH approved the Stock Option Plan (the GH Plan) that provided for GH to grant stock-based compensation to their employees in the form of stock options based on service and performance vesting over a five year
term. On July 16, 2014, GH amended and restated the Plan to authorize the Company to grant stock appreciation rights (SARs) to employees. A SAR is the right to receive upon exercise, shares of Houghton common stock equal in
value to the excess of: (i) the Fair Market Value (as of the time of exercise) of a share of Houghton common stock, over (ii) the SAR Base Value (defined as grant date fair value of a share of Houghton common stock) per share of common
stock. This difference is often referred to as the spread amount or the amount by which the SAR is in the money. A SAR confers the same economic benefit and provides the same number of shares to a holder of a SAR as the net
exercise of a stock option by an optionee. The service based SARs vest at a rate of 20% per year while performance based options vest based on annual and cumulative targets, both awards having a contractual term of ten years.
In July 2015, the Company conducted an exchange offer which allowed holders of GH stock options and SARS to exchange their options for a like number of share
options in Houghton (Exchange Offer). In conjunction
F-64
with the exchange, the Board of Directors approved the Global Houghton Ltd. Share Option and Share Appreciation Rights Plan (the Houghton Plan). The awards granted with performance
vesting are deemed granted upon approval of the targets, which occurs annually, generally in the first quarter of each plan year. The number of shares of Houghton common stock that were reserved for issuance under the Houghton plan at March 31,
2017 was 85,039.
Prior to the exchange offer, the Company applied the accounting guidance for stock-based compensation, which required the Company to
expense the fair value of employee stock options granted. Compensation expense was measured at the grant date based on the fair value of the award on an accelerated basis. If awards contain certain performance conditions in order to vest, the
Company recognized the cost of the award when achievement of the performance condition was probable. The Company recorded stock-based compensation expense in Selling, general and administrative expense. Stock compensation expense incurred under the
GH Plan was reflected as an increase in
Non-controlling
interest through the date of the Exchange Offer. Upon the effective date of the Exchange Offer, the stock compensation expense accumulated in
non-controlling
interest was reclassified into Additional
paid-in
capital.
Subsequent to the Exchange Offer, the Company demonstrated the intent for allowing net cash settlements of stock-based awards as well as the removal of the six
month holding period for recipients of stock-based awards. This intent triggered liability accounting for stock-based compensation, which requires outstanding options and SARS to be classified as liability-based awards and valued at fair value. The
liability is remeasured and adjusted until the options are exercised, expire, or payment is made to the employees. The stock-based compensation liability is included in Other
non-current
liabilities and was
$14,746 and $5,720 at March 31, 2017 and December 31, 2016, respectively. Compensation expense of stock-based awards granted prior to the liability accounting modification (July 2015) is recognized over the applicable vesting period based
upon the greater of the awards grant date fair value (the Floor) or fair value at the reporting period. Corresponding fair value adjustments to the liability balance of awards subject to the Floor are recorded through Additional
paid-in
capital. Compensation expense of stock-based awards granted subsequent to the liability accounting modification is recognized over the applicable vesting period based upon fair value at the reporting period,
and subsequent fair value adjustments to the corresponding liability recorded through compensation expense.
The service based options vest at a rate of
20% per year while performance based options vest based on annual and cumulative targets, both awards having a contractual term of ten years. The awards granted contain a put option, which gives the recipient the ability to sell shares back to the
Company upon certain events. The put option expires at the earliest of nine months from employee termination (15 months from employee termination for death, disability, or retirement); initial public offering; change in control; or 10 years and 9
months from the associated option or SAR grant date. The shares put to the Company will be valued at fair market value as of the date of the contingent event, except for the trigger related to potential termination. Contingent events triggering the
ability to put the shares include the passage of time.
The awards granted also contain a call option, which gives the Company the right to call shares
upon employee termination. The call expires at the earliest of nine months from the employment termination date, an initial public offering, or a change in control. The shares called by the Company will be valued at fair value as of the date of the
call for any holder voluntarily terminated other than on account of good reason or retirement, or the lesser of cost or fair value as of the date of the call for any holder terminated for cause.
Redeemable Stock
During the fourth quarter of 2013,
1.86% of the outstanding shares of GH were purchased from GHG Lubricants by certain members of management. In July 2015, the Company conducted an exchange offer which allowed shareholders of GH to exchange their shares for a like number of shares in
Houghton, with the same terms and conditions as the GH share agreement. As of March 31, 2017 and December 31, 2016, these shares represented 1.24% of the total outstanding shares of Houghton. These shares contain certain call and put
option terms which
F-65
provide the Company with the right, but not the obligation, to call the shares upon certain events and provides the management shareholder the ability to sell shares back to the Company upon
certain events.
The put option provides each management shareholder the ability to sell shares back to the Company upon certain events. The put option
expires at the earliest of nine months from employee termination (15 months from employee termination for death, disability or retirement); initial public offering; or change in control. The shares put to the Company will be valued at fair value as
of the put date related to a voluntary termination or if no initial public offering or change in control occurs prior to December 20, 2017.
The call
option provides the Company the right to call shares upon employee termination. The call expires at the earliest of six months from the employment termination date, an initial public offering or a change in control. Shares that become callable by
the Company will be valued at fair value as of the date of the call for any holder terminated other than on account of good reason of retirement or the lesser of cost or fair value as of the date of the call for any holder terminated for cause.
The shares put to or called by the Company will be valued at fair value. Prior to December 20, 2015, the call provision allowed the Company to repurchase
the management shares at the lessor of cost plus deemed interest or fair value. Such provision limited the management shareholders ability to share in the risk and rewards of equity ownership, creating a vesting or service period for the
management shareholder and resulting in liability classification of such shares in accordance with accounting guidance for stock-based compensation. After June 20, 2016, upon maturity of the management shares (6 months from expiration of the
Company call provision for an amount other than fair value), the management shares are classified as Redeemable stock in Mezzanine equity and recorded at fair value (redemption value). As the Company is in an accumulated deficit position, changes in
fair value (redemption value) of the management shares are recognized in Additional
paid-in
capital at each period end.
Long-Term Incentive Plan
Under the GH Holdings, Inc.
Long-Term Incentive Plan (GH LTIP) certain members of executive management are eligible to receive a cash-based award based on achievement of certain performance targets. The performance and service periods are from January 1, 2013
through December 31, 2017 and the required service period is from January 27, 2014 through December 31, 2017.
In July 2015, the Global
Houghton Ltd Long-Term Incentive Plan (LTIP) was created with the same terms and conditions as the GH LTIP, except the performance and service periods are from January 1, 2015 through December 31, 2017. Under the terms of both
plans, the participants award shall be forfeited in the event of participants termination for cause as defined in the agreement or upon voluntary resignation. As the participants provide service during the required service period, the
Company ratably recognizes expense within Selling, general and administrative expense, based upon the Companys estimated level of achievement. The Company records the LTIP liability in Other
non-current
liabilities.
Advertising Expense
Advertising costs
are expensed in the period incurred. Advertising expense are recorded within Selling, general and administrative expense. Advertising costs for the three months ended March 31, 2017 and 2016 were $520 and $567, respectively.
Research, Development and Engineering Expense
Research,
development and engineering costs are expensed as incurred. Research and development costs for the three months ended March 31, 2017 and 2016 were $5,030 and $5,041, respectively. These costs are included in both Cost of goods sold and Selling,
general and administrative expense.
F-66
Recent Accounting Standards
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842),
which will increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. For publicly traded companies, the guidance is effective for fiscal years beginning
after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating
ASU 2016-02
and has not determined the impact it may
have on the Companys condensed consolidated financial statements nor decided upon the method of adoption.
The revenue guidance,
Revenue from
Contracts with Customers
, (ASU
2014-9,
ASU
2015-14,
ASU
2016-08,
ASU
2016-10,
ASU
2016-12
and ASU
2016-20)
is effective for interim and annual reporting periods beginning after December 15, 2017 for publicly traded companies and can be adopted by the
Company using either a full retrospective or modified retrospective approach, with early adoption prohibited. The Company is currently evaluating this revenue guidance and has not determined the impact it may have on the Companys condensed
consolidated financial statements nor decided upon the method of adoption.
In August 2016, the FASB issued ASU
2016-15,
Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments
, which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash
flows. This guidance is effective for publicly traded companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not expect this guidance to have a material impact on its
consolidated Statement of Cash Flows.
In October 2016, the FASB issued ASU
2016-16,
Income Taxes, Intra-Entity
Transfers of Assets Other than Inventory
, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. This guidance is
effective for publicly traded companies for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company is currently evaluating ASU
2016-16
and has not determined
the impact it may have on the Companys condensed consolidated financial statements.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows, Restricted Cash,
which requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash
flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and cash equivalents in the statement of cash flows. This guidance is effective for interim and annual reporting periods beginning
after December 15, 2017 for publicly traded companies and must be adopted using a retrospective approach. The Company is currently evaluating ASU
2016-18
and has not determined the impact it may have on
the Companys consolidated Statement of Cash Flows.
In December 2016, the FASB issued ASU
2016-19,
Technical Corrections and Improvements
, which corrects errors and makes minor improvements affecting a variety of topics in the ASC. Most of the amendments are not expected to have a significant effect on practice. The Company does not expect
this guidance to have a material impact on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU
2017-01,
Clarifying the Definition of a Business
, to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for
as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance is effective for publicly traded companies for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating ASU
2017-01
and its impact on the condensed consolidated financial statements.
In January 2017 the FASB issued ASU
2017-04,
Simplifying the Test for Goodwill Impairment
, to simplify the
subsequent measurement of goodwill and eliminate the Step 2 from the goodwill impairment test. Under the
F-67
amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should
recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. A public business
entity should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently evaluating ASU
2017-04
and will assess the impact on future goodwill impairment tests.
In February 2017, the FASB issued ASU
2017-05,
Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic
610-20)
. This guidance clarifies the scope and application of ASC
610-20,
which was
issued with the new revenue recognition standard, on the sale or transfer of nonfinancial assets to noncustomers. This guidance applies to nonfinancial assets, including real estate, ships and intellectual property. The new guidance is effective for
public entities for annual reporting periods beginning after December 15, 2017, and interim periods, therein. The new revenue standard and ASC
610-20
must be adopted concurrently. The company is currently
evaluating ASU
2017-05
and has not determined the impact it may have on its condensed consolidated financial statements.
In March 2017, the FASB issued ASU
2017-06,
Compensation
Retirement
Benefits, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
.
This guidance requires that employers that sponsor defined benefit pension and/or other postretirement benefit plans will
present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising for services rendered during the period. Only the service cost component will be eligible for
capitalization in assets. Other components of net periodic benefit cost will be presented separately from the line item(s) that include service cost and outside of any subtotal of operating income, if one is presented. This guidance is effective for
public companies for annual periods beginning after December 15, 2017 and interim periods therein. Early adoption is permitted. The company is currently evaluating ASU
2017-06
and has not determined the
impact it may have on its condensed consolidated financial statements.
2. Business Acquisitions and Divestitures
Acquisition of Wallover Enterprises, Inc.
On July 6,
2016, the Company completed the acquisition of Wallover Enterprises, Inc. (Wallover) and subsidiaries, in the United States and Canada (Wallover Acquisition). Wallover is based in Strongsville, Ohio. Wallover is a branded
manufacturer of consumable, custom oil and water-based industrial lubricants and metalworking fluids which are used in a broad array of manufacturing applications. Products manufactured using Wallovers industrial lubricants and metalworking
fluids include: automotive components, products for the oil & gas industries, appliances, consumer and commercial electronics, aerospace components, medical devices, and various metals. Under the terms of the Wallover Acquisition, the
Company acquired certain assets, including trade receivables, equipment and customer lists and also assumed certain liabilities for consideration of $39,363 net of cash received. Management believes that the acquisition will enable the Company to
strengthen our market position in the consumable, custom oil and water-based industrial lubricants, as well as metalworking fluids and will complement our services in the United States and Canada.
The Company incurred and expensed transaction costs of $800 for the year ended December 31, 2016.
F-68
The preliminary purchase price allocation is based upon the estimated fair values as of the date of the
acquisition, and is summarized as follows:
|
|
|
|
|
Consideration
|
|
|
|
Cash paid to the sellers, net of cash acquired
|
|
$
|
39,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Trade receivables
|
|
$
|
4,364
|
|
|
Accounts payable
|
|
$
|
1,543
|
|
Inventories
|
|
|
3,773
|
|
|
Accrued expenses
|
|
|
210
|
|
Property, plant and equipment
|
|
|
6,395
|
|
|
Deferred tax liabilities
|
|
|
8,722
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
15,280
|
|
|
Liabilities assumed
|
|
|
10,475
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
|
|
19,240
|
|
|
Net Assets Acquired
|
|
$
|
39,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
$
|
49,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the $19,240 of acquired intangible assets, $15,000 was preliminarily assigned to customer lists with an eleven year useful
life, $3,600 was assigned to technology and intellectual property with a nine year useful life, $510 was assigned to
non-compete
agreements with a five year useful life, and $130 was assigned to trademarks
with a two year useful life. The fair value of the identifiable intangible asset was determined based on an income approach. The excess of the purchase price over the fair value of the assets acquired was recorded as Goodwill.
Recognition of inventory fair value adjustments were $298 for the year ended December 31, 2016 and were included in Cost of goods sold. Realization of
the inventory fair value adjustments related to the Wallover Acquisition were recognized ratably over the estimated inventory turnover period and were completed in September 2016.
3. Stock-based Compensation and Other Compensation Arrangements
Stock Option Plan
Stock options have been provided under
two plans. The GH Plan was in effect from October 16, 2013 through June 26, 2015, when the Company conducted an exchange offer which allowed holders of GH stock options and SARS to exchange their options for a like number of share options
in Houghton. In conjunction with the exchange, the Board of Directors approved the Houghton Plan.
In 2015, the Company demonstrated the intent for
allowing net cash settlements of stock-based awards as well as the removal of the
six-month
waiting period for recipients of stock-based awards. This intent triggered a modification to liability accounting for
stock-based compensation, which requires the outstanding options and SARS to be measured at fair value as of the grant date and
re-measured
at fair value at the end of each reporting period. Compensation
expense associated with service awards is recognized over the requisite service period, while performance based options are recognized over the performance period based upon achievement of targets. Under modification accounting, the cumulative
expense recognized is equal to the greater of the grant-date fair value of the equity award or the fair value of the modified liability award when it is settled, which is generally determined using the Black-Scholes method.
The following table provides stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
|
Three Months Ended
March 31, 2016
|
|
Stock-based compensation expense
|
|
$
|
4,396
|
|
|
$
|
757
|
|
|
|
|
Deferred tax benefit
|
|
$
|
(1,080
|
)
|
|
$
|
(256
|
)
|
F-69
As of March 31, 2017, there was approximately $1,031 of expected future
pre-tax
stock-based compensation expense related to
non-vested
service stock options and SARS outstanding, which is expected to be recognized over the remaining period
of 1.28 years. As of March 31, 2017, there was approximately $1,479 of expected future
pre-tax
stock-based compensation expense related to
non-vested
performance
stock options and SARS outstanding, which is expected to be recognized over the remaining period of .75 years. These expected future expenses were calculated assuming no change in fair value. Given that the stock options are deemed a liability
instrument, a change in fair value will result in a corresponding change to future
pre-tax
stock-based compensation expense.
Long-Term Incentive Plan
Long-term incentive plans exist
under both GH Holdings, Inc. and Global Houghton Ltd. The performance and service periods under the GH LTIP are from January 1, 2013 through December 31, 2017 and the required service period is from January 27, 2014 through
December 31, 2017. The performance and service periods under the LTIP are from January 1, 2015 through December 31, 2017. At March 31, 2017 there is no liability recorded related to the GH LTIP plan as the targets are not
anticipated to be met.
At March 31, 2017 and December 31, 2016, the Company had a liability recorded of $5,625 and $5,000, respectively, as a
component of Other
non-current
liabilities based upon the estimated achievement of the performance goal for the Global Houghton Ltd LTIP plan. LTIP expense incurred for each of the three months ended
March 31, 2017 and 2016 was $625 and was recognized as a component of Selling, general and administrative expenses.
4. Other Expenses
Other Operating Expense
Other operating expenses were
$199 for the three months ended March 31, 2017. This primarily consisted of $105 of consulting costs, $91 related to strategic headcount reductions, and the remainder related to other corporate activities.
Other operating expenses were $117 for the three months ended March 31, 2016. This primarily consisted of $83 related to strategic headcount reductions,
$42 of employee transitioning costs and the remainder related to other corporate activities.
Other Expense, net
Other expense was $397 for the three months ended March 31, 2017. This primarily consisted of $217 of accrued interest on a claim with Brazilian tax
authorities specific to VAT taxes and $62 in foreign currency transaction losses.
Other expense was $305 for the three months ended March 31, 2016.
This primarily consisted of $215 in fees paid to an advisor of the Board of Directors, and $169 in
non-income
related tax expense.
5. Restructuring
Restructuring expenses are related to
corporate activities that are planned and controlled by management and materially change the scope of the applicable business or the manner in which the business is conducted.
During the acquisition of Wallover in July 2016, the Company made strategic decisions to close two plant facilities and reduce headcount in East Liverpool,
Ohio and Hamilton, Ohio. Except for ongoing legal costs associated with employee matters, the Company expects to complete these activities within twelve months.
F-70
During 2015, the Company made strategic decisions resulting in restructuring activities related to significant
headcount reduction programs in the United States and Europe. Except for ongoing legal costs associated with employee matters, the Company expected to complete these activities within twelve months.
The following table summarizes restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
|
Three Months Ended
March 31, 2016
|
|
Severance cost
|
|
$
|
36
|
|
|
$
|
359
|
|
Facility closing costs
|
|
|
67
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
103
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
The Wuppertal, Germany manufacturing plant was sold during March 2016 with the gain of $56 included in Restructuring expense.
As of March 31, 2017 and December 31, 2016, $1,171 and $2,747 was reserved for restructuring activities, included in Accrued restructuring and
other costs within Other current liabilities.
6. Income Taxes
The Companys effective income tax rate for the three months ended March 31, 2017 was (0.8)% compared to (12.2)%, for the three months ended
March 31, 2016. The Companys effective tax rate was primarily driven by the mix of income among tax jurisdictions, an increase in the projected
non-deductible
transaction costs, an increase in the
projected tax liability for subsidiary earnings, the U.S. tax consequences of
non-U.S.
earnings and the Companys deferred tax accrual for the investee equity income. In addition, the 2017 effective tax
rate was favorably impacted by deferred tax rate change in a foreign jurisdiction. The effective income tax rate is impacted by the decreased
pre-tax
income (loss) which acts to magnify the impact of income
tax expense adjustments.
7. Accounts Receivable, net
Accounts receivable at March 31, 2017 and December 31, 2016 were $150,846 and $137,195, respectively, which were offset by an allowance for doubtful
accounts of $6,634 and $6,464, respectively.
Total expense related to the reserve for doubtful accounts for the three months ended March 31, 2017
and 2016 were $110 and $389, respectively.
8. Inventories
The Companys total inventory consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Raw materials
|
|
$
|
31,983
|
|
|
$
|
26,558
|
|
Work in process
|
|
|
226
|
|
|
|
374
|
|
Finished goods
|
|
|
49,514
|
|
|
|
49,321
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,723
|
|
|
$
|
76,253
|
|
|
|
|
|
|
|
|
|
|
F-71
9. Prepaid Expense and Other Assets
The Companys prepaid expense and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Prepaid expense
|
|
$
|
6,552
|
|
|
$
|
863
|
|
Total refundable taxes
|
|
|
3,904
|
|
|
|
3,530
|
|
Marketable securities
|
|
|
7,564
|
|
|
|
10,035
|
|
Current deposits
|
|
|
833
|
|
|
|
892
|
|
Other current assets
|
|
|
2,096
|
|
|
|
2,175
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,949
|
|
|
$
|
17,495
|
|
|
|
|
|
|
|
|
|
|
10. Assets Held for Sale
Assets held for sale are reported at the lower of the carrying amount or the fair value less costs to sell. Assets held for sale were $1,620 as of
December 31, 2016 and consisted of the Genoa, Italy plant which was sold in January 2017. No gain or loss was recorded as the property was sold at an amount equal to the carrying value. There were no assets held for sale as of March 31,
2017.
11. Property, Plant and Equipment
Property,
plant and equipment are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Land and buildings
|
|
$
|
44,874
|
|
|
$
|
43,875
|
|
Machinery and equipment
|
|
|
69,958
|
|
|
|
68,069
|
|
Construction in progress
|
|
|
2,615
|
|
|
|
2,666
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,447
|
|
|
$
|
114,610
|
|
Less: Accumulated depreciation
|
|
|
(41,904
|
)
|
|
|
(38,530
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,543
|
|
|
$
|
76,080
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense, including depreciation on assets under capital leases, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2017
|
|
|
Three Months Ended
March 31, 2016
|
|
Depreciation Expense
|
|
$
|
2,983
|
|
|
$
|
2,494
|
|
12. Goodwill, Intangible Assets and Other Long-lived assets
Goodwill
The changes in the carrying amount of Goodwill
are as follows:
|
|
|
|
|
Balance as of December 31, 2016
|
|
$
|
254,118
|
|
Currency translation adjustments
|
|
|
5,046
|
|
|
|
|
|
|
Balance as of March 31, 2017
|
|
$
|
259,164
|
|
|
|
|
|
|
F-72
Intangible Assets
Intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Customer relationships
|
|
$
|
485,333
|
|
|
$
|
476,869
|
|
|
$
|
(153,619
|
)
|
|
$
|
(140,868
|
)
|
Technological
know-how
|
|
|
57,906
|
|
|
|
57,906
|
|
|
|
(15,677
|
)
|
|
|
(14,657
|
)
|
Trade name (Houghton)
|
|
|
21,115
|
|
|
|
21,115
|
|
|
|
|
|
|
|
|
|
Trade name (Products)
|
|
|
1,530
|
|
|
|
1,530
|
|
|
|
(349
|
)
|
|
|
(315
|
)
|
Non-Compete
Covenants
|
|
|
510
|
|
|
|
510
|
|
|
|
(77
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
566,394
|
|
|
$
|
557,930
|
|
|
$
|
(169,722
|
)
|
|
$
|
(155,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three months ended March 31, 2017 and 2016 was $10,380 and $10,862, respectively.
As of March 31, 2017, expected amortization expense for each of the next five years and thereafter was as follows:
|
|
|
|
|
2017 (remainder)
|
|
|
30,992
|
|
2018
|
|
|
41,372
|
|
2019
|
|
|
41,372
|
|
2020
|
|
|
41,372
|
|
2021
|
|
|
41,372
|
|
Thereafter
|
|
|
179,077
|
|
|
|
|
|
|
Total
|
|
$
|
375,557
|
|
|
|
|
|
|
When the Company performed the goodwill and intangible assets test for impairments as of October 1, 2016, the carrying
value of the South Asia reporting unit recognized a goodwill impairment loss of $15,116 and a finite-lived intangible assets impairment loss of $25,806 related to customer relationships. The carrying value of goodwill and intangible assets for all
other reporting units were not impaired through the date of the impairment test nor were there any events or circumstances that indicated the carrying amounts exceeded the fair value. See Note 1, Summary of Significant Accounting Policies for
further details on the goodwill and intangible asset valuation.
13. Other Current Liabilities
Other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Other accrued expense
|
|
$
|
8,175
|
|
|
$
|
6,303
|
|
Non-employee
commissions
|
|
|
1,296
|
|
|
|
1,217
|
|
Accrued environmental costs
|
|
|
1,856
|
|
|
|
1,919
|
|
Accrued professional fees
|
|
|
2,491
|
|
|
|
2,430
|
|
Deferred revenue
|
|
|
1,353
|
|
|
|
2,235
|
|
Other accrued taxes
|
|
|
8,374
|
|
|
|
5,056
|
|
Accrued restructuring and other costs
|
|
|
1,861
|
|
|
|
2,776
|
|
Accrued income taxes
|
|
|
3,312
|
|
|
|
1,618
|
|
Other
|
|
|
1,290
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,008
|
|
|
$
|
24,851
|
|
|
|
|
|
|
|
|
|
|
F-73
See Note 19, Commitments and Contingencies for discussion of the $2,292 related to a pending claim with Brazilian
tax authorities accrued as a component of Other accrued taxes within Other current liabilities.
14. Financing Activities
Credit Arrangements and Short-term Debt
Short-term debt
consists of borrowings under unsecured bank lines of credit and discounting facilities. The bank lines of credit were not collateralized and the discounting facilities were collateralized by the underlying accounts receivable. The total available
under these facilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Capacity
|
|
$
|
24,007
|
|
|
$
|
23,670
|
|
Outstanding borrowed
|
|
|
6,965
|
|
|
|
7,318
|
|
|
|
|
|
|
|
|
|
|
Unused capacity
|
|
$
|
17,042
|
|
|
$
|
16,352
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
|
|
|
4.13
|
%
|
|
|
4.07
|
%
|
Long-Term Debt Facilities
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
2012 Senior Credit Facilities
|
|
|
|
|
|
|
|
|
First Lien U.S. Term Loans
|
|
$
|
435,663
|
|
|
$
|
436,800
|
|
First Lien Dutch Term Loans
|
|
|
90,502
|
|
|
|
88,121
|
|
Second Lien U.S. Term Loans
|
|
|
200,000
|
|
|
|
200,000
|
|
Revolving Facilities
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
744,165
|
|
|
|
724,921
|
|
Less: Debt discounts
|
|
|
(3,861
|
)
|
|
|
(4,199
|
)
|
Less: Debt issuance costs
|
|
|
(12,274
|
)
|
|
|
(13,147
|
)
|
|
|
|
|
|
|
|
|
|
2012 Senior Credit Facilities, net
|
|
|
728,030
|
|
|
|
707,575
|
|
Obligations under capital leases
|
|
|
50
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
728,080
|
|
|
|
707,645
|
|
Less: Current portion of long-term debt
|
|
|
(22,593
|
)
|
|
|
(4,610
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
705,487
|
|
|
$
|
703,035
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facilities
On December 20, 2012, in connection with the GH Transaction, the Company entered into credit facilities (2012 Senior Credit Facilities) which
included the first and second lien facilities. The first lien consisted of $455,000 in U.S. dollar denominated Term Loans (First Lien U.S. Term Loan), 100,000 in euro-denominated Term Loans (First Lien Dutch Term Loan),
and dollar and multicurrency revolving facilities with a net capacity of $50,000 (Revolving Credit Facility). The second lien facility consisted of $200,000 in U.S. Term Loans (Second Lien U.S. Term Loan).
Borrowings under the 2012 Senior Credit Facilities provide for a selection of interest rates, at the option of the Company, based upon the prevailing LIBOR or
prime rate, plus applicable margin, subject to a 1.25% floor. In addition to paying interest on outstanding principal under the First Lien U.S. Term Loans, Dutch Term Loan, and Second Lien U.S. Term Loan, the Company pays a commitment fee to the
lenders under the 2012 Revolving
F-74
Credit Facility in respect of unutilized commitments. Commitment fees paid to the lender during the three months ended March 31, 2017 and 2016 were $48 and $54, respectively. The line of
credit is subject to normal terms related to default and change of control.
Subject to voluntary prepayments, the Company is required to pay 0.25% of the
funded initial principal balances on the First Lien U.S. Term Loans and Dutch Term Loans quarterly through the maturity date, at which time the remaining aggregate principal balance is due. The revolving credit facility matures in September 2019.
The First Lien U.S. Term Loan and First Lien Dutch Term Loan mature in December 2019. The Second Lien U.S. Term Loan matures in December 2020.
The net
proceeds from the 2012 Senior Credit Facilities were used to repay the 2011 Senior Credit Facility, with the balance of the borrowings used to fund the GH Transaction. In conjunction with obtaining the 2012 Senior Credit Facilities, the Company
capitalized debt issuance costs of $22,557 in the period ended December 31, 2012. The Company also capitalized $10,111 of debt discount, in the period ended December 31, 2012, related to the 2012 Senior Credit Facilities.
During May 2013, the Company amended the 2012 Senior Credit Facilities, which resulted in a reduction in the interest rates applicable to the First Lien U.S.
and Dutch Term Loans of 1.25% and Revolving Credit Facility of 0.25%. Also, the LIBOR floor following the amendment was 1.00% in the case of the First Lien U.S. Term Loan and the First Lien Dutch Term Loan and 1.25% in the case of the Second Lien
U.S. Term Loan. The Company paid fees of $6,672 in connection with this amendment. The Company accounted for the amendment in accordance with accounting guidance for debt modifications and extinguishments. Accordingly, amendment fees of $5,834 were
capitalized and third party fees of $838 were expensed as Interest expense. Capitalized fees will be amortized through the debt maturity in 2019.
During
July 2015, the Company amended its 2012 Senior Credit Facilities primarily to make guarantor, covenant and other verbiage changes. In conjunction with the amendment, the Company incurred a 0.25% increase in the interest rate margin on its First Lien
and Second Lien Term Loans. The Company also incurred approximately $1,924 in amendment fees paid at closing to the lenders and approximately $1,149 in attorney, arrangement and accounting fees. The other terms and conditions of the credit
facilities, discussed herein, were unchanged. The Company accounted for the amendment in accordance with accounting guidance for debt modifications and extinguishments. Therefore the amendment fees of $1,924 were capitalized as additional
debt issuance costs with all other fees being expensed as Interest expense. Capitalized fees will be amortized through the debt maturity in 2019.
In
March 2017, the Company amended its 2012 Revolving Credit Facilities to extend the maturity date from December 2017 to September 2019. The extended facility was reduced to a total capacity of $41,000 and will take effect December 2017. No other
changes were made to the terms of the agreement. In connection with this amendment, the Company paid fees of $182. The Company accounted for the amendment in accordance with accounting guidance for debt modifications and extinguishments. The Company
considered the limited changes presented by the amendment and reviewed the old and new lenders on a creditor by creditor basis and determined that the amendment was a modification. Accordingly, amendment fees of $182 were capitalized as debt
issuance costs. Capitalized fees will be amortized through the debt maturity in 2019.
The Company is required to make mandatory repayments on the first
and second lien loans based upon a 1% loan amortization rate. Additional payments are required if net proceeds from assets sales exceed $5,000 individually or $10,000 cumulatively per annum. Further additional payments are required per annum based
on an excess cash flow calculation that adjusts net income for working capital and other items, 50% of the calculated amount must be used to make a payment on the debt. Mandatory repayments may be deferred due to voluntary prepayments.
Covenants include requirements for quarterly reporting to the lenders regarding compliance based upon interest and leverage ratios, reporting of environmental matters exceeding $15,000, limitation on dividend amounts, certain limitations on
additional indebtedness, and restrictions on asset sales in excess of $35,000.
F-75
The Company has unused capacity under the Revolving Credit Facility of $27,318 and $45,410, net of bank letters
of credit of $4,682 and $4,590 as of March 31, 2017 and December 31, 2016, respectively.
The interest rates on the 2012 Senior Credit
Facilities, as amended, were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
First Lien U.S. Term Loan
|
|
|
4.25
|
%
|
|
|
4.25
|
%
|
Revolving Credit Facility
|
|
|
4.78
|
%
|
|
|
5.00
|
%
|
First Lien Dutch Term Loan
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
Second Lien U.S. Term Loan
|
|
|
9.75
|
%
|
|
|
9.75
|
%
|
The 2012 Senior Credit Facilities permitted HII Holding Corporation to make up to $25,000 in dividends or distributions to its
shareholders. As of March 31, 2017, HII Holding Corporation had paid $25,000 in dividends to its shareholders. Beyond this $25,000 of flexibility, the 2012 Senior Credit Facilities prevent HII Holding Corporation from paying any dividends or
making any distributions except to the extent of HII Holding Corporations excess cash flow (as defined per the agreement) that is not required by the terms of the 2012 Senior Credit Facilities to be applied to the mandatory prepayment of
outstanding first lien term loans under the 2012 Senior Credit Facilities and only if at such time HII Holding Corporation satisfies a first lien leverage ratio test on a pro forma basis after giving effect to such dividend or distribution.
As of March 31, 2017 and December 31, 2016, the Company was in compliance with its financial covenants. The Company also pledged as collateral to
its lenders substantially all U.S. assets, specific
Non-U.S.
assets and stock of certain subsidiaries.
Long-term
debt is reported at carrying value of $728,080, with a face value of $744,164. The fair value as of March 31, 2017 was $746,953.
15.
Employee Benefit Plans
The Company has defined benefit pension plans (Pension Plans) covering certain U.S. salaried and hourly employees
(U.S. Plans) as well as certain employees in Canada, the United Kingdom, France and Germany
(Non-U.S.
Plans). The U.S. Plans provide benefits based on an employees years of
service and compensation received for the highest five consecutive years of earnings. The Company made the decision to freeze benefits for
non-union
employees as of March 31, 2009 for the U.S. Plans. The
Non-U.S.
Plans provide benefits based on a formula of years of service and a percentage of compensation which varies among the
Non-U.S.
Plans. The Company made the decision to
freeze its United Kingdom
Non-U.S.
plan benefits as of May 1, 2013. In 2015 the Company annuitized the assets in the Canada plan in order to remove Houghton as the primary risk bearer and the annuity
company now makes direct payments to the pension plan members. The Companys funding policy is consistent with funding requirements of applicable government laws and regulations.
The components of net pension expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
Net pension income (expense):
|
|
|
|
|
|
|
|
|
Expected return on net assets
|
|
$
|
827
|
|
|
$
|
929
|
|
Service cost-benefits earned during period
|
|
|
(12
|
)
|
|
|
(11
|
)
|
Interest cost on projected benefit obligation
|
|
|
(811
|
)
|
|
|
(847
|
)
|
Amortization of Prior Service Cost
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
F-76
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
Plans
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
Net pension income (expense):
|
|
|
|
|
|
|
|
|
Expected return on net assets
|
|
$
|
775
|
|
|
$
|
861
|
|
Service cost-benefits earned during period
|
|
|
(19
|
)
|
|
|
(16
|
)
|
Interest cost on projected benefit obligation
|
|
|
(535
|
)
|
|
|
(727
|
)
|
Recognized Actuarial Loss
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135
|
|
|
$
|
118
|
|
|
|
|
|
|
|
|
|
|
The Company made the following contributions to its Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
2017
|
|
|
Three Months
Ended March 31,
2016
|
|
U.S. Plans
|
|
$
|
11
|
|
|
$
|
10
|
|
Non U.S. Plans
|
|
$
|
592
|
|
|
$
|
803
|
|
The Company expects to make additional contributions of $1,574 to the U.S. Plan and $1,375 to the Non U.S. Plan in 2017.
Multiemployer Benefit Plans
The Company contributes to
two multiemployer defined benefit pension plans under terms of the collective bargaining union contracts acquired during the Wallover Acquisition. The Companys contribution rate to the multiemployer pension plans is specified in the collective
bargaining union contracts and contributions are made to the plans based on its union employee payroll. While the Company may also have additional liabilities imposed by law as a result of its participation in multiemployer defined benefit pension
plans, there is no liability as of March 31, 2017. The Employee Retirement Income Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980, imposes certain contingent liabilities upon an employer who is a
contributor to a multiemployer pension plan if the employer withdraws from the plan or the plan is terminated or experiences a mass withdrawal. The Company has not taken any action to terminate, withdraw or partially withdraw from these plans.
The Pension Protection Act of 2006 (the PPA) also added special funding and operational rules generally applicable to plan years beginning after 2007 for
multi-employer plans that are classified as endangered, seriously endangered or critical status based on a multitude of factors (including, for example, the plans funded percentage, cash flow position and
whether the plan is projected to experience a minimum funding deficiency).
Plans in the endangered, seriously endangered or
critical status classifications must adopt measures to improve their funded status through a funding improvement or rehabilitation plan which may require additional contributions from employers (which may take the form of a surcharge on
benefit contributions) and/or modifications to retiree benefits. The plans to which the Company contributes are in critical status. The amount of additional funds that the Company may be obligated to contribute to these plans in the
future cannot be estimated as such amounts will be likely based on future levels of work that require the specific use of those union employees covered by these plans, and the amount of that future work and the number of affected employees that may
be needed cannot reasonably be estimated.
F-77
The following table contains a summary of plan information relating to the Companys participation in
multiemployer defined benefit pension plans. The most recent PPA zone status available relates to the plans fiscal
year-end
2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
Employer
Identification
Number
|
|
|
PPA
Zone
Status
|
|
|
FIP/RP Status
|
|
|
Contributions
for the three
months
ended
March 31,
2017
|
|
|
Expiration
Date of
Collective
Bargaining
Contracts
|
|
Central States, Southeast and Southwest Areas Pension Funds
|
|
|
36-6044243-001
|
|
|
|
Red
|
|
|
|
Implemented
|
|
|
$
|
26
|
|
|
|
01/31/2019
|
|
|
|
|
|
|
|
Cleveland Bakers and Teamsters Pension Fund
|
|
|
34-0904419-001
|
|
|
|
Red
|
|
|
|
Implemented
|
|
|
$
|
3
|
|
|
|
05/01/2019
|
|
16. Other
Non-Current
Liabilities
Other
non-current
liabilities consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Unrecognized tax benefits
|
|
$
|
6,412
|
|
|
$
|
6,403
|
|
Deferred compensation
|
|
|
7,808
|
|
|
|
7,055
|
|
Stock-based compensation liability
|
|
|
14,746
|
|
|
|
5,720
|
|
Other liabilities
|
|
|
244
|
|
|
|
2,467
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,210
|
|
|
$
|
21,645
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits are generated when there are differences between tax positions taken in a tax return and amounts
recognized in the financial statements. Tax benefits are recognized in the financial statements when it is
more-likely-than-not
that a tax position will be sustained upon examination.
Deferred compensation consists of LTIP of $5,625 and $5,000 at March 31, 2017 and December 31, 2016, respectively, and government mandated
resignation and retirement payments.
F-78
17. Accumulated Other Comprehensive Loss
The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation
adjustments
|
|
|
Defined
benefit
pension
plans
|
|
|
Total
|
|
Balance at December 31, 2015
|
|
$
|
(100,935
|
)
|
|
$
|
(7,463
|
)
|
|
$
|
(108,398
|
)
|
Other comprehensive income before reclassifications
|
|
|
8,152
|
|
|
|
|
|
|
|
8,152
|
|
Purchase of remaining interest of joint venture
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
(1,912
|
)
|
CTA attributable to
non-controlling
interest
|
|
|
(328
|
)
|
|
|
|
|
|
|
(328
|
)
|
Related tax amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
(95,023
|
)
|
|
$
|
(7,463
|
)
|
|
$
|
(102,486
|
)
|
Other comprehensive (loss) before reclassifications
|
|
|
(31,532
|
)
|
|
|
(5,218
|
)
|
|
|
(36,750
|
)
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax amounts
|
|
|
|
|
|
|
1,151
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(126,555
|
)
|
|
$
|
(11,530
|
)
|
|
$
|
(138,085
|
)
|
Other comprehensive income before reclassifications
|
|
|
13,478
|
|
|
|
|
|
|
|
13,478
|
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
Related tax amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
|
$(113,077)
|
|
|
$
|
(11,530
|
)
|
|
$
|
(124,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications of pension and other post-retirement actuarial items out of AOCI are included in the computation of net
periodic benefit cost.
18. Related Party Transactions
The Company has related party transactions with sales and purchases to and from certain affiliates. For the three months ended March 31, 2017, related
party sales were $221 and related party purchases were $185. For the three months ended March 31, 2016 related party sales were $602, while related party purchases were $240. At March 31, 2017 and December 31, 2016 amounts payable to
affiliated companies for these transactions were $10 and $23, respectively.
The Company also provides management services to certain affiliates,
including technical services, blending and packaging, corporate advice and project management. Amounts outstanding and included in accounts receivable at March 31, 2017 and December 31, 2016 were $232 and $172, respectively.
In addition, there are various management service agreements with certain affiliates. Total management fees incurred by the Company relating to these
agreements amounted to $500 for each of the three months ended March 31, 2017 and 2016. These management fees are included under Selling, general and administrative expenses. Services performed relate to integration, business introduction,
promotional and corporate governance services. At March 31, 2017 the full $2,223 of affiliate management fees were paid, with $1,773 included within Prepaid expense and other assets. At December 31, 2016, there were no affiliate management
fees outstanding.
19. Commitments and Contingencies
The Company participates in certain payments in connection with environmental consent orders related to certain hazardous waste cleanup activities under the
U.S. Federal Superfund statute and also has obligations to perform certain cleanup activities related to properties currently or previously owned. The Company has made accruals for these costs as well as costs associated with other environmental
issues of which it is aware. The Company
F-79
continually evaluates its obligations related to such matters and has estimated the range of costs to be between $1,856 and $3,594. As of March 31, 2017 and December 31, 2016, the
Company had accrued $1,856 and $1,919, respectively, for these activities. These accruals are included under Other current liabilities. The Company paid $167 for the three months ended March 31, 2017 and $95 during the three months ended
March 31, 2016 for such activities. The Company continually evaluates its obligations related to such matters and updates estimates as necessary.
Due to the nature of the Companys activities, it is also, at times, subject to pending and threatened legal actions that arise out of the ordinary
course of business. The Company continually evaluates its obligations to such matters and has accrued $2,292 in Other current liabilities related to a pending claim with Brazilian tax authorities specific to VAT taxes. In the opinion of management,
based in part upon advice of legal counsel, the disposition of any such matters is not expected to have a material effect on the Companys results of operations, financial condition or cash flows.
The Company approved incentive awards from a cash pool contingent upon future events. The total pool of $5,400 includes awards for multiple milestones and are
contingent upon multiple future events, including future service and completion of potential transactions. Due to the contingencies, the pool does not represent an accounting liability of the Company as of March 31, 2017 and therefore is not
reflected in the Companys Statement of Operations, Cash Flows or Financial Position.
Under the GH Holdings, Inc. Severance and Change in Control
Plan for Senior Management (Severance Plan), certain members of executive management are eligible to receive severance benefits. The Severance Plan provides severance pay to certain eligible employees if employment is terminated by the
Company for any reason other than good cause, death or disability, or by the employee on account of good reason. Severance pay provides an eligible employee with an amount equal to twelve months of annual base salary plus a pro rata portion of the
employees targeted annual bonus. In addition, a continuation of eligibility to participate in the Companys medical benefits plans. The Severance Plan also provides for change in control severance to certain eligible employees if
employment is terminated by the Company during a change in control period or if employment is terminated by the Company for any reason other than good cause, death or disability, or by the employee on account of good reason. Change in control
severance pay provides each eligible employee with an amount equal to 1.5 times the sum of the eligible employees base salary plus the employees targeted annual bonus, paid in a lump sum on or after the 30
th
day that follows the employees termination date. The employee is also eligible for continued participation in the Companys medical benefit plans for eighteen months immediately following
termination. The estimated cost of the change in control severance of $7,434 does not represent an accounting liability of the Company as of March 31, 2017 due to the severance being contingent upon future events, including completion of
potential transactions and therefore is not reflected in the Companys Statement of Operations, Cash Flows or Financial Position.
The Company had
letters of credit outstanding of $4,682 and $4,590 as of March 31, 2017 and December 31, 2016, respectively, which guarantee funding of certain activities, some of which are still under negotiation with regulators. These letters of credit
reduce the capacity under the 2012 Revolving Credit Facility (see Note 14).
Local laws and regulations in certain countries require that the Company
obtain letters of credit or bank guarantees in connection with certain legal proceedings and general business purposes. These letters of credit or bank guarantee do not represent accounting liabilities of the Company and; therefore, are not
reflected in the Companys Statement of Operations, Cash Flows or Balance Sheets. The amount of these letters of bank guarantee was $764 and $892 as of March 31, 2017 and December 31, 2016, respectively.
20. Subsequent Events
On April 5, 2017, Quaker
Chemical Corporation (Quaker) executed a definitive agreement for the purchase of Houghton. Under the terms of the agreement, Houghton shareholders will receive $172,500 of cash and a 24.5%
F-80
ownership in the combined company, representing approximately 4,300 of newly issued Quaker shares. In addition, Quaker will assume Houghtons debt and cash.
The Companys management has evaluated all activity of the Company through [●], 2017 and concluded that there were no additional subsequent events
required to be reflected in the Companys condensed consolidated financial statements or notes as required by standards for accounting disclosure of subsequent events.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks during the normal course of our business, such as the risk arising from fluctuations in commodity
prices, interest rates and currency exchange rates, as well as the risk of credit concentration. In attempts to manage these risks, we employ certain strategies to mitigate the effect of these fluctuations.
Commodity Price Risk
As
a manufacturer of petroleum-based products, we have exposure to market pricing for raw materials used in our products sold and in the manufacturing process in the future; however, we do not typically enter into long-term fixed price contracts with
our suppliers. In order to realize value from our processing capacity, a positive spread between the cost of raw materials and the value of finished products must be achieved (i.e., gross margin). Prices are negotiated on a continuous basis and we
do not use commodity derivative contracts to economically hedge future cash flows or product inventory costs. We generally pass on some or all of the increases in the cost of raw materials to customers through higher prices. Although our product
price increases lag raw material cost increases, historically we have been able to recover such cost increases over time.
Interest
Rate Risk
As of March 31, 2017 and December 31, 2016, we had $744.2 million and $724.9 million, respectively, of
variable rate debt outstanding under our 2012 Senior Credit Facilities.
The calculation of interest within our long-term debt instruments
is based upon a LIBOR floor plus a stipulated margin. Throughout the reporting periods the actual LIBOR rates have been significantly below the stipulated LIBOR floor levels. For example, the actual three-month LIBOR rate at March 31, 2017 and
December 31, 2016 was 1.15% and 0.93%, respectively; however, the LIBOR floor for our 2012 Senior Credit Facilities following the amendment in May 2013 was 1.00% in the case of the First Lien U.S. Term Loan and the First Lien Dutch Term Loan and
1.25% in the case of the Second Lien U.S. Term Loan. As a result, LIBOR rates would have to increase approximately 10 basis points (or 8.7%) to have a significant impact on interest expense. An increase in actual three-month LIBOR rates by 100 basis
points would result in additional annual interest expense of $7.4 million based on outstanding borrowings as of March 31, 2017.
Foreign Exchange Risk
A
significant portion of our revenues are generated by our foreign operations. We translate
non-U.S.
dollar denominated results of operations, assets, and liabilities of our
non-U.S.
subsidiaries to U.S. dollars in our financial statements. Consequently, increases and decreases in the value of the U.S. dollar as compared to the respective
non-U.S.
currencies, particularly the British pound, euro, Chinese renminbi, Mexican peso, and the Brazilian real, will affect our reported results of operations and the value of our assets and liabilities. We
do not use currency exchange rate derivative contracts to economically hedge future cash flows. We are exposed to numerous currencies and cannot reasonably estimate the impact of the fluctuations on our future results of operations or financial
position. As exchange rates vary, our results can be materially affected.
Concentration of Credit Risk
We maintain cash and cash equivalents, marketable securities and certain other financial instruments with various financial institutions. These
financial institutions are generally highly rated and geographically dispersed.
F-81
Our sales are not materially dependent on any single customer. We do not have any customers that
constitute 10 percent or more of our revenues. Our largest customer represented approximately 3% of sales in 2017, 2016, and 2015.
Credit risk associated with its receivables balance is representative of the geographic, industry and customer diversity associated with our
regions. We also maintain strong credit controls in evaluating and granting customer credit. As a result, it may require that customers provide some type of financial guarantee in certain circumstances. Length of terms for customer credit varies by
industry and region. As of March 31, 2017 and December 31, 2016, we had no significant concentrations of credit risk.
F-82
Annex A
SHAREHOLDER VOTING ADMINISTRATIVE PROCEDURES
Voting Rights
At the Annual Meeting of
Shareholders held May 6, 1987, shareholders approved an amendment to the Articles of Incorporation (the Articles), pursuant to which the holders of the Companys $1.00 par value Common Stock on May 7, 1987 (the Effective
Date) became entitled to 10 votes per share of Common Stock with respect to such shares, and any shares of Common Stock acquired after the Effective Date, subject to certain exceptions. Persons who become shareholders after the Effective Date
shall only be entitled to one vote per share until such shares have been owned beneficially for a period of at least 36 consecutive calendar months, dating from the first day of the first full calendar month on or after the date the holder acquires
beneficial ownership of such shares (the Holding Period). Each change in beneficial ownership with respect to a particular share will begin a new one vote Holding Period for such share. Except as otherwise provided in the
Articles, a change in beneficial ownership will occur whenever any change occurs in the person or group of persons having or sharing the voting and/or investment power with respect to such shares within the meaning of Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934 as in effect on the date of the adoption of the amendment by the shareholders of the Company. Under the amendment, a share of Common Stock held of record on a record date shall be presumed to
be owned beneficially by the record holder and for the period shown by the shareholder records of the Company. A share of Common Stock held of record in street or nominee name by a broker, clearing agency, voting trustee,
bank, trust company, or other nominee shall be presumed to have been held for a period of less than the required 36-month Holding Period. A shareholder may indicate that he or she has had beneficial ownership of his or her shares throughout the
requisite Holding Period by completing and executing the affidavit accompanying the Companys proxy card. The Company and its Board of Directors, however, has the right to request evidence of such ownership, as it may deem appropriate. The
amendment also provides that no change in beneficial ownership will be deemed to have occurred solely as a result of any of the following:
(1)
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a transfer by any gift, devise, bequest, or otherwise through the laws of inheritance or descent;
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(2)
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a transfer by a trustee to a trust beneficiary under the terms of the trust;
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(3)
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the appointment of a successor trustee, guardian, or custodian with respect to a share; or
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(4)
|
a transfer of record or a transfer of a beneficial interest in a share where the circumstances surrounding such transfer clearly demonstrate that no material change in beneficial ownership has occurred.
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Maintaining Records
The Companys registrar and transfer agent, American Stock Transfer & Trust Company, LLC, maintains the Companys register of
shareholders. A single register is maintained, but individual holdings are coded to indicate automatically the number of votes that the records of the Company indicate each shareholder is entitled to cast. Internal mechanisms automatically convert
the voting rights on a 10-to-1 ratio for those shareholders who have held their shares for the required Holding Period.
Proxy Administration
Proxy cards will be mailed to all shareholders, and each proxy card will reflect the number of votes that the records of the Company indicate
the shareholder is entitled to cast, not the number of shares held. If a shareholder has deposited shares with brokers, clearing agencies, voting trusts, banks, and other nominees, the shareholder will be presumed to be entitled to one vote per
share. Subject to the Boards right to request evidence it may deem appropriate for proof of ownership during the required Holding Period, if a shareholder completes and executes the affidavit accompanying the proxy card stating that he or she
has held his or her shares for the Holding Period, the number of votes that may be cast will increase to 10 votes per share. Similarly, if a
A-1
shareholder believes that he or she is entitled to 10 votes per share by virtue of falling within one of the exceptions set forth above, the shareholder should complete and execute the affidavit
accompanying the proxy card. In all instances, the Company and its Board of Directors reserve the right to request, at any time, any evidence of ownership during the Holding Period they may deem appropriate. If it appears from experience that the
present process is inadequate or is being abused, the Company and its Board of Directors reserve the right at any time to require that a particular shareholder provide additional evidence that one of the exceptions is applicable.
Where an affidavit is completed and executed and, if requested, the shareholder presents satisfactory evidence as requested, the shareholder
records will be adjusted as appropriate. Any shareholder requested to submit evidence will be advised as to any action taken or not taken, which will be sent by ordinary mail to the shareholder or, if available, communicated through electronic means
to the shareholder.
Special proxy cards are not used, and no special or unusual procedures are required in order properly to execute and
deliver the proxy card for tabulation.
Voting Procedures
There are several methods a shareholder can use to cast his or her vote.
If the shareholder is a shareholder of record, he or she can vote: (1) in person, by attending the Annual Meeting of Shareholders; (2) via the
Internet, by visiting www.proxyvote.com and following the instructions provided; (3) by telephone, using the toll-free number listed on the proxy card; or (4) by mail, by marking, signing and dating the proxy card and returning it in the
postage-paid envelope provided.
If the shareholder is the beneficial owner of shares held in street name, he or she can vote: (1) in
person, by first obtaining a voting instruction form issued in his or her name from his or her broker and bringing that voting instruction form to the meeting, together with a copy of a brokerage statement reflecting stock ownership as of the record
date, the stock acquisition date and valid identification; (2) via the Internet, by visiting www.proxyvote.com and following the instructions provided; (3) by telephone, only if he or she agrees with the voting rights provided on his or her voting
instruction form, by using the toll-free number found on the voting instruction form; or (4) by mail, by marking, signing and dating the voting instruction form and returning it in the postage-paid envelope provided by his or her broker.
Summary
The procedures set forth above
have been reviewed and approved by representatives of various brokers and banks, as well as counsel to the Company.
The Company believes
these procedures are an efficient way to address the complications involved in casting and tabulating votes under the Companys system of differing votes per share, but the Company reserves the right to change them for this years Annual
Meeting or future meetings if experience indicates a need for revision.
If a shareholder has questions concerning the Shareholder Voting
Administrative Procedures, please contact Victoria K. Gehris, the Companys Assistant Secretary, at (610) 832-4246.
A-2
Annex B
April 3, 2017
The
Board of Directors
Quaker Chemical Corporation
901 E.
Hector Street
Conshohocken, PA 19428-2380
Members of the
Board of Directors:
The Valence Group, LLC (
The Valence Group
,
we
or
us
) understands that Quaker
Chemical Corporation, a Pennsylvania corporation (the
Company
), proposes to enter into a Share Purchase Agreement (the
Purchase Agreement
), by and among the Company, Gulf Houghton Lubricants, Ltd., an exempted
company incorporated under the laws of the Cayman Islands (
Gulf
), and certain other sellers party thereto (collectively with Gulf, the
Sellers
), substantially in the form of the draft dated as of April 1,
2017. In accordance with the terms and subject to the conditions of the Purchase Agreement, (i) the Company would purchase from the Sellers, and the Sellers would sell to the Company, all of the issued and outstanding ordinary shares of Global
Houghton Ltd., an exempted company incorporated under the laws of the Cayman Islands (
Houghton
), and (ii) all of the issued and outstanding Options and SARs of Houghton would be terminated and exchanged for the payments
provided for in the Purchase Agreement (the
Transaction
), for aggregate consideration (the
Consideration
) equal to approximately $1,433.1 million, which is comprised of: (a) $172.5 million in cash
plus
(b) the Companys issuance of such number of shares of the Companys common stock, par value $1.00 per share (the
Company Common Stock
), equal to 24.5% of the Company Common Stock outstanding immediately
after the Closing
1
plus (c) the Companys refinancing or assumption of approximately $691.3 million of Indebtedness of Houghton and its Subsidiaries. The terms and conditions of the
Transaction are more fully set forth in the Purchase Agreement, and capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Purchase Agreement.
Engagement
By letter agreement dated September 29, 2016,
as amended on March 2, 2017 (as so amended, the
Engagement Agreement
), the Company retained The Valence Group to provide a fairness opinion in connection with the potential Transaction. Pursuant to the Engagement Agreement,
the board of directors of the Company (the
Board of Directors
) has requested that we prepare and deliver to it our written opinion (this
Opinion
) as to the fairness, from a financial point of view, to the
Company of the Consideration to be paid in the Transaction.
The Valence Group will be paid a fixed fee of $1,500,000 for rendering this Opinion, $250,000
of which was paid as a non-refundable retainer, $100,000 of which was paid as a creditable retainer and the remainder of which is payable upon the delivery of this Opinion to the Company (regardless of the conclusions reached herein). No
1
|
Pursuant to the Purchase Agreement and in connection with the Transaction, the Company has agreed to seek shareholder approval to amend its charter to eliminate
time-based disparate shareholder voting rights (the
Charter Amendment
). If the Companys shareholders fail to approve the Charter Amendment, then the Stock Consideration will be comprised of shares of a newly designated
series of convertible preferred stock as required to provide Sellers of the Company with aggregate economic and voting rights that are substantially identical to the rights which Sellers would have had if the Charter Amendment had been approved.
This Opinion assumes that the contemplated Charter Amendment is approved such that the Stock Consideration comprises Company Common Stock.
|
portion of such fee is contingent upon the completion of the Transaction or any alternate transaction. The Company has also agreed to reimburse The Valence Group for our reasonable travel and
other expenses and to indemnify The Valence Group in respect of certain liabilities that might arise out of our engagement.
Credentials of The Valence
Group
The Valence Group is an independent advisory firm with expertise in mergers and acquisitions within chemicals and related industry sectors. The
opinion expressed herein is the opinion of The Valence Group, and the form and content herein have been approved for release by a committee of its partners and senior professionals, each of whom is experienced in merger, acquisition, divestiture and
valuation matters.
Disclosure of Prior Material Relationships
In the past two years, in addition to rendering this Opinion and receiving fees therefor, we have served as the Companys financial advisor in connection
with a separate possible transaction involving the Company. To date, we have not received any compensation in connection with such engagement, but in the future we may become entitled to receive fees of up to $1,250,000. Except for the foregoing
matters, none of The Valence Group or any of our affiliates has, in the past two years, been engaged to provide any financial advisory or investment banking services to, participated in any financings involving, or otherwise had any material
relationship with, the Company, the Sellers, Houghton or any of the Companys sources of financing in connection with the Transaction, and no such material relationship is mutually understood to be contemplated. The Valence Group may seek to
provide such persons or their respective affiliates with certain financial advisory, investment banking, or other financial services unrelated to the Transaction in the future, and in connection with such services may receive compensation.
Scope of Review
In connection with rendering our Opinion, we
have, among other things:
|
i.
|
reviewed the non-binding letter of intent, dated December 15, 2016, between the Company, Gulf and Houghton, as amended by that certain letter agreement, dated as of January 6, 2017, between the Company, Gulf
and Houghton;
|
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ii.
|
reviewed the most recent draft, dated April 1, 2017, of the Purchase Agreement and certain related documents;
|
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iii.
|
reviewed the most recent draft, dated February 17, 2017, of the Shareholder Agreement, by and between the Company, Gulf , Gulf Oil International, Ltd., an exempted company incorporated under the laws of the Cayman
Islands, and GOCL Corporation Limited, a public limited company incorporated in India (together with Gulf Oil International, Ltd., the
Beneficial Shareholders
);
|
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iv.
|
reviewed the most recent draft, dated April 2, 2017, of the Non-Competition and Non-Solicitation Agreement by and among the Company, Gulf, the Beneficial Shareholders and, for limited purposes, Gulf Oil Lubricants
India, Ltd.;
|
|
v.
|
reviewed the audited consolidated financial statements of Houghton and its subsidiaries for each of the two fiscal years ended December 31, 2015, and December 31, 2016;
|
|
vi.
|
reviewed certain internal financial, operational, corporate and other information relating to Houghton prepared or provided by representatives of the Company, including internal financial forecasts;
|
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vii.
|
had discussions with senior management of the Company relating to the past and current operations, and financial condition and prospects, of the Company and Houghton;
|
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viii.
|
reviewed public information relating to the business, operations, financial performance and stock trading history of the Company and other selected public companies considered by us to be relevant;
|
2
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ix.
|
reviewed public information with respect to other transactions of a comparable nature considered by us to be relevant;
|
|
x.
|
reviewed select reports published by equity research analysts and industry sources regarding the Company and other comparable public entities; and
|
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xi.
|
reviewed such other information, analyses, investigations, and discussions as we considered necessary or appropriate in the circumstances.
|
In connection with rendering this Opinion, we have also reviewed (without relying upon): (a) the draft due diligence report, dated March 1, 2017,
prepared by Grant Thornton; and (b) the draft synergy assessment, dated February 23, 2017, prepared by Grant Thornton.
Assumptions and
Limitations
For purposes of rendering this Opinion, we have relied upon and have assumed (without any independent verification) the completeness, accuracy
and fair presentation of all financial, legal, regulatory, tax, accounting and other information, data, advice, opinions and representations (including, without limitation, any historical financial statements of, and forecasts relating to, Houghton)
that were (i) obtained by us from public sources, (ii) provided to us by representatives of the Company, or (iii) otherwise obtained by us pursuant to our engagement; and we do not assume any responsibility or liability for any such
information, data, advice, opinions or representations. With respect to the financial forecasts, budgets and other financial and operating data concerning Houghton or the Company that were prepared by any of Houghtons or the Companys
representatives, we have assumed, with your permission, that they have been reasonably prepared on bases reflecting the best currently available assumptions, estimates and judgments of management of Houghton and of the representatives of the
Company, as the case may be, with respect to Houghtons business, plans, financial condition and prospects. We express no opinion with respect to any such forecasts or other prospective financial information or the assumptions, estimates or
judgments on which they were based.
In addition, in rendering this Opinion, we have assumed, with your permission, that: (i) the final executed form
of the Purchase Agreement will not differ in any material respect from the latest draft that we reviewed; (ii) the representations and warranties of each party contained in the Purchase Agreement are true and correct; (iii) the parties to
the Purchase Agreement will comply in all material respects with the terms and conditions thereof; (iv) the Transaction will be consummated in accordance with the terms set forth in the Purchase Agreement without any waiver, amendment or delay
of any terms or conditions in any way significant to our analysis; (v) the Charter Amendment will be approved by the Companys shareholders as contemplated by the terms of the Purchase Agreement; (vi) any adjustments to the
Consideration in accordance with the Purchase Agreement, whether to be made prior to, at or after the Closing, would not be material to our analysis or this Opinion; (vii) the Company has been advised by counsel as to all legal matters with
respect to the Transaction, including whether all procedures required by law to be taken in connection with the Transaction have been duly, validly and timely taken; (viii) the value of the Company Common Stock, when issued in connection with
the Transaction, will be the same as the 10-day volume weighted average price of the Company Common Stock as of March 30, 2017; (ix) any changes to the amount of Indebtedness of Houghton and its Subsidiaries to be refinanced or assumed by
the Company at Closing would not be material to our analysis or this Opinion; (x) all material transactions with related parties (including Gulf) to which Houghton is a party are on an arms-length basis, and all material employment
relationships with Houghton will continue after the Closing to the satisfaction of the Company; and (xi) all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any
material delay, limitation, restriction or condition that would have an adverse effect on the Company or Houghton or on the expected benefits of the Transaction in any way meaningful to our analysis. We are not legal, tax, regulatory, or accounting
experts and we express no opinion concerning any legal, tax, regulatory, or accounting matters concerning the Transaction or the sufficiency of this letter for your purposes. In our analyses and in connection with the preparation of this Opinion, we
made numerous assumptions with respect to industry performance, general business, markets and
3
economic conditions and other matters, many of which are beyond the control of any party involved in the Transaction. To the extent that any of the foregoing assumptions or any of the facts on
which this Opinion is based proves to be untrue in any material respect, this Opinion cannot and should not be relied upon.
We have not been asked to
prepare and have not assumed any responsibility for making an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Houghton or any other party to the Transaction, and we have not been furnished with
any such evaluation or appraisal.
This Opinion does not address the underlying business decision of the Company to engage in the Transaction, nor does it
address the relative merits of the Transaction as compared to any other business or financial strategies or opportunities that may be available to the Company. This Opinion addresses only the fairness, from a financial point of view, to the Company,
as of the date hereof, of the Consideration to be paid in the Transaction pursuant to the Purchase Agreement. We do not express any view on, and this Opinion does not address, any other term or aspect of the Purchase Agreement or Transaction or any
term or aspect of any other agreement or instrument contemplated by the Purchase Agreement or entered into or amended in connection with the Transaction (including, without limitation, the Shareholder Agreement and the Non-Competition and
Non-Solicitation Agreement), including, without limitation, as to the fairness of the Consideration or the Transaction to any of the Sellers, or any creditors or other constituencies of Houghton; nor as to the fairness of the amount or nature of any
compensation to be paid or payable to any of the officers, directors or employees of Houghton, or class of such persons, in connection with the Transaction, whether relative to the Consideration to be paid by the Company pursuant to the Purchase
Agreement or otherwise. We are not expressing any opinion as to the price at which any capital stock of the Company will trade at any time, including as to what the actual value of the Company Common Stock or any other shares comprising the Stock
Consideration will be when issued in connection with the Transaction. We are also not expressing any opinion as to the impact of the Transaction on the solvency or viability of the Company or Houghton or the ability of the Company or Houghton to pay
their respective obligations as and when they become due and payable. This Opinion is being provided to the Board of Directors for its exclusive use only in considering the Transaction and may not be published, disclosed to any other person, relied
upon by any other person, or used for any other purpose, without the prior written consent of The Valence Group or as otherwise expressly set forth in the Engagement Letter. In accordance with the Engagement Letter, a copy of this Opinion may be
included in its entirety in any proxy statement or similar disclosure document relating to the Transaction required to be filed by the Company with the U.S. Securities and Exchange Commission and distributed to the stockholders of the Company,
provided that all references to The Valence Group or this Opinion in such document and the description or inclusion of this Opinion shall be subject to our prior written consent as to form and substance. This Opinion is not intended to be and does
not constitute a recommendation to any member of the Board of Directors, any security holder of the Company, or any other person as to how they should vote or act with respect to any matter related to the Transaction or otherwise. This Opinion
should not be construed as creating, and does not create, any fiduciary or agency relationship between The Valence Group and any other party.
The Valence
Group believes that its financial analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all factors and analyses together, could create a misleading view of the
process underlying this Opinion. The preparation of an opinion is complex and is not necessarily susceptible to partial analysis or summary description and any attempt to carry out such could lead to undue emphasis on any particular factor or
analysis. This Opinion is necessarily rendered on the basis of the economic, market, financial, and other conditions as in effect on the date hereof, and the conditions and prospects, financial and otherwise, of Houghton and the Company as they are
reflected in the information available to us as of the date hereof and as they were represented to us in our discussions with representatives of the Company. It is understood that, although we reserve the right to change or withdraw this Opinion if
we learn that any of the information that we relied upon in preparing this Opinion was inaccurate, incomplete or misleading in any respect, we disclaim any obligation to change or withdraw this Opinion, to reaffirm this Opinion, to advise any person
of any change that may come to our attention, or otherwise to update this Opinion after the date hereof.
4
Opinion
Based upon
and subject to the foregoing and such other matters as we considered relevant, it is our opinion, as of the date hereof, that the Consideration to be paid by the Company in the Transaction pursuant to the Purchase Agreement is fair, from a financial
point of view, to the Company.
Yours very truly,
The Valence Group, LLC
5
Annex C
EXHIBIT B FINAL FORM
ARTICLES OF AMENDMENT
1.
|
The name of the corporation is Quaker Chemical Corporation.
|
2.
|
The address of the registered office in the Commonwealth of Pennsylvania is: One Quaker Park, 901 Hector Street, Conshohocken, PA 19428.
|
3.
|
The statute under which the corporation was incorporated is: Act of April 29, 1874.
|
4.
|
The date of the corporations incorporation is: October 20, 1930.
|
5.
|
The amendment was adopted at a meeting of the shareholders of the corporation.
|
6.
|
The amendment adopted by the corporation is:
|
RESOLVED, that the articles of incorporation of
the Corporation be amended as follows:
|
1.
|
Article 5(b) of the articles of incorporation of the Corporation is hereby deleted in its entirety.
|
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2.
|
Articles 5(c) and 5(d) of the articles of incorporation of the Corporation are hereby accordingly renumbered as Articles 5(b) and 5(c), respectively.
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[Remainder of Page Intentionally Blank]
IN WITNESS WHEREOF, these articles of amendment have been executed by the corporation on
.
|
|
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QUAKER CHEMICAL CORPORATION
|
|
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By:
|
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Annex D
EXECUTION VERSION
SHARE PURCHASE AGREEMENT
by and among
GLOBAL
HOUGHTON LTD.,
QUAKER CHEMICAL CORPORATION,
GULF HOUGHTON LUBRICANTS LTD.,
THE OTHER SELLERS PARTY HERETO,
and
GULF HOUGHTON
LUBRICANTS LTD., as Sellers Representative
dated as of
April 4, 2017
TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS
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1
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ARTICLE II
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PURCHASE AND SALE
|
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13
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2.01
|
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Purchase and Sale, Cancellation of Options and SARs
|
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13
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2.02
|
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Purchase Price
|
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13
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2.03
|
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Transactions to be Effected at the Closing
|
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14
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2.04
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Closing
|
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15
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2.05
|
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Adjustments to Purchase Price
|
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15
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2.06
|
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Post-Closing Payments
|
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17
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2.07
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Withholding Tax
|
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17
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2.08
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Paying Agent
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18
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ARTICLE III
|
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REPRESENTATIONS AND WARRANTIES OF THE SELLERS
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18
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3.01
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Organization and Authority of the Sellers
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18
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3.02
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No Conflicts; Consents
|
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18
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3.03
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Ownership of Shares
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19
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3.04
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Legal Proceedings
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19
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3.05
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Brokers
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19
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3.06
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Securities Matters
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|
19
|
|
3.07
|
|
Sellers Investigation and Reliance
|
|
|
20
|
|
3.08
|
|
No Other Representations or Warranties
|
|
|
20
|
|
|
|
|
ARTICLE IV
|
|
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COMPANY AND THE COMPANY SUBSIDIARIES
|
|
|
20
|
|
4.01
|
|
Organization, Authority and Qualification of the Company
|
|
|
20
|
|
4.02
|
|
Capitalization
|
|
|
21
|
|
4.03
|
|
Subsidiaries
|
|
|
21
|
|
4.04
|
|
No Conflicts; Consents
|
|
|
22
|
|
4.05
|
|
Financial Statements
|
|
|
22
|
|
4.06
|
|
Undisclosed Liabilities
|
|
|
23
|
|
4.07
|
|
Absence of Certain Changes, Events and Conditions
|
|
|
23
|
|
4.08
|
|
Material Contracts
|
|
|
25
|
|
4.09
|
|
Title to Assets; Real Property
|
|
|
26
|
|
4.10
|
|
Condition and Sufficiency of Assets
|
|
|
27
|
|
4.11
|
|
Intellectual Property
|
|
|
28
|
|
4.12
|
|
Inventory
|
|
|
29
|
|
4.13
|
|
Accounts Receivable
|
|
|
29
|
|
4.14
|
|
Customers and Suppliers
|
|
|
30
|
|
4.15
|
|
Insurance
|
|
|
30
|
|
4.16
|
|
Legal Proceedings; Orders
|
|
|
30
|
|
4.17
|
|
Compliance with Laws; Permits
|
|
|
31
|
|
4.18
|
|
Environmental Matters
|
|
|
32
|
|
4.19
|
|
Employee Benefit Matters
|
|
|
33
|
|
4.20
|
|
Employment Matters
|
|
|
37
|
|
4.21
|
|
Taxes
|
|
|
38
|
|
4.22
|
|
Bank Accounts
|
|
|
40
|
|
4.23
|
|
Affiliate Transactions
|
|
|
40
|
|
4.24
|
|
Books and Records
|
|
|
41
|
|
4.25
|
|
Brokers
|
|
|
41
|
|
4.26
|
|
No Other Representations or Warranties
|
|
|
41
|
|
i
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE V
|
|
REPRESENTATIONS AND WARRANTIES OF BUYER
|
|
|
41
|
|
5.01
|
|
Organization and Authority of Buyer
|
|
|
41
|
|
5.02
|
|
No Conflicts; Consents
|
|
|
42
|
|
5.03
|
|
Legal Proceedings; Compliance with Laws
|
|
|
42
|
|
5.04
|
|
SEC Reports; Financial Information
|
|
|
43
|
|
5.05
|
|
Capitalization
|
|
|
44
|
|
5.06
|
|
Brokers
|
|
|
44
|
|
5.07
|
|
Funding
|
|
|
44
|
|
5.08
|
|
Buyers Investigation and Reliance
|
|
|
45
|
|
5.09
|
|
Compliance with Laws; Permits
|
|
|
45
|
|
5.10
|
|
Absence of Certain Changes, Events and Conditions
|
|
|
46
|
|
5.11
|
|
Books and Records
|
|
|
46
|
|
5.12
|
|
No Other Representations or Warranties
|
|
|
47
|
|
|
|
|
ARTICLE VI
|
|
COVENANTS
|
|
|
47
|
|
6.01
|
|
Conduct of the Companys Business Before the Closing
|
|
|
47
|
|
6.02
|
|
Conduct of Buyers Business Before the Closing
|
|
|
48
|
|
6.03
|
|
Access to Information
|
|
|
49
|
|
6.04
|
|
No Solicitation of Other Bids
|
|
|
50
|
|
6.05
|
|
Regulatory Approvals; Consents
|
|
|
50
|
|
6.06
|
|
Notice of Certain Events
|
|
|
52
|
|
6.07
|
|
Resignations
|
|
|
53
|
|
6.08
|
|
Confidentiality
|
|
|
53
|
|
6.09
|
|
Books and Records
|
|
|
53
|
|
6.10
|
|
Closing Conditions
|
|
|
54
|
|
6.11
|
|
Public Announcements
|
|
|
54
|
|
6.12
|
|
Internal Reorganization
|
|
|
54
|
|
6.13
|
|
General Release
|
|
|
54
|
|
6.14
|
|
D&O Tail Policy
|
|
|
55
|
|
6.15
|
|
Remittance of Payments
|
|
|
55
|
|
6.16
|
|
Brokers
|
|
|
55
|
|
6.17
|
|
Permits
|
|
|
55
|
|
6.18
|
|
Payment of Indebtedness
|
|
|
55
|
|
6.19
|
|
Shareholders Meeting; Preparation of Proxy Statement
|
|
|
56
|
|
6.20
|
|
Financing Matters
|
|
|
57
|
|
6.21
|
|
Employee Matters
|
|
|
58
|
|
6.22
|
|
Pre-Closing Check-the-Box Elections
|
|
|
60
|
|
6.23
|
|
Registration for Management Sellers
|
|
|
60
|
|
6.24
|
|
Bonuses
|
|
|
60
|
|
6.25
|
|
Transfers
|
|
|
60
|
|
6.26
|
|
Further Assurances
|
|
|
60
|
|
|
|
|
ARTICLE VII
|
|
TAX MATTERS
|
|
|
61
|
|
7.01
|
|
Tax Covenants
|
|
|
61
|
|
7.02
|
|
Contests
|
|
|
61
|
|
7.03
|
|
Cooperation and Exchange of Information
|
|
|
62
|
|
7.04
|
|
Overlap
|
|
|
62
|
|
|
|
|
ARTICLE VIII
|
|
CONDITIONS TO CLOSING
|
|
|
62
|
|
8.01
|
|
Conditions to Obligations of All Parties
|
|
|
62
|
|
8.02
|
|
Conditions to Obligations of Buyer
|
|
|
63
|
|
8.03
|
|
Conditions to Obligations of the Sellers
|
|
|
64
|
|
ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE IX
|
|
INDEMNIFICATION
|
|
|
65
|
|
9.01
|
|
Survival
|
|
|
65
|
|
9.02
|
|
Indemnification by the Sellers, Optionholders and SAR Holders
|
|
|
66
|
|
9.03
|
|
Indemnification by Buyer
|
|
|
66
|
|
9.04
|
|
Certain Limitations
|
|
|
67
|
|
9.05
|
|
Indemnification Procedures
|
|
|
69
|
|
9.06
|
|
Payments
|
|
|
70
|
|
9.07
|
|
Tax Treatment of Indemnification Payments
|
|
|
70
|
|
9.08
|
|
Exclusive Remedies
|
|
|
70
|
|
9.09
|
|
Indemnification Escrow Period
|
|
|
71
|
|
9.10
|
|
Insurance Proceeds
|
|
|
71
|
|
|
|
|
ARTICLE X
|
|
TERMINATION
|
|
|
71
|
|
10.01
|
|
Termination
|
|
|
71
|
|
10.02
|
|
Effect of Termination
|
|
|
72
|
|
|
|
|
ARTICLE XI
|
|
MISCELLANEOUS
|
|
|
73
|
|
11.01
|
|
Expenses
|
|
|
73
|
|
11.02
|
|
Notices
|
|
|
73
|
|
11.03
|
|
Interpretation
|
|
|
74
|
|
11.04
|
|
Headings
|
|
|
74
|
|
11.05
|
|
Severability
|
|
|
74
|
|
11.06
|
|
Entire Agreement
|
|
|
74
|
|
11.07
|
|
Successors and Assigns
|
|
|
75
|
|
11.08
|
|
No Third-party Beneficiaries
|
|
|
75
|
|
11.09
|
|
Amendment and Modification; Waiver
|
|
|
75
|
|
11.10
|
|
Governing Law; Submission to Jurisdiction; Waiver of Jury Trial
|
|
|
75
|
|
11.11
|
|
Specific Performance
|
|
|
76
|
|
11.12
|
|
Sellers Representative
|
|
|
76
|
|
11.13
|
|
Counterparts
|
|
|
77
|
|
11.14
|
|
Exclusivity of Agreement
|
|
|
78
|
|
11.15
|
|
Debt Financing Sources
|
|
|
78
|
|
Exhibits
Exhibit A
|
[Intentionally omitted]
|
Exhibit B
|
Form of Charter Amendment to be Recommended to Buyer Shareholders
|
Exhibit C
|
Form of Escrow Agreement
|
Exhibit D
|
Form of Non-Competition and Non-Solicitation Agreement
|
Exhibit E
|
Form of Shareholder Agreement
|
Exhibit F
|
Statement with Respect to Shares reflecting Terms of Preferred Stock
|
Exhibit G
|
[Intentionally omitted]
|
Exhibit H
|
Form of Option Termination Agreement
|
Exhibit I
|
Form of SAR Termination Agreement
|
Exhibit J
|
Management Sellers Registration Rights
|
iii
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (this
Agreement
), dated as of April 4, 2017, is entered into by and among Global
Houghton Ltd., an exempted company incorporated under the Laws of the Cayman Islands (the
Company
), Quaker Chemical Corporation, a Pennsylvania corporation (
Buyer
), Gulf Houghton Lubricants Ltd., an exempted
company incorporated under the Laws of the Cayman Islands (
Gulf Houghton
), each Person identified as a Management Seller on the signature pages hereto (each a
Management Seller
and collectively with
Gulf Houghton, the
Sellers
) and Gulf Houghton Lubricants Ltd., as representative for the Sellers (in such capacity, the
Sellers Representative
).
RECITALS
WHEREAS, the
Sellers collectively own all of the issued and outstanding ordinary shares (the
Shares
) of the Company;
WHEREAS,
certain Persons own all of the issued and outstanding (a) Options (the
Optionholders
) and (b) SARs (the
SAR Holders
);
WHEREAS, the Company owns, directly or indirectly, the Equity Interests of each of the entities identified in
Section 1.01
of the
Sellers Disclosure Letter (collectively the
Company Subsidiaries
), which, except as specified in such Section, constitutes all of the outstanding Equity Interests of each such entity;
WHEREAS, the Sellers wish to sell to Buyer, or a direct or indirect subsidiary of Buyer, and Buyer wishes to purchase from the Sellers, the
Shares, in each case, subject to the terms and conditions set forth herein;
WHEREAS, the Optionholders desire to surrender the Options
for consideration pursuant to the terms of Option Cancellation Agreements attached hereto as Exhibit H (
Option Cancellation Agreement
); and
WHEREAS, the SAR Holders desire to surrender the SARs for consideration pursuant to the terms of SAR Cancellation Agreements attached hereto
as Exhibit I (
SAR Cancellation Agreement
).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
The following terms have the meanings specified or referred to in this
ARTICLE I
:
Acquisition Proposal
has the meaning set forth in
Section 6.04(a)
.
Action
means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation,
proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.
Adjustment Amount
has the meaning set forth in
2.05(b)
.
Affiliate
of a Person means any other Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such Person. The term control (including the terms controlled by and under common control with) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
Agreement
has the meaning set forth in the preamble.
Allocation Certificate
has the meaning set forth in
Section 2.02(b)
.
Antitrust Laws
means Laws or other legal restraints of Governmental Authorities designed to govern competition or trade
regulation or to prohibit, restrict or regulate actions with the purpose or effect of monopolization or restraint of trade.
Audited Financial Statements
has the meaning set forth in
Section 4.05
.
Balance Sheet
has the meaning set forth in
Section 4.05
.
Balance Sheet Date
has the meaning set forth in
Section 4.05
.
Benefit Plan
has the meaning set forth in
Section 4.19(a)
.
Business Day
means any day except Saturday, Sunday or any other day on which commercial banks located in City of New York
are authorized or required by Law to be closed for business.
Buyer
has the meaning set forth in the preamble.
Buyer Board Recommendation
means the recommendation of the board of directors of Buyer that Buyers shareholders
approve, at the Buyer Shareholders Meeting, the issuance of the Stock Consideration and the Charter Amendment.
Buyer
Capitalization Date
has the meaning set forth in
Section 5.05(a)
.
Buyer Common Stock
means the common
stock of Buyer, $1.00 par value per share.
Buyer Indemnitees
has the meaning set forth in
Section 9.02
.
Buyer Material Adverse Effect
means any event, occurrence, fact, condition or change that has been or would reasonably be
expected to become, individually or in the aggregate, materially adverse to: (a) the consolidated results of operations or financial condition of the Buyer and its subsidiaries, taken as a whole or (b) the ability of the Buyer to
consummate the transactions contemplated hereby on a timely basis;
provided
,
however
, that in determining whether there has been or may be a Buyer Material Adverse Effect, no such event, occurrence, fact, condition or
change shall be taken into account to the extent it, directly or indirectly, arises out of, results from or is attributable to: (i) general economic, business, industry or credit conditions; (ii) conditions generally affecting the
industries in which the Buyer operates; (iii) any changes in financial or securities markets in general (whether in the United States or internationally), including conditions affecting generally the industries or markets in which the Buyer
operates; (iv) acts of war (whether or not declared), sabotage, armed hostilities or terrorism, military actions or the escalation or worsening thereof; (v) any changes in applicable Laws, regulations or accounting rules, including GAAP,
or the interpretation or enforcement thereof; (vi) the taking of any action required by this Agreement or the Transaction Documents; (vii) the public announcement of this Agreement or pendency of the transactions contemplated by this
Agreement, including any suit, action or proceeding in connection with the transactions contemplated by this Agreement; (viii) the taking of any action with the approval of the Sellers; (ix) actions required to be taken under applicable
Law; (x) any acts of God; and (xi) the failure by the Buyer to meet any projections, estimates or budgets for any period prior to, on or after the date of this Agreement (provided, that the underlying causes of any such failure shall not
be excluded solely due to this clause (xi) and,
provided
,
further
, that this clause (xi) shall not be construed as implying that the Buyer is making any representation or warranty herein with respect to any projections,
estimates or budgets and no such representations or warranties are being made);
provided further
,
however
, that any event, occurrence, fact, condition or change referred to in (i) through (v),
2
(ix) immediately above shall be taken into account in determining whether a Buyer Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event,
occurrence, fact, condition or change affects the Buyer and its subsidiaries in a disproportionate manner compared to other participants in the industries in which the Buyer and its subsidiaries operate.
Buyer Proxy Statement
has the meaning set forth in
Section 6.19(a)
.
Buyer Releasees
has the meaning set forth in
Section 6.13(a)
.
Buyer SEC Reports
has the meaning set forth in
Section 5.04(a)
.
Buyer Shareholder Approval
means the approvals from the shareholders of Buyer Common Stock that are required by applicable
Law (including pursuant to the requirements of the NYSE) for the issuance of the Stock Consideration and the Charter Amendment.
Buyer Shareholders Meeting
means the meeting of Buyers shareholders to be held to consider the issuance of the Stock
Consideration and the Charter Amendment, which may, at Buyers discretion, be a special meeting or the Buyers annual shareholder meeting.
Buyer Stock Options
has the meaning set forth in
Section 5.05(a)
.
Buyers Accountants
means PricewaterhouseCoopers LLP and Grant Thornton LLP.
Cap
has the meaning set forth in
Section 9.04(c)
.
Cash Payment
means $172,500,000.
Cash Payment Adjustment Statement
has the meaning set forth in
Section 2.05(b)
.
CERCLA
means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
Charter Amendment
means an amendment
to Buyers articles of incorporation to provide that every holder of Buyer Common Stock shall be entitled to one vote for each common share standing in its name on the books of Buyer substantially in the form attached hereto as
Exhibit
B
.
Closing
has the meaning set forth in
Section 2.04
.
Closing Date
has the meaning set forth in
Section 2.04
.
Code
means the Internal Revenue Code of 1986, as amended.
Company
has the meaning set forth in the recitals.
Company Common Shares
has the meaning set forth in
Section 4.02(a)
.
Company Employees
has the meaning set forth in
Section 6.21(a)
.
Company Intellectual Property
means all Intellectual Property that is owned, or purported to be owned by the Company or any
Company Subsidiary.
3
Company IP Agreements
means all licenses, sublicenses, consent to use
agreements, settlements, coexistence agreements, covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other consideration), whether written or oral, relating to Intellectual
Property to which the Company or any Company Subsidiary is a party, beneficiary or otherwise bound.
Company IP
Registrations
means all Company Intellectual Property that is subject to any registration or application to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered trademarks,
tradenames, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.
Company
Subsidiary
or
Company Subsidiaries
has the meaning set forth in the recitals.
Confidentiality
Agreement
has the meaning set forth in
Section 6.05(b)
.
Continuation Period
has the meaning set forth
in
Section 6.21(a)
.
Contracts
means all contracts, leases, deeds, mortgages, licenses, instruments, notes,
commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral, including all amendments, modifications and waivers thereto.
Debt Financing
has the meaning set forth in
Section 5.07
.
Debt Financing Commitment
has the meaning set forth in
Section 5.07
.
Debt Financing Sources
means those agents, arrangers, lenders and other Persons that have committed to provide or otherwise
entered into agreements in connection with the Debt Financing in connection with the transactions contemplated hereby and any joinder agreements or credit agreements relating thereto, together with their respective Affiliates and their respective
Affiliates officers, directors, employees, controlling persons, agents and representatives and their respective successors and assigns.
Deductible Amount
has the meaning set forth in
Section 9.04(a)
.
Direct Claim
has the meaning set forth in
Section 9.05(c)
.
Disputed Amounts
has the meaning set forth in
Section 2.05(b)(iii)
.
Dollars
or $ means the lawful currency of the United States.
E.O. 11246
has the meaning set forth in
Section 4.20(f)
.
Encumbrance
means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or
other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of
ownership.
Environmental Attributes
means any emissions and renewable energy credits, energy conservation credits,
benefits, offsets and allowances, emission reduction credits or words of similar import or regulatory effect (including emissions reduction credits or allowances under all applicable emission trading, compliance or budget programs, or any other
international, federal, state or regional emission, renewable energy or energy conservation trading or budget program) that are required to be held by, allocated to or acquired for the development, construction, ownership, lease, operation, use or
maintenance of the business of, Company or any Company Subsidiary as of the date of this Agreement.
4
Environmental Claim
means any written Action, Order, lien, fine, penalty, or,
as to each, any settlement or judgment arising therefrom, by or from any Person alleging non-compliance or Liability of whatever kind or nature, including Liability or responsibility for the costs of enforcement proceedings, investigations, cleanup,
governmental Response, Removal or Remedial Actions, natural resources damages, property damages, personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief, arising out of, based on or resulting from:
(a) the actual or alleged presence, Release of, or exposure to, any Hazardous Substances or (b) any actual or alleged non-compliance with any Environmental Law or term or condition of any Environmental Permit.
Environmental Law
means any applicable Law, and any Order or binding agreement with any Governmental Authority:
(a) relating to pollution, the cleanup thereof or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface
strata) or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation
of any Hazardous Substances. The term Environmental Law includes, without limitation, the following as applicable (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of
1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C.
§§ 7401 et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.; and, as applicable, any (supranational, national, federal, state or local) foreign Law which regulates similar incidents,
conditions or behaviors as any of the aforementioned acts.
Environmental Notice
means any written directive, notice of
violation or infraction, or notice respecting any Environmental Claim relating to actual or alleged non-compliance with any Environmental Law or with any term or condition of any Environmental Permit.
Environmental Permit
means any Permit required under or issued, granted, given, authorized by or made pursuant to
Environmental Law.
Equity Interests
means share capital, shares of capital stock, partnership interests, membership
interests, equity interests, units or any similar term under applicable Law.
ERISA
means the Employee Retirement
Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
ERISA Affiliate
means all
employers (whether or not incorporated) that would be treated together with the Company, any Company Subsidiary or any of their respective Affiliates as a single employer within the meaning of Section 414 of the Code.
Escrow Agent
means Citibank N.A.
Escrow Agreement
means the Escrow Agreement by and among the Escrow Agent, Buyer and the Sellers Representative
substantially in the form attached hereto as
Exhibit C
.
Exchange Act
means the Securities Exchange Act of 1934,
as amended.
Excluded Non-U.S. Benefit Plans
has the meaning set forth in
Section 4.19(r)
.
5
FCPA
means the U.S. Foreign Corrupt Practices Act of 1977.
Final Adjustment Amount
means the final and binding determination of the Adjustment Amount as determined in accordance with
Section 2.05(b)
.
Financial Statements
has the meaning set forth in
Section 4.05
.
Former Real Property
has the meaning set forth in
Section 4.18(c)
.
Fundamental Representations
the representations and warranties contained in
3.01 (Organization and Authority of the
Sellers)
,
3.03 (Ownership of Shares)
,
3.05 (Brokers)
,
4.01 (Organization, Authority and Qualification of the Company)
,
4.02 (Capitalization)
,
4.03 (Subsidiaries)
,
4.25 (Brokers)
,
5.01 (Organization
and Authority of Buyer)
,
5.05 (Capitalization)
and
5.06 (Brokers)
of this Agreement.
GAAP
means
United States generally accepted accounting principles in effect from time to time, consistently applied.
Government
Contracts
has the meaning set forth in
Section 4.08(a)(ix)
.
Governmental Authority
means any federal,
state, local or foreign (supranational, national, federal, state or local) government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision (including any public prosecutor offices), or any
court or tribunal of competent jurisdiction, arbitral, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, or any stock exchange, listing authority or any instrumentality thereof.
Gulf Houghton
has the meaning set forth in the preamble.
Hazardous Substance
means any waste, substance, material, chemical, product, derivative, compound, mixture, solid, liquid,
mineral or gas, in each case, whether naturally occurring or manmade, that is governed, regulated, classified, or otherwise characterized under or pursuant to any Environmental Law as hazardous, acutely hazardous,
toxic, pollutant, contaminant, radioactive, or words of similar meaning or effect (in whatever language), including petroleum and its by-products, asbestos in any form, polychlorinated biphenyls,
radon, mold, medical waste, urea formaldehyde insulation, lead or lead-containing materials, mold, flammable or explosive substances, pesticides and any other substance or material that is regulated or governed or could result in Liability under any
Environmental Law.
HSR Act
means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Indebtedness
means: (a) indebtedness for borrowed money, whether current, short-term or long-term and whether secured
or unsecured; (b) obligations evidenced by any note, bond, debenture, advance or other security or similar instrument; (c) the net Liability in respect of any interest rate, currency or commodity swaps, collars, caps and other hedging
obligations; (d) all obligations under any lease of (or other arrangement conveying the right to use) Real Property or personal property, or a combination thereof, which obligations are required to be classified and accounted for under GAAP as
capital leases; (e) all obligations under any performance bond or letter of credit (other than any undrawn amount in respect of such letters of credit or similar credit transactions) or any bank overdrafts and similar charges; (f) all
accrued obligations for earn-out and similar contingent purchase price obligations for acquisitions by the Company or by any of the Company Subsidiaries; (g) all obligations in respect of any accrued interest, premiums, penalties
and other obligations relating to any of the foregoing; (h) all obligations that are required to be classified and accounted for by the Company or any Company Subsidiary as deferred compensation in accordance with GAAP; (i) all obligations
that are required to be classified and accounted for by the Company or any Company Subsidiary as accrued severance costs in accordance with GAAP; (j) all obligations that are required to be classified and accounted for by the Company or
6
any Company Subsidiary as unclaimed property in accordance with GAAP; (k) all accrued Liabilities under any of the Companys and any of the Company Subsidiaries post-retirement
medical plans; (l) any underfunding Liabilities under any of the Companys or any of the Company Subsidiaries pension plans; (m) indebtedness related to off-balance sheet arrangements and contingent Liabilities;
(n) indebtedness related to variable interest entities; (o) indebtedness related to operating leases; and (p) all obligations referred to in clauses (a) through (o) above that are either guaranteed by, or secured (including
under any letter of credit, bankers acceptance or similar credit transaction) by any Encumbrance (other than a Permitted Encumbrance) upon any property or asset owned by, the Company or any Company Subsidiary. Indebtedness shall include
accrued interest and any pre-payment penalties, breakage costs, redemption fees, costs and expenses or premiums and other amounts owing pursuant to the instruments evidencing Indebtedness, but only to the extent that such Indebtedness is
actually repaid on the Closing Date. For the avoidance of doubt, Indebtedness shall not include any intercompany accounts payable or intercompany loans solely between the Company and any Company Subsidiary to the extent such amounts eliminate fully
in consolidation.
Indemnification Escrow Amount
means an amount equal to $100,000,000, comprised of
(i) $30,000,000 of cash and (ii) a portion of the Stock Consideration having a value, as of the Closing Date, of $70,000,000 (calculated based on the volume-weighted trading average of a share of Buyer Common Stock (regardless of whether
the Stock Consideration consists of Buyer Common Stock or preferred stock) for the ten (10) trading days prior to the Closing Date).
Indemnification Escrow Funds
means, as of the time of determination, the then remaining portion of the funds and Stock
Consideration held by the Escrow Agent in accordance with the Escrow Agreement attributable to the Indemnification Escrow Amount.
Indemnified Party
has the meaning set forth in
Section 9.05
.
Indemnifying Party
has the meaning set forth in
Section 9.05
.
Independent Accountant
has the meaning set forth in
Section 2.05(b)(iii)
.
Indirect Taxes
means any value added tax, goods and services tax, sales tax, use tax, excise tax, turnover tax, consumption
tax and any similar Tax (and all penalties, surcharges, fines and interest included in, or relating to, any of them).
Insurance
Policies
has the meaning set forth in
Section 4.15
.
Intellectual Property
means all intellectual
property and industrial property rights and assets, and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws of any jurisdiction
throughout the world, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or
origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain
by any authorized private registrar or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social media companies and the content found thereon and related thereto, and URLs;
(c) works of authorship, expressions, designs and design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and all registrations, applications for registration and renewals of
such copyrights; (d) inventions, discoveries, trade secrets, business and technical information and know-how, databases, data collections and other confidential and proprietary information and all rights therein; (e) patents (including all
reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and
7
other patent rights and any other Governmental Authority-issued indicia of invention ownership (including inventors certificates, petty patents and patent utility models) and
(f) software and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records, schematics, computerized databases and other related specifications and documentation.
Interim Balance Sheet
has the meaning set forth in
Section 4.05
.
Interim Balance Sheet Date
has the meaning set forth in
Section 4.05
.
Interim Financial Statements
has the meaning set forth in
Section 4.05
.
IRS
means the Internal Revenue Service.
Joint Written Instruction
has the meaning set forth in the Escrow Agreement.
Knowledge of Buyer
or any other similar knowledge qualification, means the actual knowledge of any director or officer of
Buyer.
Knowledge of Seller(s)
, any
Sellers Knowledge
or
Sellers
Knowledge
or any other similar knowledge qualification, means, for purposes of Article III, the actual knowledge of such Seller after reasonable inquiry, and for all other purposes, the actual knowledge of Michael J. Shannon, Keller
Arnold, Jeewat Bijlani, Peter M. Macaluso and Kevin Smith, after reasonable inquiry.
Law
means any statute, law,
ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, or other requirement or rule of law of any Governmental Authority.
Leased Real Property
has the meaning set forth in
Section 4.08(a)(xviii)
.
Liabilities
or
Liability
means any debt, liability, Encumbrance, duty, obligation or commitment (whether
direct or indirect, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due) and including all costs and expenses relating thereto.
Losses
means losses, damages, Liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs and
expenses of whatever kind, including reasonable attorneys fees and the cost of enforcing any right to indemnification hereunder and the cost of pursuing any insurance providers, in each case, actually incurred;
provided, however
, that
Losses
shall not include punitive damages, except in the case of fraud or to the extent actually awarded to a Governmental Authority or other third party.
Management Seller
has the meaning set forth in the preamble.
Material Adverse Effect
means any event, occurrence, fact, condition or change that has been or would reasonably be
expected to become, individually or in the aggregate, materially adverse to: (a) the consolidated results of operations or financial condition of the Company and the Company Subsidiaries, taken as a whole or (b) the ability of any Seller
to consummate the transactions contemplated hereby on a timely basis;
provided, however
, that in determining whether there has been or may be a Material Adverse Effect, no such event, occurrence, fact, condition or change shall be
taken into account to the extent it, directly or indirectly, arises out of, results from or is attributable to: (i) general economic, business, industry or credit conditions; (ii) conditions generally affecting the industries in which the
Company and the Company Subsidiaries operate; (iii) any changes in financial or securities markets in general (whether in the United States or internationally), including conditions affecting generally the industries or markets in which the
Company and the Company Subsidiaries operate; (iv) acts of war (whether or not declared), sabotage, armed hostilities or terrorism, military actions or the
8
escalation or worsening thereof; (v) any changes in applicable Laws, regulations or accounting rules, including GAAP, or the interpretation or enforcement thereof; (vi) the taking of
any action required by this Agreement or the Transaction Documents; (vii) the public announcement of this Agreement or pendency of the transactions contemplated by this Agreement, including any suit, action or proceeding in connection with the
transactions contemplated by this Agreement; (viii) the taking of any action with the approval of Buyer; (ix) actions required to be taken under applicable Law; (x) any acts of God; and (xi) the failure by the Company or the
Company Subsidiaries to meet any projections, estimates or budgets for any period prior to, on or after the date of this Agreement (
provided
, that the underlying causes of any such failure shall not be excluded solely due to this clause
(xi) and,
provided, further
, that this clause (xi) shall not be construed as implying that the Seller is making any representation or warranty herein with respect to any projections, estimates or budgets and no such representations
or warranties are being made);
provided further, however
, that any event, occurrence, fact, condition or change referred to in clauses (i) through (v), (ix) immediately above shall be taken into account in determining whether a
Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change affects the Company and Company Subsidiaries in a disproportionate manner compared to other
participants in the industries in which the Company and the Company Subsidiaries operate.
Material Contracts
has the
meaning set forth in
Section 4.08(a)
.
Multiemployer Plan
has the meaning set forth in
Section 4.19(c)
.
Non-Competition and Non-Solicitation Agreement
means the Non-Competition and Non-Solicitation Agreement by and among
Buyer, Gulf Houghton, Gulf Oil International, Ltd., Gulf Oil Corporation, Ltd. and Gulf Oil Lubricants India, Ltd. substantially in the form attached hereto as
Exhibit D
.
Non-U.S. Benefit Plan
has the meaning set forth in
Section 4.19(r)
.
NYSE
means the New York Stock Exchange.
OFAC
has the meaning set forth in
Section 4.17(c)
.
Option and SAR Plan
means the Companys Share Option and Share Appreciation Rights Plan, as in effect immediately
before the Closing.
Option Cancellation Agreement
has the meaning set forth in the recitals.
Option Consideration
has the meaning set forth in
Section 2.01
.
Optionholder Payment
has the meaning set forth in
Section 2.07
.
Optionholders
has the meaning set forth in the recitals.
Options
means all outstanding options to purchase ordinary shares of the Company under the Option and SAR Plan.
Order
means any order, writ, judgment, injunction, decree, stipulation, ruling, award or settlement, whether civil,
criminal or administrative, by or of any Governmental Authority or arbitrator.
Paying Agent
has the meaning set forth
in
Section 2.08
Permits
means all permits, licenses, franchises, approvals, authorizations, registrations,
certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.
9
Permitted Encumbrances
means
(a) Encumbrances for Taxes, assessments and governmental changes or levies not yet delinquent, due or payable or which are being contested in
good faith by appropriate proceedings and for which adequate reserves are maintained on the financial statements of the Company and the Company Subsidiaries as of the Closing Date;
(b) Encumbrances imposed by law, such as materialmens, mechanics, carriers, workmens, repairmens or other like
Encumbrances arising or incurred in the ordinary course of business consistent with past practice, for amounts that are not delinquent or which are being contested in good faith and for which adequate reserves have been established on the Financial
Statements in accordance with GAAP;
(c) Encumbrances arising under workers compensation, unemployment insurance, social security,
retirement or similar legislation or to secure public or statutory obligations;
(d) All non-monetary matters of record, including survey
exceptions, reciprocal easement agreements, rights of way of record, other similar non-monetary encumbrances and any other encumbrances on title to or affecting the Real Property, which are of record and are not, individually or in the aggregate,
material to the business of the Company or any Company Subsidiaries and which do not materially interfere with the use of the Real Property by the Company or any Company Subsidiary;
(e) all applicable zoning, building code, entitlement, conservation restrictions and other land use and environmental regulations, which are
not, individually or in the aggregate, material to the business of the Company or any Company Subsidiaries and which do not materially interfere with the use of the Real Property by the Company or any Company Subsidiary;
(f) all exceptions, restrictions, easements, charges and rights-of-way set forth in any Permits, which are not, individually or in the
aggregate, material to the business of the Company or any Company Subsidiaries and which do not materially interfere with the use of the Real Property by the Company or any Company Subsidiary;
(g) Encumbrances securing the obligations of the Company or the Company Subsidiaries under or in respect of Indebtedness identified in
4.08(a)(viii)
of the Sellers Disclosure Letter;
(h) Encumbrances set forth on
Section 1.1
of the Sellers
Disclosure Letter;
(i) any restriction on transfer arising under any applicable securities Laws; or
(j) Encumbrances arising under original purchase price conditional sales contracts, liens securing rental payments under capital lease
arrangements, and equipment leases with third parties entered into in the ordinary course of business consistent with past practice and, to the extent required, disclosed hereunder.
Person
means an individual, corporation, partnership, joint venture, limited liability company, economic interest grouping
or temporary consortium, Governmental Authority, unincorporated organization, trust, association or other entity.
Post-Closing
Tax Period
means any taxable period beginning after the Closing Date and, with respect to any taxable period beginning before and ending after the Closing Date, the portion of such taxable period beginning after the Closing Date.
Predecessor
means any Person that has transferred substantially all of its business to the Company or any Company
Subsidiary in an asset or stock transaction.
Pro Forma Net Sales
has the meaning set forth in
Section 2.05(a)
.
10
Purchase Price
has the meaning set forth in
Section 2.02(a)
.
Qualified U.S. Benefit Plan
has the meaning set forth in
Section 4.19(c)
.
Real Property
means the real property owned, leased, subleased or occupied by the Company or a Company Subsidiary, together
with all buildings, structures, improvements and facilities located thereon.
Release
means any actual or threatened
release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, abandonment of receptacles, or disposing into the environment, including, without limitation, ambient air (indoor or outdoor),
surface water, groundwater, land surface or subsurface strata or within any building, structure, facility or fixture.
Representative
means, with respect to any Person, any and all directors, officers, employees, consultants, financial
advisors, counsel, accountants and other agents of such Person.
Required Consents
has the meaning set forth in
Section 6.01(i)
.
Resolution Period
has the meaning set forth in
Section 2.05(b)(ii)
.
Response
,
Removal
, and
Remedial Action
have the meanings ascribed to them in Sections
101(23)-101(25) of the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. §§ 9601(23)-9601(25).
Review Period
has the meaning set forth in
Section 2.05(b)(i)
.
SAR Cancellation Agreement
has the meaning set forth in the recitals.
SAR Consideration
has the meaning set forth in
Section 2.01
.
SAR Holder Payment
has the meaning set forth in
Section 2.07
.
SAR Holders
has the meaning set forth in the recitals.
SARs
means all outstanding stock appreciation rights awarded under the Option and SAR Plan.
SEC
means the Securities and Exchange Commission.
Second Request
has the meaning set forth in
Section 6.05(c)
.
Section 503
has the meaning set forth in
Section 4.20(f)
.
Securities Act
means the Securities Act of 1933, as amended.
Seller Indemnitees
has the meaning set forth in
Section 9.03
.
Seller Releasees
has the meaning set forth in
Section 6.13(b)
.
Sellers
has the meaning set forth in the preamble.
Sellers
Accountants
means Deloitte.
Sellers
Disclosure Letter
means the disclosure letter delivered by the Sellers to Buyer concurrently with the
execution and delivery of this Agreement.
11
Sellers Representative
has the meaning set forth in the preamble.
Shareholder Agreement
means the Shareholder Agreement between Buyer, Gulf Houghton, Gulf Oil International, Ltd. and Gulf
Oil Corporation, Ltd. substantially in the form attached hereto as
Exhibit E
.
Shares
has the meaning set forth
in the recitals.
Stated Debt Financing
has the meaning set forth in
Section 5.07
.
Statement of Objections
has the meaning set forth in
Section 2.05(b)(ii)
.
Stock Consideration
means either: (i) if the Charter Amendment is not approved at the Buyer Shareholders Meeting, that
number of shares of a newly designated series of preferred stock of Buyer having, as of the date of the Buyer Shareholders Meeting, terms as set forth in
Exhibit F
hereto, including in the aggregate, economic rights commensurate with a 24.5%
ownership interest of the outstanding shares of Buyer Common Stock and possessing 24.5% of the voting power of Buyers outstanding capital stock (such voting and economic rights to be increased by one vote and one right to a dividend
distribution for every four shares of Buyer Common Stock issued after the Buyer Shareholders Meeting and outstanding as of the Closing, and similarly decreased for every four shares of Buyer Common Stock repurchased by Buyer or a subsidiary of Buyer
after the Buyer Shareholders Meeting and before the Closing) or (ii) if the Charter Amendment is approved at the Buyer Shareholders Meeting, that number of shares of Buyer Common Stock comprising 24.5% of the Buyer Common Stock outstanding
immediately after the Closing.
Substantive Communication
means any communication relating to merits, remedies
(including divestitures and potential divestiture buyers, any consent decree or other settlement agreement or any regulatory commission vote), timing agreement or timing of any significant decision or significant action in connection with any
regulatory approval or clearance.
Tax Benefit
has the meaning set forth in
Section 9.10.
Tax Claim
has the meaning set forth in
Section 7.02
.
Tax Return
means any return, declaration, report, claim for refund, information return or statement or other document
relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
Taxes
means all
federal, state, local, supranational, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment,
estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, value added or other taxes, fees, assessments, social security contributions (including national insurance
contributions), customs duties, escheat or unclaimed property obligations or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
Third Party Claim
has the meaning set forth in
Section 9.05(a)
.
Transaction Documents
means this Agreement, the Escrow Agreement, the Shareholder Agreement, the Non-Competition and
Non-Solicitation Agreement and all other agreements, Contracts, instruments, certificates or documents required to be delivered in connection with the transactions contemplated by this Agreement.
Transaction Expenses
means all costs, fees and expenses that are incurred by or on behalf of the Sellers, the Company or
any Company Subsidiary in connection with the negotiation, preparation and execution of the
12
Transaction Documents or the consummation of the transactions contemplated thereby (whether incurred before or after the date of this Agreement), including, without limitation, any brokerage
fees, commissions, finders fees, investment banking fees, attorneys fees and financial advisory fees.
Triggering
Divestiture
means the divestiture, license, hold separate, sale or other disposition, undertaken or entered into to fulfill the conditions set forth in
Section 8.01(a)
or
Section 8.01(b),
of or with respect to
certain of the businesses, assets, properties or product lines of (i) the Company, (ii) any Company Subsidiary, (iii) Buyer or (iv) any of Buyers subsidiaries.
Union
has the meaning set forth in
Section 4.20(b)
.
U.S. Benefit Plan
means a Benefit Plan maintained primarily for the benefit of current or former employees, officers or
directors employed, or otherwise engaged in the United States.
VEVRAA
has the meaning set forth in
Section
4.20(f)
.
WARN Act
means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar
state, local and foreign (supranational, national, federal, state or local) laws related to plant closings, relocations, mass layoffs and employment losses.
Wire Transfer Instructions
means the wire transfer instructions of, as applicable, each Seller, each Optionholder, each SAR
Holder, the Company and the Buyer, as designated in writing by such Person before the Closing or otherwise designated in writing by such Person from time to time.
ARTICLE II
Purchase and
Sale
2.01 Purchase and Sale, Cancellation of Options and SARs.
Subject to the terms and conditions set forth herein, at the
Closing: (a) the Sellers shall sell to Buyer, or (at Buyers request) a direct or indirect subsidiary of Buyer, and Buyer shall purchase from the Sellers, the Shares, free and clear of all Encumbrances, (b) the Optionholders shall
surrender the Options for cancellation pursuant to the Option Cancellation Agreements, in each case, for the consideration specified in
2.02,
(c) the SAR Holders shall surrender the SARs for cancellation pursuant to the SAR Cancellation
Agreements, in each case, for the consideration specified in
2.02
and (d) the Buyer shall pay and deliver the Purchase Price as provided in this Agreement. The Purchase Price (as set forth and subject to adjustment as provided in this
Agreement) will be allocated among the Sellers, the Optionholders and SAR Holders pursuant to the Allocation Certificate. Effective upon consummation of the Closing, (i) all outstanding Options shall be cancelled and terminated and become null,
void and of no further effect, and (ii) all outstanding SARs shall be cancelled and terminated and become null, void and of no further effect. The aggregate amount payable to all Optionholders in accordance with
2.03(a)(ii)
is referred
to as the
Option Consideration
. The aggregate amount payable to all SAR Holders in accordance with 2.03(a)(iii) is referred to as the
SAR Consideration
. All payments of Option Consideration to Optionholders
shall be subject to and in accordance with the Option Cancellation Agreements. All payments of SAR Consideration to SAR Holders shall be subject to and in accordance with the SAR Cancellation Agreements. Following the Closing, the Company shall make
payments to the SAR Holders and Optionholders (subject to applicable withholding Tax) as contemplated by
2.03.
2.02 Purchase
Price.
(a) The aggregate purchase price for the Shares and the termination of the Options and SARs (the
Purchase
Price
) shall be: (i) the Cash Payment,
plus
(ii) the Stock Consideration, subject to adjustment pursuant to
2.05.
13
(b) At least two (2) Business Days prior to the Closing, the Company shall prepare and
deliver to Buyer a certificate (the
Allocation Certificate
) that shall set forth, as of the Closing Date, the following: (a) the name of each Seller, the number of Shares held by each Seller and the portion of the
Purchase Price payable to each such Seller and the portion of the Indemnification Escrow Amount allocable to each such Seller (which shall be expressed as a percentage); (b) the name of each Optionholder, the number of shares subject to Options
held by such Optionholder and the related exercise price, the portion of the Purchase Price payable to each Optionholder and the portion of the Indemnification Escrow Amount allocable to each such Optionholder (which shall be expressed as a
percentage and, for the avoidance of doubt, shall only be in cash and not Stock Consideration) and (iii) the name of each SAR Holder, the SARs held by such SAR Holder and the related base value, and the portion of the Purchase Price payable to
each SAR Holder and the portion of the Indemnification Escrow Amount allocable to each such SAR Holder (which shall be expressed as a percentage and, for the avoidance of doubt, shall only be in cash and not Stock Consideration). The parties agree
that the Buyer shall be entitled to rely on the Allocation Certificate in making payments under
Article II
and the Buyer shall not be responsible for the calculations or the determinations regarding such calculations in such Allocation
Certificate.
(c) At least two (2) Business Days prior to the Closing, Buyer shall prepare and deliver to the Company a certificate
that shall set forth as of the preceding Business Day, the number of issued and outstanding shares of Buyer Common Stock and the number of shares of Buyer Common Stock for which options or other equity interests to purchase are then outstanding.
2.03 Transactions to be Effected at the Closing.
(a) Buyer shall perform the following actions at the Closing:
(i) Deliver to the Escrow Agent, in accordance with the Escrow Agreement, (A) in cash by wire transfer of immediately
available funds, the cash portion of the Indemnification Escrow Amount
plus
(B) the stock portion of the Indemnification Escrow Amount by book-entry transfer. The Indemnification Escrow Amount will be held in escrow and
distributed in accordance with the terms of the Escrow Agreement. The Indemnification Escrow Amount will be available to satisfy the Sellers, Optionholders and SAR Holders indemnification obligations under this Agreement;
(ii) Deliver to the Company, for distribution to the Optionholders (or, with respect to the amount described in clause
(B) below, for payment by the Company in accordance with its obligations described in clause (B)), in accordance with the Companys payroll practices and applicable withholding, an amount in cash equal to (A) the aggregate amount
(subject to applicable withholding Tax and less the cash portion of the Indemnification Escrow Amount allocable to each such Optionholder) set forth opposite each Optionholders name on the Allocation Certificate upon execution of an
Option Cancellation Agreement by such Optionholder, plus (B) an amount equal to the Companys payroll tax and benefit plan obligations with respect to the amounts to be paid to the Optionholders.
(iii) Deliver to the Company, for distribution to the SAR Holders (or, with respect to the amount described in clause
(B) below, for payment by the Company in accordance with its obligations described in clause (B)), in accordance with the Companys payroll practices and applicable withholding, an amount in cash equal to (A) the aggregate amount
(subject to applicable withholding Tax and less the cash portion of the Indemnification Escrow Amount allocable to each such Optionholder) set forth opposite each SAR Holders name on the Allocation Certificate upon execution of an SAR
Cancellation Agreement by such SAR Holder, plus (B) an amount equal to the Companys payroll tax and benefit plan obligations with respect to the amounts to be paid to the SAR Holders.
(iv) Deliver the balance of the cash portion of the Purchase Price, after taking into account the payments set forth in clauses
(i) through (iii) of this
2.03,
to the Paying Agent for the benefit of the Sellers in cash by wire transfer of immediately available funds to an account designated in writing to the Buyer by the Sellers Representative at least
two (2) Business Days prior to the Closing; and
14
(v) Deliver the balance of the Stock Consideration by book-entry transfer, after
taking into account the delivery of the stock portion of the Indemnification Escrow Amount set forth in clause (i) of this
2.03,
to the Sellers; and
(vi) Execute and deliver to the Sellers Representative the Transaction Documents and all other agreements, documents,
instruments or certificates required to be executed and delivered by Buyer at or before the Closing pursuant to
8.03
of this Agreement.
(b) Each Seller shall perform the following actions at or prior to the Closing:
(i) Execute and deliver to the Company share transfer forms with respect to all Shares held by such Seller in favor of the
Buyer, together with any certificates held in connection thereto;
(ii) cause the Company to deliver to Buyer a certified
copy of the Companys register of members, showing the Buyer as the holder of all of the Shares; and
(iii) Execute
and deliver to Buyer the Transaction Documents and all other agreements, documents, instruments or certificates required to be executed and delivered by such Seller at or before the Closing pursuant to
8.02
of this Agreement.
2.04 Closing.
Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated hereby (the
Closing
) shall take place at 9:00 a.m., Philadelphia time, no later than seven (7) Business Days after the last of the conditions to Closing set forth in
ARTICLE VIII
have been satisfied or waived (other than
conditions which, by their nature, are to be satisfied on the Closing Date), at the offices of Drinker Biddle & Reath LLP, One Logan Square, Suite 2000, Philadelphia, Pennsylvania 19103 or at such other time or on such other date or at such
other place as the Sellers Representative and Buyer may mutually agree upon in writing (the day on which the Closing takes place being the
Closing Date
).
2.05 Adjustments to Purchase Price.
(a) If a Triggering Divestiture occurs, the amount of the cash portion of the Purchase Price shall be reduced by an amount of the Pro Forma
Net Sales represented by the assets divested in such Triggering Divestiture as follows: (i) if the assets divested related to up to $40 million of Pro Forma Net Sales, such amount shall not change; (ii) if the assets divested related to
between $40 million and $60 million of Pro Forma Net Sales, such amount shall be reduced by 20% of the amount of Pro Forma Net Sales in excess of $40 million and (iii) if the assets divested related to between $60 million and $80 million of Pro
Forma Net Sales, such amount shall be reduced by 30% of the amount of Pro Forma Net Sales in excess of $60 million. For purposes of this Agreement,
Pro Forma Net Sales
shall mean the actual 2016 annual net sales directly or
indirectly generated by the business or businesses of Buyer, Seller or both, divested in a Triggering Divestiture, as calculated pursuant to
2.05(b)
.
(b) At least five (5) Business Days before the scheduled Closing Date, Buyer shall prepare and deliver to the Sellers
Representative a statement (the
Cash Payment Adjustment Statement
) setting forth Buyers calculation of the aggregate adjustment to the Purchase Price pursuant to
2.05(a)
(the
Adjustment Amount
).
Such calculation shall be prepared by Buyer and, to the extent the Triggering Divestiture relates to the businesses, assets, properties or product lines of (x) the Company or any Company Subsidiary, shall be calculated consistently with the
accounting principles, policies, practices and classifications used to calculate net sales in the 2016 Audited Financial Statements of the Company or (y) the Buyer or any subsidiary of Buyer, shall be calculated consistently with the accounting
principles, policies, practices and classifications used to calculate net sales in the 2016 audited financial statements of the Buyer. During the five (5) Business Day period before the scheduled Closing Date, Buyer and its Representatives
shall be available to the Sellers Representative and its Representatives for any questions or comments on the Adjustment Amount. The amount of the cash portion of the Purchase Price payable at Closing shall be decreased by the Adjustment
Amount. Following the Closing, the
15
Sellers Representative and the Buyer shall resolve any dispute regarding the calculation of the Adjustment Amount as follows.
(i) Examination. During the sixty (60) days following the Closing Date (the
Review Period
) the
Sellers Representative shall have the right to review the Cash Payment Adjustment Statement. During the Review Period, the Sellers Representative and Sellers Accountants shall have full access to the books and records of the
Company and the Company Subsidiaries, the personnel of, and work papers prepared by, Buyer and/or Buyers Accountants to the extent that they relate to the calculation of the Adjustment Amount as the Sellers Representative may reasonably
request for the purpose of reviewing the Cash Payment Adjustment Statement and whether the Adjustment Amount was prepared in accordance with
2.05(b)
;
provided
,
that
such access shall be in a manner that does not unreasonably
interfere with the normal business operations of Buyer or its subsidiaries or the Company or any Company Subsidiaries.
(ii) Objection. On or before the last day of the Review Period, the Sellers Representative may object to the calculation
of the Adjustment Amount by delivering to Buyer a written statement setting forth the Sellers Representatives objections in reasonable detail, indicating each disputed item or amount and the basis for the Sellers
Representatives assertion that such was not prepared in accordance with
2.05(b)
(the
Statement of Objections
). If the Sellers Representative fails to deliver the Statement of Objections before the expiration of
the Review Period, the Cash Payment Adjustment Statement shall be deemed to have been accepted by the Sellers Representative, and the Adjustment Amount shall be deemed to be the Final Adjustment Amount. If the Sellers Representative
delivers the Statement of Objections before the expiration of the Review Period, Buyer and the Sellers Representative shall negotiate in good faith to resolve such objections within thirty (30) days after the delivery of the Statement of
Objections (the
Resolution Period
), and, if the same are so resolved within the Resolution Period, the Adjustment Amount and the Cash Payment Adjustment Statement with such changes as may have been previously agreed in writing by
Buyer and the Sellers Representative, shall be final and binding.
(iii) Resolution of Disputes. If the Sellers
Representative and Buyer fail to reach an agreement with respect to all of the matters set forth in the Statement of Objections before expiration of the Resolution Period, then any amounts remaining in dispute (the
Disputed
Amounts
) shall be submitted for resolution to the office of an impartial nationally recognized firm of independent certified public accountants (other than Sellers Accountants, Buyers Accountants or any other accounting firm
that has been engaged by any party to this Agreement or any Affiliate of such party to perform services in connection with the transactions contemplated by this Agreement), appointed by mutual agreement of Buyer and the Sellers Representative
(the
Independent Accountant
) who, acting as experts and not arbitrators, shall resolve the Disputed Amounts only and make any adjustments to the Adjustment Amount and, as the case may be, the Cash Payment Adjustment Statement. The
parties hereto agree that all adjustments shall be made without regard to materiality. The Independent Accountant shall only decide the specific items under dispute by the parties and their decision for each Disputed Amount must be within the range
of values assigned to each such item in the Cash Payment Adjustment Statement and the Statement of Objections, respectively.
(iv) Fees of the Independent Accountant. The fees and disbursements of the Independent Accountant shall be borne by the Party
(i.e., the Sellers Representative, on the one hand, or the Buyer, on the other hand) that assigned amounts to items in dispute that were, on a net basis, furthest in amount from the amount finally determined by the Independent Accountant
(or equally in the event the Parties assigned amounts were, on a net basis, each within 15% of the amount finally determined by the Independent Accountant).
(v) Determination by Independent Accountant. The Independent Accountant shall make a determination as soon as practicable
within thirty (30) days (or such other time as the parties hereto shall agree in writing) after their engagement, and their resolution of the Disputed Amounts and their
16
adjustments to the Cash Payment Adjustment Statement and/or the Adjustment Amount shall be conclusive and binding upon the parties hereto, and the Adjustment Amount shall be deemed to be the
Final Adjustment Amount. In making its determination, the Independent Accountant, in its sole discretion, will determine: (i) the nature and extent of the participation by Buyer, the Sellers Representative, the Sellers and their
respective Representatives in connection with the resolution of any disagreement submitted to the Independent Accountant; (ii) the nature and extent of the information that may be submitted to the Independent Accountant for consideration in
connection with such resolution and (iii) the personnel of the Independent Accountant who will review such information and resolve such disagreement.
(vi) Payments of Final Adjustment Amount. Within ten (10) Business Days after the determination of the Final Adjustment
Amount:
(i) if the result of (1) the Final Adjustment Amount
minus
(2) the Adjustment Amount is a negative
number, then the cash portion of the Purchase Price will be adjusted downward by the amount of such shortfall, and the Sellers Representative shall pay the amount of such difference to Buyer; and
(ii) if the result of (1) the Final Adjustment Amount
minus
(2) the Adjustment Amount is a positive number then the
cash portion of the Purchase Price will be adjusted upward by the amount of such excess, and the Buyer shall pay the amount of such difference to the Paying Agent for the benefit of the Sellers, the Optionholders and the SAR Holders.
(c) Adjustments for Tax Purposes. Any payments made pursuant to
2.05
shall be treated as an adjustment to the Purchase Price by the
parties for Tax purposes, unless otherwise required by Law.
2.06 Post-Closing Payments
.
Unless the context of any
Transaction Document expressly requires otherwise, any payment to be made by Buyer or the Escrow Agent, as the case may be, after the Closing Date, to or on behalf of any of the Sellers, Optionholders or SAR Holders pursuant to: (a)
2.05
or
ARTICLE IX
of this Agreement or (b) the Escrow Agreement, will be made to the Paying Agent for further distribution to the Sellers, Optionholders, SAR Holders and the Company proportionately (in accordance with the proportion of the
Purchase Price allocated to such Seller, Optionholder and SAR Holder pursuant to the Allocation Certificate and to the Company to cover its payroll tax and benefit plan obligations with respect to such amounts). In addition, any such payment to be
made to the Paying Agent will be paid by wire transfer of immediately available funds to the Paying Agent on behalf of such Seller, Optionholder, SAR Holder and the Company in accordance with the applicable Wire Transfer Instructions.
2.07 Withholding Tax.
Buyer, the Escrow Agent and the Company shall be entitled to deduct and withhold from the Purchase Price and
other amounts payable under this Agreement all Taxes, if any, that Buyer, the Escrow Agent and the Company may be required to deduct and withhold under any provision of Tax Law. All such withheld amounts shall be treated as delivered to the Sellers
hereunder. Without limiting the foregoing: (a) any payment otherwise to be made by the Buyer to the Sellers Representative on behalf of any Optionholder pursuant to
2.03(a)(i)
of this Agreement (each, an
Optionholder
Payment
) who is an employee or former employee of the Company or a Company Subsidiary shall be instead paid to the Company or Company Subsidiary, as applicable, that as of the Closing makes (or had made) payments of wages to such
Optionholder on behalf of such Optionholder; (b) any payment otherwise to be made by the Buyer to the Sellers Representative on behalf of any SAR Holder pursuant to
2.03(a)(i)
of this Agreement (each, a
SAR Holder
Payment
) who is an employee or former employee of the Company or a Company Subsidiary shall be instead paid to the Company or Company Subsidiary, as applicable, that as of the Closing makes (or had made) payments of wages to such SAR
Holder on behalf of such SAR Holder; and (c) the Company or applicable Company Subsidiary shall pay to such Optionholder or SAR Holder the amount of such Optionholder Payment or SAR Holder Payment on the Closing Date funded from the Purchase
Price;
provided
,
however
, that (x) the amount of such Optionholder Payment and SAR Holder Payment shall be reduced by the amount of applicable payroll withholding Taxes for such Optionholders or SAR Holders income and
employment Taxes with respect to such Optionholder Payment or SAR Holder Payment and (y) the Company or Company Subsidiary shall remit any such Taxes to the
17
appropriate Governmental Authority. Prior to making any deduction or withholding from the Purchase Price or other amounts payable under this Agreement (other than an Optionholder Payment or SAR
Holder Payment), the applicable withholding agent shall provide three (3) days prior written notice to the Sellers Representative of the amounts subject to deduction or withholding and a reasonable opportunity to provide forms or
other evidence that would mitigate, reduce or eliminate such deduction or withholding. Buyer, the Escrow Agent and the Company agree to cooperate with the Sellers Representative and the Sellers in mitigating, reducing or eliminating any such
deduction or withholding.
2.08 Paying Agent.
Prior to the Closing, the Company shall designate a bank or trust company reasonably
satisfactory to Buyer (the
Paying Agent
), to act as agent for the parties for purposes of, among other things, distributing to the Sellers, the Optionholders and SARs Holders the consideration and other amounts to
which they are entitled pursuant to this Agreement. Prior to the Closing, the Company shall enter into a paying agent agreement, in customary form on terms reasonably acceptable to Buyer, the Sellers Representative and the Company (the
Paying Agent Agreement
)
.
ARTICLE III
Representations and Warranties of the Sellers
Except as set forth in the correspondingly numbered Section of the Sellers Disclosure Letter, each Seller, severally and not jointly,
represents and warrants to Buyer that the statements contained in this ARTICLE III are true and correct as of the date hereof.
3.01
Organization and Authority of the Sellers.
(a) Each Seller that is a corporation is a corporation duly organized, validly existing
and in good standing under the Laws of the jurisdiction of its organization. Such Seller has full corporate power and authority to enter into this Agreement and the other Transaction Documents, to carry out its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The execution and delivery by such Seller of this Agreement and any other Transaction Document, the performance by it of its obligations hereunder and thereunder and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of such Seller. Each Seller who is a natural person has the capacity to enter into this Agreement and the
other Transaction Documents to which he or she is a party, to carry out his or her obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby.
(b) This Agreement has been duly executed and delivered by such Seller and (assuming due authorization, execution and delivery by the other
parties hereto) constitutes a legal, valid and binding obligation of such Seller enforceable against it in accordance with its terms. When each other Transaction Document to which such Seller is or will be a party has been duly executed and
delivered by such Seller (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal, valid and binding obligation of such Seller enforceable against it in accordance with its
terms.
3.02 No Conflicts; Consents.
Except as set forth in
3.02
of the Sellers Disclosure Letter and except for the
applicable requirements of the Antitrust Laws and compliance with applicable federal and state securities laws, the execution, delivery and performance by such Seller of this Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby, do not and will not: (a) to the extent such Seller is an entity, conflict with or result in a violation or breach of, or default under, any provision of its organizational documents or any
resolution adopted by its board of directors (or similar governing authority) or shareholders; (b) conflict in any material respect with or result in a material violation or breach of any provision of any Law or Order applicable to such Seller;
(c) require the consent, notice or other action by any Person, materially conflict with, result in a material violation or breach of, constitute a material default or an event that,
18
with or without notice or lapse of time or both, would constitute a material default under, or result in the acceleration of or create in any party the right to accelerate, terminate, modify or
cancel, any material Contract to which such Seller is a party or by which such Seller is bound or to which any of its material properties and assets are subject or any material Permit affecting the properties, assets or businesses of such Seller or
(d) result in the creation or imposition of any Encumbrance on any of the Shares or, except as would not reasonably be expected to have a Material Adverse Effect, any other material properties or assets of such Seller. No consent, approval,
Permit, Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to such Seller in connection with the execution and delivery of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby, except for: (i) such filings as may be required under the Antitrust Laws and (ii) such consents, approvals, Permits, Orders, declarations or notices, the failure to make or
obtain would not materially affect the ability of such Seller to enter into this Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby.
3.03 Ownership of Shares.
Such Seller is the true and lawful owner, of record and beneficially, of its portion of the Shares as
identified in
3.03
of the Sellers Disclosure Letter, free and clear of all Encumbrances, and such Shares constitute all of the Shares and Equity Interests of the Company so owned by such Seller. None of such Sellers Shares are
subject to any restrictions on transfer thereof, other than such restrictions imposed by applicable securities Laws. Such Seller has the full power and authority to transfer and convey, and will convey to Buyer at Closing, good and valid title to
the Shares owned by such Seller, free and clear of any Encumbrances.
3.04 Legal Proceedings.
There are no (and during the past
three (3) years there have not been any) Actions settled, pending or, to such Sellers Knowledge, threatened (a) against or by such Seller or any Affiliate thereof affecting any of its properties or assets and relating to the Shares,
the Company or any Company Subsidiary or (b) against or by such Seller or any Affiliate thereof that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement or any other Transaction Document. To
such Sellers Knowledge, no event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.
3.05 Brokers.
Except for RBC Capital Markets and its Affiliates, no broker, finder or investment banker is entitled to any brokerage,
finders or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by such Seller.
3.06 Securities Matters.
(a) Such Seller acknowledges that the shares comprising the Stock Consideration are not registered under the Securities Act or any state or
foreign securities Laws on the grounds that the issuance thereof to such Seller in connection with the transactions contemplated by this Agreement is exempt from otherwise applicable registration requirements, and that the reliance of Buyer on such
exemptions is predicated in part on the acknowledgements, representations and warranties set forth in this
3.06.
(b) Such Seller
is acquiring its portion of the shares comprising the Stock Consideration solely for its own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof, and such Seller has no plans to
enter into any contract, undertaking, agreement or arrangement for any such purpose.
(c) Such Seller acknowledges that the shares
comprising the Stock Consideration may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state and foreign securities Laws and regulations,
as applicable.
(d) Such Seller has sufficient knowledge and experience in financial and business matters so as to be capable of
evaluating the merits and risks of its investment in its portion of the Stock Consideration and is
19
capable of bearing the economic risks of such investment. Such Seller has undertaken such investigation as it has deemed necessary to enable it to make an informed and intelligent decision with
respect to the execution, delivery and performance of the Transaction Documents. Without limiting the generality of the foregoing, such Seller acknowledges that Buyer and its Affiliates make no representation or warranty with respect to any
projections, estimates or budgets delivered to or made available to such Seller of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of Buyer and its
subsidiaries or the future business and operations of Buyer and its subsidiaries or any other information or documents delivered or made available to such Seller or its Representatives with respect to Buyer and its subsidiaries or any of the
foregoing business, assets, liabilities or operations, except as expressly set forth in this Agreement.
3.07 Sellers
Investigation and Reliance.
Such Seller is a sophisticated party and has made its own investigation, review and analysis regarding the Buyer and the transactions contemplated hereby (including its receipt of Stock Consideration), together with
the Representatives that they have engaged for such purpose. Such Seller is not relying, and has not relied, upon any statement, representation or warranty, oral or written, express or implied, made by the Buyer or its Affiliates or Representatives,
except as expressly set forth in
ARTICLE V
.
Neither the Buyer nor any of its Affiliates or Representatives is making, directly or indirectly, any representation or warranty with respect to any estimates, projections or forecasts
involving the Buyer. Such Seller acknowledges and agrees that there are inherent uncertainties in attempting to make such estimates, projections and forecasts and that it takes full responsibility for making its own evaluation of the adequacy and
accuracy of any such estimates, projections or forecasts (including the reasonableness of the assumptions underlying any such estimates, projections or forecasts). Nothing in this
3.07
is intended to, or shall be deemed to, modify or limit
any of the representations or warranties of the Buyer set forth in
ARTICLE V
.
3.08 No Other Representations or
Warranties.
Except for the representations and warranties made by the Company in
Article IV
and the Sellers in this
Article III,
none of the Sellers nor any other Person makes any express or implied representation or warranty with
respect to Sellers, the Company, the Company Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and each Seller hereby disclaims any such other representations or
warranties.
ARTICLE IV
Representations and Warranties with Respect to the Company and the Company Subsidiaries
Except as set forth in the correspondingly numbered Section of the Sellers Disclosure Letter, the Company and the Sellers (severally and
not jointly) represent and warrant to Buyer that the statements contained in this
ARTICLE IV
are true and correct as of the date hereof.
4.01 Organization, Authority and Qualification of the Company.
The Company is duly incorporated, validly existing and in good standing
under the Laws of the Cayman Islands and has requisite corporate power and authority to carry on the businesses now conducted by the Company, to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its
business as it is currently conducted.
4.01
of the Sellers Disclosure Letter sets forth each jurisdiction in which the Company is licensed or qualified to do business, and the Company is duly licensed or qualified to do business and is
in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently conducted makes such licensing or qualification necessary, except where the failure to be so licensed or qualified
would not, individually or in the aggregate, have a Material Adverse Effect. All corporate actions taken by the Company in connection with this Agreement and the other Transaction Documents have been and will be duly authorized upon Closing.
20
4.02 Capitalization.
(a) The authorized share capital of the Company is US$310,000,000 divided into 310,000,000 ordinary shares of $1.00 par value per share
(
Company Common Shares
), of which 3,113,995 shares are issued and outstanding as of the date hereof and constitute the Shares, which issued and outstanding Shares are held by the Persons and in the amounts set forth in
3.03
of the Sellers Disclosure Letter. As of the date of this Agreement, the Company has awarded 8,256 SARs which are outstanding and has issued outstanding Options to purchase 270,105 ordinary shares.
4.02(a)
of the Sellers Disclosure
Letter accurately describes the Options and SARs held by each Person on a de-identified basis, including the exercise price, base value and expiration date thereof. All of the issued and outstanding Shares have been duly authorized and
validly issued, are fully paid and non-assessable.
(b) All of the Shares, SARs and Options were issued in compliance with all applicable
Laws. None of the Shares, SARs or Options were issued in violation of any agreement, arrangement or commitment to which any Seller or the Company is a party or is subject to or in violation of any preemptive or similar rights of any Person.
(c) Other than the Options and SARs, there are no outstanding or authorized options, warrants, convertible securities, preemptive rights,
rights of first refusal or other rights, agreements, arrangements or commitments of any character to which any Seller, the Company or any Company Subsidiary is a party or is otherwise bound relating to the share capital or securities convertible
into or exchangeable for Equity Interests of the Company or obligating the Company to issue or the Company or any Seller to transfer or sell any Equity Interests or securities convertible into or exchangeable for Equity Interests of, or any other
interest in, the Company. There are no outstanding obligations of the Company, any Seller or any other Person to repurchase, redeem or otherwise acquire any Equity Interests of the Company. Other than as set forth on
4.02(a)
of the
Sellers Disclosure Letter, the Company does not have outstanding or authorized any share appreciation, phantom share, profit participation or similar rights. There are no voting trusts, shareholder agreements, proxies or other agreements or
understandings in effect to which any Seller or the Company is a party or by which any Seller or the Company is bound with respect to the voting or transfer of any of the Shares.
4.03 Subsidiaries.
(a)
Except for Equity Interests in other Company Subsidiaries or as otherwise set forth on
4.03(a)
of the Sellers Disclosure Letter, neither the Company nor any Company Subsidiary owns (or has within the past three (3) years owned) any
Equity Interests in any corporation, association, trust, limited liability company, partnership, joint venture or other Person.
(b) Each
Company Subsidiary is a legal entity duly formed, validly existing and in good standing under the Laws of its jurisdiction of organization and has full corporate, limited liability company or other similar power and authority, and all material
Permits, required for the proper establishment of the Company Subsidiary, to carry on the businesses now conducted by it, to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its businesses as they
have been and are currently conducted. Each Company Subsidiary is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business as currently
conducted makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not, individually or in the aggregate, have a Material Adverse Effect. The articles of incorporation and other organizational
documents relating to the Company Subsidiaries are valid and have been duly approved, to the extent necessary, by the applicable Governmental Authority. The Equity Interests of each Company Subsidiary have been duly authorized, are valid and are
fully paid and non-assessable.
(c) Except as set forth on
4.03(c)
of the Sellers Disclosure Letter: (i) all of the
issued and outstanding Equity Interests of the Company Subsidiaries are owned beneficially and of record by either the Company or
21
another Company Subsidiary, free and clear of any Encumbrance; (ii) there are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements
or commitments of any character relating to the Equity Interests of any Company Subsidiary or obligating any Seller, the Company, any Company Subsidiary or any other Person to issue, transfer or sell any Equity Interests of, or any other interest
in, any Company Subsidiary; (iii) no Company Subsidiary has outstanding or authorized any share appreciation, phantom share, profit participation or similar rights and (iv) there are no voting trusts, shareholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or transfer of any Equity Interests of any Company Subsidiary.
(d)
4.03(d)
of the Sellers Disclosure Letter sets forth a true and complete organizational chart of the Company and the Company
Subsidiaries and any other corporation, association, trust, limited liability company, partnership, joint venture or other Person in which the Company or any Company Subsidiary owns any Equity Interests and accurately identifies the percentage of
Equity Interests that the Company and each other Company Subsidiary so owns therein.
4.04 No Conflicts; Consents.
Except as set
forth in
4.04
of the Sellers Disclosure Letter, the execution, delivery and performance by the Company of any of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby, do not and will not:
(a) conflict with or result in a violation or breach of, or default under, any provision of the articles of association, by-laws or other organizational documents of the Company or any Company Subsidiary; (b) conflict in any material
respect with or result in a material violation or breach of any provision of any Law or Order applicable to the Company or any Company Subsidiary; (c) require the consent, notice or other action by any Person under, materially conflict with,
result in a material violation or breach of, constitute a material default or an event that, with or without notice or lapse of time or both, would constitute a material default under, or result in the acceleration of or create in any party the
right to accelerate, terminate, modify or cancel, any Material Contract to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound or to which any of its material properties and assets are
subject or any material Permit affecting the properties, assets or businesses of the Company or any Company Subsidiary or (d) result in the creation or imposition of any material Encumbrance other than Permitted Encumbrances on any material
properties or assets of the Company or any Company Subsidiary. No consent, approval, Permit, Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution
and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, except for: (i) such filings as may be required under the Antitrust Laws and (ii) such consents,
approvals, Permits, Orders, declarations or notices, the failure to make or obtain would not affect the Company or any Company Subsidiary in any material respect.
4.05 Financial Statements.
True and complete copies of the Companys audited financial statements consisting of the consolidated
balance sheet of the Company and the Company Subsidiaries as at December 31 in each of the years 2014, 2015 and 2016 and the related statements of income and retained earnings, shareholders equity and cash flow for the years then ended
(the
Audited Financial Statements
), and of the unaudited financial statements consisting of the consolidated balance sheet of the Company and the Company Subsidiaries as at February 28, 2017 and the related statements of
income and retained earnings and shareholders equity for the two (2) month period then ended (the
Interim Financial Statements
and together with the Audited Financial Statements, the
Financial
Statements
) have been provided to Buyer. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods presented. The Financial Statements were prepared from the books and records
of the Company and the Company Subsidiaries, and fairly present in all material respects the consolidated results of operations, cash flows, changes in shareholders equity and consolidated financial condition of the Company and the Company
Subsidiaries for the respective periods or as of the respective dates set forth therein. The consolidated balance sheet of the Company and the Company Subsidiaries as of December 31, 2016 is referred to herein as the
Balance
Sheet
and the date thereof as the
Balance Sheet Date
and the consolidated balance sheet of the Company and the Company Subsidiaries as of February 28, 2017 is referred to herein as the
Interim Balance
Sheet
and the date thereof as
22
the
Interim Balance Sheet Date
. The Company and the Company Subsidiaries maintain a standard system of accounting established and administered in accordance with GAAP.
4.06 Undisclosed Liabilities.
Neither the Company nor any Company Subsidiary has any material Liabilities of any nature whatsoever,
except: (a) those which are adequately reflected or reserved against in the Interim Balance Sheet as of the Interim Balance Sheet Date; (b) those which have been incurred in the ordinary course of business consistent with past practice
since the Interim Balance Sheet Date and which are not, individually or in the aggregate, materially greater than or different from those reflected on the Interim Balance Sheet and (c) those which have arisen pursuant to agreements, commitments
and undertakings entered into in the ordinary course of business consistent with past practice, which are not, in any material respect, in default.
4.07 Absence of Certain Changes, Events and Conditions.
Since the Balance Sheet Date, except as set forth in 4.07 of the Sellers
Disclosure Letter, there has not been, with respect to the Company or any Company Subsidiary, any:
(a) event, occurrence or development
that has had, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(b) (i) amendment of
the certificate of incorporation, articles of association, by-laws or other equivalent organizational documents of the Company or of GHGL London Ltd, GHG Lubricants Holdings Ltd, G.H Holdings Inc., Houghton Magyarország Kft., GH Asia Pacific
Pte Ltd, HII Holding Corporation or Houghton International Inc. or (ii) amendment in any material respect of the certificate of incorporation, articles of association, by-laws or other equivalent organizational documents of any other Company
Subsidiary;
(c) split, combination or reclassification of any shares or units of its Equity Interests;
(d) issuance, sale, transfer or other disposition of any of its Equity Interests, or grant of any options, warrants or other rights to
purchase or obtain (including upon conversion, exchange or exercise) any of its Equity Interests;
(e) declaration or payment of any
dividends or distributions on or in respect of any of its Equity Interests or redemption, purchase or acquisition of its Equity Interests (other than dividends or distributions declared or paid by any Company Subsidiary to the Company or any other
Company Subsidiary or redemptions, purchases or acquisitions by the Company or any Company Subsidiary of Equity Interests of any Company Subsidiary);
(f) material change in any accounting principles or in any method of accounting or accounting practice, except as disclosed in the notes to
the Financial Statements or as may be required by changes to GAAP or applicable Law;
(g) material change in cash management practices,
policies or procedures, or in the practices, policies or procedures with respect to collection of accounts receivable;
(h) incurrence,
assumption or guarantee of any Indebtedness in an aggregate amount exceeding $500,000, except unsecured current obligations incurred in the ordinary course of business consistent with past practice;
(i) except in the ordinary course of business consistent with past practice, transfer, assignment, sale, lease, exclusive license or other
disposition of any of the material assets shown or reflected in the Balance Sheet or cancellation of any material Indebtedness or entitlements;
(j) material damage, destruction or loss (whether or not covered by insurance) to any material asset or property of the Company or any Company
Subsidiary;
23
(k) any capital investment in, or any loan to, any other Person in an amount in excess of
$500,000 in the aggregate;
(l) acceleration, material waiver, cancellation, termination, material amendment or material modification to
any Material Contract, except in the ordinary course of business consistent with past practice;
(m) imposition of any Encumbrance (other
than a Permitted Encumbrance) upon any properties, Equity Interests or assets, tangible or intangible, of the Company or any Company Subsidiary;
(n) except as required by Law or as done in the ordinary course of business consistent with past practice and not done in anticipation of the
transactions contemplated by this Agreement, (i) grant of any bonuses, whether monetary or otherwise, or increase in any wages, salary, severance, pension or other compensation or benefits in respect of its manager-level employees, officers,
directors or managers or (ii) action to accelerate the vesting or payment of any compensation or benefit for any employee, officer, director or manager it being understood that, solely for purposes of preparing
Section 4.07(n)
of
the Sellers Disclosure Letter, such schedule shall list names (if applicable);
(o) except as required by Law or in the ordinary
course of business consistent with past practice and not done in anticipation of the transactions contemplated by this Agreement, adoption, modification or termination of any: (i) employment, severance, change in control, retention or other
agreement with any employee, officer, director or manager, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case, whether written or oral;
(p) adoption of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any
provisions of federal, foreign or state bankruptcy (or similar) Law or consent to the filing of any bankruptcy petition against it under any similar Law;
(q) purchase, lease or other acquisition of the right to own, use or lease any property or assets for an amount in excess of $500,000,
individually (in the case of a lease, per annum) or $1,000,000 in the aggregate (in the case of a lease, for the entire term of the lease, not including any option term), except for purchases of inventory or supplies in the ordinary course of
business consistent with past practice;
(r) acquisition by merger or consolidation with, or by purchase of a substantial portion of the
assets or stock of, or by any other manner, any business or any Person or any division thereof;
(s) action to make, change or rescind any
material Tax election, file any material amended Tax Return or claim for refund, adopt or change any method of accounting, extend or waive the application of any statute of limitations regarding the assessment or collection of any Tax, settle or
compromise any Tax Liability or refund or enter into any agreement relating to Taxes (other than by reason of customary provisions in any Contract with third parties entered into in the ordinary course of business the principal purpose of which does
not relate to Tax), in each case to the extent it could have the effect of increasing the Tax Liability or reducing any Tax asset of Buyer, the Company or any Company Subsidiary in respect of any tax period beginning after the Balance Sheet Date; or
(t) any Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.
24
4.08 Material Contracts.
(a)
4.08(a)
of the Sellers Disclosure Letter lists each of the following Contracts to which the Company or any Company Subsidiary
is a party or is otherwise bound (such Contracts being
Material Contracts
):
(i) each Contract (other
than FLUIDCARE Contracts) involving aggregate consideration in excess of $1,500,000 and requiring performance by any party more than one (1) year from the effective date of such Contract and which cannot be cancelled by the Company or the
Company Subsidiary without penalty on less than thirty (30) days notice, it being understood that, solely for purposes of preparing
Section 4.08(a)(i)
of the Sellers Disclosure Letter, such schedule shall list such
Contracts on a de-identified basis;
(ii) each FLUIDCARE Contract involving aggregate consideration in excess
of $1,000,000 and requiring performance by any party more than one (1) year from the effective date of such Contract and which cannot be cancelled by the Company or the Company Subsidiary without penalty on less than thirty (30) days
notice, it being understood that, solely for purposes of preparing
Section 4.08
(a)(ii)
of the Sellers Disclosure Letter, such schedule shall be limited to the top 15 FLUIDCARE Contracts by aggregate consideration and shall
list such Contracts on a de-identified basis;
(iii) all Contracts that require the Company or any Company
Subsidiary to purchase its total requirements of any product or service from a third party or that contain take or pay provisions, it being understood that, solely for purposes of preparing
Section 4.08(a)(iii)
of the
Sellers Disclosure Letter, such schedule shall list such Contracts on a de-identified basis;
(iv) all
Contracts that provide for the assumption of any Tax Liability of any Person;
(v) each Contract entered into within the
last three (3) years for the sale of any of the Equity Interests or, other than in the ordinary course of business consistent with past practice, any of the material assets or properties of the Company, any Company Subsidiary or any other
Person (whether by merger, sale of equity, sale of assets or otherwise) or, for the grant to any Person of any option, right of first refusal or preferential or similar right to purchase any such assets, properties or securities;
(vi) all agency and distribution Contracts that involve consideration in excess of $1,000,000 per annum and which cannot be
cancelled by the Company or the Company Subsidiary without penalty, losses or damages on less than thirty (30) days notice, it being understood that, solely for purposes of preparing
Section 4.08(a)(vi)
of the Sellers
Disclosure Letter, such schedule shall list such Contracts on a de-identified basis;
(vii) all employment,
severance, change of control, retention or other agreements with current or former employees, officers or directors, which, unless otherwise required by application Law, are not cancellable without penalty on less than thirty (30) days
notice (other than the payment of severance not in excess of that provided under the severance policies disclosed in
4.19(a)(i)(iii)
, if any, of the Sellers Disclosure Letter), it being understood that, solely for purposes of
preparing
Section 4.08(a)(vii)
of the Sellers Disclosure Letter, such schedule shall list such Contracts on a de-identified basis;
(viii) all Contracts relating to Indebtedness to or of the Company or any Company Subsidiary in excess of $500,000;
(ix) all Contracts with any Governmental Authority involving aggregate consideration in excess of $500,000 (
Government
Contracts
);
(x) all Contracts that limit or purport to limit the ability of the Company or any Company
Subsidiary to compete in any line of business or with any Person or in any geographic area or during any period of time or sell or purchase from any other Person;
(xi) [Intentionally Omitted]
(xii) all collective bargaining agreements or Contracts with any Union;
25
(xiii) each partnership, joint venture, joint operating agreement or similar
Contract, including any Contract involving a sharing of profits, losses, costs, or Liabilities, and each agreement granting any Person the right to issue instructions to the management of a Company Subsidiary, by the Company or any Company
Subsidiary with any other Person;
(xiv) each Contract related to or creating an Encumbrance (other than a Permitted
Encumbrance or equipment leases that are not in excess of $1,000,000) of any nature relating to or affecting any of the Companys or any Company Subsidiarys material assets or the Real Property and all Contracts relating thereto;
(xv) each Contract granting a power of attorney to an unaffiliated third party with respect to any business of the Company or
any Company Subsidiary other than in the ordinary course of business consistent with past practice;
(xvi) each Contract
under which the consequences of a default or termination would reasonably be expected to have a Material Adverse Effect;
(xvii) each Contract in excess of $1,000,000 that provides any customer of the Company or any Company Subsidiary with pricing
discounts or benefits that change based on the pricing, discounts or benefits offered to other customers of the Company or any Company Subsidiary based on the volume of purchases, including any Contract containing most favored nation
provisions, it being understood that, solely for purposes of preparing
Section 4.08(a)(xvii)
of the Sellers Disclosure Letter, such schedule shall list such Contracts on a de-identified basis;
(xviii) all Contracts concerning the lease of any Real Property (each such property a
Leased Real Property
)
(including without limitation, brokerage contracts) listed or otherwise disclosed in
4.09(b)
of the Sellers Disclosure Letter;
(xix) all Company IP Agreements set forth in
4.11(b)
of the Sellers Disclosure Letter; and
(xx) any other Contract that is material to the Company or any Company Subsidiary or which imposes material obligations or
restrictions on the Company or any Company Subsidiary and not previously disclosed pursuant to this
4.08
in excess of $1,000,000 per annum.
(b) Each Material Contract is valid and binding on the Company or the applicable Company Subsidiary that is a party thereto in accordance with
its terms and is in full force and effect. None of the Company or any Company Subsidiary or, to Sellers Knowledge, any other party thereto is (or with notice or lapse of time or both would be) in breach of or default under, in any material
respect, any Material Contract. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to Buyer, with the exception of Contracts listed
pursuant to
Section 4.08(a)(i)
,
(ii)
,
(iii)
,
(vi)
,
(vii)
and
(xvii)
, which have been made available to Buyers Representative on a clean room basis pursuant to that certain Clean Room Agreement,
dated as of June 16, 2016, by and among Buyer, Houghton International, Inc., the Company and Grant Thornton LLP and that certain Addendum to Clean Room Agreement, dated as of July 14, 2016, by and among Buyer, Houghton International, Inc.,
the Company, Grant Thornton LLP and Hitachi Consulting Corporation.
4.09 Title to Assets; Real Property.
(a) The Company and each Company Subsidiary has, in the case of owned Real Property, good and marketable fee simple title to such owned Real
Property, which, to the Sellers Knowledge is validly recorded or registered in the applicable governmental land registry and, in the case of Leased Real Property, a good and valid leasehold interest in, or a valid land use right, or a valid
license to use, all Leased Real Property and all other personal property and other assets leased by the Company in connection with the operation of the business as currently conducted. To the Sellers Knowledge, the Company or a Company
Subsidiary is the sole legal and beneficial owner of the owned Real Properties and the sole legal and beneficial holder of the leasehold interest in
26
all Leased Real Property. All such properties and assets (including land use right and leasehold interests) are free and clear of Encumbrances except for any Permitted Encumbrances.
(b)
4.09
(b)
of the Sellers Disclosure Letter lists: (i) the street address of each parcel of Real Property;
(ii) if such property is leased or subleased by the Company or any Company Subsidiary, the landlord under the lease, the rental amount currently being paid, and the expiration of the term of such lease or sublease for each leased or subleased
property; (iii) if a land use right to such Property is obtained through a land grant contract, the counterparty to such a contract, the total amount of land premium paid and to be paid, and the expiration of the term of such a contract; and
(iv) the current use of such property. With respect to owned Real Property, the Sellers have delivered to Buyer true and complete copies of the deeds and other instruments (as recorded) by which the Company or any Company Subsidiary acquired
such Real Property, and copies of all title insurance policies, opinions, abstracts and surveys in the possession of the Sellers or the Company or any Company Subsidiary and relating to the Real Property. With respect to leased Real Property, the
Sellers have delivered to Buyer true and complete copies of any leases affecting the Real Property. None of the Sellers, the Company nor any Company Subsidiary has leased, licensed or granted any right to occupy any of the Real Property to a Person
other than the Company or a Company Subsidiary. Except as set forth in
4.09
(b)
of the Sellers Disclosure Letter, neither the Company nor any Company Subsidiary is a party to any material subordination, non-disturbance or
attornment agreement with respect to any leased Real Property. None of the Sellers, the Company nor any Company Subsidiary is a sublessor or grantor under any sublease or other instrument granting to any other Person any right to the possession,
lease, occupancy or enjoyment of any leased Real Property. Each Real Property lease is in full force and effect and constitutes the valid and legally binding obligation of the Company or the Company Subsidiary that is a party thereto, enforceable in
accordance with its terms. Each land grant contract for Real Property in China, as applicable, is in full force and effect and constitutes the valid and legally binding obligation of the Company Subsidiary and all necessary approvals and
registrations with the Governmental Authority have been obtained and effected with respect thereto. To Sellers Knowledge, there is no dispute or breach or event that with the passage of time or with notice, or both, would constitute a default
in any material respect under any Real Property lease or land grant contract by the Company or any Company Subsidiary or, to Sellers Knowledge, by any other party thereto. None of the Sellers, the Company nor any Company Subsidiary has
collaterally assigned, granted or created any Encumbrance (other than any Permitted Encumbrance) with respect to any owned or leased Real Property. The use and operation of the Real Property in the conduct of the businesses of the Company and the
Company Subsidiaries do not violate in any material respect any covenant, condition, restriction, easement, Permit or Contract. With respect to Real Property in Brazil, no agricultural, livestock, rural colonization or agro-industrial activities are
carried out in such Real Property. No material improvements constituting a part of the Real Property encroach on real property owned or leased by a Person other than the Company or a Company Subsidiary.
(c) There is no pending or, to Sellers Knowledge, threatened Action (including condemnation or eminent domain proceedings) that would
reasonably be expected to materially interfere with the use or quiet enjoyment of any of the Real Property by the Company or any Company Subsidiary.
(d) To Sellers Knowledge, there are no unpaid assessments or, to the Sellers Knowledge, proposed changes in property assessments,
Tax, land use or other Laws affecting the Real Property. To Sellers Knowledge, there are no currently proposed or pending assessments for public improvements against any Real Property. No notice from any Governmental Authority has been
received by any Seller, the Company or any Company Subsidiary requiring any material work, repair, construction, alteration or installation on, or in connection with, any of the Real Property that has not been performed.
4.10 Condition and Sufficiency of Assets.
(a) The Real Property, including the walls, ceilings and other structural elements of any improvements erected on any part of the Real
Property and the building systems such as water, oil, gas, steam, sewer, storm, sanitary waste water system, heating, plumbing, ventilation, air conditioning, compressed air,
27
telecommunications, electric and other utility services or systems are, to Sellers Knowledge, adequate and sufficient for the current operations of the Companys and the Company
Subsidiaries businesses, in good working order, repair and operating condition, and are without any structural defects other than that would reasonably be expected to materially affect the value or interfere with the use or quiet enjoyment of
any of the Real Property by the Company or any Company Subsidiary. To Sellers Knowledge, such assets have, in all material respects, been maintained in accordance with generally accepted industry practices.
(b) The furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property of the Company and the Company
Subsidiaries are structurally sound, are in good working order, repair and operating condition, and are adequate for the uses to which they are being put, and none of such furniture, fixtures, machinery, equipment, vehicles and other items of
tangible personal property is in need of maintenance or repairs except for ordinary, routine maintenance and repairs.
(c) The buildings,
plants, structures, furniture, fixtures, machinery, equipment, vehicles and other items of tangible personal property currently owned or leased by the Company or any Company Subsidiary, together with all other properties and assets of the Company
and the Company Subsidiaries, are sufficient for the conduct of the Companys and each Company Subsidiarys business and constitute all of the rights, property and assets necessary to conduct the businesses of the Company and each Company
Subsidiary as currently conducted.
4.11 Intellectual Property.
(a)
4.11
(a)
of the Sellers Disclosure Letter lists all: (i) Company IP Registrations and (ii) Company
Intellectual Property consisting of software and trademarks and tradenames that are not registered but that are material to the Companys and any Company Subsidiarys business or operations. For each Company IP Registration,
4.11(a)
of the Sellers Disclosure Letter includes the following information: (x) for each patent and patent application, the title, patent number or application serial number, jurisdiction, filing date, date issued (if applicable), owner of
record and present status thereof and (y) for each registered trademark and trademark application, the mark, application serial number or registration number, jurisdiction, filing date, registration date (if applicable) and owner of record. All
required filings and fees related to the Company IP Registrations have been timely filed with and paid to the relevant Governmental Authorities and authorized registrars, and all Company IP Registrations are in good standing.
(b)
4.11(b)
of the Sellers Disclosure Letter lists all Company IP Agreements on a de-identified basis, except for
Company IP Agreements pursuant to which third parties license to the Company or any Company Subsidiary commercially available or off-the-shelf software with an annual value of less than $250,000. The Sellers have provided Buyer with true and
complete copies of all such Company IP Agreements, including all amendments and written waivers thereunder. Except as expressly identified in
4.11(b)
of the Sellers Disclosure Letter, none of the Sellers, the Company nor any Company
Subsidiary has granted any third party exclusive (or exclusive with respect to a specific geography or industry) rights to any Company Intellectual Property.
(c) The Company or a Company Subsidiary is the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations,
record, owner of all right, title and interest in and to the Company Intellectual Property, and has the valid right to use all other Intellectual Property used in or necessary for the conduct of the Companys or such Company Subsidiarys
current business or operations, in each case, free and clear of Encumbrances other than Permitted Encumbrances. Neither the Company nor any Company Subsidiary is obligated (contractually or by Law) to pay any compensation of any kind to any third
party with respect to any use of the Company Intellectual Property. Without limiting the generality of the foregoing, every current and former employee, and every current and former independent contractor, of the Company or a Company Subsidiary has
entered into written agreements whereby such employees and independent contractors have assigned to the Company or the Company Subsidiary, as applicable, any ownership interest and right they may have in material Company Intellectual Property.
Sellers have provided Buyer with true and complete copies of all such agreements.
28
(d) The consummation of the transactions contemplated hereunder will not result in the loss or
impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the Companys or a Company Subsidiarys right to own, use or hold for use any Intellectual Property as owned,
used or held for use in the conduct of the Companys or a Company Subsidiarys businesses or operations as currently conducted.
(e) The Companys and the Company Subsidiaries rights in the Company Intellectual Property and all Company IP Registrations are
subsisting and, to Sellers Knowledge, valid and enforceable. The Company and the Company Subsidiaries have taken all reasonable steps to maintain the Company Intellectual Property and to protect and preserve the confidentiality of all trade
secrets included in the Company Intellectual Property.
(f) To Sellers Knowledge, the conduct of the Companys and the Company
Subsidiaries businesses and the products, processes and services of the Company and the Company Subsidiaries as offered by the Company and the Company Subsidiaries, do not and will not infringe, dilute, misappropriate or otherwise violate the
Intellectual Property or other rights of any Person. To Sellers Knowledge, no Person has infringed, misappropriated, diluted or otherwise violated, or is currently infringing, misappropriating, diluting or otherwise violating, any Company
Intellectual Property.
(g) Except as set forth on
Section 4.11(g)
of the Sellers Disclosure Letter, there are no
Actions (including any oppositions, interferences or re-examinations) settled, pending or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the
Intellectual Property of any Person by the Company or any Company Subsidiary; (ii) challenging the validity, enforceability, registrability or ownership of any Company Intellectual Property or the Companys or any Company Subsidiarys
rights with respect to any Company Intellectual Property or (iii) by the Company or any Company Subsidiary or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of the Company Intellectual
Property.
(h) To the Knowledge of the Sellers, neither the Company nor any Company Subsidiary has suffered a material security breach
with respect to its data or information or related systems during the last three (3) years.
(i) Neither the Company nor any Company
Subsidiary has any obligation to pay any Governmental Authority in respect of (and no Governmental Authority has any right to) any material Company Intellectual Property. None of the Sellers, the Company nor any Company Subsidiary is or ever has
been a member or promoter of, or a contributor to, any industry standards body or similar organization that could compel the Company or any Company Subsidiary to grant or offer to any third party any license or right to any Company Intellectual
Property.
(j) The Company and all Company Subsidiaries maintain written information security plans and have complied at all times and in
all material respects with such security plans, any privacy policies maintained by the Company and the Company Subsidiaries and all applicable Laws pertaining to privacy and personally identifiable data.
4.12 Inventory.
All inventory of the Company and the Company Subsidiaries (including inventory on consignment), whether or not
reflected in the Interim Balance Sheet, consists of a quality and quantity usable and, with respect to finished goods, salable in the ordinary course of business consistent with past practice, except for obsolete, damaged, defective or slow-moving
items that have been written off or written down to fair market value or for which adequate reserves have been established and reflected on the Financial Statements.
4.13 Accounts Receivable.
The accounts receivable of the Company and the Company Subsidiaries outstanding on the date hereof represent
valid obligations from bona fide sales made or services rendered in the ordinary course of business consistent with past practice, and are properly reflected in the accounting records of the Company and the Company Subsidiaries. The reserves for bad
debts shown on the Interim Balance Sheet or,
29
with respect to accounts receivable arising after the Interim Balance Sheet Date, on the accounting records of the Company and the Company Subsidiaries have been determined in accordance with
GAAP consistently applied with the Financial Statements.
4.14 Customers and Suppliers. 4.14
of the Sellers Disclosure Letter
lists separately (on a de-identified basis): (i) for 2015 and 2016, the top 20 customers of the Company and the Company Subsidiaries (measured by total amounts invoiced, on a consolidated basis), and the aggregate billings
attributable, and (ii) for the period from November 1, 2014 through October 31, 2015 and for the calendar year 2016, the 20 suppliers and vendors from whom the Company and the Company Subsidiaries have made the most purchases and the
aggregate expenditures attributable to each. As soon as practicable following the date of this Agreement, the Company shall provide Buyer with lists of such suppliers and vendors for the 2015 calendar year and, upon Buyers approval of such
lists, the Sellers Disclosure Letter shall be updated to include such information. No customer listed in
4.14
of the Sellers Disclosure Letter has terminated its business with the Company or any Company Subsidiary or
materially reduced the volume of, or materially changed the terms on which it does business with the Company or any Company Subsidiary. To the Knowledge of the Sellers, no customer listed in
Section 4.14
of the Sellers Disclosure
Letter has indicated in writing or verbally that it will cease to do business with the Company.
4.15 Insurance. 4.15
of the
Sellers Disclosure Letter sets forth a true and complete list of all material policies or binders of fire, liability, product liability, umbrella liability, real and personal property, workers compensation, vehicular, directors and
officers liability, fiduciary liability and other casualty and property insurance maintained by Gulf Houghton or any of its Affiliates (including the Company and the Company Subsidiaries) and relating to (A) the assets, business or
operations of, or (B), in their capacities as such employees, officers, directors, members or managers of, the Company and the Company Subsidiaries (collectively, the
Insurance Policies
) in each case identifying: (i) the
respective issuers and expiration dates thereof; (ii) all deductible amounts and amounts of coverage available and outstanding thereunder; (iii) whether such policies and binders are claims made or occurrences
policies; (iv) all self-insurance programs or arrangements; (v) any current claims made under any such Insurance Policies and (vi) the date through which coverage will continue by virtue of premiums already paid. True and complete
copies of such Insurance Policies have been delivered to Buyer and such Insurance Policies: (A) are sufficient for compliance with all material requirements of applicable Laws and the Contracts to which the Company or any Company Subsidiary is
a party or by which it or its assets are bound and (B) will not be affected, terminate or lapse by reason of the transactions contemplated by this Agreement or any other Transaction Document. Such Insurance Policies are in full force and effect
and shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement and the other Transaction Documents. No Seller nor any of its Affiliates (including the Company and the Company Subsidiaries) has
received any written notice of cancellation of, premium increase with respect to, or alteration of coverage under, any of such Insurance Policies or that any issuer of any Insurance Policy has filed for protection under applicable bankruptcy or
insolvency Laws or is otherwise in the process of liquidating or has been liquidated. All premiums due on such Insurance Policies have either been paid or will be paid in accordance with their respective payment terms. The Insurance Policies do not
provide for any retrospective premium adjustment or other experience-based liability on the part of the Company or any Company Subsidiary. All such Insurance Policies: (a) are valid and binding in accordance with their terms and (b) have
not been subject to any lapse in coverage. There are no material claims related to the businesses of the Company or any Company Subsidiary pending under any such Insurance Policies as to which coverage has been denied or in respect of which there is
an outstanding reservation of rights. No Seller nor any of its Affiliates (including the Company and the Company Subsidiaries) is in default under, or has otherwise failed to comply with, in any material respect, any provision contained in any such
Insurance Policy.
4.16 Legal Proceedings; Orders.
(a) Except as set forth in
4.16(a)
of the Sellers Disclosure Letter, there are no (and during the past three (3) years there
have not been any) Actions settled, pending or, to Sellers Knowledge, threatened (a) against
30
or by the Company or any Company Subsidiary or any Affiliate thereof affecting any of its properties or assets that, if determined adversely, would either individually or in the aggregate result
in or reasonably be expected to result in any adverse consequences other than the payment of monetary damages not to exceed $500,000 or (b) against or by the Company or any Company Subsidiary or any Affiliate thereof that challenges or seeks to
prevent, enjoin or otherwise delay the transactions contemplated by this Agreement or any other Transaction Document.
(b) There are no
outstanding material Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any Company Subsidiary or any of their properties or assets.
(c) All claims during the last twelve (12) months made under the Companys and any Company Subsidiarys general liability
insurance or workers compensation policies are identified in
4.16(c)
of the Sellers Disclosure Letter and all open material claims are fully described therein.
4.17 Compliance with Laws; Permits.
(a) If any other section of this
Article IV
deals expressly with respect to a specific Law, then that section shall contain the sole
and exclusive representations and warranties relating to such Law. The Company has all material Permits required to carry on the businesses now conducted by the Company. The Company and each Company Subsidiary is currently and during the last three
(3) years, has been in, compliance in all material respects with all applicable Laws and Permits. Neither the Company, any Company Subsidiary nor any Seller has received during the last three (3) years, any written notice, order, or other
communication from any Governmental Authority or any other Person of any alleged, actual, or potential material violation of or material failure to comply by the Company, any Company Subsidiary with any applicable material Law or Permit. To
Sellers Knowledge, there are no facts or circumstances that could reasonably be expected (with or without the passage of time) to result in any such notice or in the revocation, suspension, termination, or modification of any material Permit.
All such Permits have been obtained by the Company or the Company Subsidiaries, as applicable, and are in full force and effect without any material default or material violation thereunder by any party thereto.
(b) None of the Sellers, the Company, or any Company Subsidiary, nor, to Sellers Knowledge, any owner, member, partner, director,
officer, manager, employee, independent contractor, consultant or agent of any of them or any other Person acting on their behalf, has directly or indirectly, during the last three (3) years: (i) offered or used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to any political campaign or activity, (ii) offered or made a direct or indirect unlawful payment or unlawful conveyance of something of value to any U.S. or non-U.S.
government official, employee or political candidate or established or maintained any unlawful or unrecorded funds, (iii) violated any provision of the U.S. Foreign Corrupt Practices Act of 1977 (the
FCPA
) or any statute or
regulation equivalent to the FCPA or concerning such unlawful payments or gifts in any jurisdiction, including the U.K. Bribery Act 2010, (iv) offered or given any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment or gift of money or anything of value to any U.S. or non-U.S. government official or employee of any Governmental Authority, (v) offered or made a direct or indirect payment to any U.S. or non-U.S. government official as incentive for
the official to complete some action or process expeditiously, to the benefit of the party making the payment or (vi) received any unlawful discounts or rebates in violation of any statute or regulation relating to antitrust or competition. For
the purpose of this section, a non-U.S. government official means any employee or officer of a government of a non-U.S. country, including any federal, regional or local department, agency, enterprise owned or controlled by a non-U.S.
government, any official of a non-U.S. political party, any official or employee of a public international organization, any person acting in an official capacity for, or on behalf of, such entities, and any candidate for non-U.S. political office.
(c) During the last three (3) years, neither the Company nor any Company Subsidiary, nor, to Sellers Knowledge, any owner,
member, partner, director, officer, manager, employee, independent contractor,
31
consultant or agent of any of them or any other Person acting on their behalf, has directly or indirectly (i) been or is designated on any list of any U.S. Governmental Entity related to
customs and international trade Laws, including the United States Office of Foreign Assets Controls (
OFAC
) Specially Designated Nationals and Blocked Persons List, the U.S. Department of Commerces Denied Persons List,
the Commerce Entity List and the U.S. Department of States Debarred List, (ii) participated in any transaction involving such a Person or any country subject to U.S. sanctions administered by OFAC, (iii) exported (including deemed
exportation) or re-exported, directly or indirectly, any goods, technology or services in violation of any applicable U.S. export control or economic sanctions Laws or (iv) participated in any transaction connected with any purpose prohibited
by U.S. export control and economic sanctions Law, including support for international terrorism and nuclear, chemical or biological weapons proliferation.
4.18 Environmental Matters.
Except as disclosed in
Section 4.18
of Sellers Disclosure Letter:
(a) The Company and each Company Subsidiary are currently and have been for the previous four (4) years in compliance in all material
respects with all Environmental Laws. None of the Company, any Company Subsidiary nor, to the Sellers Knowledge, any Predecessors thereof, has received from any Person in the previous four (4) years any: (i) Environmental Notice or
Environmental Claim relating to the Company or any Company Subsidiary which, in each case, remains outstanding or is the source of ongoing material obligations. To Sellers Knowledge, there currently are no circumstances or conditions affecting
the Company, any Company Subsidiary or any Predecessors thereof that are reasonably likely to give rise to material Liability of the Company or any Company Subsidiary under any Environmental Law.
(b) The Company and each Company Subsidiary have obtained and are currently and for the previous four (4) years have been in compliance
in all material respects with all Environmental Permits currently necessary for the ownership, lease, operation or use of the business or assets of the Company.
(c) To Sellers Knowledge, there currently are no conditions on, in, or beneath or arising from the Real Property or any real property
formerly owned, operated or leased by the Company, any Company Subsidiary or, to Sellers Knowledge, any Predecessors thereof (
Former Real Property
) which are reasonably likely, under Environmental Law or agreement with any
Person, to give rise to a material Liability of the Company or any Company Subsidiary, or the imposition of a statutory Encumbrance, for which the Company or any Company Subsidiary would be required to take any material Response, Removal or Remedial
Action.
(d) During the past four (4) years, no Hazardous Substances have been used, handled, generated, processed, treated, stored,
transported to or from, released, discharged or disposed of by the Company, any Company Subsidiary or, to Sellers Knowledge, any Predecessor thereof or, to Sellers Knowledge, any third party on, in, or beneath any Real Property or Former
Real Property, except in compliance in all material respects with all applicable Permits and Environmental Laws.
(e) To the Sellers
Knowledge, neither the Company nor any Company Subsidiary has within the past four (4) years sent, arranged for disposal or treatment, arranged with a transporter for transport for disposal or treatment, transported, or accepted for transport
any Hazardous Substance to a facility, site, or location that has been placed or is formally proposed to be placed on the National Priorities List pursuant to CERCLA, or to any similar national list of priority sites requiring cleanup.
(f) To the Sellers Knowledge, there are no facts, events or conditions relating to any contract pursuant to which the Company or any
Company Subsidiary acquired any business within the past four (4) years that are reasonably likely to give rise to material Liability of the Company or any Company Subsidiary under any Environmental Law.
(g) Neither the Company nor any Company Subsidiary nor any of the Real Property is subject to any material unsatisfied Order for injunctive or
other equitable relief, or any administrative penalty or criminal fine,
32
related to material damage or injury to Persons or property under Environmental Laws, or material compliance or failure to comply in all material respects with Environmental Laws.
(h) The Company has provided Buyer access to any third party environmental audit, investigation, inspection, report, sampling report,
remediation report or other related report, complaint, claim, investigation, Proceeding or action related to the environmental condition of any of the Real Property or Former Real Property, or the Companys or any Company Subsidiarys, or
any Predecessors thereof, compliance with Environmental Laws, in each case, that is in the possession of or subject to the control of the Company and that was prepared by such third party in the year 2013 or later.
(i) The Company or the Company Subsidiaries own and have control of all Environmental Attributes. Neither the Company nor any Company
Subsidiary is aware of any condition, event or circumstance that would reasonably be expected to prevent, impede or materially increase the costs associated with the transfer (if required) to Buyer of any Environmental Attributes after the Closing
Date.
It is agreed and understood that the above representations and warranties in this
4.18
are the only representations and
warranties provided by the Company in this Agreement relating to environmental matters, including Environmental Laws and Hazardous Substances.
4.19 Employee Benefit Matters.
(a)
4.19(a)(i)
of the Sellers Disclosure Letter contains a true and complete list on a de-identified basis of each
pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, share or share-based, termination, change in control, retention, severance, vacation,
paid time off, welfare, fringe-benefit and other similar agreement, plan, policy, program, Contract or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whether funded or unfunded, including each
employee benefit plan within the meaning of Section 3(3) of ERISA, whether or not tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, or required to be contributed to by the
Company or any Company Subsidiary for the benefit of any current or former employee, manager, member, officer, director, retiree, independent contractor or consultant of the Company or any Company Subsidiary or any spouse or dependent of such
individual, or under which the Company or any Company Subsidiary or any of their ERISA Affiliates has or may have any Liability, or with respect to which Buyer or any of its Affiliates would, following the Closing, reasonably be expected to have any
Liability, contingent or otherwise (each a
Benefit Plan
).
4.19(a)(ii)
of the Sellers Disclosure Letter identifies each Benefit Plan that is a Non-U.S. Benefit Plan (as defined below) but is not an Excluded Non-U.S.
Benefit Plan (as also defined below).
(b) With respect to each U.S. Benefit Plan, the Company has delivered to Buyer true and complete
copies of each of the following: (i) where the U.S. Benefit Plan has been reduced to writing, the plan document together with all amendments; (ii) where the U.S. Benefit Plan has not been reduced to writing, a written summary of all
material plan terms; (iii) where applicable, copies of any trust agreements or other funding arrangements, custodial agreements, insurance policies and Contracts, administration and service provider agreements and similar agreements, and
investment management or investment advisory agreements; (iv) copies of any summary plan descriptions, summaries of material modifications, employee handbooks and any other material written communications to participants relating to any U.S.
Benefit Plan; (v) in the case of any U.S. Benefit Plan that is intended to be qualified under Section 401(a) of the Code, a copy of the most recent determination, opinion or advisory letter from the IRS and each currently pending
application to the IRS for a determination letter; (vi) in the case of any U.S. Benefit Plan for which a Form 5500 is required to be filed, a copy of the two most recently filed Forms 5500, with schedules and financial statements attached;
(vii) actuarial valuations, summary annual reports and financial statements related to any U.S. Benefit Plan with respect to the two most recently completed plan years; (viii) where applicable, the two most recent nondiscrimination tests
performed under the Code, and (ix) copies of material notices, letters or other correspondence with or from the
33
IRS, the United States Department of Labor, the Pension Benefit Guaranty Corporation or other Governmental Authority relating to the U.S. Benefit Plan for the last three (3) years or, if
earlier, for any unresolved material matter.
(c) Each U.S. Benefit Plan and related trust (other than any multiemployer plan within the
meaning of Section 3(37) of ERISA (each a
Multiemployer Plan
)) has been established, administered and maintained in accordance with its terms and in material compliance with all applicable Laws (including ERISA, the Code and
any applicable local Laws). Each U.S. Benefit Plan that is intended to be qualified under Section 401(a) of the Code (a
Qualified U.S. Benefit Plan
) is so qualified and has received a favorable and current determination
letter from the IRS, or with respect to a prototype plan, can rely on an opinion letter from the IRS to the prototype plan sponsor, to the effect that such Qualified U.S. Benefit Plan is so qualified and that the plan and the trust related thereto
are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to adversely affect the qualified status of any Qualified U.S. Benefit Plan. To the
Companys knowledge, nothing has occurred with respect to any U.S. Benefit Plan that has subjected or could reasonably be expected to subject the Company, any Company Subsidiary or any of their ERISA Affiliates or, with respect to any period on
or after the Closing Date, Buyer or any of its Affiliates, to: (i) a material penalty under Section 502 of ERISA or (ii) material Taxes, penalties, or Liability for a prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code. All required benefits, contributions and premiums relating to each U.S. Benefit Plan, including any required contributions to Multiemployer Plans, have been timely paid in accordance with the terms of such U.S.
Benefit Plan and all applicable Laws and accounting principles, and all benefits accrued under any unfunded U.S. Benefit Plan have been paid, accrued or otherwise adequately reserved to the extent required by, and in accordance with, GAAP.
(d) There remain no unsatisfied Liabilities to participants, the IRS, the United States Department of Labor, the Pension Benefit Guaranty
Corporation, any Governmental Authority or to any other Person as a result of the termination of any U.S. Benefit Plan ever maintained by the Company, any Company Subsidiary or any of their ERISA Affiliates, and no U.S. Benefit Plan maintained by
the Company, any Company Subsidiary or any of their ERISA Affiliates, which is subject to the minimum funding requirements of Part 3 of Subtitle B of Title I of ERISA or subject to Sections 412 and 430 of the Code, is in at-risk status
as defined under Section 430(i)(4) of the Code, has failed to satisfy the minimum funding standard as provided in Section 302 of ERISA or Section 412 of the Code or to make any minimum required contribution as
defined in Section 430 of the Code or Section 303 or ERISA, and there has been no waived funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code.
(e) Except as otherwise disclosed on
4.19(e)
of the Sellers Disclosure Letter, neither the Company, any Company Subsidiary, nor
any of their ERISA Affiliates is bound by any collective bargaining agreement or any Contract to maintain, with respect to any employee of the Company or any Company Subsidiary, any U.S. Benefit Plan.
(f) Except as otherwise disclosed on
4.19(f)
of the Sellers Disclosure Letter no Multiemployer Plan to which the Company, any
Company Subsidiary or any of their ERISA Affiliates is obligated to contribute is in reorganization, as defined in Section 4241(a) of ERISA, or is in endangered status or critical status, as those terms are
defined in Section 432 of the Code and Section 305 of ERISA, or is within a funding improvement period or a rehabilitation period, as those terms are defined in Section 432 of the Code and Section 305 of
ERISA or has failed to satisfy the minimum funding standard as provided in Section 412 of the Code and Section 304 of ERISA. Neither the Company, any Company Subsidiary, nor any of their ERISA Affiliates is liable for, or anticipated to
become liable for, any excise tax under Section 4971 of the Code or has any Liability with respect to a withdrawal from any Multiemployer Plan or will withdraw from any Multiemployer Plan on or before the Closing Date. With respect to any
Multiemployer Plans to which the Company or any Company Subsidiary contributes or is obligated to contribute, withdrawal Liability in the event of a current complete withdrawal from all such Multiemployer Plans does not exceed $2,000,000.
34
(g) The actuarial present value of benefit liabilities (as defined in
Section 4001(a)(16) of ERISA) (both vested and nonvested) of each U.S. Benefit Plan of the Company or any Company Subsidiary, which is subject to Title IV of ERISA, is less than or equal to the market value of the assets held in the trust under
such U.S. Benefit Plan as of the most recent actuarial valuation. The preceding determination has been made in accordance with the actuarial assumptions used by the Pension Benefit Guaranty Corporation to determine the level of funding required on
an ongoing basis. Since the date of such most recent actuarial valuation, there has been no material adverse change in the funding status of any such U.S. Benefit Plan as reflected in the actuarial report for such valuation. For the purposes of this
subsection, unfunded Liabilities and projected costs have been determined by the Company, the Company Subsidiaries and their actuaries using actuarial methods and assumptions that are, singly and in the aggregate, reasonable taking into account
circumstances known to them on the date this representation is being made and, except as adjusted to satisfy the requirements that such assumptions be reasonable, consistent with prior practice.
(h) Neither the Company, any Company Subsidiary nor any of their ERISA Affiliates has: (i) failed to pay premiums to the Pension Benefit
Guaranty Corporation; (ii) withdrawn from any U.S. Benefit Plan or (iii) engaged in any transaction which would give rise to Liability under Section 4069 or Section 4212(c) of ERISA.
(i) With respect to each U.S. Benefit Plan: (i) no such plan is a multiple employer plan within the meaning of
Section 413(c) of the Code or a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA); (ii) no Action has been initiated by the Pension Benefit Guaranty Corporation to terminate any such plan or to
appoint a trustee for any such plan and (iii) no reportable event, as defined in Section 4043 of ERISA, for which notice has not been waived, has occurred with respect to any such plan.
(j) Each U.S. Benefit Plan that is not subject to Title IV or ERISA may be amended, terminated or otherwise discontinued after the Closing in
accordance with its terms, without material Liabilities to Buyer, the Company, any Company Subsidiary or any of their Affiliates. Neither the Company nor any Company Subsidiary has a commitment or obligation or has made any representations to any
employee, officer, director, manager, member, independent contractor or consultant to adopt, amend, modify or terminate any U.S. Benefit Plan or any collective bargaining agreement in connection with the consummation of the transactions contemplated
by this Agreement or otherwise.
(k) Other than as required under Section 601 et. seq. of ERISA or other Law, no U.S. Benefit Plan
provides post-termination or retiree welfare benefits to any individual for any reason, and neither the Company, any Company Subsidiary nor any of their ERISA Affiliates has any Liability to provide post-termination or retiree welfare benefits to
any individual or ever represented, promised or contracted to any individual that such individual would be provided with post-termination or retiree welfare benefits.
(l) There is no pending or, to Sellers Knowledge, threatened Action relating to a U.S. Benefit Plan (other than routine claims for
benefits), and no U.S. Benefit Plan has within the past three (3) years been the subject of an examination or audit by a Governmental Authority or the subject of a pending application or filing under or is a participant in, an amnesty,
voluntary compliance, self-correction or similar program sponsored by any Governmental Authority.
(m) With respect to any insurance
policy (or ancillary agreement with respect to such insurance policy) or premium payment obligation related to any U.S. Benefit Plan, neither the Company, any Company Subsidiary, any of their ERISA Affiliates, nor the Buyer shall be subject to a
retroactive rate adjustment, loss sharing arrangement or other actual or contingent Liability.
(n) The Company, each Company Subsidiary
and each of their ERISA Affiliates have materially complied with: (i) the notice and continuation coverage requirements of Section 4980B of the Code and the regulations thereunder with respect to each U.S. Benefit Plan that is a group
health plan within the meaning of
35
Section 5000(b)(1) of the Code and (ii) the shared responsibility requirements of Section 4980H of the Code. Each U.S. Benefit Plan is in compliance in all material respects with
the applicable provisions of the Health Insurance Portability and Accountability Act of 1996, as amended, and the Patient Protection and Affordable Care Act of 2010, as amended, and the regulations issued thereunder.
(o) There has been no undisclosed amendments to, announcements by the Company or any Company Subsidiary relating to, or change in employee
participation or coverage under, any U.S. Benefit Plan or collective bargaining agreement that would increase the annual expense of maintaining such plan above the level of the expense incurred for the most recently completed fiscal year with
respect to any director, member, manager, officer, employee, independent contractor or consultant, as applicable.
(p) Each U.S. Benefit
Plan that is subject to Section 409A of the Code has been administered in material compliance with its terms and the operational and documentary requirements of Section 409A of the Code and all applicable regulatory guidance (including
notices, rulings and proposed and final regulations) thereunder. Neither the Company nor any Company Subsidiary has any obligation to gross up, indemnify or otherwise reimburse any individual for any excise taxes, interest or penalties incurred
pursuant to Section 409A of the Code.
(q) Except as set forth on
4.19(q)
of the Sellers Disclosure Letter, neither the
execution of this Agreement nor any of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional or subsequent events): (i) entitle any current or former director, member, manager, officer,
employee, independent contractor or consultant of the Company or any Company Subsidiary to severance pay or any other payment; (ii) accelerate the time of payment, funding or vesting, or increase the amount of compensation due to any such
individual; (iii) limit or restrict the right of the Company or any Company Subsidiary to merge, amend or terminate any U.S. Benefit Plan; (iv) increase the amount payable under or result in any other material obligation pursuant to any
U.S. Benefit Plan; (v) result in excess parachute payments within the meaning of Section 280G(b) of the Code or (vi) require a gross-up or other payment to any disqualified individual within the
meaning of Section 280G(c) of the Code. The Company has delivered to Buyer true and complete copies of any Section 280G calculations prepared (whether or not final) with respect to any disqualified individual in connection with the
transactions.
(r) Except as would not, individually or in the aggregate, impose material liabilities or obligations on the Company or a
Company Subsidiary or as set forth on
4.19(r)
of the Sellers Disclosure Letter, with respect to each Benefit Plan maintained primarily for the benefit of current or former employees, officers or directors of the Company or any ERISA
Affiliate who are employed, or otherwise engaged, outside the United States and that is not subject to the Code or to ERISA (each a
Non-U.S. Benefit Plan
), excluding any Non-U.S. Benefit Plans that are statutorily required,
government sponsored or not otherwise sponsored, maintained or controlled by the Company or any of its Company Subsidiaries (
Excluded Non-U.S. Benefit Plans
): (A) (1) all employer and employee contributions required by
Law or by the terms of the Non-U.S. Benefit Plan have been made, and all liabilities of the Company and its Company Subsidiaries have been satisfied, or, in each case accrued, by the Company and its Company Subsidiaries in accordance with generally
accepted accounting principles, and (2) the Company and its Company Subsidiaries are in compliance with all requirements of applicable Law and the terms of such Non-U.S. Benefit Plan; (B) the fair market value of the assets of each funded
Non-U.S. Benefit Plan, or the book reserve established for each Non-U.S. Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations with respect to all current and former
participants in such Non-U.S. Benefit Plan determined on an ongoing basis (rather than on a plan termination basis) according to the actuarial assumptions and valuations used to account for such obligations in accordance with applicable generally
accepted accounting principles; and (C) the Non-U.S. Benefit Plan has been registered as required and has been maintained in good standing with applicable regulatory authorities. All employer and employee contributions required by Law or by the
terms of the Excluded Non-U.S. Benefit Plans have been made and all Liabilities of the Company and the Company Subsidiaries have been satisfied, or, in each case accrued, by the Company and the Company Subsidiaries in accordance with GAAP.
36
4.20 Employment Matters.
(a)
4.20(a)
of the Sellers Disclosure Letter contains a list of all persons on a de-identified basis who are exempt
manager-level employees, independent contractors or consultants (other than FLUIDCARE independent contractors or consultants) of the Company or a Company Subsidiary, including any such employee who is on a leave of absence of any nature, paid or
unpaid, authorized or unauthorized, and sets forth for each such individual the following: (i) name; (ii) title or position (including whether full or part time); (iii) hire date; (iv) current annual base compensation rate and
(v) commission, bonus or other incentive-based compensation. All compensation, including wages, commissions and bonuses, payable to all exempt manager-level employees, independent contractors or consultants of the Company or a Company
Subsidiary have been paid in full and there are no outstanding agreements, understandings or commitments of the Company or a Company Subsidiary with respect to any such Persons compensation, commissions or bonuses.
(b) Except as set forth in
4.20(b)
of the Sellers Disclosure Letter, neither the Company nor any Company Subsidiary has been for
the past three (3) years, a party to, bound by, or negotiating any collective bargaining agreement or other Contract with a union, works council, committee or representatives elected by employees or labor organization (collectively,
Union), and there is not, and has not been for the past three (3) years, any Union representing or purporting to represent any employee of the Company or a Company Subsidiary, and, to Sellers Knowledge, no Union or group of
employees is seeking or has sought to organize employees for the purpose of collective bargaining. During the past three years, there has not been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, concerted refusal to
work overtime or other similar labor disruption or dispute affecting the Company or a Company Subsidiary or any of their employees. Except with respect to the collective bargaining agreements identified in
4.08(a)
of the Sellers
Disclosure Letter, neither the Company nor any Company Subsidiary has any duty to bargain with any Union.
(c) The Company and each
Company Subsidiary is and has been in compliance in all material respects with the terms of the collective bargaining agreements and other Contracts listed on
4.20(b)
of the Sellers Disclosure Letter and all applicable Laws pertaining
to employment and employment practices to the extent they relate to employees or workers of the Company or a Company Subsidiary, including all Laws relating to labor relations, equal employment opportunities, fair employment practices, employment
discrimination, harassment, retaliation or victimization, reasonable accommodation, disability rights or benefits, immigration, wages, hours, overtime compensation, child labor, hiring, promotion and termination of employees, whistle-blowing,
working conditions, meal and break periods, privacy, health and safety, workers compensation, leaves of absence and unemployment insurance. All individuals characterized and treated by the Company or a Company Subsidiary as exempt-level
employees, workers, agents, independent contractors or consultants are properly classified and treated as such under applicable Law and Contract, including with respect to participation in and benefit accrual under each U.S. Benefit Plan.
(d) There are no Actions against the Company or a Company Subsidiary pending, or to Sellers Knowledge, threatened to be brought or
filed, by or with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant, volunteer, intern or independent contractor of the Company or a Company Subsidiary, including,
without limitation, any claim relating to termination, unfair labor practices, child labor, employment discrimination, harassment, retaliation or victimization, equal pay, wage and hours or any other employment related matter arising under
applicable Laws.
(e) The Company has complied in all material respects with the WARN Act, and it has no plans to undertake any action on
or before the Closing Date that would trigger the WARN Act.
(f) With respect to each Government Contract, the Company and each Company
Subsidiary is and has been in compliance in all material respects with Executive Order No. 11246 of 1965 (
E.O. 11246
), Section 503 of the Rehabilitation Act of 1973 (
Section 503
) and the Vietnam Era
Veterans Readjustment Assistance Act of 1974 (
VEVRAA
), including all implementing regulations. The Company and each Company Subsidiary
37
maintains and complies with affirmative action plans in material compliance with E.O. 11246, Section 503 and VEVRAA, including all implementing regulations. The Company and each Company
Subsidiary is not, and has not been for the past three years, the subject of any audit, investigation or enforcement action by any Governmental Authority in connection with any Government Contract or related compliance with E.O. 11246,
Section 503 and VEVRAA. Neither the Company nor any Company Subsidiary has been debarred, suspended or otherwise made ineligible from doing business with the United States government or any government contractor.
(g) To Sellers Knowledge, none of the employees or officers of the Company or any Company Subsidiary is a party to, or is otherwise
bound by, any agreement or arrangement with any Person other than the Company or a Company Subsidiary that limits or adversely affects the performance of his or her duties, the ability of the Company or a Company Subsidiary to conduct its business,
or his or her freedom to engage in any of the businesses conducted by any of the Company or any Company Subsidiary (including any confidentiality, non-competition or proprietary rights agreements). Other than Union-represented employees or as
required by applicable Law, all employees of the Company and each Company Subsidiary are employees at will and their employment may be terminated for any lawful reason without more than thirty (30) days notice, except as
otherwise required by applicable Law. Neither the Company nor any Company Subsidiary has made any commitments to any of its employees respecting any possible employment or increases in compensation following the Closing. All employees, contractors,
and consultants of the Company or any Company Subsidiary are lawfully permitted to work or provide services to the Company or the Company Subsidiaries in the applicable jurisdiction. The Company has delivered to Buyer true and complete copies of all
current material employee manuals and handbooks, policies, plans, disclosure materials, policy statements and other requested materials relating to the employment, or termination of employment (including severance payments) of the employees of the
Company and each Company Subsidiary.
4.21 Taxes
.
Except as set forth in
4.21
of the Sellers Disclosure Letter:
(a) All Tax Returns required to be filed on or before the Closing Date by, or with respect to, the Company and each Company Subsidiary
have been, or will be, timely filed. Such Tax Returns (and any other Tax Returns filed on or before the Closing Date by, or with respect to, the Company or any Company Subsidiary) are, or will be, true, complete and correct in all material respects.
All material Taxes due and owing by, or with respect to, the Company and each Company Subsidiary (whether or not shown on any Tax Return) have been, or will be, timely paid.
(b) The Company and each Company Subsidiary has withheld and paid each Tax required to have been withheld and paid in connection with amounts
paid, owing or otherwise allocable to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.
(c) No claim has been made in writing by any taxing authority in any jurisdiction where the Company or a Company Subsidiary does not file Tax
Returns that it is, or may be, subject to Tax by that jurisdiction.
(d) No extensions or waivers of statutes of limitations are currently
in place or requested with respect to any Taxes of the Company or a Company Subsidiary.
(e) The amount of the Companys and the
Company Subsidiaries Liability for unpaid Taxes for all Tax periods (or portions of Tax periods) ended on or before December 31, 2016 (including adequate reserves for any anticipated clawback of tax holidays or incentives) does not, in
the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) reflected on the Financial Statements, and the amount of the Companys and the Company Subsidiaries Tax prepayments and overpayments for all
such periods is not less than the amount of accrued Tax refunds or credits reflected on the Financial Statements. Since December 31, 2016, no Taxes have accrued with respect to the Company and the Company Subsidiaries other than Taxes arising
in the ordinary course of business consistent with past practice.
38
(f) All deficiencies asserted, or assessments made, against the Company or a Company Subsidiary
as a result of any examinations by any taxing authority have been fully paid.
(g) Neither the Company nor any Company Subsidiary is a
party to any Action by any taxing authority. There are no Actions pending or threatened in writing by any taxing authority.
(h) The
Company has delivered to Buyer copies of all federal, state, local, supranational and foreign income, franchise and similar Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by, the Company or a Company
Subsidiary for all Tax periods ended during the last three years.
(i) There are no Encumbrances for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company or a Company Subsidiary.
(j) Neither the Company nor any Company Subsidiary is a
party to, or bound by, any Tax indemnity, Tax sharing or Tax allocation agreement (other than (i) any such agreement the only parties to which are the Company and one or more Company Subsidiaries, or (ii) by reason of customary provisions
in any Contract with third parties entered into in the ordinary course of business the principal purpose of which does not relate to Tax).
(k) No private letter rulings, technical advice memoranda or similar agreement or rulings have been requested, entered into or issued by any
taxing authority with respect to the Company or a Company Subsidiary since December 31, 2012.
(l) Neither the Company nor any
Company Subsidiary has been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes other than a group the only members of which are the Company and/or Company Subsidiaries. Neither the execution (nor the closing of
the transactions contemplated by) of this Agreement or any of the Transaction Documents, nor any event since December 31, 2016 will result in the clawback or disallowance of any group relief previously given for any UK Tax purposes. Neither the
Company nor any Company Subsidiary has Liability for Taxes of any Person (other than the Company or any Company Subsidiary) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as
transferee or successor, by Contract or otherwise (other than by reason of customary provisions in any Contract with third parties entered into in the ordinary course of business the principal purpose of which does not relate to Tax).
(m) Neither the Company nor any Company Subsidiary will be required to include any item of income in, or exclude any item or deduction from,
taxable income for any taxable period or portion thereof ending after the Closing Date as a result of:
(i) any change in a
method of accounting under Section 481 of the Code (or any comparable provision of state, local or foreign Tax Laws), or use of an improper method of accounting, for a taxable period ending on or before the Closing Date;
(ii) an installment sale or open transaction occurring on or before the Closing Date;
(iii) a prepaid amount received on or before the Closing Date;
(iv) any closing agreement under Section 7121 of the Code, or similar provision of state, local or foreign Law; or
(v) any election under Section 108(i) of the Code.
(n) No stock of any Company Subsidiary is a United States real property interest within the meaning of Section 897(c)(1)(A)(ii) of the
Code.
(o) Neither the Company nor any Company Subsidiary has been a distributing corporation or a controlled
corporation in connection with a distribution described in Section 355 of the Code in the three years
39
prior to the date of this Agreement or in a distribution that could otherwise constitute a plan or series of related transactions in conjunction with the transactions
contemplated by this Agreement.
(p) Neither the Company nor any Company Subsidiary is, or has been, a party to, or a promoter of, a
reportable transaction within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011-4(b).
(q) There is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, tax credits or similar items
of the Company or any Company Subsidiary under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury Regulations thereunder (and comparable provisions of state, local or foreign Law).
(r) GHGL London Ltd, has been a disregarded entity for U.S. federal income tax purposes at all times since August 19, 2014. The election
was a change in current classification as defined under Treasury Regulations Section 301.7701-3(c)(1)(iv).
(s) The
Company, GHGL London Ltd and GHG Lubricants Holdings Ltd have not engaged in a trade or business or had a permanent establishment in any jurisdiction other than the jurisdiction of their formation.
(t) All financing costs, including interest, discounts, and premiums payable by GHGL London Ltd., GHG Lubricants Holdings Ltd., Houghton
Holdings Limited or Houghton Plc in respect of their loans and amounts payable in respect of their derivative contracts are deductible by GHGL London Ltd., GHG Lubricants Holdings Ltd., Houghton Holdings Limited or Houghton Plc, as applicable, in
computing their profits, gains or losses for UK Tax purposes.
(u) There is no document in the enforcement or production of which the
Company is interested which has not been duly stamped.
(v) None of GHGL London Ltd., GHG Lubricants Holdings Ltd., Houghton Holdings
Limited or Houghton Plc has entered into, been party to or been otherwise involved in any schemes or arrangements the main purpose of which was the avoidance of Tax on the part of GHGL London Ltd., GHG Lubricants Holdings Ltd., Houghton Holdings
Limited or Houghton Plc, as applicable.
(w) The Company and each Company Subsidiary is duly registered in each country and territory
where required by applicable Law for value added tax and any other equivalent Indirect Tax for which registration is required by applicable Law.
Notwithstanding any other provision of this Agreement,
4.07(s)
,
4.19
and
4.21
are the exclusive sections in this
Agreement for representations and warranties by Sellers, the Company and their respective Affiliates with respect to Tax matters, and no other representation or warranty in
Article IV
will be made or deemed to be made to the Buyer with
respect to Taxes.
4.22 Bank Accounts
.
4.22
of the Sellers Disclosure Letter sets forth a true and complete
list of the names and locations of all domestic and foreign banks or other financial institutions in which the Company or any Company Subsidiary maintains an account or safe deposit box (giving the account numbers) and the names of all persons
authorized to draw thereon or having access thereto. The Company has delivered to Buyer true and complete copies of all reports of foreign bank and financial accounts (FBAR) filed by or on behalf of the Company and each Company Subsidiary for the
period ended December 31, 2015.
4.23 Affiliate Transactions
.
Except for: (a) intercompany agreements between or
among the Company and the Company Subsidiaries; (b) Contracts for employment disclosed on
4.08(a)
of the Sellers Disclosure Letter or at will employment arrangements in the ordinary course of business consistent with past practice;
(c) rights to
40
indemnification in favor of any present or former officers or directors of the Company or any Company Subsidiary existing under: (i) any Contract disclosed on
4.08(a)
of the
Sellers Disclosure Letter or (ii) subject to
6.14
, any of the organizational documents of the Company or any Company Subsidiary or the Companys existing directors and officers liability insurance policy;
(d) any Transaction Document; (e) the Contracts and other arrangements or other matters set forth on
4.23
of the Sellers Disclosure Letter; or (f) the Sellers ownership interest in the Company: no Seller nor any of
its Affiliates (including for purposes of this
4.23
, to Sellers Knowledge, officers of a Seller or any such Affiliate) has since December 31, 2014, directly or indirectly: (A) been a party to any Contract with the Company or a
Company Subsidiary, or (B) had any interest in any property or services sold to or to be sold to or purchased by the Company or a Company Subsidiary or otherwise used in or pertaining to the businesses of the Company or a Company Subsidiary or
(C) had business dealings or a financial interest in any transaction with the Company or a Company Subsidiary during the last three (3) years.
4.24 Books and Records
.
The books and records of the Company and its subsidiaries for the last six (6) years have been
fully, properly and accurately maintained in all material respects, and there are no material inaccuracies or discrepancies reflected therein. The Company and each Company Subsidiary have exercised reasonable efforts to collect the books and records
of the Company and each Company Subsidiary in connection with the due diligence performed by Buyer in connection with the transactions contemplated by this Agreement. The minute books of the Company and the Company Subsidiaries included in such
collected books and records contain accurate and complete records of all meetings, and actions taken by written consent, that occurred, or were executed, during the time periods such minute books purport to cover and no meeting or action taken by
written consent has been held during such time periods for which minutes have not been prepared and are not contained in such minute books.
4.25 Brokers
.
Except for RBC Capital Markets and its Affiliates, no broker, finder or investment banker is entitled to any
brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf of the Company or any Company Subsidiary.
4.26 No Other Representations or Warranties
.
Except for the representations and warranties made by each Seller in
Article
III
and the Company in this
Article IV
, none of the Sellers nor any other Person makes any express or implied representation or warranty with respect to Sellers, the Company, the Company Subsidiaries, or their respective businesses,
operations, assets, liabilities, conditions (financial or otherwise) or prospects, and each Seller hereby disclaims any such other representations or warranties.
ARTICLE V
Representations and Warranties of Buyer
Except as disclosed in the Buyer SEC Reports filed before two (2) Business Days prior to the date hereof, Buyer represents and warrants
to Sellers that the statements contained in this
ARTICLE V
are true and correct as of the date hereof.
5.01 Organization and
Authority of Buyer.
(a) Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the
Commonwealth of Pennsylvania. Buyer has the requisite corporate power and authority and all material governmental approvals to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary except where the failure to be so qualified or
in good standing would not be reasonably expected to have a Buyer Material Adverse Effect. Buyer has full corporate power and authority to enter into this Agreement
41
and the other Transaction Documents to which Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Buyer of this Agreement and any other Transaction Document to which Buyer is a party, the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. The Buyer board of directors, by resolutions duly adopted and not subsequently rescinded or modified, has duly (a) determined that the
transactions contemplated by this Agreement are fair to and in the best interests of Buyer, (b) approved and adopted this Agreement and the other Transaction Documents to which Buyer is a party and (c) determined to recommend to the
shareholders of Buyer that such shareholders adopt this Agreement and directed that this Agreement be submitted for consideration by Buyers shareholders at a meeting of Buyers shareholders. The Buyer Shareholder Approval is the only vote
of holders of securities of Buyer which is required to consummate the transactions contemplated hereby, and no other corporate proceedings on the part of Buyer are necessary to approve this Agreement, the Transaction Documents or the transactions
contemplated hereby.
(b) This Agreement has been duly executed and delivered by Buyer and (assuming due authorization, execution and
delivery by the other parties hereto) constitutes a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each other Transaction Document to which Buyer is or will be a party has been duly executed
and delivered by Buyer (assuming due authorization, execution and delivery by each other party thereto), such Transaction Document will constitute a legal, valid and binding obligation of Buyer enforceable against it in accordance with its terms.
5.02 No Conflicts; Consents.
(a) The execution, delivery and performance by Buyer of this Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under any provision of the certificate of incorporation, by-laws or other organizational documents of Buyer
or any resolution adopted by its board of directors; (b) conflict in any material respect with or result in a material violation or breach of any provision of any Law or Order applicable to Buyer; (c) require the consent, notice or other
action by any Person under, materially conflict with, result in a material violation or breach of, constitute a material default or an event that, with or without notice or lapse of time or both, would constitute a material default under, or result
in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel, any material Contract to which Buyer is a party or by which Buyer is bound or to which any of its material properties and assets are subject or any
material Permit affecting the properties, assets or businesses of Buyer or (d) result in the creation or imposition of any material Encumbrance on any material properties or assets of Buyer.
(b) No consent, approval, Permit, Order, authorization, declaration or filing with, or notice to, any Governmental Authority is required by or
with respect to Buyer in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, except for: (i) such filings and approvals as
may be required under (A) the Antitrust Laws, (B) the Securities Act, (C) the Exchange Act and (D) the rules of the NYSE, including the Buyer Shareholder Approval and (ii) such consents, approvals, Permits, Orders,
declarations or notices, the failure to make or obtain would not affect the ability of Buyer to enter into this Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby.
5.03 Legal Proceedings; Compliance with Laws.
(a) There are no Actions pending or, to Buyers Knowledge, threatened: (i) against or by Buyer affecting any of its properties,
officers or directors (in their capacities as such) or assets where, individually or in the aggregate, there is a reasonable possibility of a judgment adverse to Buyer or its subsidiaries which would reasonably be expected to have a Buyer Material
Adverse Effect or (ii) against or by Buyer, any of its directors or
42
officers (in their capacities as such) or any of its subsidiaries that challenges or seeks to prevent, enjoin or otherwise alter or delay any of the transactions contemplated by this Agreement or
any other Transaction Document.
(b) There are no material outstanding Orders and no material unsatisfied judgments, penalties or awards
against or affecting Buyer, any of its directors or officers (in their capacities as such) or any of its properties or assets.
(c)
Neither Buyer, nor, to the Knowledge of Buyer, any director, officer, manager, employee, independent contractor, consultant or agent of Buyer or any other Person acting on its behalf, has directly or indirectly: (i) offered or used any
corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to any political campaign or activity, (ii) offered or made a direct or indirect unlawful payment or unlawful conveyance of something of value
to any U.S. or non-U.S. government official, employee or political candidate or established or maintained any unlawful or unrecorded funds, (iii) violated any provision of the FCPA or any statute or regulation equivalent to the FCPA or
concerning such unlawful payments or gifts in any jurisdiction, (iv) offered or given any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment or gift of money or anything of value to any U.S. or non-U.S.
government official or employee of any Governmental Authority or (v) received any unlawful discounts or rebates in violation of any statute or regulation relating to antitrust or competition. For the purpose of this section, a non-U.S.
government official means any employee or officer of a government of a non-U.S. country, including any federal, regional or local department, agency, enterprise owned or controlled by a non-U.S. government, any official of a non-U.S. political
party, any official or employee of a public international organization, any person acting in an official capacity for, or on behalf of, such entities, and any candidate for non-U.S. political office.
(d) Buyer has maintained: (i) books and records that in all material respects accurately and fairly reflect, in reasonable detail, its
transactions and dispositions of assets and (ii) a system of internal accounting controls that provide reasonable assurance that transactions are executed in accordance with general or specific authorization from Buyers directors and
officers.
5.04 SEC Reports; Financial Information
.
(a) Since January 1, 2014, Buyer has timely filed with the SEC all forms, statements, registrations, reports and documents required to be
filed by it under the Securities Act and the Exchange Act (collectively, the
Buyer SEC Reports
). The Buyer SEC Reports have been made available to the Sellers Representative. The Buyer SEC Reports: (i) at the time
filed, complied in all material respects with the applicable requirements of the Securities Act and Exchange Act, as applicable and (ii) did not at the time they were filed (or if amended or superseded by a filing before the date of this
Agreement, then on the date of such amending or superseding filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the Buyer SEC Reports filed with the SEC (or incorporated by reference) within the past two (2) years (i) was prepared from, and was in accordance, with, the books and records of Buyer and its subsidiaries,
(ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in shareholders equity and consolidated financial position of Buyer and its subsidiaries for the respective fiscal periods or as of
the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount) and (iii) complied as to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Regulation S-X promulgated by the SEC). Except as disclosed in the Buyer SEC Reports filed with the SEC, since December 31, 2016, taking into account
43
the cumulative effect of all developments and events since such date, there has not been any development or event that has had a Buyer Material Adverse Effect.
(c) As of the date of this Agreement, the Buyer has not received written comments from the SEC staff regarding any of the Buyer SEC Reports
that remain unresolved, other than such comments the substance of which has been disclosed in any Buyer SEC Report.
5.05
Capitalization
.
(a) The authorized capital stock of Buyer consists of 30,000,000 shares of Buyer Common Stock of which
13,290,807 shares were outstanding on March 31, 2017 (the
Buyer Capitalization Date
), and 10,000,000 shares of preferred stock, $1.00 par value per share, none of which are outstanding as of the date hereof. As of the Buyer
Capitalization Date, Buyer has issued outstanding options to purchase 155,212 shares of its capital stock and 5,118 shares of restricted stock (the
Buyer Stock Options
). All of the issued and outstanding shares of capital stock of
Buyer have been duly authorized and validly issued, are fully paid, non-assessable, and free of preemptive rights, with no personal liability attaching to the ownership thereof.
(b) All of such shares and options were issued in compliance in all material respects with all applicable Laws and contractual obligations
binding on Buyer. None were issued in violation of any agreement, arrangement or commitment to which Buyer is a party or is subject to or in violation of any preemptive or similar rights of any Person.
(c) As of the Buyer Capitalization Date, no bonds, debentures, notes or other indebtedness that have the right to vote on any matters on which
shareholders of Buyer may vote were issued or outstanding, no trust preferred or subordinated debt securities of Buyer or any subsidiary of Buyer were issued or outstanding and, other than the Buyer Stock Options, there were no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or convertible securities or other commitments or agreements obligating Buyer to issue, transfer, sell, purchase, redeem or otherwise acquire any Buyer Common Stock.
(d) There are no voting trusts, shareholder agreements, proxies or other agreements in effect pursuant to which Buyer or any of its
subsidiaries has a contractual or other obligation with respect to the voting or transfer of the Buyer Common Stock or other equity interests of Buyer.
(e)
Valid Issuance of Stock Consideration.
The shares of Stock Consideration, when issued in accordance with this Agreement,
(a) will be duly authorized, validly issued, fully paid and non-assessable, and (b) will be free and clear of any Encumbrances other than as a result of any action by and Seller or its Affiliates;
provided
,
however
, that the
shares of Stock Consideration are subject to restrictions on transfer under applicable securities Laws and the Transaction Documents. The issuance of the Stock Consideration is not subject to any preemptive rights or rights of first refusal
applicable to Buyer, or any similar rights in respect thereof.
5.06 Brokers.
Except for Deutsche Bank and its Affiliates, no
broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on
behalf of Buyer.
5.07 Funding.
The Buyer has delivered to the Company true, complete and correct copies of the executed commitment
letter, dated as of the date hereof between the Buyer, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank AG New York Branch and Deutsche Bank Securities Inc. (the
Debt Financing
Commitment
), pursuant to which, upon the terms and subject to the conditions set forth therein (subject to certain flex provisions in certain fee letters, which provisions are not material to the Company), Bank of America,
N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank AG New York Branch and Deutsche Bank Securities Inc. have agreed to lend the amounts set forth therein (the
Stated Debt Financing
) for the purpose of
funding the transactions contemplated by this Agreement. The
44
Debt Financing Commitment has not been amended or modified prior to the date of this Agreement, and, as of the date hereof, the commitment contained in the Debt Financing Commitment has not been
withdrawn, terminated or rescinded. As of the date hereof, there are no other agreements, side letters or arrangements to which the Buyer is a party relating to the Debt Financing Commitment that would reasonably be expected to adversely affect in
any material respect the availability of the Stated Debt Financing. As of the date hereof, the Debt Financing Commitment is in full force and effect and constitutes the legal, valid and binding obligations of Buyer and, to the Knowledge of the
Buyer, the other parties thereto. There are no conditions precedent related to the funding of the full amount of the Stated Debt Financing (including any of the aforesaid flex provisions), other than as expressly set forth in the Debt
Financing Commitment. As of the date hereof, no event has occurred which would result in any breach or violation of or constitute a default (or an event which with notice or lapse of time or both would become a default) by the Buyer under the Debt
Financing Commitment, and the Buyer does not have any reason to believe that any of the conditions to the Stated Debt Financing will not be satisfied or that the Stated Debt Financing (and/or other debt arrangements, which may be in the form of bank
facilities, bond issuances or otherwise (including the Stated Debt Financing, the
Debt Financing
)) will not be available to the Buyer on the Closing Date in an amount sufficient to pay the amounts required under this Agreement
assuming compliance by Sellers with their obligations hereunder. The Buyer has fully paid all commitment fees or other fees required to be paid on or prior to the date hereof pursuant to the Debt Financing Commitment. At the Closing, the Buyer will
have sufficient cash, available lines of credit or other sources of immediately available funds to pay the Cash Payment and all anticipated related fees and expenses and other anticipated amounts payable under this Agreement.
5.08 Buyers Investigation and Reliance
.
The Buyer is a sophisticated purchaser and has made its own investigation, review and analysis regarding the Company and the Company
Subsidiaries, the Sellers and the transactions contemplated hereby, together with the Representatives that they have engaged for such purpose. The Buyer is not relying, and has not relied, upon any statement, representation or warranty, oral or
written, express or implied, made by the Company or its Affiliates or Representatives, except as expressly set forth in this Agreement or the Sellers Disclosure Letter. Neither the Sellers nor the Company (nor any of their Affiliates or
Representatives) is making, directly or indirectly, any representation or warranty with respect to any estimates, projections or forecasts involving the Company and Company Subsidiaries, including as contained in any information memorandum. The
Buyer acknowledges and agrees that there are inherent uncertainties in attempting to make such estimates, projections and forecasts and that it takes full responsibility for making its own evaluation of the adequacy and accuracy of any such
estimates, projections or forecasts (including the reasonableness of the assumptions underlying any such estimates, projections or forecasts). Nothing in this
5.08
is intended to, or shall be deemed to, modify or limit any of the
representations or warranties of the Sellers set forth in
Articles III
or
IV
.
5.09 Compliance with Laws; Permits.
(a) If any other section of this
Article V
deals expressly with respect to a specific Law, then that section shall contain the
sole and exclusive representations and warranties relating to such Law. The Buyer is currently and during the last three (3) years, has been in, compliance in all material respects with all applicable Laws and Permits. The Buyer has not
received during the last three (3) years, any written notice, order, or other communication from any Governmental Authority or any other Person of any alleged, actual, or potential material violation of or material failure to comply by the
Buyer or any real property owned, leased, subleased or occupied by the Buyer with any applicable material Law or Permit. To the Knowledge of the Buyer, there are no facts or circumstances that could reasonably be expected (with or without the
passage of time) to result in any such notice or in the revocation, suspension, termination, or modification of any material Permit. All such Permits have been obtained by the Buyer or a subsidiary of Buyer, and are in full force and effect without
any material default or material violation thereunder by any party thereto.
45
(b) To Buyers Knowledge, there currently are no circumstances or conditions affecting the
Buyer that are reasonably likely to give rise to material Liability under any Environmental Law, except as disclosed in the Buyer SEC Reports.
(c) Neither the Buyer, nor, to the Knowledge of the Buyer, any owner, member, partner, director, officer, manager, employee, independent
contractor, consultant or agent of any of them or any other Person acting on their behalf, has directly or indirectly, during the last three (3) years: (i) offered or used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to any political campaign or activity, (ii) offered or made a direct or indirect unlawful payment or unlawful conveyance of something of value to any U.S. or non-U.S. government official,
employee or political candidate or established or maintained any unlawful or unrecorded funds, (iii) violated any provision of the FCPA or any statute or regulation equivalent to the FCPA or concerning such unlawful payments or gifts in any
jurisdiction, including the U.K. Bribery Act 2010, (iv) offered or given any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment or gift of money or anything of value to any U.S. or non-U.S. government official
or employee of any Governmental Authority, (v) offered or made a direct or indirect payment to any U.S. or non-U.S. government official as incentive for the official to complete some action or process expeditiously, to the benefit of the party
making the payment or (vi) received any unlawful discounts or rebates in violation of any statute or regulation relating to antitrust or competition. For the purpose of this section, a non-U.S. government official means any employee
or officer of a government of a non-U.S. country, including any federal, regional or local department, agency, enterprise owned or controlled by a non-U.S. government, any official of a non-U.S. political party, any official or employee of a public
international organization, any person acting in an official capacity for, or on behalf of, such entities, and any candidate for non-U.S. political office.
(d) During the last three (3) years, neither the Buyer, nor, to Buyers Knowledge, any owner, member, partner, director, officer,
manager, employee, independent contractor, consultant or agent of any of them or any other Person acting on their behalf, has directly or indirectly (i) been or is designated on any list of any U.S. Governmental Entity related to customs and
international trade Laws, including OFACs Specially Designated Nationals and Blocked Persons List, the U.S. Department of Commerces Denied Persons List, the Commerce Entity List and the U.S. Department of States Debarred List,
(ii) except in compliance with U.S. Law, participated in any transaction involving such a Person or any country subject to U.S. sanctions administered by OFAC, (iii) exported (including deemed exportation) or re-exported, directly or
indirectly, any goods, technology or services in violation of any applicable U.S. export control or economic sanctions Laws or (iv) participated in any transaction connected with any purpose prohibited by U.S. export control and economic
sanctions Law, including support for international terrorism and nuclear, chemical or biological weapons proliferation.
5.10 Absence
of Certain Changes, Events and Conditions.
Since December 31, 2016, except as set forth in Section 5.10 of the Buyers Disclosure Letter, there has not been, with respect to the Buyer, any:
(a) event, occurrence or development that has had, or could reasonably be expected to have, individually or in the aggregate, a Buyer Material
Adverse Effect;
(b) incurrence, assumption or guarantee of any Indebtedness in an aggregate amount exceeding $10,000,000, except
unsecured current obligations incurred in the ordinary course of business consistent with past practice; or
(c) any Contract to do any of
the foregoing, or any action or omission that would result in any of the foregoing.
5.11 Books and Records.
The books and records
of the Buyer and its subsidiaries have been fully, properly and accurately maintained in all material respects, and there are no material inaccuracies or discrepancies reflected therein.
46
5.12 No Other Representations or Warranties.
Except for the representations and warranties
made by the Buyer in this
Article V
, the Buyer nor any other person makes any express or implied representation or warranty with respect to the Buyer or its businesses, operations, assets, liabilities, conditions (financial or otherwise) or
prospects, and the Buyer hereby disclaims any such other representations or warranties.
ARTICLE VI
Covenants
6.01 Conduct
of the Companys Business Before the Closing.
From the date hereof until the Closing or earlier termination of this Agreement, except as otherwise provided in this Agreement (including as set forth on Sellers Disclosure Letter), or
required by Law or consented to in writing by Buyer (such consent not to be unreasonably withheld, delayed or conditioned), Sellers shall, and shall cause the Company and the Company Subsidiaries, as applicable, to, (x) conduct the business of
the Company and the Company Subsidiaries, as applicable, in the ordinary course of business consistent with past practice and (y) use commercially reasonable efforts to maintain and preserve intact the current organization, goodwill, business,
franchises, employees and advantageous business relationships of the Company and the Company Subsidiaries such that its business will not be materially impaired, as applicable. Notwithstanding the foregoing, from the date hereof until the Closing
Date, Sellers shall, except as otherwise provided in this Agreement (including as set forth in the corresponding subsection of
6.01
of the Sellers Disclosure Letter), or required by Law or consented to in writing by Buyer (such consent
not to be unreasonably withheld, delayed or conditioned):
(a) cause the Company and the Company Subsidiaries to preserve and maintain all
of their material Permits;
(b) cause the Company and the Company Subsidiaries to pay their Indebtedness, Taxes and other similar
obligations when due;
(c) cause the Company and the Company Subsidiaries to maintain the properties and assets owned, operated or used by
the Company and the Company Subsidiaries in substantially the same condition as they were on the date of this Agreement, subject to reasonable wear and tear (and replacement or disposition of obsolete or unnecessary equipment);
(d) cause the Company and the Company Subsidiaries to continue in full force and effect without modification all Insurance Policies, except as
required by applicable Law;
(e) cause the Company and the Company Subsidiaries to defend and protect their material properties and assets
from infringement or usurpation;
(f) cause the Company and the Company Subsidiaries to perform in all material respects their obligations
under all Material Contracts relating to or affecting their material properties, assets or business;
(g) cause the Company and the
Company Subsidiaries to maintain their books and records in accordance with all Laws and with past practice;
(h) cause the Company and
the Company Subsidiaries to comply in all material respects with all applicable Laws;
(i) obtain, or as applicable, make each consent,
registration, notification, filing, and declaration with the Governmental Authorities, creditors, lessors, and other Persons identified in
6.01(i)
of the Sellers Disclosure Letter (the
Required Consents
);
47
(j) not, except (i) as required by any written agreements existing as of the date hereof or
as required by Law or (ii) as done in the ordinary course of business consistent with past practice (to the extent that such action does not increase the Companys consolidated compensation expense by more than 3.0% on an annualized basis
over the 2016 level), (A) grant any bonuses, whether monetary or otherwise, or increase any wages, salary or other compensation or benefits (except as provided in
6.01(k)
) in respect of its current or former manager-level employees,
officers, directors or members, (B) take any action to accelerate the vesting or payment of any compensation or benefit (except as provided in
6.01(k)
) for any current or former employee, officer, director, member or manager or
(C) adopt or modify any employment agreement with any current or former employee, officer or director (other than terminations of the employment of at-will employees);
(k) not, except as required by any written agreements existing as of the date hereof or as required by Law, increase any severance, pension or
similar benefits in respect of its current or former manager-level employees, officers, directors or members;
(l) not, except as required
by any written agreements existing as of the date hereof or as required by Law, adopt, modify or terminate any: (i) severance, change in control, retention or other similar agreement with any current or former employee, officer, director or
member, (ii) Benefit Plan or (iii) collective bargaining or other agreement with a Union, in each case, whether written or oral;
(m) not adopt, sponsor, or maintain any new employee benefit plan or agreement (excluding any such plans that are listed in
4.19(a)
of
the Sellers Disclosure Letter) that would require payment of benefits or compensation after the 12-month anniversary of the Closing Date.
(n) cause the Company and the Company Subsidiaries not to take or permit any action that would cause any of the changes, events or conditions
described in
4.07(a)
4.07(m)
or
4.07(p)
4.07(t)
to occur; and
(o) not take any action or make any
payments, or permit any Company Subsidiary to take any action or make any payments, that, if made immediately prior to the date of this Agreement, would require disclosure pursuant to
4.23.
6.02 Conduct of Buyers Business Before the Closing.
From the date hereof until the Closing, except as otherwise provided in this
Agreement or required by Law, or consented to in writing by the Sellers Representative, Buyer shall: (x) conduct its business in the ordinary course of business consistent with past practice and (y) use commercially reasonable
efforts to maintain and preserve intact the current organization, goodwill, business, franchise, employees and advantageous business relationships of the Buyer such that its business will not be materially impaired. Notwithstanding the foregoing,
from the date hereof until the Closing Date, Buyer shall:
(a) preserve and maintain all of its material Permits;
(b) pay its Indebtedness, Taxes and other similar obligations when due;
(c) defend and protect its material properties and assets from infringement or usurpation;
(d) perform in all material respects its obligations under all material Contracts relating to or affecting its material properties, assets or
business;
(e) maintain its books and records in accordance with all Laws and with past practice; and
(f) not, except as required by Law or the rules of the New York Stock Exchange, amend its articles of incorporation; or
(g) comply in all material respects with all applicable Laws.
48
6.03 Access to Information
.
(a) From the date hereof until the Closing, to the extent not prohibited by Law, Sellers shall, and shall cause the Company and the Company
Subsidiaries to, upon reasonable notice and subject to applicable Laws: (i) afford Buyer and its Representatives reasonable access during normal business hours to and the right to inspect all of the Real Property, properties, assets, premises,
books and records, Contracts and other documents and data related to the Company and the Company Subsidiaries, provided that the Company and the Company Subsidiaries and their representatives shall take such action as is deemed necessary in the
reasonable judgment of the Company or the Company Subsidiaries to schedule such access and visits through a designated officer of the party providing access and in such a way as to avoid disrupting any material respect of the normal business of the
party providing access; (ii) furnish to Buyer and its Representatives, within twenty (20) Business Days after the end of the month during which this Agreement is executed and of every month thereafter until Closing, with (A) monthly
financial statements consisting of the consolidated balance sheet of the Company and the Company Subsidiaries as of the end of such month and the related statement of income for such month and the year-to-date period then ended, each prepared in
accordance with GAAP applied consistently with the Audited Financial Statements and certified by the chief financial officer of the Company as being so prepared, (B) a calculation of adjusted EBITDA for such periods prepared consistently with
past presentations provided to Buyer and (C) a copy of the Companys monthly internal presentation to management for such monthly periods prepared consistently with past presentations provided to Buyer, (iii) furnish to Buyer and its
Representatives, within thirty (30) Business Days after the end of the calendar quarter during which this Agreement is executed and of every calendar quarter thereafter until Closing, with quarterly statements of cash flow for such calendar
quarter and the year-to-date period then ended, each prepared in accordance with GAAP applied consistently with the Audited Financial Statements and certified by the chief financial officer of the Company as being so prepared and (iv) instruct
the Representatives of the Sellers and the Company and the Company Subsidiaries to cooperate reasonably with Buyer in its investigation of the Company and the Company Subsidiaries. With respect to any investigation pursuant to this
6.03(a)
,
Buyer shall use commercially reasonable efforts to minimize any interference with the conduct of the business of Gulf Houghton, the Company or the Company Subsidiaries during any such access. No investigation by Buyer or other information received
by Buyer shall operate as a waiver or otherwise affect any representation, warranty or agreement given or made by any Seller in this Agreement.
(b) From the date hereof until the Closing, to the extent not prohibited by Law, Buyer shall: (i) furnish the Sellers
Representative and its Representatives with such financial, operating and other data and information related to Buyer as the Sellers Representative or any of its Representatives may reasonably request and (ii) instruct the Representatives
of Buyer to cooperate with the Sellers Representative in its investigation of Buyer. Any investigation pursuant to this
6.03(b)
shall be conducted in such a manner as not to interfere unreasonably with the conduct of the business of
Buyer or any of its subsidiaries. No investigation by the Sellers Representative or other information received by the Sellers Representative shall operate as a waiver or otherwise affect any representation, warranty or agreement given or
made by Buyer in this Agreement.
(c) From the date hereof until the Closing, Buyer and Sellers shall cooperate with each other to
evaluate the management personnel of the Buyer, Company and the Companys Subsidiaries to identify the best individuals from each of Buyer, the Company and the Companys Subsidiaries to drive the success of the combined entity after
Closing.
(d) No party shall be required to provide access to or to disclose information where such access or disclosure would reasonably
be expected to jeopardize the attorney-client privilege of the institution in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense or similar agreement between the parties)
or contravene any Law, fiduciary duty or material Contract entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding
sentence apply. Nothing contained in this Agreement shall give Buyer, the Company or any Seller, directly or indirectly, the right
49
to control or direct the operations of any other party prior to the Closing. Prior to the Closing, each party shall exercise, consistent with and subject to the terms and conditions of this
Agreement, complete control and supervision of its and its subsidiaries respective operations.
6.04 No Solicitation of Other
Bids.
(a) From the date hereof until the Closing or the earlier termination of this Agreement, Sellers shall not, and shall not
authorize or permit the Company, any Company Subsidiary or any of their Representatives to, directly or indirectly: (i) knowingly encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal;
(ii) participate in or enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal or (iii) enter into any agreements or other instruments (whether or not binding)
regarding an Acquisition Proposal. Sellers shall immediately cease and cause to be terminated, and shall cause their Affiliates (including the Company and each Company Subsidiary) and all of their Representatives to immediately cease and cause to be
terminated, all existing discussions or negotiations with any Persons with respect to, or that could lead to, an Acquisition Proposal. For purposes hereof,
Acquisition Proposal
shall mean any inquiry, proposal or offer from any
Person (other than Buyer or any of its Affiliates) concerning: (i) a merger, consolidation, liquidation, recapitalization, share exchange, tender offer or other business combination transaction involving the Company or a Company Subsidiary;
(ii) the issuance or acquisition of shares of capital stock or other equity securities of the Company or a Company Subsidiary or (iii) the sale, lease, exchange or other disposition of any significant portion of the Companys or a
Company Subsidiarys properties or assets;
provided
,
however
, that the term Acquisition Proposal shall not apply to sales of (i) inventory in the ordinary course of business consistent with past practice or
(ii) land in Genoa, Italy and Rouen, France.
(b) In addition to the other obligations under this
6.04
, the Sellers
Representative shall promptly (and in any event within three (3) Business Days after receipt thereof by any Seller or its Representatives) advise Buyer orally and in writing of any Acquisition Proposal, any request for information with respect
to any Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition Proposal or inquiry, and the identity of the
Person making the same.
(c) Sellers agree that the rights and remedies for noncompliance with this
6.04
shall include having such
provision specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to Buyer and that money damages would not provide an adequate remedy
to Buyer.
6.05 Regulatory Approvals; Consents.
(a) Subject to the terms and conditions of this Agreement (including
6.05(d)
), before the Closing, Buyer and the Sellers
Representative shall use their respective reasonable best efforts to take, or cause to be taken, all reasonable actions, and to do, or cause to be done, all reasonable things necessary or advisable under any applicable Laws to consummate the
transactions contemplated by this Agreement as promptly as practicable, including (i) the preparation and filing of all documentation, forms, applications, filings, registrations and notifications required (whether by Law or in order to satisfy
the conditions set forth in
8.01(a)
) to be filed to consummate the Closing, (ii) the satisfaction of conditions to consummating the transactions contemplated by this Agreement, (iii) obtaining (and cooperating with each other in
obtaining) any consent, authorization, expiration or termination of a waiting period, permit, Order or approval of, waiver or any exemption by, any Governmental Authority (which actions shall include furnishing all information and documentary
material required under the Antitrust Laws) required to be obtained or made (whether by Law or in order to satisfy the conditions set forth in
8.01(a)
) by Buyer, the Sellers Representative or any of their respective Affiliates in
connection with the transactions contemplated by this Agreement or the taking of any action contemplated by this Agreement, (iv) obtaining (and cooperating with each other in obtaining) any consent, approval of, waiver or
50
any exemption by, any non-governmental third party, in each case, to the extent necessary or advisable to consummate the transactions contemplated by this Agreement and (v) the execution and
delivery of any reasonable additional instruments necessary to fully carry out the purposes of this Agreement.
(b) The parties hereto
shall each keep each other apprised of the status of matters relating to the completion of the transactions contemplated by this Agreement and work cooperatively in connection with obtaining all required consents, authorizations, Orders or approvals
of, or any exemptions by, any Governmental Authority undertaken pursuant to the provisions of this
6.05
. The parties hereto shall consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of
all third parties and Governmental Authorities necessary or advisable to consummate the transactions contemplated by this Agreement, and each party will keep the other apprised of the status of matters relating to completion of the transactions
contemplated herein. The parties hereto shall cause their respective counsel to reasonably collaborate with each other to prepare any written materials that will be jointly submitted to any third person or any Governmental Authority in connection
with the transactions contemplated by this Agreement and to consult with each other regarding any written submission to any Governmental Authority. Notwithstanding the foregoing (and subject to
6.08
, the Mutual Confidentiality Agreement dated
December 16, 2015, as amended, between Buyer and the Company (the
Confidentiality Agreement
) and the Joint Defense Agreement dated June 16, 2016 and executed by the respective counsel of Buyer and the Company on behalf
of Buyer, the Company and Affiliates of the Company and Company Subsidiaries), Buyer, Gulf Houghton and the Company may, as each reasonably deems advisable and necessary, designate any competitively sensitive material provided to the other under
this
6.05(b)
as Outside Counsel Only Material. Such materials and the information contained therein shall be given only to the outside counsel of the recipient on the basis that such outside counsel agrees not to disclose such
information to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of the materials (Buyer, Gulf Houghton or the Company, as the case may be) or its legal counsel. Notwithstanding
anything to the contrary contained in this
6.05
, materials provided pursuant to this
6.05
may be redacted (i) to remove references concerning the valuation of the Company, (ii) as necessary to comply with contractual
arrangements and (iii) as necessary to address reasonable privilege concerns.
(c) Buyer and the Sellers Representative shall
use reasonable best efforts to make or file with the appropriate Governmental Authority all filings, forms, registrations and notifications required (whether by Law or in order to satisfy the conditions set forth in
8.01(a)
) to be filed to
consummate the transactions contemplated by this Agreement under any applicable Antitrust Law, and subsequent to such filings and subject to the terms and conditions of
6.05(b)
, Buyer and the Sellers Representative will respond to
inquiries from Governmental Authorities, or provide any supplemental information that may be requested by Governmental Authorities, in connection with filings made with such Governmental Authorities (to the extent reasonably available). Buyer and
the Sellers Representative shall file their notification and report forms under the HSR Act within fifteen (15) Business Days after the date of this Agreement or when advisable. Subject to
6.05(b)
and the last sentence of this
6.05(c)
, in the event that the parties receive a request for information or documentary material pursuant to any Antitrust Law, including the HSR Act (any such request pursuant to the HSR Act, a
Second Request
), the parties
will use their respective reasonable best efforts to submit an appropriate response to, and to certify compliance as soon as reasonably practicable with, any such request for information or documentary material, and counsel for both parties will
closely cooperate during the entirety of any review process pursuant to any Antitrust Law. Notwithstanding the foregoing, Buyer may, if Buyer in good faith believes it to be necessary or advisable to do so in order to permit the satisfaction of the
conditions set forth in
8.01(a)
and
8.01(b)
or in order to avoid a Triggering Divestiture, elect not to certify compliance with any such Second Request until the date that is six (6) months after the date of such Second Request.
(d) Notwithstanding anything to the contrary set forth in this Agreement, Buyer and the Sellers Representative shall, in order to
permit the satisfaction of the conditions set forth in
8.01(a)
and
8.01(b)
as promptly as practicable (subject to the last sentence of this
6.05(d)
), (i) propose, negotiate, commit to, effect and agree to, by consent
decree, hold separate order or otherwise, the sale, divestiture, license, holding separate, and other disposition of and restriction on the businesses, assets, properties and product lines, or changes to the
51
conduct of business of, the Company, Buyer and their respective subsidiaries and take such action or actions that would in the aggregate have a similar effect, (ii) create, terminate, or
divest relationships, ventures, contractual rights or obligations of the Company, Buyer and their respective subsidiaries and (iii) otherwise take or commit to take any action that would limit Buyers freedom of action with respect to, or
its ability to retain or hold, directly or indirectly, any businesses, assets, properties or product lines of the Company, Buyer and their respective subsidiaries;
provided that
any such sales, divestitures, licenses, holdings, dispositions,
restrictions, changes or similar effects are conditioned upon and become effective only concurrently with or immediately upon the Closing;
provided further
,
however
, that nothing contained in this Agreement shall require Buyer or the
Sellers Representative to take, or cause to be taken, or commit to take, or commit to cause to be taken, any divestiture, license, hold separate, sale or other disposition, of or with respect to businesses, assets, properties or product lines
of the Company, Buyer or any of their respective subsidiaries representing, in the aggregate, in excess of $80 million of Pro Forma Net Sales represented by the assets divested. However, if requested by Buyer, the Sellers Representative shall
agree to any action contemplated by this
6.05
;
provided that
any such agreement or action is conditioned on the consummation of the transactions contemplated by this Agreement. Without limiting the foregoing, in no event shall the
Sellers Representative (and the Sellers Representative shall not permit any of its Affiliates to) propose, negotiate, effect or agree to any such actions without the prior written consent of Buyer.
6.06 Notice of Certain Events.
(a) From the date hereof until the Closing, Sellers shall promptly notify Buyer in writing:
(i) of any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result in, any representation or warranty made by any Seller in any Transaction Document not
being true and correct in any material respect if made or restated immediately thereafter or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in
8.02
to be satisfied;
(ii) of any notice or other communication from any Person alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(iii) of any notice or other Substantive Communication
from any Governmental Authority in connection with the transactions contemplated by this Agreement;
(iv) of any Actions
commenced or, to any Sellers Knowledge, threatened against, relating to or involving or otherwise affecting such Seller, the Company or any Company Subsidiary that, if pending on the date of this Agreement, would have been required to have
been disclosed pursuant to
4.16
or that relates to the consummation of the transactions contemplated by this Agreement;
(v) if any customer, supplier or vendor required to be disclosed on
4.14
of the Sellers Disclosure Letter has
indicated in writing or verbally that it will cease to do business with the Company (whether as a result of the consummation of the transaction contemplated by this Agreement or otherwise); and
(vi) of the receipt of any Environmental Notice or Environmental Claim by the Sellers, the Company or any Company Subsidiary
that is reasonably likely to give rise to any material obligation of the Company or any Company Subsidiary.
(b) From the date hereof
until the Closing, Buyer shall promptly notify the Sellers Representative in writing:
(i) of any fact, circumstance,
event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect, (B) has resulted in, or could reasonably be expected to
result in, any representation or warranty made by Buyer in any Transaction Document not being true and correct in any material
52
respect if made or restated immediately thereafter or (C) has resulted in, or could reasonably be expected to result in, the failure of any of the conditions set forth in
8.03
to be
satisfied;
(ii) of any notice or other Substantive Communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement; and
(iii) of any Actions commenced or, to Buyers Knowledge, threatened
against, relating to or involving or otherwise affecting Buyer that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to
5.03
or that relates to the consummation of the transactions
contemplated by this Agreement.
(c) A partys receipt of information pursuant to this
6.06
shall not operate as a waiver or
otherwise affect any representation, warranty or agreement given or made by any other party in this Agreement and, in the case of
6.06(a)
, shall not be deemed to amend or supplement the Sellers Disclosure Letter.
6.07 Resignations.
The Sellers Representative shall use reasonable efforts to deliver to Buyer written resignations, effective as
of the Closing Date, of the officers and directors of the Company or any Company Subsidiary requested by Buyer at least five (5) Business Days before the Closing or otherwise take action to remove such individuals from such positions.
6.08 Confidentiality.
Except as provided in the Shareholder Agreement, from and after the Closing, each Seller shall, and shall cause
its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning Buyer, the Company and the Company Subsidiaries,
except to the extent that such Seller can show that such information: (a) is generally available to and known by the public through no fault of any Seller or any of their respective Affiliates or Representatives or (b) is lawfully acquired
by such Seller, any of its Affiliates or their respective Representatives from and after the Closing from sources that are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If any Seller or any of its
Affiliates or their respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Seller, shall promptly notify Buyer in writing and shall, without liability
hereunder, disclose only that portion of such information that such Seller is advised by its counsel is legally required to be disclosed,
provided that
such Seller shall use reasonable best efforts to obtain an appropriate protective order or
other reasonable assurance that confidential treatment will be accorded such information.
6.09 Books and Records.
(a) In order to facilitate the resolution of any claims made against or incurred by any Seller before the Closing, or for any other reasonable
purpose, Buyer shall:
(i) retain the books and records (including personnel files) of the Company and the Company
Subsidiaries relating to periods before the Closing in a manner reasonably consistent with Buyers own document retention policies and practices; and
(ii) upon reasonable notice, afford the Representatives of any Seller reasonable access (including the right to make, at such
Sellers expense, photocopies), during normal business hours, to such books and records for any appropriate purpose;
provided,
however
, that any books and records related to Tax matters shall be retained pursuant to, and for the periods set forth in,
ARTICLE VII
.
(b) In order to facilitate the resolution of any claims made by or against or incurred by Buyer, the Company or any Company Subsidiary after
the Closing, or for any other reasonable purpose, for a period of five (5) years following the Closing, the Sellers Representative shall:
(i) retain the books and records (including personnel files) of the Sellers which relate to the Company and the Company
Subsidiaries and their operations for periods before the Closing; and
53
(ii) upon reasonable notice, afford the Representatives of Buyer, the Company and
any Company Subsidiary reasonable access (including the right to make, at Buyers expense, photocopies), during normal business hours, to such books and records for any appropriate purpose;
provided, however
, that any books and records related to Tax matters shall be retained pursuant to, and for the periods set forth in,
ARTICLE VII
.
(c) Neither Buyer nor the Sellers Representative shall be obligated to provide the other party with access to
any books or records (including personnel files) pursuant to this
6.09
where such access would violate any Law.
6.10 Closing
Conditions.
From the date hereof until the Closing, each party hereto shall, and Sellers shall cause the Company and the Company Subsidiaries to, use reasonable best efforts to take such actions as are necessary to expeditiously satisfy the
closing conditions set forth in
ARTICLE VIII
hereof.
6.11 Public Announcements.
Buyer and Gulf Houghton shall issue a joint
press release in a form as mutually agreed promptly after the execution of this Agreement. Otherwise, before Closing, none of the Sellers nor Buyer shall (and shall not permit any of their respective Affiliates to) issue or cause the release or
publication of any press release or other public announcement with respect to this Agreement or the transactions contemplated herein without prior written approval (which approval shall not be unreasonably withheld, conditioned or delayed) of the
other party hereto;
provided
, that nothing herein shall prevent any Person from making any public announcement (whether in a press release, periodic securities filing or other external announcement) that such Person reasonably believes to be
required by applicable Law or the requirements of any stock exchange or quotation system. Notwithstanding the foregoing restriction, Buyer may make earnings announcements and participate in earnings calls and investor conferences in the ordinary
course of business in which this Agreement and the transactions contemplated herein are discussed.
6.12 Internal Reorganization.
Notwithstanding anything to the contrary in this Agreement, the Sellers and the Company shall be permitted to cause D.A. Stuart Company (Shanghai) Limited to be sold by Houghton Deutschland GmbH to Houghton Shanghai Specialty Industrial Fluids on
the terms described in Section
6.12
of the Sellers Disclosure Letter.
6.13 General Release.
(a) Effective as of the Closing, each Seller hereby unconditionally and irrevocably acquits, remises, discharges and forever releases the
Company, the Company Subsidiaries, Buyer and their respective Affiliates, partners, managers, employees, officers, directors and agents (collectively, the
Buyer Releasees
) from any and all Liabilities and obligations of every kind
whatsoever, whether accrued or fixed or determined or determinable, including those arising under any Law, Contract, agreement, arrangement, commitment or undertaking, whether written or oral to the extent arising on or before the Closing;
provided
,
however
that in no event shall this
6.13
constitute a release by (i) any Seller of any Liabilities or obligations of Buyer, its Affiliates or any third party arising under this Agreement or any other
Transaction Document, including, without limitation, the obligations under Section 6.24 hereof, (ii) any Management Seller of any Liabilities of Buyer, its Affiliates or any third party arising from any fraud, embezzlement or
misappropriation of funds or assets or similar willful misconduct, (iii) any Management Seller of any Liabilities or obligations of any Buyer Releasee pursuant to any Contract between such Buyer Releasee and such Management Seller that is set
forth on Section
4.08(a)(vii)
of the Sellers Disclosure Letter, (iv) any Management Seller of any rights he or she may have to indemnification or expense advancement under any provision of the articles of association, by-laws
or other organizational documents of the Company or any Company Subsidiary, (v) any Management Seller of any rights to unpaid salary, accrued vacation, or other employee benefits described pursuant to
4.19(a)
of the Sellers
Disclosure Letter, in each case accrued and earned by such Management Seller as of the Closing.
54
(b) Effective as of the Closing, the Buyer and the Company hereby unconditionally and irrevocably
acquits, remises, discharges and forever releases each Seller and their respective Affiliates, partners, managers, employees, officers, directors and agents (collectively, the
Seller Releasees
) from any and all Liabilities and
obligations of every kind whatsoever, whether accrued or fixed or determined or determinable, including those arising under any Law, Contract, agreement, arrangement, commitment or undertaking, whether written or oral to the extent arising on or
before the Closing;
provided
,
however
that in no event shall this
6.13(b)
apply in any way to any Liabilities or obligations of any Seller, its Affiliates or any third party arising (i) under this Agreement or any other
Transaction Document or (ii) from any fraud, embezzlement or misappropriation of funds or assets or similar willful misconduct.
6.14 D&O Tail Policy.
Prior to the Closing, the Company may purchase an officers and directors liability insurance
policy covering the persons who were officers and directors immediately prior to the Closing with respect to actions or omissions occurring prior to the Closing Date and providing the equivalent coverages as those in place at December 31, 2016.
In addition to the foregoing, from the Closing through the sixth (6
th
) anniversary of the Closing, the Buyer shall cause the certificate of incorporation and bylaws (or equivalent
organizational documents) of the Company and each Company Subsidiary to contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of the Company than
are set forth in the certificate of incorporation and bylaws of the Company and each Company Subsidiary as of the date of this Agreement; provided, however, that in no event shall this
6.14
obligate the Company or any Company Subsidiary (or
obligate the Buyer to cause the certificate of incorporation, bylaws or equivalent organizational documents of the Company or any Company Subsidiary to contain a provision that would obligate the Company or any Company Subsidiary) to indemnify
against, advance expenses to or exculpate such director or officer in respect of such director or officers indemnification Liabilities or obligations arising under this Agreement or any other Transaction Document. The provisions of this
6.14
are intended to be for the benefit of, and enforceable by, the present and former directors and officers of the Company and each Company Subsidiary.
6.15 Remittance of Payments.
From and after the Closing, each Seller shall promptly remit to Buyer, in the form received, any payments
which such Seller or any of its Affiliates may receive that properly belong to the Company or any Company Subsidiary.
6.16
Brokers.
Regardless of whether the Closing shall occur: (a) each Seller shall severally, indemnify Buyer and its Affiliates against, and hold Buyer and its Affiliates harmless from, any and all Liability for any brokers or
finders fees or other commissions arising with respect to brokers, finders, financial advisors, investment bankers or other Persons retained or engaged by such Seller or any of its Affiliates in respect of the transactions contemplated by this
Agreement and (b) Buyer shall indemnify each Seller and its Affiliates against, and hold each Seller and its Affiliates harmless from, any and all Liability for any brokers or finders fees or other commissions arising with respect
to brokers, finders, financial advisors, investment bankers or other Persons retained or engaged by Buyer or its Affiliates in respect of the transactions contemplated by this Agreement.
6.17 Permits.
From the date hereof until the Closing, Sellers shall, and shall cause the Company and the Company Subsidiaries to,
cooperate with Buyer in its efforts to obtain all Permits necessary for the Company and the Company Subsidiaries to operate their businesses after Closing as they had been conducted as of the Closing.
6.18 Payment of Indebtedness.
Except as otherwise agreed with the Sellers Representative, Buyer shall, at Closing, refinance or
assume the Indebtedness of the Company and the Company Subsidiaries that is identified on
6.18
of the Sellers Disclosure Letter (including the Indebtedness relating to any Contract identified on
6.18
of the Sellers
Disclosure Letter and any extensions of such Indebtedness set forth on
6.18
of the Sellers Disclosure Letter or that do not increase the Liability of the Company or any Company Subsidiary in respect of such Indebtedness or materially
affect the terms of such Indebtedness (including, without limitation, terms relating to the ability to prepay such Indebtedness)).
55
6.19 Shareholders Meeting; Preparation of Proxy Statement.
(a) Subject to the terms set forth in this Agreement, Buyer shall take all action necessary to duly call, give notice of, convene and hold the
Buyer Shareholders Meeting as soon as reasonably practicable after the Buyer Proxy Statement, as filed with the SEC, is declared effective or cleared by the staff of the SEC, and, in connection therewith, Buyer shall deliver to shareholders, a
notice of meeting, proxy statement and forms of proxy (collectively, the
Buyer Proxy Statement
) to the holders of Buyer Common Stock in advance of such meeting pursuant to applicable Law and Buyers articles of incorporation
and by-laws for the purpose of obtaining the Buyer Shareholder Approval. The Buyer Proxy Statement shall include the Buyer Board Recommendation. Buyer shall use reasonable best efforts to (i) obtain the Buyer Shareholder Approval and
(ii) take all other actions necessary or advisable to secure the vote or consent of the shareholders required by applicable Law and Buyers articles of incorporation and by-laws to obtain such approval. Buyer shall keep the Sellers
Representative updated with respect to proxy solicitation results as reasonably requested by the Sellers Representative. Once the Buyer Shareholders Meeting has been called and noticed, Buyer shall not postpone or adjourn the Buyer
Shareholders Meeting without the consent of the Sellers Representative (other than (x) in order to obtain a quorum of its shareholders or (y) as reasonably determined by Buyer to comply with applicable Law and Buyers articles
of incorporation and by-laws). At the Buyer Shareholders Meeting, each Seller and its Affiliates shall vote all shares of Buyer Common Stock owned by them, if any, in favor of the issuance of the Stock Consideration and the Charter Amendment.
Notwithstanding anything contained herein to the contrary, Buyer shall not be required to hold the Buyer Shareholders Meeting if this Agreement is terminated before the meeting is held.
(b) In connection with the Buyer Shareholders Meeting, Buyer shall prepare and file the Buyer Proxy Statement with the SEC within thirty-five
(35) Business Days of the date hereof. Buyer and the Sellers Representative will cooperate and consult with each other in the preparation of the Buyer Proxy Statement. Without limiting the generality of the foregoing, the Sellers
Representative will furnish to Buyer the information relating to the Sellers, the Company and the Company Subsidiaries required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Buyer Proxy Statement,
including but not limited to such financial and operating data, pro forma financial and operating data and other information relating to Gulf Houghton, the Company and the Company Subsidiaries as Buyer or its Representatives may request. Buyer shall
not file the Buyer Proxy Statement, or any amendment or supplement thereto, without providing the Sellers Representative a reasonable opportunity to review and comment thereon (which comments shall be considered by Buyer). Buyer shall use its
reasonable best efforts to resolve, and Buyer and the Sellers Representative each agree to consult and cooperate with each other in resolving, all SEC comments with respect to the Buyer Proxy Statement promptly after receipt thereof and to
cause the Buyer Proxy Statement in definitive form to be cleared by the SEC and delivered to the Buyers shareholders as promptly as reasonably practicable following filing with the SEC. Buyer shall consult with the Sellers Representative
before responding to SEC comments with respect to the preliminary Buyer Proxy Statement. The Sellers Representative and Buyer shall correct any information provided by it for use in the Buyer Proxy Statement which shall have become false or
misleading and, if determined by Buyer to be necessary or appropriate, Buyer shall promptly prepare and deliver to its shareholders an amendment or supplement setting forth such correction. Buyer shall as soon as reasonably practicable
(i) notify the Sellers Representative of the receipt of any comments from the SEC with respect to the Buyer Proxy Statement and any request by the SEC for any amendment to the Buyer Proxy Statement or for additional information and
(ii) provide the Sellers Representative with copies of all written correspondence between Buyer and its Representatives, on the one hand, and the SEC, on the other hand, with respect to the Buyer Proxy Statement.
(c) Sellers shall cooperate with Buyer in connection with (i) Buyers effort to obtain any required consent from Sellers
Accountants in connection with the inclusion of any financial or operating information of any Seller, the Company and any Company Subsidiary in any filings by Buyer under the Securities Act or the Exchange Act and (ii) Buyers effort to
prepare financial statements for any period commencing on or after the date of the Balance Sheet for inclusion by Buyer in any filing under the Securities Act or the Exchange Act.
56
(d) If the Charter Amendment is approved at the Buyer Shareholders Meeting, the Buyer shall take
all actions necessary to file the Charter Amendment with the Department of State of the Commonwealth of Pennsylvania at or prior to Closing. If the Charter Amendment is not approved at the Buyer Shareholders Meeting, the Buyer shall take all actions
necessary to file the Statement with Respect to Shares reflecting the terms of the Preferred Stock with the Department of State of the Commonwealth of Pennsylvania at or prior to Closing.
6.20 Financing Matters.
The Sellers shall, and shall cause each of the Company and any Company Subsidiary to, use commercially
reasonable efforts to provide the Buyer with all cooperation reasonably requested by the Buyer to assist it in causing the conditions in the Debt Financing Commitment to be satisfied or as is otherwise necessary or reasonably requested by the Buyer
in connection with the Debt Financing, including:
(a) participation by officers in a reasonable number of meetings (including
one-on-one), presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies and prospective lenders or investors and obtaining assistance from its accountants, including participating in a reasonable number of
drafting and accounting due diligence sessions, in each case in connection with the Debt Financing;
(b) assisting the Buyer and the Debt
Financing Sources with the timely preparation of customary rating agency presentations, marketing materials and information memoranda as may be required in connection with the Debt Financing;
(c) reasonably facilitate the pledging and mortgaging of collateral, including assisting with the preparation of security documents, other
definitive financing documents, and other certificates or documents and back-up therefor as may be reasonably requested by the Buyer or the Debt Financing Sources, and otherwise reasonably facilitating the pledging of collateral and the granting of
security interests in respect of the Debt Financing, provided that no obligation of any Seller, the Company or any Company Subsidiary under any agreement, document or pledge related to any of the Debt Financing shall be operative until the Closing;
(d) furnishing the Buyer and the Debt Financing Sources, as promptly as practicable, with customary and readily available financial and
other pertinent information relating to the Company and the Company Subsidiaries in respect of their businesses as may be reasonably requested by the Buyer;
(e) furnishing the Buyer and the Debt Financing Sources, as promptly as practicable, with financial and other pertinent information relating
to the Company and the Company Subsidiaries in respect of their businesses as may be reasonably requested by the Buyer;
(f) reasonably
cooperating with the Buyer to obtain customary and reasonable corporate and facilities ratings, consents, approvals, authorizations, non-invasive environmental assessments, legal opinions, surveys and title insurance as reasonably requested by the
Buyer;
(g) reasonably facilitating the pledging or the reaffirmation of the pledge of collateral (including obtaining and delivering any
pay-off letters and other cooperation in connection with the repayment or other retirement of existing indebtedness and the release and termination of any and all related liens) on or prior to the Closing Date, as well as cooperating to permit
prospective lenders involved in the Debt Financing to evaluate and assess the assets of the Company and the Company Subsidiaries for purposes of establishing collateral arrangements;
(h) delivering notices of prepayment within the time periods required by the relevant agreements governing indebtedness and obtaining
customary payoff letters, lien terminations and instruments of discharge to be delivered at the Closing, and giving any other necessary notices, to allow for the payoff, discharge and termination in full at the Closing of all indebtedness; and
57
(i) promptly and in any event at least ten (10) days before the Closing Date, furnishing the
Buyer and the Debt Financing Sources with all documentation and other information (to the extent reasonably requested by the Debt Financing Sources at least fifteen (15) days prior to the Closing Date) that is required by regulatory authorities
pursuant to applicable know your customer and anti-money laundering rules and regulations, including the Patriot Act.
Notwithstanding the foregoing, (A) nothing shall require such cooperation as described in
6.20
to the extent it would, in the
Companys reasonable judgment, materially interfere with the business or operations of the Company or its Subsidiaries and (B) neither the Company nor any of its Subsidiaries shall be required to, or be required to commit to,
(1) enter into or execute any agreement or document unless the effectiveness thereof shall be conditioned upon, or become operative after, the occurrence of the Closing, (2) until the Closing, take any corporate action (including any Board
approvals) in connection with the Debt Financing, (3) take any action that would result in any officer, director or other representative of the Company or any of its Subsidiaries incurring any personal liability with respect to any matters
relating to the Debt Financing, (4) until the Closing, deliver or cause the delivery of any legal opinions or any certificate as to solvency or any other certificate necessary for the Debt Financing or (5) until the Closing, deliver or
cause the delivery of any pro forma financial information or any financial information in a form not customarily prepared by the Company with respect to such period. All non-public or other confidential information provided by the Company or any of
its representatives pursuant to this
6.20
shall be kept confidential in accordance with the Confidentiality Agreement, except that the Buyer shall be permitted to disclose such information in accordance with the Debt Financing Commitments.
The Company shall be permitted a reasonable period to comment, on those portions of any confidential information memorandum, or other marketing document circulated to potential financing sources that contain or are based upon any such non-public or
other confidential information. None of the Company or any of its Subsidiaries shall be required to bear any cost or expense, pay any commitment or other similar fee or make any other payment or incur any other liability prior to the Closing or
provide or agree to provide any indemnity in connection with the Debt Financing or any of the foregoing matters described in
6.20
.
The Buyer shall reimburse the Company for its reasonable and documented out-of-pocket fees and expenses incurred pursuant to this
6.20
.
Notwithstanding anything to the contrary in this Agreement, the Buyer acknowledges and agrees that its obligation to consummate the
Closing is not conditioned upon any Debt Financing being made available to the Buyer. The Sellers hereby consent to the use of the Companys and the Company Subsidiaries logos in connection with the Debt Financing if such logos are used
solely in a manner that is not intended to or reasonably likely to harm or disparage the Company or the Company Subsidiaries or the reputation or goodwill of the Company or the Company Subsidiaries, subject to the Companys prior written
consent.
6.21 Employee Matters.
(a) Following the Closing Date and until the first (1
st
) anniversary of the Closing
Date (the
Continuation Period
), Buyer shall provide, or shall cause the Company to provide, the individuals who are employed by the Company or any Company Subsidiary immediately before the Closing Date (the
Company
Employees
) and who continue employment during such time period with (i) annual base compensation no less than the annual base compensation provided to such Company Employees immediately prior to the Closing Date and annual target cash
incentive amounts that are no less than the annual target cash incentive amounts provided to such Company Employees immediately prior to the Closing Date pursuant to annual incentive plans described in
6.21(a)
of the Sellers Disclosure
Letter, as such compensation and plans may be amended, extended or otherwise modified in compliance with
6.01
, (ii) severance benefits that are no less favorable than the severance benefits described in
6.21(a)
of the
Sellers Disclosure Letter pursuant to the severance plans described in
6.21(a)
of the Sellers Disclosure Letter, and (iii) other qualified plan or foreign retirement plan, welfare or fringe employee benefits that are
substantially comparable in the aggregate to the employee benefits provided to such Company Employees immediately prior to the Closing Date pursuant to such qualified or foreign retirement
58
plans, welfare and fringe employee benefits described in
6.21(a)
of the Sellers Disclosure Letter, as such plans and benefits may be amended, extended or otherwise modified in
compliance with
6.01
.
(b) Subject to
6.21(a)
, from and after the Closing Date, Buyer shall, or shall cause the Company to,
assume, honor and continue during the Continuation Period or, if later, until all obligations thereunder have been satisfied, all of the Companys and any Company Subsidiarys employment, retention, termination and change in control plans,
policies, programs, agreements and arrangements maintained by the Company or any Company Subsidiary, in each case, as in effect at the Closing Date and only to the extent they have been made available to Buyer prior to the date hereof, including
with respect to any payments, benefits or rights, such as employment termination or change in control payments, arising as a result of the transactions contemplated by this Agreement (either alone or in combination with any other event), without any
amendment or modification, other than any amendment or modification required to comply with applicable Law.
(c) With respect to all U.S.
Qualified Benefit Plans and welfare plans maintained by the Buyer, the Company or the Company Subsidiaries in which the Company Employees are eligible to participate after the Closing Date (including any vacation or paid time-off plans and severance
plans) for purposes of determining eligibility to participate and vesting, each Company Employees service with the Company or any of the Company Subsidiaries (as well as service with any predecessor employer of the Company or any such Company
Subsidiary, to the extent service with the predecessor employer is recognized by the Company or such Company Subsidiary) shall be treated as service with the Buyer, the Company or any of their respective subsidiaries, in each case, to the extent
such service would have been recognized by the Company or the Company Subsidiaries under analogous Benefit Plans prior to the Closing Date;
provided
,
however
, that such service need not be recognized to the extent that such recognition
would result in any duplication of benefits for the same period of service.
(d) Without limiting the generality of
6.21(a)
, Buyer
shall use commercially reasonable efforts to, or shall cause the Company to use commercially reasonable efforts to, waive any pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods under any welfare benefit
plan maintained by the Buyer, the Company or any of their respective subsidiaries in which Company Employees (and their eligible dependents) will be eligible to participate from and after the Closing Date, except to the extent that such pre-existing
condition limitations, exclusions, actively-at-work requirements and waiting periods would not have been satisfied or waived under the comparable Benefit Plan immediately prior to the Closing Date. Buyer shall use commercially reasonable efforts to,
or shall cause the Company to use commercially reasonable efforts to, recognize the dollar amount of all co-payments, deductibles and similar expenses incurred by each Company Employee (and his or her eligible dependents) during the calendar year in
which the Closing Date occurs for purposes of satisfying such years deductible and co-payment limitations under the relevant welfare benefit plans in which they will be eligible to participate from and after the Closing Date.
(e) For the avoidance of doubt and notwithstanding anything to the contrary herein, for purposes of any Benefit Plan containing a definition
of change in control or change of control, the Closing shall be deemed to constitute a change in control or change of control (except as would result in the imposition of additional Taxes
under Section 409A of the Code).
(f) The provisions of this
6.21
are solely for the benefit of the parties to this Agreement,
and no other Person (including any Company Employee or any beneficiary or dependent thereof) shall be regarded for any purpose as a third-party beneficiary of this
6.21
, and no provision of this
6.21
shall create such rights in any
such Persons. No provision of this Agreement shall be construed (i) as a guarantee of continued employment of any Company Employee, (ii) to prohibit the Buyer or the Company from having the right to terminate the employment of any Company
Employee, (iii) to prevent the amendment, modification or termination of any Benefit Plan after the Closing (in each case in accordance with the terms of the applicable Company Benefit Plan) or (iv) as an amendment or modification of the
terms of any Benefit Plan.
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6.22 Pre-Closing Check-the-Box Elections.
Prior to the Closing Date (i) GHG
Lubricants Holdings Ltd. or GHGL London Ltd. shall execute a properly completed IRS Form 8832 electing to have GHG Lubricants Holdings Ltd. treated as a disregarded entity for U.S. federal income tax purposes, effective before the close of the day
before the Closing Date, and (ii) each of the Sellers (either directly or through a duly authorized representative) shall execute a properly completed IRS Form 8832 electing to have the Company treated as a partnership for U.S. federal income
tax purposes effective immediately after the election described in (i) and also before the close of the day before the Closing Date. The IRS Forms 8832 described in (i) and (ii) will be delivered in escrow to Buyer prior to the
Closing Date, and shall only be filed by Buyer after the Closing Date (provided that Buyer shall also execute the IRS Form 8832 described in clause (ii) prior to filing). Buyer shall deliver to Sellers Representative: (a) evidence of
the filing of the IRS Forms 8832 described in clauses (i) and (ii) promptly after such filing and (b) a copy of the IRS notification confirming approval of the elections as soon as reasonably practicable following receipt.
6.23 Registration for Management Sellers
.
Within thirty (30) days following the Closing, Buyer shall file a
registration statement with the SEC to register for sale the Shares issued to the Management Sellers hereunder in accordance with Exhibit J attached hereto.
6.24 Bonuses
.
Following the Closing, Buyer shall cause the Company or a Company Subsidiary, as the case may be, to pay
bonuses (including stay bonuses, transaction bonuses or similar bonuses), severance payments, retention payments and other change-of-control payments payable to any officer, employee or director of the Company or any of its Subsidiaries in
connection with this Agreement or upon the consummation of the transactions contemplated hereby (together with the employer-portion of any payroll, employment or similar Taxes owning with respect thereto), in each case, to the extent set forth on
6.24
of the Sellers Disclosure Letter.
6.25 Transfers
.
From the date hereof until the termination of
this Agreement, no Seller shall offer, sell, contract to sell, transfer, pledge or otherwise dispose of any Shares, except to Buyer or its Affiliates at the Closing.
6.26 Shareholder Approval of Parachute Payments
.
(a) Following the signing of this Agreement, the Company shall use its best efforts to obtain executed and effective waivers, in a
form reasonably acceptable to Buyer, from any individuals who are disqualified individuals (as defined in Section 280G(c) of the Code) of the Company and who would reasonably be expected to receive in connection with the
consummation of the transactions contemplated hereby (either alone or in conjunction with any other event) any parachute payment (within the meaning of Section 280G of the Code) that is subject to the imposition of an excise Tax
under Section 4999 of the Code or that would not be deductible by reason of Section 280G of the Code of an amount of such parachute payments sufficient to reduce such individuals aggregate parachute payments to an amount that is less
than three (3) times such individuals base amount (within the meaning of Section 280G of the Code and the regulations thereunder) (the
280G Waivers
).
(b) Following the delivery by the Company to Buyer of each of the executed 280G Waivers (if the Company was able to obtain such waivers)
described in
6.26(a)
and following the disclosure of any information from Buyer required pursuant to but prior to the Closing Date, the Company shall submit to its shareholders for approval, in a manner that complies with the approval
requirements of Section 280G(b)(5)(B) of the Code and the regulations thereunder and is reasonably satisfactory to Buyer, any payments and/or benefits that separately or in the aggregate, could reasonably be expected to be deemed to constitute
parachute payments (within the meaning of Section 280G of the Code and the regulations promulgated thereunder) for which an executed 280G Waiver was obtained or for which no waiver is necessary, such that upon obtaining such
approval of the Company shareholders such payments and benefits would not be deemed to be parachute payments under Section 280G of the Code. In addition, the Company shall deliver to Buyer evidence reasonably satisfactory to Buyer
that either (i) a vote of the Company shareholders was solicited in conformance with the requirements of Section 280G(b)(5)(B) of the Code and the regulations promulgated thereunder, and the requisite approval of the
60
shareholders was obtained with respect to any payments and/or benefits that were subject to the vote of the Company shareholders (the 280G Approval) or (ii) the 280G Approval was
not obtained and as a consequence, that such parachute payments shall not be made or provided pursuant to the 280G Waivers.
(c) To the extent not already provided, Buyer as reasonably requested by the Company shall promptly provide the Company and its counsel, in
writing, with all relevant terms of any employment contracts or other arrangements that Buyer intends to enter into with the disqualified individuals (as defined in Section 280G(c) of the Code) of the Company on or around the
Closing Date that include any such terms that could reasonably be expected to result in payments and other terms (including, but not limited to, rights to severance or signing bonuses) that need to be approved (or disclosed) to ensure the disclosure
to the Company shareholders and the approval described in
6.26(b)
is valid.
6.27 Further Assurances.
Following the Closing,
each of the parties hereto shall, and shall cause their respective Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the transactions contemplated by this Agreement.
ARTICLE VII
Tax Matters
7.01 Tax
Covenants.
(a) All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement and the other Transaction Documents (including any real property transfer Tax and any other similar Tax) shall be borne and paid 50% by the Sellers and 50% by the Buyer when due. The
Buyer shall, 50% at the Buyers expense and 50% at the Sellers expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Sellers Representative shall cooperate with respect thereto as necessary).
(b) Without duplication, Sellers shall indemnify the Company, the Company Subsidiaries, Buyer, and each Buyer Indemnitee and hold them
harmless from and against any Loss attributable to any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in
ARTICLE VII
. Sellers shall reimburse Buyer for any Taxes of the Company and any
Company Subsidiary that are the responsibility of Sellers pursuant to this
7.01
within ten (10) Business Days after payment of such Taxes by Buyer, the Company or the Company Subsidiary. Buyer shall not, and shall not cause the Company
or a Company Subsidiary to, amend any Tax Return of the Company or a Company Subsidiary filed before the date of this Agreement without the consent of the Sellers Representative (which shall not be unreasonably withheld, conditioned or
delayed) except to the extent necessary to claim the carryback of a loss or other tax attribute from a tax period beginning after the Balance Sheet Date.
(c) The obligations of the Sellers in this
7.01
shall be borne by the Sellers pro rata in accordance with the proportion of the
Purchase Price allocated to each such Seller in accordance with the Allocation Certificate.
7.02 Contests.
Buyer agrees to give
written notice to the Sellers Representative of the receipt of any written notice by the Company, any Company Subsidiary, Buyer or any of Buyers Affiliates which involves the assertion of any claim for which an indemnity will be sought
by Buyer pursuant to this
ARTICLE VII
(a
Tax Claim
);
provided, that
failure to comply with this provision shall not affect Buyers right to indemnification hereunder except and only to the extent
that Sellers forfeit material rights or defenses by reason of such failure. The Sellers Representative may, at the Sellers own expense, participate in and assume the defense of any Tax Claim; provided, however, that the Sellers
Representative acknowledges in writing the Sellers responsibility to indemnify and hold harmless the Buyer Indemnitees with respect to all Taxes at issue in such Tax Claim. If the
61
Sellers Representative assumes such defense, the Sellers Representative shall control all proceedings taken in connection with such Tax Claim (including selection of counsel) and may,
in its reasonable discretion, pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any Taxing authority with respect thereto, and may, in its reasonable discretion, either pay the Tax claimed and sue for
refund where applicable law permits such refund suits or contest the tax claim in any permissible manner;
provided, however
, that (i) Buyer shall have the right to participate in any such Tax Claim and the Sellers Representative
shall provide Buyer with copies of all written communications relating to the Tax Claim, (ii) the Sellers Representative shall keep Buyer informed regarding the progress of such Tax Claim and consult with Buyer with respect to any issue
that could have an adverse effect on Buyer, the Company or any Company Subsidiary and (iii) the Sellers Representative shall not settle or otherwise resolve any Tax Claim (or any issue raised in any Tax Claim) without the prior written
consent of Buyer (which consent shall not be unreasonably withheld or delayed).
7.03 Cooperation and Exchange of
Information
.
The Sellers Representative and Buyer shall provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return pursuant to this
ARTICLE VII
or
in connection with any audit or other proceeding in respect of Taxes of the Company or any Company Subsidiary. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying
schedules, related work papers and documents relating to rulings or other determinations by tax authorities. Each of the Sellers and Buyer shall retain all Tax Returns, schedules and work papers, records and other documents in its possession
relating to Tax matters of the Company and the Company Subsidiaries for any taxable period beginning before the Closing Date until the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents
relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods.
7.04 Overlap
.
To the extent that any obligation or responsibility pursuant to
ARTICLE IX
may overlap with an obligation
or responsibility pursuant to this
ARTICLE VII
, the provisions of this
ARTICLE VII
shall govern.
ARTICLE VIII
Conditions to Closing
8.01 Conditions to Obligations of All Parties
.
The obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or before the Closing, of each of the following conditions:
(a) All necessary and
material filings and notices required to be made before Closing under the Antitrust Laws shall have been made and any applicable and mandatory waiting period or other time periods (including any extensions thereof) under such legislation or
regulation in any such jurisdiction shall have expired or been terminated, all other material obligations under the Antitrust Laws having been complied with in each case in connection with the transactions contemplated by this Agreement, and all
material authorizations, consents or approvals necessary under the Antitrust Laws in any jurisdiction for or in respect of the transactions contemplated by this Agreement shall have been obtained from all appropriate Governmental Authorities in each
such jurisdiction and all such authorizations, consents or approvals shall remain in full force and effect and there shall be no notice of any intention to revoke, suspend, or adversely restrict or modify any of the same.
(b) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Order which is in effect and has the effect of
making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.
62
8.02 Conditions to Obligations of Buyer
.
The obligations of Buyer to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment or Buyers waiver, at or before the Closing, of each of the following conditions:
(a) The representations and warranties of each Seller and the Company contained in this Agreement, the other Transaction Documents and any
certificate or other writing delivered pursuant hereto shall have been true and correct in all material respects as of the date hereof and in all material respects as of the Closing Date (except for representations and warranties made as of a
specified date, which shall have been true and correct as of the specified date);
provided
,
that
the representations and warranties of the Sellers and the Company contained in
3.03 (Ownership of Shares)
,
4.01
(Organization, Authority and Qualification of the Company)
,
4.02 (Capitalization)
and
4.03(a)4.03(c) (Subsidiaries)
shall be true and correct as of the Closing Date in all respects (except for representations and warranties
made in 4.02(a), which shall have been true and correct as of the date hereof).
(b) Each Seller shall have duly performed and complied in
all material respects with all agreements, covenants and conditions required by this Agreement and each of the other Transaction Documents to be performed or complied with by it before or on the Closing Date.
(c) No Action shall have been commenced by any Governmental Authority against Buyer, or (other than by Buyer) against any Seller or the
Company or any Company Subsidiary and be pending, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated
hereby.
(d) All Required Consents shall have been received, and executed counterparts thereof shall have been delivered to Buyer at or
before the Closing.
(e) From the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event
or events have occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material Adverse Effect.
(f) Each of the Sellers Representative and the Escrow Agent shall have delivered, or caused to be delivered, to Buyer and the Escrow
Agent a duly executed counterpart to the Escrow Agreement.
(g) Each of Gulf Houghton, Gulf Oil International, Ltd. and Gulf Oil
Corporation, Ltd. shall have delivered, or caused to be delivered, to Buyer a duly executed counterpart to the Shareholder Agreement.
(h)
Each of Gulf Houghton, Gulf Oil International, Ltd., Gulf Oil Corporation, Ltd. and Gulf Oil Lubricants India, Ltd. shall have delivered, or caused to be delivered, to Buyer a duly executed counterpart to the Non-Competition and Non-Solicitation
Agreement.
(i) Buyer shall have received a certificate on behalf of all Sellers, dated the Closing Date and signed by a duly authorized
officer of the Sellers Representative, that each of the conditions set forth in
8.02(a)
and
8.02(b)
have been satisfied.
(j) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Gulf Houghton certifying
that attached thereto are true and complete copies of all resolutions adopted by the board of directors (or equivalent governing body) of Gulf Houghton authorizing the execution, delivery and performance of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions contemplated hereby and thereby.
(k) Buyer shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Gulf Houghton
certifying the names and signatures of the officers of Gulf Houghton authorized to sign
63
this Agreement, the other Transaction Documents and the other documents to be delivered hereunder and thereunder.
(l) Buyer shall have received executed resignations of the directors and officers of the Company to the extent required pursuant to
6.07
.
(m) The Sellers Representative shall have delivered to Buyer a good standing certificate (or its equivalent) for the
Company and each Company Subsidiary from the Governmental Authority of the jurisdiction under the Law in which the Company or such Company Subsidiary is organized.
(n) [Intentionally Omitted]
(o) The Sellers Representative shall have delivered to Buyer the Option Cancellation Agreement substantially in the form attached hereto
as
Exhibit H
duly executed by the Company and each Optionholder.
(p) The Sellers Representative shall have delivered to
Buyer the SAR Cancellation Agreement substantially in the form attached hereto as
Exhibit I
duly executed by the Company and each SAR Holder.
(q) The Buyer Shareholder Approval shall have been obtained with respect to the issuance of the Stock Consideration to the Sellers.
(r) Buyer shall have received an executed statement and IRS notice in accordance with Treasury Regulation Sections 1.897-2(h) and
1.1445-2(c)(3) certifying that interests in GH Holdings Inc. are not United States real property interests.
(s) Buyer shall
have received the properly completed and executed IRS Forms 8832 for the Company and GHG Lubricants Holdings Ltd described in
6.22
.
(t) Buyer shall have duly received all deliverables pursuant to
2.03(b)
.
(u) The Sellers shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests in connection with the
transactions contemplated by this Agreement.
8.03 Conditions to Obligations of the Sellers
.
The obligations of each Seller
to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or such Sellers waiver, at or before the Closing, of each of the following conditions:
(a) The representations and warranties of Buyer contained this Agreement, the other Transaction Documents and any certificate or other writing
delivered pursuant hereto shall have been true and correct in all material respects as of the date hereof and in all material respects as of the Closing Date (except for representations and warranties made as of a specified date, which shall have
been true and correct as of the specified date);
provided
,
that
the representations and warranties of Buyer contained in
5.01 (Organization and Authority of Buyer)
and
5.05 (Capitalization)
shall be true and correct as of
the Closing Date in all respects (except for representations and warranties made in
5.05(a)
, which shall have been true and correct as of the date hereof).
(b) Buyer shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this
Agreement and each of the other Transaction Documents to be performed or complied with by it before or on the Closing Date.
(c) No
injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.
64
(d) All approvals, consents and waivers that are referenced in
5.02
shall
have been received, and executed counterparts thereof shall have been delivered to the Sellers Representative at or before the Closing, and the Buyer Shareholder Approval shall have been obtained with respect to the issuance of the Stock
Consideration to the Sellers;
provided
,
however
, that the Closing shall not be contingent upon the approval by Buyers shareholders of the Charter Amendment.
(e) From the date of this Agreement, there shall not have occurred any Buyer Material Adverse Effect, nor shall any event or events have
occurred that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Buyer Material Adverse Effect.
(f) Each of Buyer and the Escrow Agent shall have delivered, or caused to be delivered, to the Sellers Representative and the Escrow
Agent a duly executed counterpart to the Escrow Agreement.
(g) Buyer shall have delivered, or caused to be delivered, to the
Sellers Representative a duly executed counterpart to the Shareholder Agreement.
(h) Buyer shall have delivered, or caused to be
delivered, to the Sellers Representative a duly executed counterpart to the Non-Competition and Non-Solicitation Agreement.
(i) The
Sellers Representative shall have received a certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions set forth in
8.03(a)
and
8.03(b)
have been satisfied.
(j) The Sellers Representative shall have received a certificate of the Secretary or an Assistant Secretary (or equivalent officer) of
Buyer certifying that attached thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing (A) the execution, delivery and performance of this Agreement and the other Transaction Documents and
the consummation of the transactions contemplated hereby and thereby, (B) (i) an increase in the size of Buyers board of directors from nine individuals to 12 and (ii) the appointment of the Sellers Representatives
three designees for election to Buyers board of directors (or, if Buyer and Sellers Representative mutually agree, to appoint two of the designees of the Sellers Representative to two of nine positions on Buyers board of
directors), each to serve on a different class of Buyers board of directors effective as of Closing, and (C) that all such resolutions are in full force and effect and are all the resolutions adopted in connection with the transactions
contemplated hereby.
(k) The Sellers Representative shall have received a certificate of the Secretary or an Assistant Secretary
(or equivalent officer) of Buyer certifying the names and signatures of the officers of Buyer authorized to sign this Agreement, the other Transaction Documents and the other documents to be delivered hereunder and thereunder.
(l) [Intentionally Omitted]
(m) The Sellers shall have duly received all deliverables pursuant to
2.03(a)
.
(n) Buyer shall have delivered to the Sellers Representative such other documents or instruments as the Sellers reasonably request in
connection with the transactions contemplated by this Agreement.
ARTICLE IX
Indemnification
9.01
Survival
.
Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the Closing and shall remain in full force and effect until the date that is eighteen
(18) months from the Closing Date;
provided, that
(a) the Fundamental Representations shall survive for
65
the full period of the longest applicable statute of limitations (giving effect to any waiver, mitigation or extension thereof required by law) and (b) the representations and warranties in
4.18 (Environmental Matters), 4.21 (Taxes)
,
4.07(s)
or in
4.19(p)
or
4.19(q)
(to the extent those Sections relate to Taxes) shall survive until the date that is thirty-six (36) months from the Closing Date. Except as
otherwise provided in this Agreement, all covenants and agreements of the parties contained herein shall survive the Closing until performed in accordance with their terms;
provided
,
however
, that neither the Buyer Indemnitees nor the
Seller Indemnitees shall have a right to recover any amounts pursuant to
9.02(b)
or
9.03(b)
(as applicable) unless the Buyer notifies the Sellers Representative or the Sellers Representative notifies the Buyer (as the case
may be) in writing of a claim under
9.02(b)
or
9.03(b)
(as applicable), in accordance with the provisions of
9.05
,
as follows:
(a) with
respect to any covenant or agreement required to be performed in
this Agreement on or before the Closing, such claim is delivered within one (1) year after the Closing, and (b) with respect to any such covenant required to be performed in this Agreement after the Closing, such claim is delivered within
one (1) year from the date the performance under such covenant or agreement was required to be completed. Notwithstanding the foregoing, any claims asserted in writing and by notice in accordance with
9.05
from the non-breaching party to
the breaching party before the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.
9.02 Indemnification by the Sellers, Optionholders and SAR Holders
.
Subject to the other terms and conditions of this
ARTICLE
IX
,
the Sellers and, to the extent of the Indemnification Escrow Amount, the Optionholders and SAR Holders, shall severally (in accordance with the proportion of the Purchase Price allocated to such Seller, Optionholder and SAR Holder
pursuant to the Allocation Certificate), and not jointly, indemnify and defend each of Buyer and its Affiliates (including, after the Closing, the Company, and the Company Subsidiaries) and their respective Representatives (collectively, the
Buyer Indemnitees
) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses actually incurred or sustained by, or imposed upon, the Buyer Indemnitees based
upon, arising out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of any
Seller or the Company contained in this Agreement, any Transaction Document or in any certificate or instrument delivered by or on behalf of any Seller pursuant to this Agreement, in each case, as of the date hereof or as of the Closing;
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by any Seller pursuant to this Agreement (other
than any breach or violation of, or failure to fully perform, any covenant, agreement, undertaking or obligation in
ARTICLE VII
, it being understood that the sole remedy for any such breach, violation or failure shall be pursuant to
ARTICLE VII
);
provided
,
however
, that no Seller shall be required to indemnify, defend, hold harmless, pay or reimburse any Buyer Indemnitee with respect to a breach or non-fulfillment of any covenant, agreement or obligation
made or to be performed by another Seller pursuant to this Agreement; or
(c) any calculation or other manifest errors of the Company in
connection with the Companys calculations, prior to the Closing, of the Allocation Certificate.
9.03 Indemnification by
Buyer
.
Subject to the other terms and conditions of this
ARTICLE IX
, Buyer shall indemnify and defend each Seller and each of their Affiliates and their respective Representatives (collectively, the
Seller
Indemnitees
) against, and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses actually incurred or sustained by, or imposed upon, the Seller Indemnitees based upon, arising
out of, with respect to or by reason of:
(a) any inaccuracy in or breach of any of the representations or warranties of Buyer contained
in this Agreement, any Transaction Document or in any certificate or instrument delivered by or on behalf of Buyer pursuant to this Agreement, in each case, as of the date hereof or as of the Closing; or
66
(b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by
Buyer pursuant to this Agreement (other than
ARTICLE VII
,
it being understood that the sole remedy for any such breach thereof shall be pursuant to
ARTICLE VII
)
.
9.04 Certain Limitations
.
The indemnification provided for in
9.02
and
9.03
shall be subject to the following
limitations, it being understood that the provisions set forth in this Section 9.04 shall not in any way expand the obligations of any of the parties set forth in Section 9.02 or 9.03:
(a) No Buyer Indemnitee shall make an indemnity claim under
9.02(a)
(other than in respect of Losses that arise from any inaccuracy in
or breach of any Fundamental Representation or the representations and warranties contained in
4.21 (Taxes)
,
4.07(s)
,
4.19(p)
or
4.19(q)
to the extent those provisions relate to Taxes) with respect to any individual
occurrence unless and until the aggregate amount of Losses suffered by the Buyer Indemnitee arising from such occurrence or series of related occurrences exceeds or may reasonably be expected to exceed $400,000. The Sellers, Optionholders and SAR
Holders shall not be liable to the Buyer Indemnitees for indemnification under
9.02(a)
(other than in respect of Losses that arise from any inaccuracy in or breach of any Fundamental Representation or the representations and warranties
contained in
4.21
(Taxes)
,
4.07(s)
,
4.19(p)
or
4.19(q)
to the extent those provisions relate to Taxes) until the aggregate amount of all Losses in respect of indemnification under
9.02(a)
exceeds $5,000,000
(the
Deductible Amount
), in which event the Sellers, Optionholders and SAR Holders shall be required to pay or be liable for all such Losses in excess of the Deductible Amount, subject to the terms of this
ARTICLE IX
.
(b) No Seller Indemnitee shall make an indemnity claim under
9.03(a)
(other than in respect of Losses that arise from any inaccuracy in
or breach of any Fundamental Representation) with respect to any individual occurrence unless and until the aggregate amount of Losses suffered by the Seller Indemnitee arising from such occurrence or series of related occurrences exceeds or may be
reasonably expected to exceed $400,000. Buyer shall not be liable to the Seller Indemnitees for indemnification under
9.03(a)
(other than in respect of Losses that arise from any inaccuracy in or breach of any Fundamental Representation)
until the aggregate amount of all Losses in respect of indemnification under
9.03(a)
exceeds the Deductible Amount, in which event Buyer shall be required to pay or be liable for all such Losses in excess of the Deductible Amount.
(c) Subject to
9.04(d)
,
the aggregate amount of all Losses for which the Sellers, Optionholders and SAR Holders shall be liable
pursuant to
9.02(a)
shall not exceed an amount equal to the Indemnification Escrow Amount (the
Cap
) and the aggregate amount of all Losses for which Buyer shall be liable pursuant to
9.03(a)
shall not exceed the Cap.
(d) Notwithstanding the foregoing, the limitations set forth in
9.04(c)
shall not apply to Losses that arise from any inaccuracy
in or breach of any Fundamental Representation;
provided
,
that
, the aggregate amount of all Losses for which (i) the Sellers, Optionholders and SAR Holders shall be liable pursuant to this Agreement shall not exceed an amount
equal to the Purchase Price, (ii) the Optionholders and SAR Holders shall be liable pursuant to this Agreement shall not exceed an amount equal to the Cap and (iii) the Buyer shall be liable pursuant to this Agreement shall not exceed the
Purchase Price.
(e) For purposes of this
ARTICLE IX
,
if it is determined that an Indemnified Party is entitled to recover
Losses arising out of any inaccuracy in or breach of any representation or warranty set forth herein, all qualifications as to materiality, Material Adverse Effect, Buyer Material Adverse Effect or other similar qualification shall be disregarded
for the purpose of the calculation of Losses that resulted from any such breach of such representation or warranty.
(f) Notwithstanding
anything to the contrary elsewhere in this Agreement, no party shall, in any event, be liable to any other Person for (i) any consequential, incidental or indirect Losses, except to the extent such Losses are either reasonably foreseeable or
payable by a Buyer Indemnitee to a Person other than a Buyer Indemnitee or by a Seller Indemnitee to a Person other than a Seller Indemnitee or (ii) special or punitive Losses,
67
except to the extent that such Losses are payable by a Buyer Indemnitee to a Person other than a Buyer Indemnitee or by a Seller Indemnitee to a Person other than a Seller Indemnitee.
(g) The Buyer Indemnitees shall not be entitled to indemnification for any Losses to the extent a Liability with respect to such Loss was
specifically reserved against and reflected on the Financial Statements, unless such liability exceeds the amount of such reserve, which shall be the Sellers, Optionholders and SAR Holders responsibility, subject to the terms of
this Agreement.
(h) Notwithstanding any other provision of this Agreement to the contrary, except (i) in the case of fraud or
(ii) with respect to any Fundamental Representation, each Sellers, Optionholders and SAR Holders maximum aggregate indemnification liability pursuant to
9.02(a)
shall be such Sellers, Optionholders and SAR
Holders share of the Indemnification Escrow Amount; provided that the foregoing remains subject to
9.04(d)
. The sole and exclusive recourse for any amount finally determined to be owed in respect of any indemnity obligations pursuant to
9.02(a)
(except (i) in the case of fraud or (ii) with respect to any Fundamental Representation) shall be the Indemnification Escrow Amount.
(i) The Seller Indemnitees shall not make any claim for contribution from the Company or any Company Subsidiary or any of their respective
officers, directors, members, managers or employees with respect to any indemnity claims arising under or in connection with this Agreement to the extent that any Indemnified Party is entitled to indemnification hereunder for such claim. The Seller
Indemnitees hereby waive any such right of contribution from the Company, any Company Subsidiary and any of their respective officers, directors, members, managers or employees they have or may have in the future. The Seller Indemnitees further
agree not to make, directly or indirectly, and hereby waive, any claim for indemnification against the Company or any Company Subsidiary by reason of the fact that the Seller Indemnitees or any of their Affiliates or Representatives was a member,
manager, officer, director, employee or agent of the Company or a Company Subsidiary (whether such claim is for Losses or otherwise and whether such claim is pursuant to any Law, organizational document, Contract or otherwise) with respect to any
Action brought by a Buyer Indemnitee against any Seller, Optionholder or SAR Holder or any Affiliate or Representative thereof (whether such claim is pursuant to this Agreement or otherwise).
(j) The Sellers, Optionholders and SAR Holders shall have no obligation to indemnify any Buyer Indemnitee with respect to any breach of the
representations in Section
4.18
to the extent (i) arising out of any sampling of soil, groundwater, soil vapor or other environmental media at the Real Property by Buyer, except as required under Environmental Laws or by any
Governmental Authority; (ii) arising out of the intentional encouragement by Buyer of any Action by any Governmental Authority or any other Person; (iii) arising out of any change of use of the Real Property after the Closing Date;
(iv) arising out of any Response, Removal or Remedial Action that is not conducted to eliminate or control any risk from the presence or Release of Hazardous Substances consistent with the least stringent applicable remediation standard
acceptable to the relevant Governmental Authority; (v) arising out of the management of any building component that contains or is covered with any Hazardous Substance in compliance with Environmental Laws; (vi) Losses are incurred to
replace, repair, improve, or upgrade any building, structure, plant, or equipment, unless such activity is required or is undertaken as a necessary part of any Response, Removal, or Remedial Action; or (vii) arising out of any change in
Environmental Law after the Closing Date. In connection with any site remediation, the least stringent applicable remediation standard shall include the use of reasonable deed restrictions and engineering controls to limit exposure to
contaminants that are allowed to remain in place, to the extent such restrictions or controls would not interfere with site operations and are acceptable to the relevant Governmental Entity. It is understood that sampling or other testing of soil,
groundwater, soil vapor or other environmental media at the Real Property may be required under Environmental Law or by any Governmental Authority in connection with a capital improvement, repair, routine maintenance or operating activities.
68
9.05 Indemnification Procedures
.
The party making a claim under this
ARTICLE
IX
is referred to as the Indemnified Party, and the party against whom such claims are asserted under this
ARTICLE IX
is referred to as the
Indemnifying Party
.
(a)
Third Party Claims
. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any
Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a
Third Party Claim
) against such Indemnified Party with respect to which the Indemnifying Party is
obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party prompt written notice thereof, but in any event not later than twenty (20) days after receipt of such notice of such Third Party
Claim. The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that, as a result of such failure, the Indemnifying Party forfeits material
rights or defenses, was deprived of its right to recover any material payment under its applicable insurance coverage, or was otherwise materially prejudiced, in each case, by reason of such failure. Such notice by the Indemnified Party shall
describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably calculable, of the Loss that has been or may be sustained by the Indemnified
Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Partys expense and by the Indemnifying Partys
own counsel (reasonably acceptable to the Indemnified Party), and the Indemnified Party shall cooperate in good faith in such defense;
provided
,
that
if the Indemnifying Party is any Seller, Optionholder or SAR Holder such Indemnifying
Party shall not have the right to defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Company or any Company Subsidiary, or (y) seeks
relief other than solely the payment of money damages against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third Party Claim, subject to
9.05(b)
, it shall have the right to take such action as it
deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. If the Indemnifying Party elects not to compromise or defend such Third Party Claim,
fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to
9.05(b)
, pay,
compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim. The Indemnified Party shall have the right to participate in the defense of any Third Party
Claim with counsel selected by it subject to the Indemnifying Partys right, subject to
9.05(b)
, to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified Party. The
Sellers Representative and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available (subject to
6.08
) records relating to such Third Party Claim
and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party
Claim.
(b)
Settlement of Third Party Claims
. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall
not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this
9.05(b)
. If a firm offer is made to settle a Third Party Claim without leading to Liability or the
creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all Liabilities and obligations in connection with such Third Party Claim
and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party fails to consent to such firm offer within ten (10) days
after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum Liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such
settlement offer. If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle
such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to
9.05(a)
, it shall
69
not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed).
(c)
Direct Claims
. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a
Direct Claim
) shall be asserted by the Indemnified Party giving the Indemnifying Party written notice thereof. The failure to give such written notice shall not, however, relieve the Indemnifying Party of its indemnification
obligations, except and only to the extent that, as a result of such failure, the Indemnifying Party forfeits material rights or defenses, was deprived of its right to recover any material payment under its applicable insurance coverage, or was
otherwise materially prejudiced, in each case, by reason of such failure. Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the
estimated amount, if reasonably calculable, of the Loss that has been or may be sustained by the Indemnified Party. The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim.
The Indemnified Party shall allow the Indemnifying Party and its Representatives to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim
and the Indemnified Party shall assist the Indemnifying Partys investigation by giving such information and assistance (including access to the Companys or Company Subsidiarys, as applicable, premises and personnel and the right to
examine and copy any accounts, documents or records) as the Indemnifying Party or any of its Representatives may reasonably request. If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall
be deemed to have rejected such claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
(d)
Tax Claims
. Notwithstanding any other provision of this Agreement, the control of any claim, assertion, event or proceeding in
respect of Taxes of the Company and the Company Subsidiaries (including, but not limited to, any such claim in respect of a breach of the representations and warranties in
4.21 (Taxes)
hereof or any breach or violation of or failure to fully
perform any covenant, agreement, undertaking or obligation in
ARTICLE VII
)
shall be governed exclusively by
ARTICLE VII
hereof.
9.06 Payments
.
Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this
ARTICLE IX
:
(a) the Indemnifying Party shall satisfy its obligations within ten (10) Business Days of such agreement or
final, non-appealable adjudication by wire transfer of immediately available funds in accordance with the Escrow Agreement, if applicable; and
(b) if such Loss is payable from the Indemnification Escrow Funds, Buyer and the Sellers Representative shall deliver to the Escrow
Agent a Joint Written Instruction instructing the Escrow Agent that the payment in respect of such Loss shall be comprised of cash and Stock Consideration in the same proportion as the value of the cash and Stock Consideration comprising the
Indemnification Escrow Funds immediately prior to such payment (with the value of a share of such Stock Consideration being equal to, for this purpose, the volume-weighted trading average of a share of Buyer Common Stock (regardless of whether such
Stock Consideration consists of Buyer Common Stock or preferred stock) for the ten (10) trading days prior to the date on which such Loss is to be paid).
9.07 Tax Treatment of Indemnification Payments
.
All indemnification payments made under this Agreement or the Escrow Agreement
shall be treated by the parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
9.08
Exclusive Remedies
.
Subject to
11.11
, the parties acknowledge and agree that their exclusive remedy with respect to any and all claims (other than claims arising from fraud on the part of a party hereto in connection with the
transactions contemplated by this Agreement) for any breach of any representation, warranty, covenant,
70
agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in
ARTICLE VII
and
this
ARTICLE IX
. In furtherance of the foregoing, each party hereby waives any and all rights, claims and causes of action in connection with any breach of any representation, warranty, covenant, agreement or obligation set forth herein or
otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their Affiliates and each of their respective Representatives arising under or based upon any Law (including any Environmental Law), except
pursuant to the indemnification provisions set forth in
ARTICLE VII
and this A
RTICLE IX
. Nothing in this 9.08 shall limit any Persons right to seek and obtain any equitable relief to which any Person shall be entitled or to seek
any remedy on account of any partys fraud. The Indemnifying Party and the Indemnified Party shall reasonably cooperate with each other with respect to resolving any claim or liability with respect to which Party is obligated to indemnify the
other Party hereunder. In furtherance of the foregoing, the Indemnified Parties shall take, and shall cause each of their respective Affiliates to take, all commercially reasonable steps to mitigate any Losses upon becoming aware of any event that
would reasonably be expected to, or does, give rise to Losses.
9.09 Indemnification Escrow Period.
Buyer and the Sellers
Representative shall deliver a Joint Written Instruction to the Escrow Agent on the date that is twelve (12) months after the Closing Date and on the date that is eighteen (18) months after the Closing Date, in each case, in accordance
with the Escrow Agreement.
9.10 Insurance Proceeds.
The amount of Losses recoverable by an Indemnified Party pursuant to this
Article IX
with respect to an indemnity claim shall be reduced by the amount of insurance proceeds or other amounts actually recovered by such Indemnified Party with respect to the Losses to which such indemnity claim relates, net of any
expenses related to the receipt of such payment, including retrospective premium adjustments, if any, occasioned by such Losses; and (b) any Tax Benefit actually realized by the Indemnified Party in the taxable period in which the Losses
occurred or in the taxable period immediately thereafter. For purposes of this Agreement, a
Tax Benefit
means the actual reduction of Tax liabilities (calculated on the basis of the actual reduction in cash payments for
Taxes) from an increase in deductions, losses or tax credits or decrease in the income, gain or recapture of tax credits that the Indemnified Party or any subsidiary or other affiliated entity thereof actually reported or took into account (other
than by way of any increase in basis). Notwithstanding anything to the contrary, if the Tax Return for the taxable period in which the Losses occurred has yet to be filed at the time that an indemnity payment is to be made, the amount of the Loss
recoverable by an Indemnified Party pursuant to this
Article IX
with respect to an indemnity claim shall not be reduced by the amount of any Tax Benefit; and, instead, the Indemnified Party shall pay to the Indemnifying Party the amount of
such Tax Benefit within five (5) Business Days after the filing of the Tax Return for the taxable period in which the Tax Benefit is actually realized.
ARTICLE X
Termination
10.01 Termination.
This Agreement may be terminated at any time before the Closing:
(a) by the mutual written consent of the Sellers Representative and Buyer;
(b) by Buyer by written notice to the Sellers Representative if:
(i) Buyer is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or
failure to perform any representation, warranty, covenant or agreement made by any Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in
ARTICLE VIII
and such breach, inaccuracy or failure
has not been cured by such Seller within ten (10) days of such Sellers receipt of written notice of such breach from Buyer; or
(ii) any of the conditions set forth in
8.01
or
8.02
shall not have been, or if it becomes apparent that any of
such conditions will not be, fulfilled by the date that is twelve (12) months from the date
71
hereof, unless such failure shall be due to the failure of Buyer to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it before the
Closing;
(iii) in order to permit the satisfaction of the conditions set forth in
8.01(a)
and
8.01(b)
, Buyer
is required, in order to satisfy applicable Antitrust Laws, to divest, license, hold separate, sell or otherwise dispose of certain of its assets, properties or businesses or of certain assets, properties or businesses to be acquired by Buyer
pursuant to the terms hereof relating to more than $80 million in the aggregate of Pro Forma Net Sales, unless Buyer subsequently agrees to proceed with such disposition; or
(c) by the Sellers Representative by written notice to Buyer if:
(i) no Seller is then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or
failure to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to the failure of any of the conditions specified in
ARTICLE VIII
and such breach, inaccuracy or failure has
not been cured by Buyer within ten (10) days of Buyers receipt of written notice of such breach from the Sellers Representative;
(ii) any of the conditions set forth in
8.01
or
8.03
shall not have been, or if it becomes apparent that any of
such conditions will not be, fulfilled by the date that is twelve (12) months from the date hereof, unless such failure shall be due to the failure of any Seller to perform or comply with any of the covenants, agreements or conditions hereof to
be performed or complied with by it before the Closing;
(iii) in order to permit the satisfaction of the conditions set
forth in
8.01(a)
and
8.01(b)
, Buyer is required, in order to satisfy applicable Antitrust Laws, to divest, license, hold separate, sell or otherwise dispose of certain of its assets, properties or businesses or of certain assets,
properties or businesses to be acquired by Buyer pursuant to the terms hereof relating to more than $80 million in the aggregate of Pro Forma Net Sales, unless Buyer subsequently agrees to proceed with such disposition; or
(d) by Buyer or the Sellers Representative in the event that (i) there shall be any Law that makes consummation of the transactions
contemplated by this Agreement illegal or otherwise prohibited (ii) any Governmental Authority shall have issued an Order restraining or enjoining the transactions contemplated by this Agreement, and such Order shall have become final and
non-appealable or (iii) an Action is instituted by any Governmental Authority challenging the transactions contemplated by this Agreement as violative of any Antitrust Law.
10.02 Effect of Termination.
In the event of the termination of this Agreement in accordance with this Article, this Agreement shall
forthwith become void and there shall be no Liability on the part of any party hereto except:
(a) as set forth in this
ARTICLE X
and
6.08
and
ARTICLE XI
hereof;
(b) Buyer will not be released from liability hereunder if this Agreement is terminated and
the transactions abandoned by reason of (i) failure of the Buyer to have performed its material obligations under this Agreement or (ii) any material misrepresentation made by the Buyer of any matter set forth in this Agreement;
(c) Sellers will not be released from liability hereunder if this Agreement is terminated and the transactions abandoned by reason of
(i) failure of the Sellers to have performed their material obligations under this Agreement or (ii) any material misrepresentation made by the Sellers of any matter set forth in this Agreement; and
(d) that nothing herein shall relieve any party hereto from Liability for any (i) willful breach of any provision of this Agreement,
(ii) breach occurring prior to termination or (iii) for breach of any provision that specifically survives termination, subject to the express terms and limitations set forth in this Agreement.
72
ARTICLE XI
Miscellaneous
11.01
Expenses.
Except as otherwise expressly provided herein, all costs, fees and expenses, incurred in connection with the negotiation, preparation and execution of the Transaction Documents or the consummation of the transactions contemplated
thereby (whether incurred before or after the date of this Agreement), including, without limitation, any brokerage fees, commissions, finders fees, investment banking fees, financial advisory fees or employee bonuses related to the
consummation of such transactions, whether or not the Closing shall have occurred, shall be paid by the party incurring such costs, fees and expenses. For the avoidance of doubt, all of the (a) costs, fees and expenses referred to in the
preceding sentence incurred by or on behalf of the Company, the Sellers, the Optionholders or the SAR Holders, and (b) Transaction Expenses, shall, in each case, be paid by the Company. Notwithstanding the foregoing, in the event of the termination
of this Agreement before Closing due to Buyers failure to obtain at the Buyer Shareholders Meeting the Buyer Shareholder Approval with respect to the issuance of the Stock Consideration to the Sellers, Buyer shall reimburse the Company for its
and the Sellers documented out-of-pocket Transaction Expenses, up to $10 million.
11.02 Notices.
All notices, requests,
consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent
by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business
Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent 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
11.02
):
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If to the Sellers Representative (on behalf of the Sellers):
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Gulf Houghton Lubricants Ltd.
Whitehall House,
238 North Church Street,
P.O. Box 1043,
George Town Grand
Cayman KY1-1102
Cayman Islands
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Facsimile:
(305) 675-2619
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|
E-mail: ddixon@sterlingtrustco.com
|
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|
Attention: Darren Dixon
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|
with a copy to (which shall not constitute notice to):
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Mayer Brown LLP
1221 Avenue of the Americas
New York, New York 10020
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|
Facsimile: (212) 262-1910
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|
E-mail: edavis@mayerbrown.com
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Attention: Edward A. Davis
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with a copy to (which shall not constitute notice to) Richard Hoare:
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Richard Hoare
16 Charles II Street, London SW1Y
4QU, UK
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Facsimile: +44 207 839 2399
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E-mail: richard.hoare@gulfoilltd.com
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with a copy to (which shall not constitute notice to) the Company:
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c/o Houghton International Inc.
Madison and Van
Buren Avenues
P O Box 930
Valley Forge, PA USA
19482
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|
E-mail: MShannon@houghtonintl.com
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Attention: Chief Executive Officer
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73
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If to the Company:
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c/o Houghton International Inc.
Madison and Van
Buren Avenues
P O Box 930
Valley Forge, PA USA
19482
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|
E-mail: MShannon@houghtonintl.com
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Attention: Chief Executive Officer
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If to Buyer:
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Quaker Chemical Corporation
One Quaker Park
901 E. Hector Street
Conshohocken, PA 19428-2380
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|
Facsimile: (610) 832-4496
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E-mail: traubr@quakerchem.com
|
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|
Attention: Robert T. Traub
|
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with a copy to (which shall not constitute notice to Buyer):
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Drinker, Biddle & Reath LLP
One Logan
Square
Suite 2000
Philadelphia, Pennsylvania
19103
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Facsimile: (215) 988-2757
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E-mail: Douglas.Raymond@dbr.com
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Attention: F. Douglas Raymond, III
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11.03 Interpretation.
For purposes of this Agreement: (a) the words include,
includes and including shall be deemed to be followed by the words without limitation; (b) the word or is not exclusive; (c) the words herein, hereof,
hereby, hereto and hereunder refer to this Agreement as a whole and (d) when calculating the period of time before which, within which or following which, any act is to be done or step taken pursuant to this
Agreement, the date that is the reference date in calculating such period will be excluded. If the last day of such period is a non-Business Day, the period in question will end on the next succeeding Business Day. Unless the context otherwise
requires, references herein: (x) to Articles, Sections, the Sellers Disclosure Letter, Exhibits and Annexes mean the Articles and Sections of, and Exhibits and Annexes attached to, this Agreement, and the Sellers Disclosure Letter
delivered in connection with the execution of this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted
by the provisions thereof and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. The Sellers Disclosure Letter, Exhibits and Annexes referred to herein shall be construed with, and
as an integral part of, this Agreement to the same extent as if they were set forth herein.
11.04 Headings.
The headings in this
Agreement are for reference only and shall not affect the interpretation of this Agreement.
11.05 Severability.
If any term or
provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or
provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
11.06 Entire Agreement.
This Agreement and the other Transaction Documents constitute the sole and entire agreement of the parties to
this Agreement with respect to the subject matter contained herein and therein,
74
and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in
the body of this Agreement and those in the other Transaction Documents, the Exhibits, the Annexes and Sellers Disclosure Letter (other than an exception expressly set forth as such in the Sellers Disclosure Letter), the statements in
the body of this Agreement will control.
11.07 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the Optionholders, the SAR Holders and their respective successors and permitted assigns. None of the parties may assign its rights or obligations hereunder without the prior written consent of the other parties, which
consent shall not be unreasonably withheld or delayed;
provided, however
, that before the Closing Date, Buyer may, without the prior written consent of the Sellers, assign all or any portion of its rights (but not its obligations) under this
Agreement to one or more of its direct or indirect subsidiaries; provided, further, that the Buyer may assign any or all of its rights or benefits under this Agreement and any other Transaction Document without the prior written consent of the
Sellers (whereupon the Buyer shall provide written notice thereof to the Sellers Representative), as a collateral assignment, to the Buyers or its Affiliates lenders or other debt financing sources. No assignment shall relieve the
assigning party of any of its obligations hereunder.
11.08 No Third-party Beneficiaries.
Except as provided in
6.13
and
11.15
, this Agreement is for the sole benefit of the parties hereto and their permitted successors and assigns and nothing herein expressed or implied shall give or be construed to give any Person any legal or equitable rights hereunder,
other than the parties hereto, the Buyer Indemnitees (to the extent not a party hereto), the Seller Indemnitees (to the extent not a party hereto), the Releasees (to the extent not a party hereto) and their respective permitted successors and
assigns; provided, however, that this Section
11.08
and Sections
11.09
,
11.10
, and
11.15
(to the extent such provisions relate to the Debt Financing) shall be enforceable against all parties to this Agreement by each
applicable Debt Financing Source and is successors and assigns.
11.09 Amendment and Modification; Waiver.
This Agreement may only
be amended, modified or supplemented (and any right hereunder extended or waived) by the parties hereto by an agreement in writing signed by Buyer and the Sellers Representative; provided, however
6.20
,
11.08
,
11.10
,
11.15
and this
11.09
(and any provision of this Agreement to the extent a modification, waiver or termination of such provision would modify the substance of the foregoing sections) may not be modified, waived or terminated in a manner
that impacts or is adverse in any respect to a Debt Financing Source without the prior written consent of such Debt Financing Source. For purposes of this
11.09
, subject to the foregoing sentence, the Sellers agree that any amendment,
extension or waiver of this Agreement signed by the Sellers Representative shall be binding upon and effective against the Sellers whether or not they have signed such amendment;
provided
,
however
, that the consent of Michael J.
Shannon shall be required if any amendment, extension or waiver would disproportionately and adversely impact the Management Sellers relative to Gulf Houghton. No failure to exercise, or delay in exercising, any right, remedy, power or privilege
arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
11.10 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a) This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania without giving
effect to any choice or conflict of law provision or rule (whether of the Commonwealth of Pennsylvania or any other jurisdiction); provided, however, the provisions of this Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of New York with respect to any action, suit or proceeding including any Debt Financing Source.
(b) ANY LEGAL
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF
75
AMERICA OR THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA IN EACH CASE LOCATED IN THE CITY OF PHILADELPHIA AND COUNTY OF PHILADELPHIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTYS ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER
PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES THAT IT WILL NOT BRING OR
SUPPORT ANY ACTION, CAUSE OF ACTION, CLAIM, CROSS-CLAIM OR THIRD PARTY CLAIM OF ANY KIND OR DESCRIPTION, WHETHER AT LAW OR IN EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST ANY OF THE DEBT FINANCING SOURCES IN ANY WAY RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, ANY DISPUTE ARISING OUT OF OR RELATING IN ANY WAY TO THE DEBT FINANCING COMMITMENT, DEBT FINANCING, OR PERFORMANCE THEREOF, IN ANY FORUM OTHER THAN THE FEDERAL AND NEW YORK STATE
COURTS LOCATED IN THE BOROUGH OF MANHATTAN WITHIN THE CITY OF NEW YORK (AND APPELLATE COURTS THEREOF).
(c) EACH PARTY ACKNOWLEDGES AND
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE DEBT FINANCING COMMITMENT, THE DEBT FINANCING, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS
AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY
HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THI
S
SECTION 11.10(C)
.
11.11 Specific Performance.
The parties agree that irreparable damage would
occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or
in equity. The parties further agree that no party hereto shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this
11.11
, and each party
hereto irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument.
11.12 Sellers Representative.
(a) Except as otherwise provided in this Agreement, any right or action that may be taken at the election of the Sellers, Optionholders or SAR
Holders will be taken by the Sellers Representative as a representative of the Sellers, Optionholders or SAR Holders on behalf thereof. The initial Sellers Representative will be Gulf Houghton Lubricants Ltd. Upon its resignation, the
holders of a majority of the voting power of the Shares at any time prior to the Closing may designate a successor Sellers Representative. Any Sellers Representative so designated must be reasonably acceptable to the Buyer.
76
(b) Any change in the Sellers Representative will become effective upon notice in
accordance with
Section 11.02
.
(c) Except as otherwise provided in this Agreement, any right or action that may be taken at
the election of the Sellers, Optionholders or SAR Holders will be taken by the Sellers Representative on behalf thereof. Each of the Sellers, Optionholders or SAR Holders hereby irrevocably appoint the Sellers Representative as the agent
and attorney-in-fact of each of the Sellers, Optionholders or SAR Holders for the purposes of acting in the name and stead of such Seller, Optionholder or SAR Holder in: (a) receiving, holding and distributing the consideration and paying any
associated costs and expenses of the transactions hereunder required to be paid by such Seller, Optionholder or SAR Holder; (b) giving and receiving all notices permitted or required by this Agreement and acting on the Sellers, Optionholders or
SAR Holders behalf hereunder for all purposes specified herein; (c) delivering the certificates or instruments of transfer for the Shares endorsed or executed by the Sellers to the Buyer at Closing and any and all assignments relating thereto;
(d) agreeing with the Buyer as to any amendments to or waivers of this Agreement which the Sellers Representative, acting in good faith, may deem necessary or advisable, including the extension of time in which to consummate the
transactions contemplated by this Agreement, and the waiver of any closing conditions (subject to
11.09
); (e) employing legal counsel on behalf of the Sellers, Optionholders and SAR Holders; (f) paying any legal, accounting,
investment banking, and any other fees and expenses incurred by the Sellers Representative in consummating the transactions contemplated by this Agreement; (g) defending or settling claims arising under this Agreement; and
(h) making, executing, acknowledging, and delivering all such contracts, orders, receipts, notices, requests, instructions, certificates, letters, and other writings, and in general doing all things and taking all actions which the
Sellers Representative, in its sole discretion, may consider necessary or proper in connection with or to carry out the terms of this Agreement, as fully as if such Sellers, Optionholders or SAR Holders were personally present and acting. This
power of attorney and all authority conferred hereby is granted and conferred subject to the interests of the other Parties to this Agreement, and in consideration of those interests and for the purpose of completing the transactions contemplated
hereby, this power of attorney and all authority conferred hereby shall be irrevocable and shall not be terminated by the Sellers, Optionholders or SAR Holders or by operation of Law, whether by the termination of the Sellers Representative or
by the occurrence of any other event. If any Seller , Optionholder or SAR Holder who is an individual should die or become incompetent or incapacitated, or any Seller, Optionholder or SAR Holder that is a legal entity should be dissolved, liquidated
or wound up any other event should occur before the delivery of certificates or other instruments of transfer representing the Shares pursuant to this Agreement, such certificates and instruments shall nevertheless be delivered by or on behalf of
such Seller, Optionholder or SAR Holder in accordance with the terms and conditions of this Agreement, and all actions taken by the Sellers Representative pursuant to this Agreement shall be as valid as if such death, incompetence, incapacity,
dissolution, termination or winding up or other event had not occurred, regardless of whether the Buyer or the Sellers Representative, or any of them, shall have received notice of such death, incompetence, incapacity, or other event. The
Sellers Representative will be promptly reimbursed by the Sellers, Optionholders and SAR Holders for all reasonable expenses, disbursements and advances incurred by the Sellers Representative in such capacity upon demand. The Sellers,
Optionholders and SAR Holders severally and not jointly, agree to indemnify and hold harmless the Sellers Representatives for and from any loss, liability, expense, charge, damages, claims or other obligations it may incur as a result of its
duties hereunder or any of its actions or inactions as such, except as may result from the Sellers Representatives actions that would constitute fraud, willful misconduct or gross negligence. The obligations of the Sellers, Optionholders
and SAR Holders under this Section shall be borne by the Sellers pro rata in accordance with the proportion of the Purchase Price allocated to each such party in accordance with the Allocation Certificate.
11.13 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy
of this Agreement.
77
11.14 Exclusivity of Agreement
.
The Parties have voluntarily agreed to define their
rights, liabilities and obligations respecting the subject matter of this Agreement exclusively in contract pursuant to the express terms and provisions of this Agreement, and the Parties expressly disclaim that they are owed any duties or are
entitled to any remedies not expressly set forth in this Agreement. Furthermore, the Parties hereby acknowledge that this Agreement embodies the justifiable expectations of sophisticated parties derived from arms length negotiations, and all
Parties to this Agreement specifically acknowledge that no Party has any special relationship with another Person that would justify any expectation beyond that of an ordinary buyer and an ordinary seller in an arms length transaction. Other
than in connection with claims involving fraud, the sole and exclusive remedies for any breach of the terms of this Agreement (including any representations and warranties set forth herein) shall be those remedies available at law or in equity
for breach of contract only (as such contractual remedies may be further limited or excluded pursuant to the express terms of this Agreement), and the Parties hereto hereby waive and release any and all other claims and causes of action that may be
based upon, arise out of, or relate to this Agreement, or the negotiation, execution or performance of this Agreement.
11.15 Debt
Financing Sources
.
Notwithstanding anything herein to the contrary, neither the Sellers nor the Company or any Company Subsidiary shall have any right or claim against any Debt Financing Source in connection with this Agreement or the
Debt Financing Commitment, whether at law or equity, in contract, in tort or otherwise. The Debt Financing Source may enforce this Section 11.15 against all parties to this Agreement.
[SIGNATURE PAGE FOLLOWS]
78
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date
first written above.
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BUYER:
QUAKER CHEMICAL CORPORATION
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By:
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/s/ Michael F. Barry
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Name:
|
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Michael F. Barry
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Title:
|
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CEO
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[Signature Page to Share Purchase
Agreement]
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COMPANY:
GLOBAL HOUGHTON LTD.
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By:
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/s/ Michael J. Shannon
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Name:
|
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Michael J. Shannon
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Title:
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CEO
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[Signature Page to Share Purchase
Agreement]
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GULF HOUGHTON AND SELLERS REPRESENTATIVE:
GULF HOUGHTON LUBRICANTS LTD.
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By:
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/s/ Sandra Georgeson
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Name:
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Sandra Georgeson
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Title:
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Director
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
PAUL DEVIVO TRUST U/A/D AS OF MARCH 14, 2014 FBO PAUL JOSEPH DEVIVO
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By:
|
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/s/ Paul Devivo
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
PAUL DEVIVO TRUST U/A/D AS OF MARCH 14, 2014 FBO DANIEL ROBERT DEVIVO
|
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By:
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/s/ Paul Devivo
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
PAUL DEVIVO TRUST U/A/D AS OF MARCH 14, 2014 FBO RICHARD JOHN DEVIVO
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By:
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/s/ Paul Devivo
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER
:
TRUST U/A/D JULY 11, 2012 OF LINDA R. DEVIVO
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By:
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/s/ Paul Devivo
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
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/s/ Michael J. Shannon
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Michael J. Shannon
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
|
/s/ David H. Slinkman
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David H. Slinkman
|
[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
|
/s/ Jeewat Bijlani
|
Jeewat Bijlani
|
[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
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/s/ Chungyin Lai
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Chungyin Lai
|
[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
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/s/ Steve and Ellen Mary Little
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Steve and Ellen Mary Little (jointly)
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[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
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/s/ Peter Macaluso
|
Peter Macaluso
|
[Signature Page to Share Purchase
Agreement]
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MANAGEMENT SELLER:
|
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/s/ Thomas Rebain
|
Thomas Rebain
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[Signature Page to Share Purchase
Agreement]
Annex E
EXHIBIT E FINAL FORM
SHAREHOLDER
AGREEMENT
by and between
QUAKER
CHEMICAL CORPORATION
and
THE SHAREHOLDERS PARTY HERETO
[
●
]
TABLE OF CONTENTS
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Page
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ARTICLE 1.
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DEFINITIONS
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1
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1.1.
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Act
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1
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1.2.
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Affiliate
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1
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1.3.
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Beneficial Owner
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2
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1.4.
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Board
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2
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1.5.
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Business Day
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2
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1.6.
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Change in Control
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2
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1.7.
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Change in Control Proposal
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2
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1.8.
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Closing Date
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2
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1.9.
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Commission
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2
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1.10.
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Common Stock Equivalents
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2
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1.11.
|
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Equity Securities
|
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2
|
|
1.12.
|
|
Exchange Act
|
|
|
2
|
|
1.13.
|
|
Governance Restricted Period
|
|
|
3
|
|
1.14.
|
|
Group
|
|
|
3
|
|
1.16.
|
|
Independent Director
|
|
|
3
|
|
1.17.
|
|
Investment Banking Firm
|
|
|
3
|
|
1.18.
|
|
New Securities
|
|
|
3
|
|
1.19.
|
|
Percentage Ownership
|
|
|
3
|
|
1.20.
|
|
Person
|
|
|
4
|
|
1.21.
|
|
Principal Trading Market
|
|
|
4
|
|
1.22.
|
|
Registrable Securities
|
|
|
4
|
|
1.23.
|
|
Shareholder Designee
|
|
|
4
|
|
1.24.
|
|
Shareholders
|
|
|
4
|
|
|
|
|
ARTICLE 2.
|
|
RESTRICTIONS ON PURCHASES AND SALES
|
|
|
4
|
|
|
|
|
2.1.
|
|
No Purchases.
|
|
|
4
|
|
2.2.
|
|
Six-Month Lockup
|
|
|
4
|
|
2.3.
|
|
Two-Year Limitation on Private Block Trades
|
|
|
5
|
|
|
|
|
ARTICLE 3.
|
|
PARTICIPATION RIGHTS
|
|
|
5
|
|
|
|
|
3.1.
|
|
General
|
|
|
5
|
|
3.2.
|
|
Notice of Offering
|
|
|
5
|
|
3.3.
|
|
Notification of Exercise
|
|
|
5
|
|
3.4.
|
|
Unsubscribed Securities
|
|
|
5
|
|
3.5.
|
|
Requirements of Principal Trading Market
|
|
|
5
|
|
|
|
|
ARTICLE 4.
|
|
REGISTRATION RIGHTS
|
|
|
6
|
|
|
|
|
4.1.
|
|
Duration of Registration Rights
|
|
|
6
|
|
4.2.
|
|
Demand Registration Covenant.
|
|
|
6
|
|
4.3.
|
|
Piggyback Registration Covenant
|
|
|
7
|
|
4.4.
|
|
Companys Obligations in Connection with Registrations
|
|
|
7
|
|
4.5.
|
|
Conditions to Obligations of Company Under Registration Covenants
|
|
|
9
|
|
4.6.
|
|
Suspension of Registration
|
|
|
10
|
|
4.7.
|
|
Expenses.
|
|
|
10
|
|
4.8.
|
|
Indemnification
|
|
|
10
|
|
4.9.
|
|
Delay of Registration
|
|
|
12
|
|
4.10.
|
|
Preservation of Rights
|
|
|
12
|
|
i
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
ARTICLE 5.
|
|
CERTAIN AGREEMENTS OF SHAREHOLDERS AND COMPANY
|
|
|
12
|
|
|
|
|
5.1.
|
|
Negative Covenant regarding Hostile Activity
|
|
|
12
|
|
5.2.
|
|
Voting Agreement
|
|
|
13
|
|
5.3.
|
|
Independent Director Approval
|
|
|
13
|
|
5.4.
|
|
Acquisitions, Transfers and Votes in Contravention of Agreement
|
|
|
13
|
|
5.5.
|
|
Placement of Legends and Entry of Stop Transfer Orders.
|
|
|
13
|
|
5.6.
|
|
Rule 144 Compliance
|
|
|
14
|
|
5.7.
|
|
Transactions Approved by Independent Directors..
|
|
|
14
|
|
|
|
|
ARTICLE 6.
|
|
BOARD OF DIRECTORS
|
|
|
14
|
|
|
|
|
6.1.
|
|
Appointment of Directors
|
|
|
14
|
|
6.2.
|
|
Vacancies
|
|
|
14
|
|
6.3.
|
|
Board and Committee Representation.
|
|
|
14
|
|
6.4.
|
|
Removal for Cause
|
|
|
15
|
|
|
|
|
ARTICLE 7.
|
|
NO PRIOR OWNERSHIP
|
|
|
15
|
|
|
|
|
7.1.
|
|
No Prior Ownership
|
|
|
15
|
|
|
|
|
ARTICLE 8.
|
|
TERMINATION
|
|
|
16
|
|
|
|
|
8.1.
|
|
Termination
|
|
|
16
|
|
|
|
|
ARTICLE 9.
|
|
MISCELLANEOUS
|
|
|
16
|
|
|
|
|
9.1.
|
|
Specific Enforcement
|
|
|
16
|
|
9.2.
|
|
Severability
|
|
|
16
|
|
9.3.
|
|
Assignment; Successors
|
|
|
16
|
|
9.4.
|
|
Amendments
|
|
|
16
|
|
9.5.
|
|
Notices
|
|
|
16
|
|
9.6.
|
|
Attorneys Fees
|
|
|
17
|
|
9.7.
|
|
Integration
|
|
|
17
|
|
9.8.
|
|
Waivers
|
|
|
17
|
|
9.9.
|
|
Governing Law.
|
|
|
17
|
|
9.10.
|
|
Counterparts
|
|
|
18
|
|
9.11.
|
|
Cooperation
|
|
|
18
|
|
9.12.
|
|
Headings
|
|
|
18
|
|
ii
SHAREHOLDER AGREEMENT
This Shareholder Agreement (this
Agreement
) is made this [●] day of [●], [●], by and between Quaker
Chemical Corporation, a Pennsylvania corporation (the
Company
), Gulf Houghton Lubricants Ltd., an exempted company incorporated under the laws of the Cayman Islands (the
Direct Shareholder
), Gulf Oil
International, Ltd., an exempted company incorporated under the laws of the Cayman Islands, and GOCL Corporation Limited, a public limited company incorporated in India (together with Gulf Oil International, Ltd., the
Beneficial
Shareholders
).
RECITALS
WHEREAS, the Company, the Direct Shareholder and certain other Persons have entered into that certain Share Purchase Agreement, dated as of
April [●], 2017 (the
Purchase Agreement
), which provides, upon the terms and subject to the conditions set forth therein, for the acquisition by the Company of all of the issued and outstanding equity interests of Global
Houghton Ltd. (the
Transaction
), including all such equity interests of Global Houghton Ltd. held by the Direct Shareholder;
WHEREAS, in connection with the Transaction, the Direct Shareholder is receiving cash consideration and [[●] shares of preferred stock
convertible into] [●] shares of common stock, par value $1.00 per share (
Common Stock
) of the Company (such shares of Common Stock received by the Direct Shareholder, the
Shareholder Common Stock
);
*
WHEREAS, the Beneficial Shareholders, together, own, directly or indirectly, all of the
issued and outstanding capital stock of the Direct Shareholder and shall benefit from the Direct Shareholders participation in the Transaction;
WHEREAS, the Board has increased the size of the Board to [12]
1
, resulting in [three]
vacancies in the Board (the
Board Vacancies
);
WHEREAS, as a condition to the closing of the Transaction, the Company
and the Shareholders have agreed to enter into this Agreement; and
WHEREAS, capitalized terms used but not defined in this Agreement
shall have the meanings given to those terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of representations, warranties,
covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be bound hereby, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, in addition to other terms defined elsewhere herein, the following terms have the respective meanings set forth
below:
1.1.
Act
. Act means the Securities Act of 1933, as amended.
1.2.
Affiliate
. Affiliate has the meaning set forth under the Exchange Act and the rules thereunder.
*
|
NTD: Conforming changes to be made if preferred stock is issued at Closing.
|
1
|
NTD: Conforming changes to be made if number of directors changes pursuant to the mutual agreement of Buyer and the Sellers Representative.
|
1.3.
Beneficial Owne
r. Beneficial Owner with respect to a security means any
Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or
(ii) investment power, which includes the power to dispose, or to direct the disposition of, such security. A Person shall be deemed to be the Beneficial Owner of a security if that Person has the right to acquire Beneficial Ownership of such
security (including by conversion or exchange). Beneficially Own, Beneficial Ownership and other related phrases shall have correlative meanings.
1.4.
Board
. Board means the Board of Directors of Company as constituted from time to time.
1.5.
Business Day
. Business Day means any day except Saturday, Sunday or any other day on which commercial banks located in
the City of New York are authorized or required by Law to be closed for business.
1.6.
Change in Control
. Change in
Control means the occurrence of any of the following:
(a) the closing of any merger, combination, consolidation or similar
business transaction involving the Company in which the holders of the Companys Common Stock immediately prior to the transaction cease to hold more than 50% of the total voting power of the surviving company in such transaction immediately
after such closing, including by way of acquisition, merger, recapitalization, reorganization, redemption, issuance of capital stock, consolidation, tender or exchange offer or otherwise;
(b) the closing of any sale transaction or series of related sale transactions, including by way of a tender or exchange offer, in which a
Person or Group would become the holder of more than 50% of the total voting power of the Company; or
(c) any transaction or series of
related transactions pursuant to which a Person or Group acquires all or substantially all of the assets of the Company and its subsidiaries, on a consolidated basis.
(d) any actual election contest with respect to the election or removal of members of the Board or other actual solicitation of proxies or
consents by or on behalf of a Person other than the Board pursuant to which the individuals who, immediately prior to such contest, constitute the Board (collectively, the
Incumbent Directors
) cease to constitute at least a
majority of the members of the Board.
1.7.
Change in Control Proposal
. Change in Control Proposal means a
Persons or Groups proposal or offer to the Company or its shareholders regarding a Change in Control.
1.8.
Closing
Date
. Closing Date means the date of this Agreement.
1.9.
Commission
. Commission means the Securities
and Exchange Commission of the United States.
1.10.
Common Stock Equivalents
. Common Stock Equivalents means,
collectively, Common Stock, options and warrants to subscribe for, purchase or otherwise acquire Common Stock and other securities directly or indirectly convertible into or exchangeable for Common Stock; provided, that, Common Stock
Equivalents shall not include preferred stock or securities convertible into or exchangeable for preferred stock.
1.11.
Equity
Securities
. Equity Securities means, collectively, Common Stock, other capital stock of the Company and other securities directly or indirectly convertible into or exchangeable for capital stock of the Company or rights, options or
warrants to subscribe for, purchase or otherwise acquire capital stock of the Company.
1.12.
Exchange Act
. Exchange
Act means the Securities Exchange Act of 1934, as amended.
2
1.13.
Governance Restricted Period
. Governance Restricted Period means the
period of time beginning on the Closing Date and ending on the date that is six months after the first day on which no individuals nominated or designated by the Direct Shareholder to serve as members of the Board pursuant to
Article 6
are
serving as members of the Board.
1.14.
Group
. Group has the meaning ascribed to such term under the Exchange Act.
1.14
Holder
means any Shareholder that holds any Registrable Securities and any holder of Registrable Securities to whom
the registration rights conferred by this Agreement have been transferred in compliance with
Section 9.3
hereof. [A holder of shares of convertible preferred stock shall, for purposes hereof, be deemed to hold the Registrable Securities
issuable upon conversion of such preferred stock.]
1.16.
Independent Director
. Independent Director means a member of
the Board who qualifies, as of the date of such members appointment and as of any other date on which the determination is being made, as an Independent Director under the listing requirements of the New York Stock Exchange, as
amended from time to time.
1.17.
Investment Banking Firm
. Investment Banking Firm means an internationally recognized
investment banking firm.
1.18.
New Securities
. New Securities means any Equity Securities other than:
(a) Common Stock Equivalents issued to employees or directors of, or consultants to, the Company or its subsidiaries pursuant to a plan
approved by the Board or the Compensation Committee thereof;
(b) Equity Securities issued to any Shareholder or its assigns;
(c) Common Stock issued pursuant to the conversion, exercise or exchange of convertible, exercisable or exchangeable securities
(i) outstanding on the date hereof or (ii) which have been issued after the date hereof pursuant to an offering for which notice was provided to the Shareholders in accordance with
Section 3.2
and the Company otherwise complied
with
Article 3
;
(d) Equity Securities issued by reason of a dividend, stock split, stock combination, recapitalization, split-up
or other distribution with respect to shares of the capital stock of the Company;
(e) a private placement of Common Stock Equivalents to
bank lenders or other financial institution lenders pursuant to a bona fide, arms length transaction approved by the Board in which such lenders provide debt financing to the Company or any Company Subsidiary;
(f) Common Stock Equivalents issued pursuant to the acquisition by the Company or any of its subsidiaries of another entity that is not an
Affiliate of the Company, by merger or purchase of all or substantially all of the assets or equity interests , in each case, approved by the Board;
(g) Common Stock Equivalents issued in connection with a strategic investment, including a joint venture, in or with an entity that prior
thereto is not an Affiliate of the Company relating to the operation of the Companys or any Company Subsidiarys business and not for the primary purpose of raising equity capital, to the extent such strategic investment and the Common
Stock issuance is approved by the Board;
(h) Common Stock issued pursuant to the conversion, exercise or exchange of any of the Equity
Securities described in the foregoing clauses (a)-(g).
1.19.
Percentage Ownership
. Percentage Ownership of a Person as
of any time means the Common Stock held by such Person
divided by
the total number of shares of Common Stock then issued and outstanding.
3
1.20.
Person
. Person means any individual, partnership, association,
corporation, trust, limited liability company, formal or informal business association or other entity.
1.21.
Principal Trading
Market
. Principal Trading Market means the principal trading exchange or national automated stock quotation system on which the Common Stock is traded or quoted, which, as of the date hereof, is the New York Stock Exchange.
1.22.
Registrable Securities
. Registrable Securities means (a) any shares of Shareholder Common Stock issued to the
Direct Shareholder pursuant to the Purchase Agreement and held by a Shareholder or any of their respective Affiliates or any Holder and (b) any shares of Common Stock issued or issuable with respect to any shares described in clause
(a) above by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or
other similar event with respect to the Common Stock (it being understood that, for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the
Company any Registrable Securities, whether or not such acquisition has actually been effected).
1.23.
Shareholder Designee
.
Shareholder Designee means any member of the Board who has been designated by the Direct Shareholder pursuant to this Agreement.
1.24.
Shareholders
. Shareholders means, collectively, the Direct Shareholder and the Beneficial Shareholders.
ARTICLE 2.
RESTRICTIONS ON PURCHASES AND SALES
2.1.
No Purchases
.
(a)
From the Closing Date until the date that is two years after the Closing Date, except as otherwise permitted in
Article 3
, no Shareholder shall acquire, directly or indirectly (including by acquiring Beneficial Ownership thereof), any Equity
Securities; provided that this provision shall not restrict a Shareholder from acquiring Equity Securities from another Shareholder or from any Affiliate of a Shareholder, in each case, pursuant to
Section 2.2(c)
or
Section 2.3(a)
.
(b) If, in violation of
Section 2.1(a)
, a Shareholder acquires any Equity Securities, then such
Shareholder shall be required to dispose of such Equity Securities (or an equivalent number of other Equity Securities) by promptly selling such Equity Securities into the public market;
provided
,
however
, that such Shareholder shall
not be obligated to sell any such Equity Securities pursuant to this
Section 2.1(b)
until such time as such sale would not subject such Shareholder to liability under Section 16(b) of the Exchange Act or any other applicable
provision of federal or state law; and,
provided
further
, that such Shareholder shall not be entitled to the economic benefit of or to vote such Equity Securities between the time such Equity Securities were acquired by such
Shareholder and such Shareholders disposal of such Equity Securities. This
Section 2.1(b)
shall not limit any remedies that the Company may be entitled to with respect to a breach of
Section 2.1(a)
.
2.2.
Six-Month Lockup
. From the Closing Date until the date that is six months after the Closing Date, no Shareholder shall offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Shareholder Common Stock;
provided
,
however
, that any Shareholder may offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any such Shareholder Common Stock (a) in a transaction approved by a majority of the Independent Directors (such approval,
Independent Director Approval
), (b) in connection with a transaction, including a
Change in Control, approved by a majority of the Board and/or (c) to an Affiliate of a Shareholder, provided that such Affiliate agrees in writing to be bound by all of the obligations of such Shareholder hereunder and such Shareholder shall
continue to be bound by its obligations hereunder.
4
2.3.
Two-Year Limitation on Private Block Trades
. From the Closing Date until the date
that is two years after the Closing Date, the Shareholders shall not directly or indirectly sell or transfer any Shareholder Common Stock representing more than 7% of the then outstanding Common Shares in a private transaction or series of related
transactions to the same Person or Group; provided, however, that, subject to Section 2.2:
(a) any Shareholder may directly or
indirectly sell or transfer any Shareholder Common Stock (i) in a transaction that has received Independent Director Approval; (ii) if the Shareholders collectively own less than 10% of the outstanding Common Shares and do not have the
right to appoint directors to the Board immediately prior to such Sale, (iii) in a transaction, including a Change in Control, that is approved by a majority of the Board, (iv) that is registered for sale in an offering pursuant to
Article 4
and/or (v) to an Affiliate of a Shareholder, provided that such Affiliates agrees in writing to be bound by all of the obligations of such Shareholder hereunder and such Shareholder shall continue to be bound by its obligations
hereunder; and
(b) a Shareholder may pledge its Shareholder Common Stock to a bank or other financial institution as collateral in
connection with a bona fide debt financing transaction; provided that such pledgee has agreed that such Shareholder Common Stock remains subject to the transfer and other restrictions provided herein (with such provisions applying to such pledgee as
they apply to such Shareholder).
ARTICLE 3.
PARTICIPATION RIGHTS
3.1.
General
. During the Governance Restricted Period, on the terms and subject to the conditions specified in this
Article 3
,
in the event the Company proposes to offer or sell any New Securities, the Company shall first make an offering of such New Securities to the Direct Shareholder in accordance with the following provisions of this
Article 3
; provided however
that the filing of a Form S-3 registration statement pursuant to the Act shall not in and of itself constitute a proposal by the Company to offer or sell any New Securities for the purposes of this
Article 3
unless and until such time as the
Company specifically proposes to offer and sell any New Securities pursuant to such registration statement. The Company shall have the right to terminate or withdraw any offering or sale of New Securities by the Company prior to the closing of such
offering or sale, whether or not the Direct Shareholder has elected to exercise its right pursuant to this
Article 3
to purchase any New Securities in such offering or sale.
3.2.
Notice of Offering
. In the event the Company proposes to offer or sell any New Securities, the Company shall deliver a written
notice (the
Offer Notice
) to the Direct Shareholder stating (a) its bona fide intention to offer such New Securities, (b) the number of such New Securities to be offered, (c) the price and terms upon which it
proposes to offer such New Securities and (d) the date on which the offering is scheduled to close.
3.3.
Notification of
Exercise
. By written notification received by the Company within 30 days after delivery of the Offer Notice, the Direct Shareholder may elect to purchase, at the price and on the terms specified in the Offer Notice, up to that portion of such
New Securities which equals the Percentage Ownership of the Direct Shareholder on the date of the Offer Notice (assuming the conversion and exercise of all rights, options, warrants and similar securities to subscribe for, purchase or otherwise
acquire Common Stock). In the event that New Securities are sold at different prices in the offering, the Direct Shareholder shall pay, per share, the weighted average of the prices in the offering.
3.4.
Unsubscribed Securities
. The Company may sell any New Securities not subscribed for by the Direct Shareholder in accordance with
Sections 3.2
and
3.3
to any Person or Persons at a price not less, and upon other terms not more favorable to the offeree, than those specified in the Offer Notice. To the extent such New Securities are not sold within 90 days of the
delivery of the Offer Notice, such New Securities shall not be offered to any Person or Persons unless first reoffered to the Direct Shareholder in accordance with this
Article 3
.
3.5.
Requirements of Principal Trading Market
. Notwithstanding any other provision of this Agreement to the contrary, if, by reason of
the listing or other requirements of the Principal Trading Market, the issuance by
5
the Company of any New Securities pursuant to this
Article 3
requires approval of the Companys shareholders, then the Companys obligation to issue and sell such New Securities
to the Direct Shareholder shall be subject to receipt of such shareholder approval, which the Company shall use commercially reasonable efforts to obtain as soon as possible after the date on which the Direct Shareholder shall otherwise become
entitled to purchase such additional New Securities from the Company pursuant to this
Article 3
, provided that this approval and issuance of New Securities to the Direct Shareholder may occur subsequent to the issuance of New Securities to
other purchasers.
ARTICLE 4.
REGISTRATION RIGHTS
4.1.
Duration of Registration Rights
. As to any particular Registrable Securities, a Holders rights to have the Company register
such Registrable Securities provided in this
Article 4
shall terminate (i) when such securities have been registered under the Act and sold or otherwise disposed of in accordance with the intended method of distribution by the seller or
sellers thereof set forth in the Registration Statement covering such Registrable Securities, (ii) when such securities have been transferred in compliance with Rule 144 under the Act or (iii) on the date as of which such securities have
become eligible for sale pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144(c)(1), as set forth in a
written opinion of counsel to such effect, addressed, delivered and reasonably acceptable to the applicable transfer agent and the Holder(s) of such Registrable Securities, and, based upon such opinion, the legend referred to in
Section 5.5(a)
hereof, to the extent that such legend refers to registration under the Act, shall have been removed.
4.2.
Demand Registration Covenant
.
(a) If the Holders of at least a majority of the Registrable Securities then outstanding request in
writing (a
Demand Registration Request
) that the Company register under the Act at least 8% of the Registrable Securities then held by all Holders (or a lesser percent if the anticipated aggregate offering price, net of any
underwriting discounts and selling commissions, would exceed $50 million), the Company shall use reasonable efforts to cause the offering and sale to be registered pursuant to the Act and as provided in this
Article 4
(a
Demand
Registration
). In connection therewith the Company shall prepare and as soon as practicable after receipt of such request file with the Commission a registration statement under the Act covering all Registrable Securities which the Holders
request to be registered (any such form, a
Registration Statement
), which shall, if the Company is then qualified to do so, be on Form S-3. Each Demand Registration Request shall specify the amount of Registrable Securities
intended to be offered and sold, shall express such Holders present intent to offer such Registrable Securities for distribution, shall describe the nature or method of the proposed offer and sale, and shall contain the undertaking of the
Holders to comply with all applicable requirements of this
Article 4
.
(b) The Company shall use its reasonable efforts to qualify
and remain qualified to register the offer and sale of securities under the Act pursuant to a Registration Statement on Form S-3 (or any successor form). The Company shall use its reasonable efforts to cause any Registration Statement related to a
Demand Registration to be declared effective by the Commission as soon as practicable after receipt of the corresponding Demand Registration Request. If so requested by any such Holder or Holders of Registrable Securities, the Company shall take
such steps as are required to register such Registrable Securities for sale on a delayed or continuous basis under Rule 415 under the Securities Act or any successor rule thereto (a
Shelf Registration
) pursuant to a Registration
Statement on Form S-3 or the then appropriate form for such an offering (a
Shelf Registration Statement
).
(c) The
Company shall not include in any Demand Registration or any shelf takedown from a Shelf Registration Statement any securities which are not Registrable Securities without the prior written consent of the Holders of a majority of the Registrable
Securities initially requesting such Demand Registration or shelf takedown, which consent shall not be unreasonably withheld or delayed. If the Holders initiating the Demand
6
Registration Request intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their Demand Registration
Request and the Company shall include such information in the Registration Statement (an
Underwritten Offering
). The underwriters shall be one or more Investment Banking Firms selected by the Holders proposing to distribute their
securities in such Demand Registration, provided that such Investment Banking Firms are reasonably satisfactory to the Company. The Holders proposing to distribute their securities through such underwriting shall, together with the Company, enter
into an underwriting agreement in customary form with the Investment Banking Firm or Investment Banking Firms selected for such underwriting. If, in the written opinion of the Investment Banking Firms, marketing factors require a limitation of the
number of shares to be underwritten, and if the total amount of securities that the Holders request pursuant to
Section 4.2
to be included in such offering exceeds the amount of securities that the Investment Banking Firms reasonably
believe compatible with the success of the offering, the Company shall only be required to include in the offering the amount of Registrable Securities that the Investment Banking Firms believe will not jeopardize the success of the offering, and
the Registrable Securities that are included in such offering shall be allocated pro rata among the respective Holders on the basis of the number of Registrable Securities owned by each such Holder; provided, however that the Company shall include
in such Demand Registration, in order of priority: (i) first, the Registrable Securities that the Holders propose to sell, and (ii) second, the shares of Common Stock proposed to be included therein by any other Persons (including shares
of Common Stock to be sold for the account of the Company or other holders of Common Stock) allocated among such Persons in such manner as they may agree.
(d) The Company shall not be obligated to effect, or to take any action to effect, during any six (6) month period more than one Demand
Registration that has become effective pursuant to this
Section 4.2
; provided that the Company shall not be obligated to effect, or to take any action to effect, any Underwritten Offering pursuant to this
Section 4.2
(i) after the Company has effected two Underwritten Offerings pursuant to
Section 4.2(c)
or (ii) more than once during any twelve (12) month period (provided that the Registration Statement applicable to such Underwritten
Offering became effective). In addition, the Company shall not be obligated to effect, or take any action to effect, any Demand Registration from the Closing Date until the date that is six months after the Closing Date.
4.3.
Piggyback Registration Covenant
. If the Company shall propose registration under the Act of a public offering of Common Stock
(other than pursuant to a registration statement contemplated by section 6.23 of the Purchase Agreement), the Company shall give prompt written notice of such fact or proposed registration to the Holders and shall use commercially reasonable efforts
to cause the registration of such number of shares of Common Stock then owned by the Holders as the Holders request, within 20 days after receipt by the Holders of such notice from the Company, to be included, upon the same terms (including the
method of distribution) of any such offering;
provided
,
however
, that: (a) the Company shall not be required to give notice or include such Common Stock in any such registration if the proposed registration is primarily (i) a
registration of a stock option or compensation plan or of securities issued or issuable pursuant to any such plan, or (ii) a registration of securities proposed to be issued by the Company in exchange for securities or assets of, or in
connection with the Companys merger, acquisition or consolidation with, another entity; and (b) the Company may, in its sole discretion and without the consent of the Holders, withdraw such Registration Statement and abandon the proposed
offering, provided, however, that the Company promptly gives the Shareholders written notice of such action.
4.4.
Companys
Obligations in Connection with Registrations
. In connection with any registration of Registrable Securities undertaken by the Company under
Article 4
, the Company shall, as expeditiously as reasonable possible:
(a) in the case of a registration of Registrable Securities effected by the Company pursuant to
Section 4.2
, prepare and file
with the SEC a Registration Statement with respect to such Registrable Securities and use its reasonable efforts to cause such Registration Statement to become effective and, upon the request of the Holders, use reasonable efforts to keep such
Registration Statement effective for a period of up to 120 days
7
or, if earlier, until the distribution contemplated in the Registration Statement has been completed;
provided
,
however
, that (i) such 120 day period shall be extended for a
period of time equal to the period a Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration and (ii) in the case of any Shelf
Registration, such 120 day period shall at the request of the Holders be extended for up to 365 days (or, if earlier, until the date as of which the Registrable Securities may be sold pursuant to Rule 144 under the Act without limitation or
restriction under any of the requirements of Rule 144, including volume or manner-of-sale restrictions and the requirement for the Company to be in compliance with the current public information requirement under Rule 144(c)(1), as set forth in a
written opinion of counsel to such effect, addressed, delivered and reasonably acceptable to the applicable transfer agent, the Company and the Holder(s) of such Registrable Securities), if necessary, to keep the Registration Statement effective
until all such Registrable Securities are sold;
(b) furnish to the Holders or their underwriters such copies of any prospectus
(including any preliminary prospectus) in conformity with the requirements of the Act and such other documents as the Holders may reasonably request, in order to facilitate and effect the offering and sale of the Registrable Securities;
(c) use commercially reasonable efforts to qualify the securities offered under applicable blue sky or other state securities laws of such
jurisdictions reasonably requested by the Holders to enable the Holders to offer and sell the Registrable Securities; provided, however, that Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it is not then qualified;
(d) in the event of any Underwritten Offering, subject to
Section 4.2(d)
,
enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(e) instruct the transfer agent(s) and the registrar(s) of the Companys securities to release any stop transfer orders with respect to
the Registrable Securities being sold;
(f) promptly prepare and file with the Commission such amendments and prospectus supplements,
including post-effective amendments, to the applicable Registration Statement as the Company determines may be necessary or appropriate, and use commercially reasonable efforts to have such post-effective amendments declared effective as promptly as
practicable; cause the related prospectus to be supplemented by any prospectus supplement, and as so supplemented, to be filed with the Commission; and notify the Holders of any securities included in such registration statement and the underwriters
thereof, if any, promptly when a prospectus, any prospectus supplement or post-effective amendment must be filed or has been filed and, with respect to any post-effective amendment, when the same has become effective, and make the same available to
such Holders and their underwriters;
(g) furnish to each Holder and the underwriter thereof, if any, a signed counterpart, addressed to
each Holder and underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Companys independent public accountants, each in customary form and covering such matters of
the type customarily covered by opinions or comfort letters, as the case may be, as the Holders or such underwriters may reasonably request; and
(h) use commercially reasonable efforts to cause all such Registrable Securities to be listed in the Principal Trading Market, and on each
securities exchange on which similar securities issued by the Company are then listed.
8
4.5.
Conditions to Obligations of Company Under Registration Covenants
. The Companys
obligations to register the Registrable Securities owned by the Holders under
Article 4
are subject to the following conditions:
(a) The Company shall be entitled to postpone for up to 90 days the filing of any Registration Statement under
Section 4.2
, if at
the time it receives the request for registration the Board determines, in its sole discretion, that such registration and offering would (i) require premature disclosure of material information that the Company has a bona fide business purpose
for preserving as confidential, (ii) render the Company unable to comply with requirements under the Act or the Exchange Act or (iii) materially interfere with any significant financing, acquisition, corporate reorganization,
Company-initiated registration or other transaction involving the Company or any of its Affiliates;
provided
,
however
, that the Company may not invoke this right more than once in any twelve (12) month period; and
provided
further
that the Company shall not register any securities for its own account or that of any other stockholder during while such postponement is in effect. The Company shall promptly give the Holders written notice of such determination.
(b) The Company may require that the number of shares of Registrable Securities offered for sale by a Holder pursuant to a request for
registration under
Section 4.3
be decreased or excluded entirely if, in the opinion of Companys Investment Banking Firm, marketing factors require a limitation of the number of shares to be underwritten and the total amount of
securities that the Holders request pursuant to
Section 4.3
to be included in such offering exceeds the amount of securities that such Investment Banking Firm reasonably believes compatible with the success of such offering. If the
Company shall require such a reduction, each Holder shall have the right to withdraw from the offering. For purposes of
Section 4.2(d)
, a registration shall not be counted as effected if, as a result of the foregoing, more
than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such Registration Statement are actually excluded.
(c) If a Holder requests registration pursuant to
Section 4.2
, the Company will, subject to
Section 4.2(d)
, enter
into an underwriting agreement containing terms customarily included in underwriting agreements with an issuer for a secondary distribution.
(d) Each Holder that holds Registrable Securities included in the Registration Statement shall use commercially reasonable efforts to not
sell in excess of 10% of the then outstanding Common Stock to one Person or Group.
(e) Each Holder whose Registrable Securities are
being registered, and each underwriter designated by such Holder, will furnish to the Company such information and materials as the Company may reasonably request and as shall be required in connection with the action to be taken by the Company. To
the extent possible the Holders shall provide the Company with any information and materials required to obtain acceleration of the effective date of the Registration Statement.
(f) Each Holder that holds Registrable Securities included in the Registration Statement shall not (until further written notice) effect
sales thereof after receipt of written notice from the Company to suspend sales, to permit the Company to correct or update a Registration Statement or prospectus;
provided
,
however
, that the obligations of the Company with respect to
maintaining any Registration Statement current and effective shall be extended by a period of days equal to the period such suspension is in effect.
(g) At the end of the period during which the Company is obligated to keep any Registration Statement current and effective (and any
extensions thereof required by the preceding paragraph), and upon receipt of notice from the Company of its intention to remove from registration the securities covered by such Registration Statement that remain unsold, Holders of Registrable
Securities included in the Registration Statement shall discontinue sales of such Registrable Securities pursuant to such Registration Statement, and each such Holder shall notify the Company of the number of shares registered belonging to such
Holder that remain unsold promptly following receipt of such notice from the Company.
9
(h) In connection with any sale of Registrable Securities registered pursuant to
Article
4
that is effected by means of an Underwritten Offering, the Holders shall, if required by the underwriters, enter into customary agreements with the underwriters in connection with any such offering pursuant to which each Holder shall agree not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any Equity Securities,
whether now owned or hereafter acquired by such Holder or with respect to which such Holder has or hereafter acquires the power of disposition (collectively, the
Lock-Up Securities
) or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Equity Securities or
other securities, in cash or otherwise (in each case, other than those Registrable Securities included in such registration pursuant to this
Article 4
and subject to other customary exceptions) without the prior written consent of the Company
(and any underwriters of such offering), for a period designated by the Company in writing to the Holder, which period shall not begin more than 10 days prior to the effectiveness of the Registration Statement pursuant to which such offering shall
be made and shall not last more than 90 days after the effective date of such registration statement.
4.6.
Suspension of
Registration
. Notwithstanding anything to the contrary set forth in this Agreement, each Shareholder that intends to sell or distribute Registrable Securities registered under a Registration Statement pursuant to
Section 4.2
or
4.3
shall, at least two Business Days prior to such sale or distribution, provide written notice thereof to the Company (a
Sale Notice
) and such Holder shall not sell or distribute such Registrable Securities unless it has
timely provided such Sale Notice and until the expiration of such two-Business Day period. If, in response to a Sale Notice, the Company provides to such Holder a certificate signed by an executive officer of the Company stating that, in the good
faith judgment of the Company, such sale or distribution would require disclosure of non-public material information not otherwise required to be disclosed under Law and the Company has a bona fide business purpose for preserving the confidentiality
of such information (the
Restriction
), then the Company may, by written notice thereof to such Holder (a
Suspension Notice
), suspend use of such Registration Statement by such Holder until the expiration of the
Restriction (a
Suspension
). Upon receipt of a Suspension Notice, such Holder shall suspend all sales and distributions of Registrable Securities and suspend use of the applicable prospectus and any issuer free writing prospectuses
in connection with all such sales and distributions. The Company shall promptly notify such Holder upon the termination of a Suspension.
4.7.
Expenses
.
(a) All
expenses (other than Selling Expenses) incurred in connection with registrations, filings, qualifications and distributions of Registrable Securities pursuant to this
Article 4
including (i) all registration, filing and qualification
fees, (ii) underwriting expenses (other than discounts or selling commissions); (iii) printers and accounting fees and disbursements and (v) fees and disbursements of counsel for the Company, shall be borne and paid by the
Company. As used herein,
Selling Expenses
shall mean all underwriting discounts, selling commissions and stock transfer taxes attributable to the Holders sale of Registrable Securities pursuant to this Agreement and all fees
and disbursements of counsel for any Holder.
(b) Selling Expenses relating to the offer and sale of Registrable Securities registered
under the Act pursuant to this Agreement , including without limitation fees and disbursements of counsel to the selling Holders, shall be borne by the Holders, pro rata in proportion to the number of Registrable Securities included in such
registration for each such Holder; provided, however, that if any individual Holder retains separate counsel, it shall be responsible for 100% of the fees and disbursements of that separate counsel.
4.8.
Indemnification
.
(a) In the case of each registration effected by the Company pursuant to
Section 4.2
or
4.3
, to the extent permitted by
law, the Company (in such capacity, an
indemnifying party
) agrees to indemnify and hold
10
harmless each Holder, its officers and directors, stockholders, legal counsel, accountants, and each underwriter within the meaning of Section 15 of the Act for such Holder, against any and
all losses, claims, damages, costs, expenses, liabilities or actions to which they or any of them may become subject under the Act or any other statute or common law, including any amount paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the written consent of the Company, and to reimburse them for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such
losses, claims, damages, liabilities or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement relating to the sale of such securities, or any
post-effective amendment thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, if used prior to the effective date of such Registration Statement, or contained in the final prospectus or any free-writing prospectus (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement thereto) if used within the period during which Company is required to keep the Registration Statement to which such prospectus relates current under
Section 4.4
(including any extensions of such period as provided in
Section 4.5
), or the omission or alleged omission to state therein (if so used) a material fact necessary to make the statements therein, in light of the circumstances under which
they were made, not misleading;
provided
,
however
, that the indemnification agreement contained in this
Section 4.8(a)
shall not (x) apply to such losses, claims, damages, costs, expenses, liabilities or actions
arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished to the Company by
such Holder or underwriter for use in connection with preparation of the Registration Statement, any preliminary prospectus, final prospectus contained in the Registration Statement, any free-writing prospectus, or any amendment or supplement
thereto, or (y) inure to the benefit of any underwriter or any Person controlling such underwriter, if such underwriter failed to send or give a copy of the final prospectus to the Person asserting the claim at or prior to the written
confirmation of the sale of such securities to such Person and if the untrue statement or omission concerned had been corrected in such final prospectus.
(b) In the case of each registration effected by Company pursuant to
Section 4.2
or
4.3
above, each Holder and each
underwriter of the securities to be registered (each such party and such underwriters being referred to severally, in such capacity, as an
indemnifying party
) shall agree in the same manner and to the same extent as set forth in
Section 4.8(a)
to indemnify and hold harmless the Company, each Person (if any) who controls the Company within the meaning of Section 15 of the Act, the directors of the Company and those officers of the Company who shall have
signed any such Registration Statement, with respect to any untrue statement or alleged untrue statement in, or omission or alleged omission from, such Registration Statement or any post-effective amendment thereto or any preliminary prospectus or
final prospectus or any free-writing prospectus (as amended or supplemented, if amended or supplemented) contained in such Registration Statement, if such statement or omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such indemnifying party for use in connection with the preparation of such Registration Statement or any preliminary prospectus or final prospectus contained in such Registration Statement, any free-writing prospectus,
or any such amendment or supplement thereto;
provided
, however, that the obligation to indemnify shall be several, not joint and several, for each Holder and shall not exceed an amount equal to the net proceeds (after underwriting fees,
commissions or discounts) actually received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement.
(c) Each indemnified party will, promptly after receipt of written notice of the commencement of an action against such indemnified party in
respect of which indemnity may be sought under this
Section 4.8
, notify the indemnifying party in writing of the commencement thereof. In case any such action shall be brought against any indemnified party and it shall so notify an
indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, with the approval of any indemnified parties, which approval shall not be unreasonably withheld, and to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified
11
party, and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party
under this
Section 4.8
for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the foregoing, an indemnified
party shall have the right to employ separate counsel (reasonably satisfactory to the indemnifying party) to participate in the defense thereof, but the costs, fees and expenses of such counsel shall be the sole expense of such indemnified party
unless the named parties to such action or proceedings include both the indemnifying party and the indemnified party and the indemnifying party or such indemnified party shall have been advised by counsel that there are one or more legal defenses
available to it which are different from or additional to those available to the indemnifying party (in which case, if the indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the reasonable
expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of the indemnified party, as the case may be, it being understood, however, that the indemnifying party
shall not, in connection with any such action or proceeding or separate or substantially similar or related action or proceeding in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate counsel at any time for the indemnifying party and all indemnified parties). If the indemnifying party withholds consent to a settlement or proposed settlement by the indemnified party, it shall acknowledge to
the indemnified party its indemnification obligations hereunder. The indemnity agreements in this
Section 4.8
shall be in addition to any liabilities which the indemnifying parties may have pursuant to law.
(d) If the indemnification provided for in this
Section 4.8
from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any losses, claims, damages, costs, expenses, liabilities or actions referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, costs, expenses, liabilities or actions in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the
statements or omissions which result in such losses, claims, damages, costs, expenses, liabilities or actions, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or indemnified
party and that partys relative intent, knowledge, access to information supplied by such indemnifying party or indemnified party and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages, costs, expenses, liabilities and actions referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any
action, suit, proceeding or claim.
4.9.
Delay of Registration
. No Shareholder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this
Article 4
.
4.10.
Preservation of Rights
. The Company shall not (a) grant any registration rights to third parties which are more favorable
than or inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the Holders in
this Agreement.
ARTICLE 5.
CERTAIN AGREEMENTS OF SHAREHOLDERS AND COMPANY
5.1.
Negative Covenant regarding Hostile Activity
. During the Governance Restricted Period, each Shareholder shall not, without the
prior written consent of the Board and then only to the extent written consent has been obtained: directly or indirectly, solicit proxies, become a participant in a solicitation (as such terms are defined under Regulation 14A
under the Exchange Act), publicly support, knowingly facilitate, initiate, vote in favor of or sell or tender into any Change in Control or Change in Control Proposal that has not been approved
12
by a majority of the Board or by Independent Director Approval; provided, however, that nothing in this Agreement is intended to restrict the rights or actions of the Shareholder Designees in
their capacity as directors of the Company, including their participation in discussions with other members of the Board, any committee thereof, or Company management, or their decisions to vote as directors in favor of or against a Change in
Control Proposal or any other Company action.
5.2.
Voting Agreement
. During the Governance Restricted Period, each Shareholder
shall cause each share of Shareholder Common Stock owned by such Shareholder to be voted in accordance with the recommendation of the Board set forth in each proxy statement of the Company with regard to persons nominated to serve as members of the
Board in such proxy statement and for the election of no other Person; provided, however, that the Shareholders shall not be required to vote in favor of any Board nominees if the seating of such nominees would preclude the election or appointment
of the Shareholder Designees as contemplated in
Article 6
.
5.3.
Independent Director Approval
. Notwithstanding anything to
the contrary set forth in this Agreement, each Shareholder may publicly support, vote in favor of, approve and tender into any transaction to the extent such transaction has received Independent Director Approval.
5.4.
Acquisitions, Transfers and Votes in Contravention of Agreement
. Without limiting any remedies that the Company may be entitled
to:
(a) any Equity Securities acquired or transferred by a Shareholder in contravention of this Agreement may not be voted on any matter
on which shareholders of the Company are entitled to vote, any attempt to vote such Equity Securities shall be a breach of this Agreement and the Company shall not be required to count any such votes, if cast, in determining the result of
shareholder voting on any matter; and
(b) the Company shall not be required to count, in determining the result of shareholder voting on
any matter, any vote of an Equity Security Beneficially Owned by a Shareholder in contravention of this Agreement.
5.5.
Placement of
Legends and Entry of Stop Transfer Orders
.
(a) The Shareholders agree:
(i) that each book entry position evidencing the shares of Shareholder Common Stock shall bear the following legend:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND ARE SUBJECT TO THE RESTRICTIONS ON DISPOSITION SET FORTH IN AND TO THE OTHER PROVISIONS OF A SHAREHOLDER AGREEMENT, DATED [], 2017, BETWEEN QUAKER CHEMICAL CORPORATION AND THE OTHER SIGNATORIES THERETO. COPIES OF SUCH AGREEMENT ARE ON
FILE AT THE OFFICE OF QUAKER CHEMICAL CORPORATION.;
and such additional legends designed to ensure compliance with federal and state laws as
counsel for the Company may reasonably request; and
(ii) to the entry of stop transfer orders with the transfer agents of any shares of
Shareholder Common Stock against the transfer of any shares of Shareholder Common Stock, except in compliance with this Agreement.
(b)
The Company agrees that it will, upon receipt of an opinion from counsel reasonably satisfactory to the Company and the applicable Shareholder that it is appropriate to do, instruct the transfer agents
13
of any shares of Shareholder Common Stock to remove legends provided for in
Section 5.5(a)
and withdraw the stop transfer orders provided for in
Section 5.5(b)
with
respect to such shares of Shareholder Common Stock, (i) to the extent shares of Shareholder Common Stock are sold or otherwise disposed of in accordance with this Agreement and (ii) upon termination of this Agreement.
5.6.
Rule 144 Compliance
. With a view to making available to the Shareholders the benefits of Rule 144 under the Act
(
Rule 144
) and any other rule or regulation of the Commission that may at any time permit a shareholder to sell securities of the Company to the public without registration, the Company shall during the term of this Agreement:
(a) make and keep public information available, as those terms are understood and defined in Rule 144;
(b) use commercially reasonable efforts to file with the Commission all reports and other documents required of the Company under the Act and
the Exchange Act; and
(c) furnish to the Direct Shareholder and any other Shareholder or any of their respective Affiliates who hold
Registrable Securities (so long as the Direct Shareholder or such Shareholder or Affiliate owns Registrable Securities), promptly upon written request, a written statement by the Company as to its compliance with the reporting requirements of Rule
144 and of the Act and the Exchange Act.
5.7.
Transactions Approved by Independent Directors
. Notwithstanding any restrictions
contained herein, or in any other agreement between the Company and any Shareholder, any Shareholder may sell into any transaction that has received Independent Director Approval.
ARTICLE 6.
BOARD OF DIRECTORS
6.1. Appointment of Directors
. The parties acknowledge that the Board has appointed the [three]
2
individuals designated by the Direct Shareholder under the Purchase Agreement (who meet the qualifications identified in
Section 6.3(a)
) to fill the Board Vacancies, with each to serve on
a different class of the Board, and that at least one of such Shareholder Designees has been appointed to the Boards audit committee, compensation/management development committee, executive committee, and governance committee.
6.2.
Vacancies
. In the event of the death, resignation, retirement, disqualification or removal from office of any Shareholder Designee
for any reason, the Shareholders shall have the right, subject to
Section 6.3
, to designate a replacement for such Shareholder Designee who satisfies the requirements of
Sections 6.3(a)(i)-(iii)
to fill such vacancy, and the
Company shall use reasonable best efforts to cause the Board, subject to the directors fiduciary duties, to approve and appoint such replacement.
6.3.
Board and Committee Representation
.
(a) Subject to
Section 6.3(d)
, the Shareholders shall have the right to nominate a number of individuals for election to the
Board at the annual meetings of the Companys shareholders so as to provide the Shareholders with that percentage representation on the Board (based on the size of the Board at the relevant time of determination) as set forth below, provided
that each such nominee is then (i) qualified to serve as a member of the Board pursuant to the Companys corporate governance policies, the requirements of the Principal Trading Market and applicable Law, in each case, as in effect at the
applicable time and (ii) willing to serve as a member of the Board and to comply with the Companys corporate governance policies, the requirements of the Principal Trading Market and applicable Law (including, without limitation, by
filing any necessary or advisable reports with, or
2
|
NTD: Conforming changes to be made if number of directors changes pursuant to the mutual agreement of Buyer and the Sellers Representative.
|
14
providing information to, the Commission). Subject to the foregoing but notwithstanding the immediately following sentence, any such nominee may be an Affiliate of a Shareholder (other than
an officer or employee of a Shareholder or an Affiliate of a Shareholder). In addition, any such person shall not be eligible for nomination for election if he or she shall have been determined, by a majority of the Independent Directors, to be
an employee, officer, director or Affiliate of, or a consultant, representative, independent contractor or agent for, directly or indirectly, a Person that is a competitor of the Company. Each Shareholder Designee shall serve on a different
class of the Board. For purposes of this
Section 6.3
, the Shareholders shall have the right to nominate: three individuals for election to the Board for so long as their aggregate Percentage Ownership as of the record date for such
meeting exceeds 19%; two individuals for so long as such percentage exceeds 14%, and one individual for so long as such percentage exceeds 10%; provided that if the Company and the Sellers Representative (as defined in the Purchase Agreement)
mutually agree pursuant to the Purchase Agreement to set the size of the Board at nine directors, then the parties shall mutually agree on different Percentage Ownership percentages than those set forth in this sentence. For the avoidance of
doubt, subject to the Shareholders rights pursuant to
Section 6.3(a)
, the Company may set the size of the Board.
(b) The Company shall use reasonable best efforts to cause each member of the Board to, subject to their fiduciary duties, recommend, in each
proxy statement of the Company that sets forth nominees for election to the Board, that the shareholders of the Company vote in favor of the election to the Board of any individuals designated for nomination by the Shareholders pursuant to this
Article 6
. If a designated individual nominated by the Shareholders is not elected to the Board by the shareholders of the Company, the Company shall use reasonable best efforts to cause the Board, subject to the directors
fiduciary duties, to appoint a replacement designated by the Shareholders to serve instead of such individual.
(c) For so long as any
Shareholder Designee is on the Board a Shareholder Designee shall have the right to be a member of each committee of the Board on which he or she is qualified to serve as a member of the committee pursuant to the requirements of the Principal
Trading Market, applicable Law and the Companys corporate governance policies, in each case, as in effect at the applicable time.
(d) In the event that, at any time, the number of Shareholder Designees exceeds the number of individuals that the Shareholders are entitled
to nominate for election to the Board pursuant to
Section 6.3(a)
, the Shareholders shall cause all Shareholder Designees in excess of such number to immediately resign from the Board (and all committees thereof) so that the number of
Shareholder Designees does not exceed the number of individuals that the Shareholders are entitled to nominate for election to the Board pursuant to
Section 6.3(a)
. In the event that, at any time, the Percentage Ownership of the
Shareholders is less than 10%, the Shareholders shall cause all Shareholder Designees to immediately resign from the Board (and from all committees thereof) and the Shareholders shall have no right to nominate under this Agreement any representative
for election to the Board (and the Company shall have no obligation with respect to any representative of the Shareholders being nominated to the Board). The Company acknowledges that a Shareholder Designee is eligible to be elected as lead
independent director by the Independent Directors, provided that he or she satisfies the applicable requirements of such position of Law, and of the Principal Trading Market.
6.4.
Removal
. Nothing in this Agreement shall be construed to impair the rights that the shareholders of the Company may have to remove
any member of the Board with or without cause.
ARTICLE 7.
NO PRIOR OWNERSHIP
7.1.
No Prior Ownership
. The Shareholders jointly and severally represent and warrant to the Company that, as of the date hereof, the
only Equity Securities or other securities (including convertible securities) of the Company owned or Beneficially Owned by any Shareholder is the Shareholder Common Stock.
15
ARTICLE 8.
TERMINATION
8.1.
Termination
. This Agreement shall terminate and be of no further force and effect upon the written agreement of the Company and
the Shareholders;
provided
that, each covenant and restriction shall terminate on the termination date specified within such covenant or restriction, if any;
provided further
, that such termination shall not release any party of any
liability for any breach of this Agreement occurring prior to such termination.
ARTICLE 9.
MISCELLANEOUS
9.1.
Specific Enforcement
. The parties agree that irreparable damage would occur if any provision of this Agreement were not performed
in accordance with the terms hereof and that the parties shall be entitled to seek specific performance of the terms hereof, in addition to any other remedy to which they are entitled at law or in equity. The parties further agree that no party
hereto shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this
Section 9.1
, and each party hereto irrevocably waives any right it may
have to require the obtaining, furnishing or posting of any such bond or similar instrument.
9.2.
Severability
. If any term or
provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or
provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
9.3.
Assignment; Successors
. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. None of the parties may assign its rights or obligations hereunder without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed; provided, however,
that if a Shareholder transfers any shares of the Company to an Affiliate pursuant to
Section 2.2(c)
or
Section 2.3(a)
, and such Affiliate agrees in writing to be bound by all of the obligations of such transferring
Shareholder hereunder, then no such consent shall be required and the rights of the Shareholder under this Agreement in respect of the transferred shares shall be assigned to the Affiliate transferee. No assignment shall relieve the assigning party
of any of its obligations hereunder.
9.4.
Amendments
. This Agreement may only be amended, modified or supplemented (and any right
hereunder extended or waived) by the parties hereto by an agreement in writing signed by all parties.
9.5.
Notices
. All notices,
requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the
addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on
the next Business Day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the
respective parties at the
16
following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this
Section 9.5
):
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To the Company:
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[●]
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With a copy to:
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Drinker, Biddle & Reath LLP
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One Logan Square
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Suite 2000
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Philadelphia, Pennsylvania 19103
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Facsimile: (215) 988-2757
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E-mail: Douglas.Raymond@dbr.com
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Attention: F. Douglas Raymond, III
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To any Shareholder:
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[●]
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With a copy (which shall not constitute notice) to:
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Mayer Brown LLP
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1221 Avenue of the Americas
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New York, New York 10020
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Facsimile: (212) 262-1910
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E-mail: edavis@mayerbrown.com
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Attention: Edward A. Davis
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9.6.
Attorneys Fees
. If any action or proceeding shall be commenced to enforce this Agreement or
any right arising in connection with this Agreement, the prevailing party in such action or proceeding shall be entitled to recover from the other party the reasonable attorneys fees, costs and expenses incurred by such prevailing party in
connection with such action or proceeding.
9.7.
Integration
. This Agreement and the other Transaction Documents to which the
parties hereto are parties constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both
written and oral, with respect to such subject matter.
9.8.
Waivers
. No failure or delay on the part of either party in the
exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available.
9.9.
Governing Law
.
(a)
This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to any choice or conflict of law provision or rule (whether of the Commonwealth of Pennsylvania or any
other jurisdiction).
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA IN EACH CASE LOCATED IN THE CITY OF PHILADELPHIA AND COUNTY OF
PHILADELPHIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR
17
OTHER DOCUMENT BY MAIL TO SUCH PARTYS ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL
ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER
VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 9.9(C)
.
9.10.
Counterparts
. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which
together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy
of this Agreement.
9.11.
Cooperation
. The parties hereto shall each perform such acts, execute and deliver such instruments and
documents, and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement.
9.12.
Headings
. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
18
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed on the date first
above written.
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COMPANY
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QUAKER CHEMICAL CORPORATION
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By:
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Name:
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Title:
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[Shareholder Agreement Signature
Page]
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SHAREHOLDERS
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GULF HOUGHTON LUBRICANTS LTD.
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By:
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Name:
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Title:
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GULF OIL INTERNATIONAL, LTD.
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By:
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Name:
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Title:
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GOCL CORPORATION LIMITED
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By:
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Name:
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Title:
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[Shareholder Agreement Signature
Page]
Annex F
EXHIBIT D FINAL FORM
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
THIS NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this
Agreement
), dated as of
[ ] (the
Effective Date
), is entered into by Quaker Chemical Corporation (
Buyer
), a Pennsylvania corporation, Gulf
Houghton Lubricants Ltd., a company incorporated in the Cayman Islands (
Gulf Houghton
), Gulf Oil International Limited, a company incorporated in the Cayman Islands (
Gulf International
), and GOCL Corporation
Limited, a public limited company incorporated in India (
Gulf Oil
and, together with Gulf Houghton and Gulf International, the
Sellers
and each, a
Seller
). In addition, Gulf Oil Lubricants
India, Ltd, a public limited company incorporated in India (
Gulf India
), is executing this Agreement solely for purposes of
Section 1(c)
.
BACKGROUND
WHEREAS, Gulf
Houghton owns of the outstanding ordinary shares (the
Shares
) in Global Houghton Ltd., an exempted company incorporated under the Laws
of the Cayman Islands (the
Company
); Gulf International owns approximately 90% of Gulf Houghton; and Gulf Oil is an indirect owner of approximately 10% of Gulf Houghton.
WHEREAS, The Company and its subsidiaries are engaged in the business of manufacturing, distributing and/or selling one or more of the
following formulated chemical specialty product lines: fire resistant hydraulic fluids, semi-synthetic and specialty metalworking fluids, cleaning fluids, cold-rolling oils, hot-rolling oils, and specialty industrial greases (such business, as
conducted by the Company and its Subsidiaries as of the Effective Date, the
Company Business
).
WHEREAS, Buyer and its
subsidiaries are engaged in the business of manufacturing, distributing and/or selling the following formulated chemical specialty product lines or chemical management services (
CMS
), (i) rolling lubricants (used by
manufacturers of steel in the hot and cold rolling of steel and by manufacturers of aluminum in the hot rolling of aluminum); (ii) corrosion preventives (used by steel and metalworking customers generally to protect metal during manufacture,
storage, and shipment); (iii) metal finishing compounds (used to prepare metal surfaces for special treatments such as, but not limited to, galvanizing and tin plating and to prepare metal for further processing); (iv) machining and
grinding compounds (typically used by customers in cutting, shaping, and grinding metal parts which require special treatment to enable them to tolerate the manufacturing process, achieve closer tolerance, and improve tool life); (v) forming
compounds (used generally to facilitate the drawing and extrusion of metal products); (vi) bio-lubricants (typically used in machinery in the forestry and construction industries); (vii) hydraulic fluids (used generally by steel,
metalworking, mining, and other customers to operate hydraulic equipment); (viii) chemical milling maskants for the aerospace industry; (ix) temporary and permanent coatings for metal and concrete products, tubes and pipes and other
applications; (x) construction products, such as flexible sealants and protective coatings, for various applications; (xi) various specialty greases used in automobile, industrial and various other applications; (xii) various die
casting lubricants and mold release agents; (xiii) various dust suppressants, ground control agents and roofing products used in mining; and (xiv) programs to provide CMS (such business, as conducted by Buyer and its subsidiaries as of the
Effective Date, the
Existing Business
and, together with the Company Business, the
Combined Business
).
WHEREAS, Buyer, Gulf Houghton and other shareholders of the Company are parties to a Share Purchase Agreement dated as of April __, 2017,
under which Buyer is acquiring the Shares (the
Purchase Agreement
). Capitalized terms used herein but not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement.
WHEREAS, Sellers, together with the Company, have been substantially involved in and with the Companys operations and management and
possess trade secrets and other confidential information relating to the Company Business and the Companys clients, customers, vendors, suppliers and operations.
WHEREAS, it is integral to Buyers acquisition of the Company Business and a condition
precedent to the closing of the transactions contemplated by the Purchase Agreement that the Sellers enter into this Agreement with Buyer to provide for the protection of the Combined Businesss customer and vendor relationships, trade secrets,
confidential information and other business operations. Pursuant to the Purchase Agreement, Gulf Houghton shall receive cash consideration and shares of Buyers capital stock in exchange for the Shares owned by Gulf Houghton and as inducement
for Gulf Houghton and the other Sellers to enter into this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained in this Agreement and in the Purchase Agreement, the parties, intending to be legally bound, agree as follows:
1.
Confidentiality; Non-competition; Non-solicitation
.
(a) From and after the date hereof, each Seller shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to
cause its or their respective Representatives to hold, in confidence any and all information, whether written or oral, concerning Buyer, the Company and the Company Subsidiaries, except to the extent that such Seller can show that such information:
(i) is generally available to and known by the public through no fault of any Seller or any of their respective Affiliates or Representatives or (ii) is lawfully acquired by such Seller, any of its Affiliates or their respective
Representatives from and after the date hereof from sources that are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If any Seller or any of its Affiliates or their respective Representatives are
compelled to disclose any information by judicial or administrative process or by other requirements of Law, such Seller shall promptly notify Buyer in writing and shall disclose only that portion of such information that such Seller is advised by
its counsel is legally required to be disclosed,
provided that
such Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such
information.
(b) Each Seller agrees that for a period commencing on the Effective Date and ending two years after the Closing Date (the
Non-Compete Period
), it shall not, other than solely through its direct or indirect ownership of Buyers capital stock or any other interests in Buyer, directly, or indirectly, including through or on behalf of a subsidiary,
anywhere in the world, excluding India: (
i
) own, manage, operate or control any business which competes with any Combined Business or (
ii
) be or become a shareholder, partner, member or owner of any Person who is engaged in
any Combined Business;
provided
,
however
that nothing in this Agreement shall:
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(i)
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prohibit or restrict any Seller, directly or indirectly, from owning, as a passive investor, not more than five (5%) percent collectively and in the aggregate of any class of outstanding publicly traded securities
of any Person so engaged;
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(ii)
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prohibit or restrict any Seller, directly or indirectly, from engaging in such Sellers business as conducted on the Effective Date and reasonable extensions thereof, which may include routine, day-to-day
transactions with any entity, and
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(iii)
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apply to or restrict any business of which a Seller acquires control after the Effective Date provided that the acquired business did not receive more than $25,000,000 of its aggregate net sales (as measured during the
12 full calendar months prior to such acquisition) from product lines included within the definition of Company Business.
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Each Seller
agrees that this covenant is reasonable with respect to its duration, geographical area and scope. For purposes of this Agreement, the term
control
(including the terms controlled by and under common control
with) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
2
(c) Gulf Oil and Gulf India each agree during the Non-Compete Period not to acquire, directly or
indirectly, control of any businesses involved in, or otherwise competing with, the business of the Combined Business from any entity on
Schedule 1
hereto.
(d) Each Seller agrees that for a period commencing on the Effective Date and ending three years after the Closing Date (the
Non-Solicit Period
), each Seller shall not, directly or indirectly: (i) induce, solicit, recruit or attempt to persuade any employee of the Combined Business to terminate his or her employment with the Buyer or any of its
subsidiaries, or (ii) solicit the employment of any of the employees of the Combined Business. Notwithstanding the above, Sellers shall not be restricted from (1) soliciting for employment or hiring former employees of Buyer or the Company
(including their respective subsidiaries) whose employment was terminated by Buyer or the Company (including their respective subsidiaries) at least six months prior to such initial solicitation by such Seller or (2) soliciting employees of the
Combined Business by means of a general solicitation through a public medium or general or mass mailing that is not specifically targeted at employees or former employees of the Combined Business;
provided
,
however
, that this clause
(2) shall not permit any Seller to hire any such employees during the Non-Solicit Period.
(e) It is the intention of the parties
that the covenants contained in this
Section 1
shall be enforced to the greatest extent (but to no greater extent) in time, area and degree of participation as is permitted by the Law of that jurisdiction whose Law is applicable to any
acts allegedly in breach of such covenants. To this end, the parties agree that the covenants contained in this
Section 1
shall be construed to extend in time and territory and with respect to degree of participation only so far as they
may be enforced in such jurisdiction, and that the covenants contained in this
Section 1
are to that end hereby declared divisible and severable. It being the purpose of this
Section 1
to govern competition by the Sellers and
their respective subsidiaries, the non-competition covenants contained in this
Section 1
shall be governed by and construed according to the Law of all the jurisdictions in which competition in breach of this Agreement is alleged to have
occurred or to be threatened that best gives them effect.
2.
Notices
. All notices, requests, consents, claims, demands, waivers
and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized
overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal
business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent 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 2
):
To the Buyer:
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Quaker Chemical Corporation
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Facsimile: [ ]
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E-mail: [ ]
|
Attention: [ ]
|
3
with a copy (which shall not constitute notice) to:
|
Drinker, Biddle & Reath LLP
One Logan
Square
Suite 2000
Philadelphia, Pennsylvania
19103
|
Facsimile: (215) 988-2757
|
E-mail: Douglas.Raymond@dbr.com
|
Attention: F. Douglas Raymond, III
|
If to any of the Sellers:
|
[ ]
|
Facsimile: [ ]
|
E-mail: [ ]
|
Attention: [ ]
|
with a copy (which shall not constitute notice) to:
|
Mayer Brown LLP
1221 Avenue of the Americas
New York, New York 10020
Facsimile: (212)
262-1910
E-mail: edavis@mayerbrown.com
Attention: Edward A. Davis
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3.
Successors and Assigns
. This Agreement shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns;
provided
that this Agreement shall not be assignable or otherwise transferable by any party without the prior written consent of the other party (which consent shall not be unreasonably
withheld or delayed) and any purported assignment or transfer without such consent shall be null and void. No assignment shall relieve the assigning party of any of its obligations hereunder.
4.
Governing Law
.
(a)
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE COMMONWEALTH OF PENNSYLVANIA OR ANY
OTHER JURISDICTION).
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA IN EACH CASE LOCATED IN THE CITY OF PHILADELPHIA AND COUNTY OF
PHILADELPHIA, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTYS ADDRESS SET FORTH HEREIN SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT. THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND
IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
4
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT
OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY AND (D) SUCH
PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 4(C)
.
5.
Injunctive Relief; Attorneys Fees
. Each Seller agrees that in the event of a breach of this Agreement, the damage to Buyer will be
inestimable and that therefore any remedy at Law or in monetary damages shall be inadequate. Accordingly, the parties agree that Buyer shall, in addition to monetary damages incurred by reason of any such breach or potential breach, without the
necessity of posting any bond or similar instrument (and Sellers hereby irrevocably waive any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument) be entitled to seek injunctive relief (including
specific performance) against the Sellers for breach of this Agreement. If any action or proceeding shall be commenced to enforce this Agreement or any right arising in connection with this Agreement, the prevailing party in such action or
proceeding shall be entitled to recover from the other party the reasonable attorneys fees, costs and expenses incurred by such prevailing party in connection with such action or proceeding.
6.
Entire Agreement
. This Agreement and the other Transaction Documents to which the parties hereto are parties constitute the sole and
entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.
7.
Amendment Waivers, etc.
No amendment, modification or discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described
in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. Neither the waiver by a party of a breach of or a default under any of the provisions of this Agreement, nor the
failure by any party, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. The rights and remedies herein provided are cumulative and none is exclusive of any other, or of any rights or remedies that any party may otherwise have at law or in equity.
8.
Severability
. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is
invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest extent possible.
9.
Counterparts; Effectiveness; Third
Party Beneficiaries
. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which shall together constitute one and the same instrument. This Agreement shall become effective when each party shall
have received a counterpart hereof
5
signed by the other party. Until and unless each party has received a counterpart hereof signed by the other party, this Agreement shall have no effect and none of the parties shall have any
right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication). Facsimiles, e-mail transmission of .pdf signatures or other electronic copies of signatures shall be deemed to be original counterparts.
No provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the parties and their respective successors and permitted assigns.
10.
Cooperation; Further Assurances
. Each of the parties shall execute such further instruments and take such other actions as the
other party shall reasonably request in order to effectuate the purposes of this Agreement.
11.
Interpretation
. The words
hereof, herein and hereunder and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Sections are to Sections of this Agreement unless otherwise specified. Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation, whether or
not they are in fact followed by those words or words of like import. Writing, written and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form.
References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively. Any reference to days
means calendar days unless Business Days are expressly specified. If any action under this Agreement is required to be done or taken on a day that is not a Business Day, then such action shall be required to be done or taken not on such day but on
the first succeeding Business Day thereafter. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
[
Signature page follows
]
6
IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the Effective
Date.
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QUAKER CHEMICAL CORPORATION
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By:
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Name:
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Title:
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GULF OIL INTERNATIONAL, LTD.
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By:
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Name:
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Title:
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GOCL CORPORATION LIMITED
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By:
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Name:
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Title:
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GULF OIL LUBRICANTS INDIA, LTD.
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By:
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Name:
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Title:
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Schedule 1
Competitors
1.
Hardcastle Petrofer
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PRELIMINARY PROXY MATERIAL
SUBJECT TO COMPLETION
QUAKER CHEMICAL CORPORATION
ONE QUAKER PARK
901 E. HECTOR STREET
CONSHOHOCKEN, PENNSYLVANIA 19428
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VOTE BY INTERNET
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www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. ET the day before the cut-off date or
meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards
and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials
electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
Use any
touch-tone telephone to transmit your voting instructions up until 11:59 P.M. ET the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
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VOTE BY MAIL
Mark, sign and date your
proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY
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QUAKER CHEMICAL CORPORATION
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The Board of Directors recommends you vote FOR proposals
No. 1, 2, and 3.
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For
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Against
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Abstain
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1.
Approval of Charter Amendment.
To approve the amendment of our Articles of Incorporation that provides that every holder of common stock, $1.00 par value per
share, of the Company will be entitled to one vote for each share of Common Stock standing in its name on the books of the Company.
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☐
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☐
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☐
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2.
Approval of
Issuance
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To approve the issuance of either (i) a number of shares of Common Stock comprising 24.5% of the Common Stock outstanding
immediately after the closing of the Companys purchase of all of the outstanding share capital of Global Houghton Ltd. (Houghton), an exempted company incorporated under the laws of the Cayman Islands, from Gulf Houghton
Lubricants, Ltd., an exempted company incorporated under the laws of the Cayman Islands, and certain current and former members of the management of Houghton (collectively with Gulf, the Sellers) pursuant to a Share Purchase Agreement,
dated as of April 4, 2017, by and among the Company, the Sellers, Houghton and Gulf as representative for the Sellers, or (ii) a number of shares of voting preferred stock of the Company (the Preferred Stock) having economic, voting and
other rights equivalent to the shares of Common Stock that would have been issued if the Charter Amendment had been approved, which Preferred Stock will be issued as Consideration Shares in lieu of Common Stock if the Charter Amendment is not
approved by the Companys shareholders at the Meeting;
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☐
☐
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☐
☐
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☐
☐
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3.
Approval of
Adjournment
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To approve the adjournment of the Meeting, if necessary to solicit additional proxies if there are not sufficient
votes to approve the foregoing proposals at the time of the Meeting
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NOTE:
In their discretion, the proxies are authorized to vote upon such other matters as may properly come before
the meeting and any adjournment or postponement thereof.
Authorized
Signatu
r
es:
This section must be completed for your vote to be counted.
Please date this Proxy and sign it exactly as your name(s) appear(s) hereon. When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee, guardian or other fiduciary, please indicate your capacity. If you sign for a corporation, please print full corporate name and indicate capacity of duly authorized officer executing on behalf of the
corporation. If you sign for a partnership, please print full partnership name and indicate capacity of duly authorized person executing on behalf of the partnership.
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Signature [PLEASE SIGN WITHIN BOX] Date
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Signature (Joint Owners)
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Date
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QUAKER CHEMICAL CORPORATION
Special Meeting of the Shareholders
[ ] [ ], 2017
8:30 A.M. Eastern Time
Important Notice Regarding the Availability of Proxy Materials for the
Special Meeting:
The Notice & Proxy Statement ar
e available at www.proxyvote.com
This proxy is solicited by the Board of Directors for
use at the
Special Meeting of the Shareholders on [ ], 2017
and any adjournment thereof.
The undersigned stockholder(s) hereby revoke(s) all prior proxies and appoint(s)
[ ] and [ ], and each of them, with full power of substitution, as attorneys and proxies for and in the name and place of, the undersigned, and hereby
authorize(s) each of them to represent and to vote all of the shares of common stock which the undersigned is entitled to vote at the Special Meeting of Shareholders of Quaker Chemical Corporation to be held at One Quaker Park, 901 E. Hector Street,
Conshohocken, Pennsylvania 19428 at 8:30 a.m., ET, on [ ], [ ], 2017, and at any adjournments thereof, upon the matters set forth in the Notice of Special
Meeting of Shareholders and Proxy Statement and any other matters that may properly come before the meetings or adjournments thereof, receipt of which is hereby acknowledged.
SHARES REPRESENTED BY THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE VOTED AT THE SPECIAL
MEETING AND AT ANY ADJOURNMENTS THEREOF IN THIS MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO CONTRARY INDICATION IS MADE, THE PROXY WILL BE VOTED FOR PROPOSALS 1, 2, AND 3.
Continued and to be signed on reverse side