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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2017
or
◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36473
Trinseo S.A.(Exact name of registrant as specified in its charter)
Luxembourg N/A(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification Number)
1000 Chesterbrook BoulevardSuite 300
Berwyn, PA 19312(Address of Principal Executive Offices)
(610) 240-3200(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). Yes ☒ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growthcompany” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ◻
Non-accelerated filer ◻ (Do not check if a smaller reporting company) Smaller reporting company ◻ Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ☒ As of August 1, 2017, there were 43,772,953 of the registrant’s ordinary shares outstanding.
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TABLE OF CONTENTS
Page
Part I Financial Information Item 1. Financial Statements 4 Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 (Unaudited) 4
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017and 2016 (Unaudited) 5
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six monthsended June 30, 2017 and 2016 (Unaudited) 6
Condensed Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2017and 2016 (Unaudited) 7
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016(Unaudited) 8
Notes to Condensed Consolidated Financial Statements (Unaudited) 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 3. Quantitative and Qualitative Disclosures about Market Risk 39 Item 4. Controls and Procedures 40 Part II Other Information Item 1. Legal Proceedings 40 Item 1A. Risk Factors 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41 Item 3. Defaults Upon Senior Securities 41 Item 4. Mine Safety Disclosures 42 Item 5. Other Information 42 Item 6. Exhibits 42 Signatures Exhibit Index
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Trinseo S.A.Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2017
Unless otherwise indicated or required by context, as used in this Quarterly Report on Form 10-Q (“Quarterly Report”),the term “Trinseo” refers to Trinseo S.A. (NYSE: TSE), a public limited liability company (société anonyme) existing under thelaws of Luxembourg, and not its subsidiaries. The terms “Company,” “we,” “us” and “our” refer to Trinseo and its consolidatedsubsidiaries, taken as a consolidated entity. All financial data provided in this Quarterly Report is the financial data of theCompany, unless otherwise indicated.
Prior to the formation of the Company, our business was wholly owned by The Dow Chemical Company (together withother affiliates, “Dow”). In June 2010, investment funds advised or managed by affiliates of Bain Capital Partners, LLC (“BainCapital”) acquired an ownership interest in our business through an indirect ownership interest in us. During 2016, Bain CapitalEverest Manager Holding SCA (“the former Parent”), an affiliate of Bain Capital, sold its entire ownership interest in theCompany pursuant to the Company’s shelf registration statement filed with the SEC.
Definitions of capitalized terms not defined herein appear in the notes to our condensed consolidated financial statements. The Company may distribute cash to shareholders under Luxembourg law via repayments of equity or an allocation of statutoryprofits. Since the Company began paying dividends, all distributions have been considered repayments of equity underLuxembourg law.
Cautionary Note on Forward-Looking Statements
This Quarterly Report contains forward-looking statements including, without limitation, statements concerning plans,objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements, whichare not statements of historical facts. Forward-looking statements may be identified by the use of words like “expect,”“anticipate,” “intend,” “forecast,” “outlook,” “will,” “may,” “might,” “potential,” “likely,” “target,” “plan,” “contemplate,”“seek,” “attempt,” “should,” “could,” “would” or expressions of similar meaning. Forward-looking statements reflectmanagement’s evaluation of information currently available and are based on our current expectations and assumptionsregarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, theyare subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Specific factors that mayimpact performance or other predictions of future actions have, in many but not all cases, been identified in connection withspecific forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed inour Annual Report on Form 10-K for the year ended December 31, 2016 (“Annual Report”) filed with the Securities andExchange Commission (“SEC”) on March 1, 2017 under Part I, Item IA— “Risk Factors”, and elsewhere within this QuarterlyReport.
As a result of these or other factors, our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore,we caution you against relying on these forward-looking statements. The forward-looking statements included in this QuarterlyReport are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-lookingstatement as a result of new information, future events or otherwise, except as otherwise required by law.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments tothose reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free ofcharge through the Investor Relations section of our website, www.trinseo.com, as soon as reasonably practicable after thereports are electronically filed or furnished with the U.S. Securities and Exchange Commission. We provide this website andinformation contained in or connected to it for informational purposes only. That information is not a part of this QuarterlyReport.
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PART I —FINANCIAL INFORMATIO N
Item 1. Financial Statements
TRINSEO S.A.
Condensed Consolidated Balance Sheet s (In thousands, except per share data)
(Unaudited)
June 30, December 31, 2017 2016 Assets Current assets Cash and cash equivalents $ 399,928 $ 465,114 Accounts receivable, net of allowance for doubtful accounts (June 30, 2017: $3,670;December 31, 2016: $3,138) 723,264 564,428
Inventories 473,936 385,345 Other current assets 14,366 17,999 Total current assets 1,611,494 1,432,886
Investments in unconsolidated affiliates 153,077 191,418 Property, plant and equipment, net of accumulated depreciation (June 30, 2017:$479,983; December 31, 2016: $420,343) 556,481 513,757
Other assets Goodwill 31,990 29,485 Other intangible assets, net 178,270 177,345 Deferred income tax assets—noncurrent 37,095 40,187 Deferred charges and other assets 32,847 24,412 Total other assets 280,202 271,429
Total assets $ 2,601,254 $ 2,409,490 Liabilities and shareholders’ equity Current liabilities Short-term borrowings and current portion of long-term debt $ 5,000 $ 5,000 Accounts payable 394,033 378,029 Income taxes payable 34,066 23,784 Accrued expenses and other current liabilities 127,322 135,357 Total current liabilities 560,421 542,170
Noncurrent liabilities Long-term debt, net of unamortized deferred financing fees 1,192,844 1,160,369 Deferred income tax liabilities—noncurrent 30,325 24,844 Other noncurrent obligations 257,391 237,054 Total noncurrent liabilities 1,480,560 1,422,267
Commitments and contingencies (Note 8) Shareholders’ equity Ordinary shares, $0.01 nominal value, 50,000,000 shares authorized (June 30, 2017:48,778 shares issued and 43,733 shares outstanding; December 31, 2016: 48,778shares issued and 44,301 shares outstanding) 488 488
Additional paid-in-capital 575,011 573,662 Treasury shares, at cost (June 30, 2017: 5,045 shares; December 31, 2016: 4,477 shares) (258,913) (217,483) Retained earnings 406,270 258,540 Accumulated other comprehensive loss (162,583) (170,154) Total shareholders’ equity 560,273 445,053
Total liabilities and shareholders’ equity $ 2,601,254 $ 2,409,490
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TRINSEO S.A.
Condensed Consolidated Statements of Operation s (In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Net sales $ 1,145,199 $ 969,694 $ 2,249,689 $ 1,863,778 Cost of sales 1,019,992 799,954 1,926,680 1,554,366
Gross profit 125,207 169,740 323,009 309,412 Selling, general and administrative expenses 55,384 52,249 115,820 106,735 Equity in earnings of unconsolidated affiliates 29,927 38,602 49,222 73,628
Operating income 99,750 156,093 256,411 276,305 Interest expense, net 18,719 18,814 36,919 37,710 Other expense (income), net 2,072 12,875 (6,061) 15,544
Income before income taxes 78,959 124,404 225,553 223,051 Provision for income taxes 18,800 28,600 48,100 50,500
Net income $ 60,159 $ 95,804 $ 177,453 $ 172,551 Weighted average shares- basic 43,902 46,952 43,979 47,803 Net income per share- basic $ 1.37 $ 2.04 $ 4.03 $ 3.61 Weighted average shares- diluted 44,995 47,857 45,165 48,554 Net income per share- diluted $ 1.34 $ 2.00 $ 3.93 $ 3.55 Dividends per share $ 0.36 $ 0.30 $ 0.66 $ 0.30
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TRINSEO S.A.
Condensed Consolidated Statements of Comprehensive Income (Loss ) (In thousands, unless otherwise stated)
(Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Net income $ 60,159 $ 95,804 $ 177,453 $ 172,551 Other comprehensive income (loss), net of tax (tax amountsshown in millions below for the three and six monthsended June 30, 2017 and 2016, respectively): Cumulative translation adjustments 18,974 (11,005) 23,175 2,418 Net gain (loss) on foreign exchange cash flow hedges (12,966) 6,029 (17,776) (1,396) Pension and other postretirement benefit plans:
Net loss arising during period (net of tax of: 2017—$0and $0; 2016—$0 and ($0.5)) — — — (800)
Amounts reclassified from accumulated othercomprehensive income (loss) 796 539 2,172 1,079
Total other comprehensive income (loss), net of tax 6,804 (4,437) 7,571 1,301 Comprehensive income $ 66,963 $ 91,367 $ 185,024 $ 173,852
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TRINSEO S.A.
Condensed Consolidated Statements of Shareholders’ Equit y (In thousands, except per share data)
(Unaudited)
Shares Shareholders' Equity
OrdinaryShares
Outstanding Treasury
Shares Ordinary
Shares
Additional Paid-InCapital
TreasuryShares
AccumulatedOther
ComprehensiveIncome (Loss)
RetainedEarnings
(AccumulatedDeficit) Total
Balance at December 31, 2016 44,301 4,477 $ 488 $ 573,662 $ (217,483) $ (170,154) $ 258,540 $ 445,053 Net income — — — — — — 177,453 177,453 Other comprehensive income — — — — — 7,571 — 7,571 Stock-based compensationactivity 327 (327) — 1,349 11,624 — — 12,973
Purchase of treasury shares (895) 895 — — (53,054) — — (53,054) Dividends on ordinary shares($0.66 per share) — — — — — — (29,723) (29,723)
Balance at June 30, 2017 43,733 5,045 $ 488 $ 575,011 $ (258,913) $ (162,583) $ 406,270 $ 560,273 Balance at December 31, 2015 48,778 — $ 488 $ 556,532 $ — $ (149,717) $ (18,289) $ 389,014 Adoption of new accountingstandard — — — 915 — — (915) —
Net income — — — — — — 172,551 172,551 Other comprehensive income — — — — — 1,301 — 1,301 Stock-based compensationactivity 16 (16) — 8,143 686 — — 8,829
Purchase of treasury shares (2,391) 2,391 — — (94,362) — — (94,362) Dividends on ordinary shares($0.30 per share) — — — — — — (13,920) (13,920)
Balance at June 30, 2016 46,403 2,375 $ 488 $ 565,590 $ (93,676) $ (148,416) $ 139,427 $ 463,413
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TRINSEO S.A.
Condensed Consolidated Statements of Cash Flow s (In thousands)
(Unaudited)
Six Months Ended June 30, 2017 2016 Cash flows from operating activities Net income $ 177,453 $ 172,551 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 51,044 47,973 Amortization of deferred financing fees and issuance discount 2,719 3,134 Deferred income tax 8,862 10,684 Stock-based compensation expense 7,687 8,816 Earnings of unconsolidated affiliates, net of dividends 4,709 (12,287) Unrealized net losses on foreign exchange forward contracts 5,011 3,965 Loss (gain) on sale of businesses and other assets (10,275) 12,915
Changes in assets and liabilities Accounts receivable (137,696) (52,954) Inventories (66,802) (16,685) Accounts payable and other current liabilities (9,779) (1,098) Income taxes payable 9,089 (1,005) Other assets, net (6,215) (7,060) Other liabilities, net 781 10,758
Cash provided by operating activities 36,588 179,707 Cash flows from investing activities
Capital expenditures (74,286) (53,153) Proceeds from the sale of businesses and other assets 43,680 129 Distributions from unconsolidated affiliates 857 4,809
Cash used in investing activities (29,749) (48,215) Cash flows from financing activities
Short-term borrowings, net (126) (126) Repayments of term loans (2,500) (2,500) Purchase of treasury shares (56,415) (94,362) Dividends paid (26,473) — Proceeds from exercise of option awards 5,984 87 Withholding taxes paid on restricted share units (288) (74)
Cash used in financing activities (79,818) (96,975) Effect of exchange rates on cash 7,793 (565) Net change in cash and cash equivalents (65,186) 33,952 Cash and cash equivalents—beginning of period 465,114 431,261 Cash and cash equivalents—end of period $ 399,928 $ 465,213
The accompanying notes are an integral part of these condensed consolidated financial statements.
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TRINSEO S.A.
Notes to Condensed Consolidated Financial Statement s (Dollars in thousands, unless otherwise stated)
(Unaudited)
NOTE 1—BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Trinseo S.A. and its subsidiaries (the “Company”) asof and for the periods ended June 30, 2017 and 2016 were prepared in accordance with accounting principles generally acceptedin the United States of America (“GAAP”) and reflect all adjustments, consisting only of normal recurring adjustments, which, inthe opinion of management, are considered necessary for the fair statement of the results for the periods presented. Because theycover interim periods, the statements and related notes to the financial statements do not include all disclosures normally providedin annual financial statements and, therefore, these statements should be read in conjunction with the 2016 audited consolidatedfinancial statements included within the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the Securities andExchange Commission (“SEC”) on March 1, 2017.
The December 31, 2016 condensed consolidated balance sheet data presented herein was derived from the Company’sDecember 31, 2016 audited consolidated financial statements, but does not include all disclosures required by GAAP for annualperiods.
Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications didnot have a material impact on the Company’s financial position or results. Refer to Note 12 for further information.
NOTE 2—RECENT ACCOUNTING GUIDANCE
In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board(“IASB”) jointly issued guidance which clarifies the principles for recognizing revenue and develops a common revenue standardfor GAAP and International Financial Reporting Standards (“IFRS”). The core principle of the guidance is that an entity shouldrecognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services. Additionally, the FASB has issued certainclarifying updates to this guidance, which the Company will consider as part of our adoption, which will be effective as ofJanuary 1, 2018. The Company has completed its scoping assessment for the adoption of this guidance by conducting surveyswith relevant stakeholders in the business, including commercial and finance leadership, reviewing a representative sample ofrevenue arrangements across all businesses, and identifying a set of applicable qualitative revenue recognition changes related tothe new standard update. In completing this phase, the Company has concluded that it will adopt this new guidance applying themodified retrospective approach. The Company remains in the process of establishing and documenting key accounting policies,assessing new disclosure requirements, and evaluating impacts on business process, information technology, and controls, anddetermining the quantitative impact resulting from the adoption of this new standard.
In July 2015, the FASB issued guidance which simplifies the subsequent measurement of inventory by replacing the lowerof cost or market test with a lower of cost or net realizable value (“NRV”) test. NRV is calculated as the estimated selling priceless reasonably predictable costs of completion, disposal and transportation. The Company adopted this guidance effectiveJanuary 1, 2017, and the adoption did not have a material impact to the Company’s financial position or results of operations.
In February 2016, the FASB issued guidance related to leases that outlines a comprehensive lease accounting model andsupersedes the current lease guidance. The new guidance requires lessees to recognize on the consolidated balance sheets leaseliabilities and corresponding right-of-use assets for all leases with terms of greater than 12 months. It also changes the definitionof a lease and expands the disclosure requirements of lease arrangements. This new guidance is effective for public companies forannual and interim periods beginning after December 15, 2018, with early adoption permitted. The new guidance must be adoptedusing a modified retrospective transition, and provides for certain practical expedients. The Company is in the process ofassessing the impact on its consolidated financial statements from the adoption of the new guidance. However, as we are thelessee under various real estate, railcar, and other equipment leases, which we currently account for as operating leases, weanticipate an increase in the recognition of right-of-use assets and lease liabilities as a result of this adoption .
In August 2016, the FASB issued guidance that aims to eliminate diversity in practice for how certain cash
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receipts and payments are presented and classified in the consolidated statements of cash flows. This guidance is effective forpublic companies for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Thisguidance must be adopted using a retrospective approach, and provides for certain practical expedients. Additionally, the FASBhas issued further guidance related to the presentation of restricted cash on the consolidated statements of cash flows. While theCompany continues to assess the timing and related impact of adopting this guidance on its consolidated statement of cash flows,the most significant expected impact on the Company’s financial statements will be the requirement to classify debt prepaymentor extinguishment costs as financing cash outflows, as opposed to the Company’s prior classification of these types of costswithin operating activities.
In January 2017, the FASB issued guidance that revises the definition of a business in order to assist in determiningwhether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under the new guidance, fewertransactions are expected to be accounted for as business combinations. The Company adopted this guidance effective January 1,2017. We expect this adoption could affect conclusions reached for future transactions in several areas, including acquisitions anddisposals.
In January 2017, the FASB issued guidance to simplify the accounting for goodwill impairment by removing Step 2 of thetest, which requires a hypothetical purchase price allocation. As a result, a goodwill impairment will now be the amount by whicha reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The Company adopted thisguidance effective January 1, 2017, which did not have a material impact to the Company’s financial position or results ofoperations.
In March 2017, the FASB issued guidance that requires employers to present the service cost component of net periodicbenefit cost in the same statement of operations line item as other employee compensation costs arising from services renderedduring the period. The other components of net benefit cost are to be presented outside of any subtotal of operating income. Thispresentation amendment is relevant to the Company and will be applied on a retrospective basis. This guidance is effective forfiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currentlyassessing the impact of adopting this guidance on its results of operations.
NOTE 3—INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During the six months ended June 30, 2017, the Company had two joint ventures : Americas Styrenics LLC (“AmericasStyrenics”, a styrene and polystyrene joint venture with Chevron Phillips Chemical Company LP) and Sumika StyronPolycarbonate Limited (“Sumika Styron Polycarbonate”, a polycarbonate joint venture with Sumitomo Chemical CompanyLimited). Investments held in the unconsolidated affiliates are accounted for by the equity method. The results of AmericasStyrenics are included within its own reporting segment, and the results of Sumika Styron Polycarbonate were included within theBasic Plastics reporting segment until the Company sold its 50% share of the entity in January 2017. Refer to the discussionbelow for further information about the sale of the Company’s share in Sumika Styron Polycarbonate during the first quarter of2017.
Both of the unconsolidated affiliates are privately held companies; therefore, quoted market prices for their stock are notavailable. The summarized financial information of the Company’s unconsolidated affiliates is shown below. This table includessummarized financial information for Sumika Styron Polycarbonate through the date of sale in January 2017.
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Sales $ 476,882 $ 405,351 $ 910,828 $ 781,603 Gross profit $ 65,170 $ 87,867 $ 85,758 $ 156,271 Net income $ 54,121 $ 71,015 $ 60,449 $ 123,812
Americas Styrenics
As of June 30, 2017 and December 31, 2016, respectively, the Company’s investment in Americas Styrenics was $153.1million and $149.7 million, which was $52.3 million and $71.2 million less than the Company’s 50% share of the underlying netassets of Americas Styrenics . This amount represents the difference between the book value of assets contributed to the jointventure at the time of formation (May 1, 2008) and the Company’s 50% share of the total recorded value of the joint venture’sassets and certain adjustments to conform with the Company’s accounting policies. This difference is being amortized over aweighted average remaining useful life of the contributed assets of approximately 3.3 years as of June 30, 2017. The Companyreceived dividends from Americas Styrenics of $37.5
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million and $45.0 million during the three and six months ended June 30, 2017, respectively, compared to $30.0 million and$60.0 million during the three and six months ended June 30, 2016, respectively.
Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to SumitomoChemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain onsale of $9.3 million during the six months ended June 30, 2017, which was included within “Other expense (income), net” in thecondensed consolidated statement of operations and was allocated entirely to the Basic Plastics segment. In addition, the partieshave entered into a long-term agreement to continue sourcing polycarbonate resin from Sumika Styron Polycarbonate to theCompany’s Performance Plastics segment.
As of December 31, 2016, the Company’s investment in Sumika Styron Polycarbonate was $41.8 million. Due to the sale inJanuary 2017, the Company no longer has an investment in Sumika Styron Polycarbonate as of June 30, 2017. The Companyreceived dividends from Sumika Styron Polycarbonate of zero and $9.8 million during the three and six months ended June 30,2017, respectively, compared to zero and $6.2 million during the three and six months ended June 30, 2016, respectively. Thedividend received during the six months ended June 30, 2017 from Sumika Styron Polycarbonate related to the Company’sproportionate share of earnings for the year ended December 31, 2016.
NOTE 4—INVENTORIES
Inventories consisted of the following:
June 30, December 31, 2017 2016 Finished goods $ 242,824 $ 187,577 Raw materials and semi-finishedgoods 199,324 168,804
Supplies 31,788 28,964 Total $ 473,936 $ 385,345
NOTE 5—DEBT
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on theCompany’s debt structure discussed below. The Company was in compliance with all debt related covenants as of June 30, 2017and December 31, 2016.
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As of June 30, 2017 and December 31, 2016, debt consisted of the following:
June 30, 2017 December 31, 2016
Interest Rateas of
June 30, 2017 Maturity
Date Carrying Amount
UnamortizedDeferred Financing
Fees
Total Debt, Less
UnamortizedDeferred Financing
Fees Carrying Amount
UnamortizedDeferred Financing
Fees
Total Debt, Less
UnamortizedDeferred Financing
Fees Senior Credit Facility 2020 RevolvingFacility Various May 2020 $ — $ — $ — $ — $ — $ —
2021 Term Loan B 4.476% November2021 489,136 (8,292) 480,844 491,545 (9,159) 482,386
2022 Senior Notes USD Notes 6.750% May 2022 300,000 (5,277) 294,723 300,000 (5,726) 294,274 Euro Notes 6.375% May 2022 427,301 (6,590) 420,711 394,275 (7,157) 387,118
Accounts ReceivableSecuritizationFacility Various May 2019 — — — — — —
Other indebtedness Various Various 1,566 — 1,566 1,591 — 1,591 Total debt $ 1,218,003 $ (20,159) $ 1,197,844 $ 1,187,411 $ (22,042) $ 1,165,369 Less: current portion (5,000) (5,000) Total long-term debt,net of unamortizeddeferred financingfees $ 1,192,844 $ 1,160,369
(1) This caption does not include deferred financing fees related to the Company’s revolving facilities, which are includedwithin “Deferred charges and other assets” on the condensed consolidated balance sheets.
(2) The Company had $308.1 million (net of $16.9 million outstanding letters of credit) of funds available for borrowingunder this facility as of June 30, 2017. Additionally, the Borrowers were required to pay a quarterly commitment fee inrespect of any unused commitments under this facility equal to 0.375% per annum.
(3) Carrying amounts presented above are net of an original issue discount, which was 0.25% of the original $500.0 millionfacility. This facility bears an interest rate of LIBOR plus 3.25%, subject to a 1.00% LIBOR floor. As of June 30, 2017,$5.0 million of the scheduled future payments related to this facility were classified as current debt on the Company’scondensed consolidated balance sheet.
(4) This facility has a borrowing capacity of $200.0 million. As of June 30, 2017, the Company had approximately$151.3 million of accounts receivable available to support this facility, based on the pool of eligible accounts receivable.In regards to outstanding borrowings, fixed interest charges are 2.6% plus variable commercial paper rates, while foravailable, but undrawn commitments, fixed interest charges are 1.4%.
NOTE 6—DERIVATIVE INSTRUMENTS
The Company’s ongoing business operations expose it to various risks, including fluctuating foreign exchange rates. Tomanage these risks, the Company periodically enters into derivative financial instruments such as foreign exchange forwardcontracts. The Company does not hold or enter into financial instruments for trading or speculative purposes. All derivatives arerecorded on the condensed consolidated balance sheets at fair value.
Foreign Exchange Forward Contracts
Certain subsidiaries have assets and liabilities denominated in currencies other than their respective functional currencies,which creates foreign exchange risk. The Company’s principal strategy in managing its exposure to changes in foreign currencyexchange rates is to naturally hedge the foreign currency-denominated liabilities on our balance sheet against correspondingassets of the same currency such that any changes in liabilities due to fluctuations in exchange rates are offset by changes in theircorresponding foreign currency assets. In order to further reduce its exposure, the Company also uses foreign exchange forwardcontracts to economically hedge the impact of the variability in exchange rates on our assets and liabilities denominated in certainforeign currencies. These derivative contracts are not designated for hedge accounting treatment.
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As of June 30, 2017, the Company had open foreign exchange forward contracts with a notional U.S. dollar equivalentabsolute value of $302.1 million. The following table displays the notional amounts of the most significant net foreign exchangehedge positions outstanding as of June 30, 2017.
June 30, Buy / (Sell) 2017 Euro $ (146,217) Chinese Yuan $ (74,647) Indonesian Rupiah $ (33,617) Swiss Franc $ 18,686 Japanese Yen $ (7,706)
Foreign Exchange Cash Flow Hedges
The Company also enters into forward contracts with the objective of managing the currency risk associated with forecastedU.S. dollar-denominated raw materials purchases by one of its subsidiaries whose functional currency is the euro. By enteringinto these forward contracts, which are designated as cash flow hedges, the Company buys a designated amount of U.S. dollarsand sells euros at the prevailing market rate to mitigate the risk associated with the fluctuations in the euro-to-U.S. dollar foreigncurrency exchange rates. The qualifying hedge contracts are marked-to-market at each reporting date and any unrealized gains orlosses are included in accumulated other comprehensive income/loss (“AOCI”) to the extent effective, and reclassified to cost ofsales in the period during which the transaction affects earnings or it becomes probable that the forecasted transaction will notoccur.
Open foreign exchange cash flow hedges as of June 30, 2017 have maturities occurring over a period of 18 months, andhave a net notional U.S. dollar equivalent of $255.0 million.
Net Investment Hedge
The Company’s outstanding debt includes €375.0 million of Euro Notes (refer to Note 5 for details) . As of June 30, 2017,the Company has designated a portion ( €280 million) of the principal amount of these Euro Notes as a hedge of the foreigncurrency exposure of the Issuers’ net investment in certain European subsidiaries. As this debt was deemed to be a highlyeffective hedge, changes in the Euro Notes’ carrying value resulting from fluctuations in the euro exchange rate were recorded ascumulative foreign currency translation loss of $10.2 million within AOCI as of June 30, 2017.
Summary of Derivative Instruments
Information regarding changes in the fair value of the Company’s derivative instruments, net of tax, including those notdesignated for hedge accounting treatment, is as follows:
Gain (Loss) Recognized in Gain (Loss) Recognized in
AOCI on Balance Sheet Statement of Operations Three Months Ended June 30, Statement of Operations 2017 2016 2017 2016 Classification
Designated as Cash Flow Hedges Foreign exchange cash flow hedges $ (12,966) $ 6,029 $ 1,009 $ (735) Cost of salesTotal $ (12,966) $ 6,029 $ 1,009 $ (735)
Net Investment Hedges Euro Notes $ (19,670) $ 3,798 $ — $ — Other expense (income), netTotal $ (19,670) $ 3,798 $ — $ —
Not Designated as Cash Flow Hedges Foreign exchange forward contracts $ — $ — $ (8,835) $ (2,138) Other expense (income), netTotal $ — $ — $ (8,835) $ (2,138)
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Gain (Loss) Recognized in Gain (Loss) Recognized in AOCI on Balance Sheet Statement of Operations Six Months Ended June 30, Statement of Operations 2017 2016 2017 2016 Classification
Designated as Cash Flow Hedges Foreign exchange cash flow hedges $ (17,776) $ (1,396) $ 3,460 $ 370 Cost of salesTotal $ (17,776) $ (1,396) $ 3,460 $ 370
Net Investment Hedges Euro Notes $ (24,660) $ (2,487) $ — $ — Other expense (income), netTotal $ (24,660) $ (2,487) $ — $ —
Not Designated as Cash Flow Hedges Foreign exchange forward contracts $ — $ — $ (10,510) $ 995 Other expense (income), netTotal $ — $ — $ (10,510) $ 995
The Company recorded losses of $8.8 million and $10.5 million during the three and six months ended June 30, 2017,respectively, and losses of $2.1 million and gains of $1.0 million during the three and six months ended June 30, 2016,respectively, from settlements and changes in the fair value of outstanding forward contracts (not designated as hedges) . Thegains and losses from these forward contracts offset net foreign exchange transaction gains of $7.3 million and $7.9 millionduring the three and six months ended June 30, 2017, respectively, and gains of $2.3 million and losses of $2.6 million during thethree and six months ended June 30, 2016, respectively, which resulted from the remeasurement of the Company’s foreigncurrency denominated assets and liabilities. The cash settlements of these foreign exchange forward contracts are included withinoperating activities in the condensed consolidated statement of cash flows.
As of June 30, 2017, the Company has no ineffectiveness related to its foreign exchange cash flow hedges. Further, theCompany expects to reclassify in the next twelve months an approximate $4.7 million net loss from AOCI into earnings related tothe Company’s outstanding cash flow hedges as of June 30, 2017 based on current foreign exchange rates.
The following table summarizes the net unrealized gains and losses and balance sheet classification of outstandingderivatives recorded in the condensed consolidated balance sheets:
June 30, 2017 December 31, 2016
Foreign
Exchange Foreign
Exchange Foreign
Exchange Foreign
Exchange Forward Cash Flow Forward Cash Flow
Balance Sheet Classification Contracts Hedges Total Contracts Hedges Total Asset Derivatives: Accounts receivable, net ofallowance $ 514 $ — $ 514 $ 1,664 $ 11,018 $ 12,682
Deferred charges and other assets — — — — — — Total asset derivatives $ 514 $ — $ 514 $ 1,664 $ 11,018 $ 12,682
Liability Derivatives: Accounts payable $ 4,830 $ 4,745 $ 9,575 $ 511 $ — $ 511 Other noncurrent obligations — 2,069 2,069 — — —
Total liability derivatives $ 4,830 $ 6,814 $ 11,644 $ 511 $ — $ 511
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Forward contracts are entered into with a limited number of counterparties, each of which allows for net settlement of allcontracts through a single payment in a single currency in the event of a default on or termination of any one contract. As such, inaccordance with the Company’s accounting policy, we record these foreign exchange forward contracts on a net basis bycounterparty within the condensed consolidated balance sheet. Information regarding the gross amounts of the Company’sderivative instruments and the amounts offset in the condensed consolidated balance sheets is as follows:
Gross Amounts Gross Amounts Net Amounts Recognized in the Offset in the Presented in the Balance Sheet Balance Sheet Balance Sheet Balance at
June 30, 2017 Derivative assets $ 1,289 $ (775) $ 514 Derivative liabilities 12,419 (775) 11,644 Balance at
December 31, 2016 Derivative assets $ 23,401 $ (10,719) $ 12,682 Derivative liabilities 11,230 (10,719) 511
Refer to Notes 7 and 14 of the condensed consolidated financial statements for further information regarding the fair valueof the Company’s derivative instruments and the related changes in AOCI .
NOTE 7—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified usingthe following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date.
Level 1—Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs thatare observable for the asset or liability, either directly or indirectly, for substantially the full term of the financialinstrument.
Level 3—Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis inthe condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016.
June 30, 2017
Quoted Prices inActive Markets for
Identical Items Significant Other
Observable Inputs
SignificantUnobservable
Inputs Assets (Liabilities) at Fair Value (Level 1) (Level 2) (Level 3) Total Foreign exchange forward contracts—Assets $ — $ 514 $ — $ 514 Foreign exchange forward contracts—(Liabilities) — (4,830) — (4,830)
Foreign exchange cash flow hedges—(Liabilities) — (6,814) — (6,814)
Total fair value $ — $ (11,130) $ — $ (11,130)
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December 31, 2016
Quoted Prices inActive Markets for
Identical Items Significant Other
Observable Inputs
SignificantUnobservable
Inputs Assets (Liabilities) at Fair Value (Level 1) (Level 2) (Level 3) Total Foreign exchange forward contracts—Assets $ — $ 1,664 $ — $ 1,664 Foreign exchange forward contracts—(Liabilities) — (511) — (511)
Foreign exchange cash flow hedges—Assets — 11,018 — 11,018 Total fair value $ — $ 12,171 $ — $ 12,171
The Company uses an income approach to value its derivative instruments, utilizing discounted cash flow techniques,considering the terms of the contract and observable market information available as of the reporting date. Significant inputs tothe valuation for foreign exchange forward contracts and foreign exchange cash flow hedges are obtained from broker quotationsor from listed or over-the-counter market data, and are classified as Level 2 in the fair value hierarchy.
Fair Value of Debt Instruments
The following table presents the estimated fair value of the Company’s outstanding debt not carried at fair value as of June30, 2017 and December 31, 2016, respectively:
As of As of June 30, 2017 December 31, 2016 2022 Senior Notes
USD Notes $ 318,750 $ 315,000 Euro Notes 456,187 424,437
2021 Term Loan B 494,596 498,041 Total fair value $ 1,269,533 $ 1,237,478
The fair value of the Company’s Term Loan B, USD Notes, and Euro Notes (each Level 2 securities) is determined usingover-the-counter market quotes and benchmark yields received from independent vendors.
There were no other significant financial instruments outstanding as of June 30, 2017 and December 31, 2016.
NOTE 8—COMMITMENTS AND CONTINGENCIES
Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of theliability can be reasonably estimated, based on current law, existing technologies and other information. Pursuant to the terms ofthe agreement associated with the Company’s formation, the pre-closing environmental conditions were retained by Dow andDow has agreed to indemnify the Company from and against all environmental liabilities incurred or relating to the predecessorperiods. No environmental claims have been asserted or threatened against the Company, and the Company is not a potentiallyresponsible party at any Superfund Sites. As of June 30, 2017 and December 31, 2016, the Company had no accrued obligationsfor environmental remediation and restoration costs.
Inherent uncertainties exist in the Company’s potential environmental liabilities primarily due to unknown conditions,whether future claims may fall outside the scope of the indemnity, changing governmental regulations and legal standardsregarding liability, and evolving technologies for handling site remediation and restoration. In connection with the Company’sexisting indemnification, the possibility is considered remote that environmental remediation costs will have a material adverseimpact on the condensed consolidated financial statements.
Purchase Commitments
In the normal course of business, the Company has certain raw material purchase contracts where it is required to purchasecertain minimum volumes at current market prices. These commitments range from 1 to 5 years. In certain raw
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material purchase contracts, the Company has the right to purchase less than the required minimums and pay a liquidateddamages fee, or, in case of a permanent plant shutdown, to terminate the contracts. In such cases, these obligations would be lessthan the annual commitment as disclosed in the consolidated financial statements included in the Annual Report.
Litigation Matters
From time to time, the Company may be subject to various legal claims and proceedings incidental to the normal conduct ofbusiness, relating to such matters as product liability, antitrust/competition, past waste disposal practices and release of chemicalsinto the environment. While it is impossible at this time to determine with certainty the ultimate outcome of these routine claims,the Company does not believe that the ultimate resolution of these claims will have a material adverse effect on the Company’sresults of operations, financial condition or cash flow. Legal costs, including those legal costs expected to be incurred inconnection with a loss contingency, are expensed as incurred.
NOTE 9—PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The components of net periodic benefit costs for all significant plans were as follows:
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Defined Benefit Pension Plans Service cost $ 4,707 $ 4,211 $ 9,291 $ 8,282 Interest cost 1,111 1,408 2,192 2,768 Expected return on plan assets (423) (499) (835) (982) Amortization of prior service credit (482) (493) (953) (971) Amortization of net loss 1,395 1,073 2,753 2,111 Net settlement and curtailment loss — — 129 — Net periodic benefit cost $ 6,308 $ 5,700 $ 12,577 $ 11,208
(1) Represents a settlement loss of approximately $0.5 million triggered by benefit payments exceeding the sum of serviceand interest cost for one of the Company’s pension plans in Switzerland, partially offset by a curtailment gain ofapproximately $0.4 million related to a reduction in the number of participants in the Company’s pension plan in Japan.
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Other Postretirement Plans Service cost $ 54 $ 65 $ 108 $ 128 Interest cost 63 129 126 250 Amortization of prior service cost 25 26 51 52 Amortization of net gain (10) (43) (21) (86) Net periodic benefit cost $ 132 $ 177 $ 264 $ 344
As of June 30, 2017 and December 31, 2016, the Company’s benefit obligations included primarily in “Other noncurrent
obligations” in the condensed consolidated balance sheets were $211.7 million and $195.8 million, respectively. The net periodicbenefit costs are recognized in the condensed consolidated statement of operations as “Cost of sales” and “Selling, general andadministrative expenses.”
The Company made cash contributions and benefit payments to unfunded plans of approximately $5.0 million and $10.2million during the three and six months ended June 30, 2017, respectively. The Company expects to make additional cashcontributions, including benefit payments to unfunded plans, of approximately $5.5 million to its defined benefit plans for theremainder of 2017.
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NOTE 10—STOCK-BASED COMPENSATION
Refer to the Annual Report for definitions of capitalized terms not included herein and further background on theCompany’s stock-based compensation programs included in the tables below.
The following table summarizes the Company’s stock-based compensation expense for the three and six months ended June30, 2017 and 2016 as well as unrecognized compensation cost as of June 30, 2017:
As of Three Months Ended Six Months Ended June 30, 2017
June 30, June 30, Unrecognized Weighted 2017 2016 2017 2016 Compensation Cost Average Years RSUs $ 2,135 $ 1,355 $ 4,008 $ 2,349 $ 12,854 2.0 Options 502 763 3,207 4,135 2,094 1.5 PSUs 321 — 472 — 3,386 2.6 Restricted Stock Awards issuedby Former Parent — 1,104 — 2,332 — —
Total Stock-basedCompensation Expense $ 2,958 $ 3,222 $ 7,687 $ 8,816
The following table summarizes awards granted and the respective weighted-average grant date fair value for the sixmonths ended June 30, 2017:
Six Months Ended June 30, 2017
Awards Granted
WeightedAverage GrantDate Fair Value
per Award RSUs 110,117 $ 70.87 Options 191,565 20.61 PSUs 50,937 75.74
Option Awards
The following are the weighted-average assumptions used within the Black-Scholes pricing model for the Company’soption awards granted during the six months ended June 30, 2017:
Six Months Ended June 30, 2017 Expected term (in years) 5.50 Expected volatility 35.00 %Risk-free interest rate 2.19 %Dividend yield 2.00 %
Since the Company’s equity interests were privately held prior to its initial public offering (“IPO”) in June 2014, there islimited publicly available trading history of the Company’s ordinary shares. Until such time that the Company can determineexpected volatility based solely on the publicly traded history of its ordinary shares, expected volatility used in the Black-Scholesmodel for option awards granted is based on a combination of the Company’s historical volatility and similar companies’ stockthat are publicly traded. The expected term of option awards represents the period of time that option awards granted are expectedto be outstanding. For the option awards granted during the six months ended June 30, 2017, the simplified method was used tocalculate the expected term, given the Company’s limited historical exercise data. The risk-free interest rate for the periods withinthe expected term of option awards is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield isestimated based on historical and expected dividend activity.
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Performance Share Units (PSUs)
The Company granted PSUs for the first time during the six months ended June 30, 2017. The PSUs, which are granted toexecutives, cliff vest on the third anniversary of the date of grant, generally subject to the executive remaining continuouslyemployed by the Company through the vesting date and achieving certain performance conditions. The number of the PSUs thatvest upon completion of the service period can range from 0 to 200 percent of the original grant, subject to certain limitations,contingent upon the Company’s total shareholder return (“TSR”) during the performance period relative to a pre-defined set ofindustry peer companies. Upon a termination of employment due to the executive’s death or retirement, or termination inconnection with a change in control or other factors prior to the vesting date, the PSUs will vest in full or in part, depending onthe type of termination and the achievement of the performance conditions. Dividend equivalents will accumulate on PSUs duringthe vesting period, will be paid in cash upon vesting, and do not accrue interest. When PSUs vest, shares will be issued from theexisting pool of treasury shares. The fair value for PSU awards is computed using a Monte Carlo valuation model. NOTE 11—DIVESTITURES
During the second quarter of 2016, the Company signed a definitive agreement to sell Trinseo do Brasil Comercio deProdutos Quimicos Ltda. (“Trinseo Brazil”), its primary operating entity in Brazil, including both a latex binders and automotivebusiness. The sale closed on October 1, 2016.
As a result of this agreement, during the three and six months ended June 30, 2016, the Company recorded impairmentcharges for the estimated loss on sale of approximately $12.9 million within “Other expense (income), net” in the condensedconsolidated statement of operations. These charges, which are subject to certain post-closing settlement activities, were allocatedas $8.6 million, $4.0 million, and $0.3 million to the Performance Plastics segment, Latex Binders segment, and Corporate,respectively. During the year ended December 31, 2016, the Company received $1.8 million in proceeds from the sale of thesebusinesses, with an additional $1.5 million received during the six months ended June 30, 2017.
NOTE 12—SEGMENTS
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the businessis now managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker.This change in segments was made to provide increased clarity and understanding around the indicators of profitability and cashflow of the Company. The previous Basic Plastics & Feedstocks segment was split into three new segments: Basic Plastics, whichincludes polystyrene, copolymers, and polycarbonate; Feedstocks, which represents the Company’s styrene monomer business;and Americas Styrenics, which reflects the equity earnings from its 50%-owned styrenics joint venture. In addition, certain highlydifferentiated acrylonitrile-butadiene-styrene, or ABS, supplied into Performance Plastics markets, which was previouslyincluded in the results of Basic Plastics & Feedstocks, is now included in Performance Plastics. Finally, the Latex segment wasrenamed to Latex Binders. In conjunction with the segment realignment, the Company also changed its primary measure ofsegment operating performance from EBITDA to Adjusted EBITDA. Refer to the discussion below for further information aboutAdjusted EBITDA.
The information in the tables below has been retroactively adjusted to reflect the changes in reporting segments andsegment operating performance.
The Latex Binders segment produces styrene-butadiene latex, or SB latex, and other latex polymers and binders, primarilyfor coated paper and packaging board, carpet and artificial turf backings, as well as a number of performance latex bindersapplications, such as adhesive, building and construction and the technical textile paper market. The Synthetic Rubber segmentproduces synthetic rubber products used predominantly in high-performance tires, impact modifiers and technical rubberproducts, such as conveyer belts, hoses, seals and gaskets. The Performance Plastics segment produces highly engineeredcompounds and blends and some specialized ABS grades for automotive end markets, as well as consumer electronics, medical,electrical and lighting, collectively consumer essential markets, or CEM. The Basic Plastics segment produces styrenic polymers,including polystyrene, basic ABS, and styrene-acrylonitrile, or SAN, products, as well as polycarbonate, or PC, all of which areused as inputs in a variety of end use markets. The Basic Plastics segment also included the results of our previously 50%-ownedjoint venture, Sumika Styron Polycarbonate, until the Company sold its share in the entity in January 2017 (refer to Note 3 forfurther information). The Feedstocks segment includes the Company’s production and procurement of styrene monomer outsideof North America, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABSresins, solution styrene-butadiene rubber, or SSBR, etc. Lastly, the Americas Styrenics segment consists solely of the
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operations of our 50%-owned joint venture, Americas Styrenics, a producer of both styrene monomer and polystyrene in NorthAmerica.
Asset, capital expenditure, and intersegment sales information is not reviewed or included with the Company’s reporting tothe chief operating decision maker. Therefore, the Company has not disclosed this information for each reportable segment.
Performance Materials Basic Plastics & Feedstocks Latex Synthetic Performance Basic Americas Corporate Three Months Ended Binders Rubber Plastics Plastics Feedstocks Styrenics Unallocated Total June 30, 2017 Sales to external customers $ 291,530 $ 174,009 $ 190,173 $ 382,460 $ 107,027 $ — $ — $ 1,145,199 Equity in earnings of unconsolidatedaffiliates — — — — — 29,927 — 29,927
Adjusted EBITDA 36,070 27,689 23,489 31,768 (1,151) 29,927 Investment in unconsolidated affiliates — — — — — 153,077 — 153,077 Depreciation and amortization 5,761 8,688 2,466 4,130 3,092 — 2,187 26,324 June 30, 2016 Sales to external customers $ 232,471 $ 111,391 $ 183,891 $ 363,325 $ 78,616 $ — $ — $ 969,694 Equity in earnings of unconsolidatedaffiliates — — — 926 — 37,676 — 38,602
Adjusted EBITDA 21,461 30,216 38,472 43,150 32,548 37,676 Investment in unconsolidated affiliates — — — 35,842 — 154,472 — 190,314 Depreciation and amortization 5,881 8,892 1,589 3,941 2,760 — 1,790 24,853
Performance Materials Basic Plastics & Feedstocks Latex Synthetic Performance Basic Americas Corporate Six Months Ended Binders Rubber Plastics Plastics Feedstocks Styrenics Unallocated Total June 30, 2017 Sales to external customers $ 580,461 $ 337,371 $ 374,724 $ 763,210 $ 193,923 $ — $ — $ 2,249,689 Equity in earnings (losses) ofunconsolidated affiliates — — — 810 — 48,412 — 49,222
Adjusted EBITDA 72,885 73,959 50,364 70,629 40,745 48,412 Investment in unconsolidated affiliates — — — — — 153,077 — 153,077 Depreciation and amortization 11,424 17,067 4,844 7,820 5,568 — 4,321 51,044 June 30, 2016 Sales to external customers $ 441,952 $ 213,588 $ 352,520 $ 705,954 $ 149,764 $ — $ — $ 1,863,778 Equity in earnings (losses) ofunconsolidated affiliates — — — 3,019 — 70,609 — 73,628
Adjusted EBITDA 40,228 53,295 73,558 80,917 53,358 70,609 Investment in unconsolidated affiliates — — — 35,842 — 154,472 — 190,314 Depreciation and amortization 12,161 16,935 3,133 7,525 5,626 — 2,593 47,973
(1) The Company’s primary measure of segment operating performance is Adjusted EBITDA, which is defined as income fromcontinuing operations before interest expense, net; provision for income taxes; depreciation and amortization expense; losson extinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets;restructuring; acquisition related costs and other items. Adjusted EBITDA is a key metric that is used by management toevaluate business performance in comparison to budgets, forecasts, and prior year financial results, providing a measure thatmanagement believes reflects core operating performance by removing the impact of transactions and events that would notbe considered a part of core operations. Adjusted EBITDA is useful for analytical purposes; however, it should not beconsidered an alternative to the Company’s reported GAAP results, as there are limitations in using such financial measures.Other companies in the industry may define Adjusted EBITDA differently than the Company, and as a result, it may bedifficult to use Adjusted EBITDA, or similarly named financial measures, that other companies may use to compare theperformance of those companies to the Company’s segment performance.
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The reconciliation of income before income taxes to Segment Adjusted EBITDA is as follows:
Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Income before income taxes $ 78,959 $ 124,404 $ 225,553 $ 223,051 Interest expense, net 18,719 18,814 36,919 37,710 Depreciation and amortization 26,324 24,853 51,044 47,973 Corporate Unallocated 21,559 21,153 49,024 46,370 Adjusted EBITDA Addbacks 2,231 14,299 (5,546) 16,861 Segment Adjusted EBITDA $ 147,792 $ 203,523 $ 356,994 $ 371,965
(2) Corporate unallocated includes corporate overhead costs and certain other income and expenses.(3) Adjusted EBITDA addbacks for the three and six months ended June 30, 2017 and 2016 are as follows:
Three Months Ended Six Months Ended June 30, June 30, (in millions) 2017 2016 2017 2016 Net (gain) loss on disposition of businesses andassets (Notes 3 and 11) $ — $ 12.9 $ (9.9) $ 12.9 Restructuring and other charges (Note 13) 1.1 1.1 3.3 1.8 Acquisition transaction and integration costs 1.1 — 1.1 — Other items — 0.3 — 2.2 Total Adjusted EBITDA Addbacks $ 2.2 $ 14.3 $ (5.5) $ 16.9
(a) Acquisition transaction and integration costs for the three and six months ended June 30, 2017 relate to advisory andprofessional fees incurred in conjunction with the Company’s acquisition of API Applicazioni Plastiche IndustrialiS.p.A (“API Plastics”), which closed on July 10, 2017. Refer to Note 16 for further information.
(b) Other items for the three and six months ended June 30, 2016 relate to fees incurred in conjunction with the Company’ssecondary offerings completed during these periods.
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NOTE 13—RESTRUCTURING
Refer to the Annual Report for details regarding the Company’s previously announced restructuring activities included inthe tables below. New restructuring activities are discussed in greater detail below. Restructuring charges are included within“Selling, general and administrative expenses” in the condensed consolidated statement of operations.
The following table provides detail of the Company’s restructuring charges for the three and six months ended June 30,2017 and 2016:
Three Months Ended Six Months Ended Cumulative June 30, June 30, Life-to-date 2017 2016 2017 2016 Charges Segment Terneuzen Compounding Restructuring
Asset impairment/accelerateddepreciation $ 574 $ — $ 1,131 $ — $ 1,131
Employee termination benefits 156 — 156 — 156 Contract terminations — — 590 — 590 Decommissioning and other — — — — 626 Terneuzen Subtotal $ 730 $ — $ 1,877 $ — $ 2,503 Performance Plastics
Livorno Plant Restructuring Asset impairment/accelerateddepreciation $ — $ — $ — $ — $ 14,345
Employee termination benefits 206 — 358 — 4,990 Contract terminations — — — — 269 Decommissioning and other 479 — 1,063 — 1,740 Livorno Subtotal $ 685 $ — $ 1,421 $ — $ 21,344 Latex Binders
Other Restructurings 349 1,101 1,164 2,233 Various Total Restructuring Charges $ 1,764 $ 1,101 $ 4,462 $ 2,233
(1) In March 2017, the Company announced plans to upgrade its production capability for compounded resins with theconstruction of a new state-of-the art compounding facility to replace its existing compounding facility in Terneuzen,The Netherlands. The Company expects to incur incremental accelerated depreciation charges of $2.4 million andestimated decommissioning and other charges of approximately $1.3 million throughout 2017 and 2018, the majorityof which are expected to be paid in 2018.
(2) In August 2016, the Company announced its plan to cease manufacturing activities at its latex binders manufacturingfacility in Livorno, Italy. The Company expects to incur incremental employee termination benefit charges of $0.4million throughout 2017, which are expected to be paid in early 2018. The Company also expects to incur additionaldecommissioning costs associated with this plant shutdown in 2017, the cost of which will be expensed as incurred.
The following table provides a rollforward of the liability balances associated with the Company’s restructuring activities asof June 30, 2017. Employee termination benefit and contract termination charges are recorded within “Accrued expenses andother current liabilities” in the condensed consolidated balance sheet.
Balance at Balance at December 31, 2016 Expenses Deductions June 30, 2017 Employee termination benefits $ 5,021 $ 2,102 $ (5,563) $ 1,560 Contract terminations 269 590 (127) 732 Decommissioning and other — 1,360 (1,360) — Total $ 5,290 $ 4,052 $ (7,050) $ 2,292
(1) Includes primarily payments made against the existing accrual, as well as immaterial impacts of foreign currencyremeasurement.
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NOTE 14—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of AOCI, net of income taxes, consisted of:
Cumulative Pension & Other Foreign Exchange Translation Postretirement Benefit Cash Flow Three Months Ended June 30, 2017 and 2016 Adjustments Plans, Net Hedges, Net Total Balance as of March 31, 2017 $ (114,721) $ (62,128) $ 7,462 $ (169,387) Other comprehensive income (loss) 18,974 — (11,957) 7,017 Amounts reclassified from AOCI to netincome — 796 (1,009) (213)
Balance as of June 30, 2017 $ (95,747) $ (61,332) $ (5,504) $ (162,583) Balance as of March 31, 2016 $ (95,697) $ (46,426) $ (1,856) $ (143,979) Other comprehensive income (loss) (11,005) — 5,294 (5,711) Amounts reclassified from AOCI to netincome — 539 735 1,274
Balance as of June 30, 2016 $ (106,702) $ (45,887) $ 4,173 $ (148,416)
Cumulative Pension & Other Foreign Exchange Translation Postretirement Benefit Cash Flow Six Months Ended June 30, 2017 and 2016 Adjustments Plans, Net Hedges, Net Total Balance as of December 31, 2016 $ (118,922) $ (63,504) $ 12,272 $ (170,154) Other comprehensive income (loss) 23,175 — (14,316) 8,859 Amounts reclassified from AOCI to netincome — 2,172 (3,460) (1,288)
Balance as of June 30, 2017 $ (95,747) $ (61,332) $ (5,504) $ (162,583) Balance as of December 31, 2015 $ (109,120) $ (46,166) $ 5,569 $ (149,717) Other comprehensive income (loss) 2,418 (800) (1,026) 592 Amounts reclassified from AOCI to netincome — 1,079 (370) 709
Balance as of June 30, 2016 $ (106,702) $ (45,887) $ 4,173 $ (148,416)
(1) The following is a summary of amounts reclassified from AOCI to net income for the three and six months ended June30, 2017 and 2016, respectively:
Amount Reclassified from AOCI Amount Reclassified from AOCI AOCI Components Three Months Ended June 30, Six Months Ended June 30, Statement of Operations 2017 2016 2017 2016 Classification Cash flow hedging items Foreign exchange cash flowhedges $ (1,009) $ 735 $ (3,460) $ (370) Cost of sales Total before tax (1,009) 735 (3,460) (370) Tax effect — — — — Provision for income taxes Total, net of tax $ (1,009) $ 735 $ (3,460) $ (370)
Amortization of pension and
other postretirement benefitplan items
Prior service credit $ (456) $ (467) $ (902) $ (920) (a) Net actuarial loss 1,613 1,265 3,189 2,519 (a) Net settlement and curtailmentloss — — 648 — (a) Total before tax 1,157 798 2,935 1,599 Tax effect (361) (259) (763) (520) Provision for income taxes Total, net of tax $ 796 $ 539 $ 2,172 $ 1,079
(a) These AOCI components are included in the computation of net periodic benefit costs (see Note 9).
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NOTE 15—EARNINGS PER SHARE
Basic earnings per ordinary share (“basic EPS”) is computed by dividing net income available to ordinary shareholders bythe weighted average number of the Company’s ordinary shares outstanding for the applicable period. Diluted earnings perordinary share (“diluted EPS”) is calculated using net income available to ordinary shareholders divided by diluted weighted-average ordinary shares outstanding during each period, which includes unvested RSUs, option awards, and PSUs. Diluted EPSconsiders the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of thepotential ordinary shares would have an anti-dilutive effect.
The following table presents basic EPS and diluted EPS for the three and six months ended June 30, 2017 and 2016,respectively.
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share data) 2017 2016 2017 2016 Earnings: Net income $ 60,159 $ 95,804 $ 177,453 $ 172,551
Shares: Weighted-average ordinary shares outstanding 43,902 46,952 43,979 47,803 Dilutive effect of RSUs, option awards, and PSUs 1,093 905 1,186 751 Diluted weighted-average ordinary sharesoutstanding 44,995 47,857 45,165 48,554
Income per share: Income per share—basic $ 1.37 $ 2.04 $ 4.03 $ 3.61 Income per share—diluted $ 1.34 $ 2.00 $ 3.93 $ 3.55
* Refer to Note 10 for discussion of RSUs, option awards, and PSUs granted to certain Company directors andemployees. The number of anti-dilutive shares that have been excluded in the computation of diluted earnings per share were0.3 million and 0.2 million for the three and six months ended June 30, 2017, respectively, and zero million and zero millionfor the three and six months ended June 30, 2016, respectively.
NOTE 16—SUBSEQUENT EVENTS
On July 10, 2017, the Company completed the acquisition of API Applicazioni Plastiche Industriali S.p.A, or API Plastics,for a purchase price of $83.8 million, net of cash acquired, subject to certain customary post-closing adjustments. API Plastics,based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers (“TPEs”).TPEs are often molded over rigid plastics such as ABS and PC/ABS, which presents opportunities for complementary technologyproduct offerings within our Performance Plastics segment. The acquisition was funded through existing cash on hand.
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Item 2. Management’s Discussio n and Analysis of Financial Condition and Results of Operations
2017 Year-to-Date Highlights
In the second quarter of 2017, Trinseo recognized net income of $60.2 million and Adjusted EBITDA of $126.2 million.On a year-to-date basis, we recognized net income of $177.5 million and Adjusted EBITDA of $308.0 million. Refer to “Non-GAAP Performance Measures” below for further discussion of our use of non-GAAP measures in evaluating our performanceand a reconciliation of these measures. Other highlights for the year are described below.
Acquisition of API Plastics
On July 10, 2017, the Company completed the acquisition of API Applicazioni Plastiche Industriali S.p.A, or API Plastics, for a purchase price of $83.8 million, net of cash acquired, subject to certain customary post-closing adjustments. API Plastics,based in Mussolente, Italy, is a manufacturer of soft-touch polymers and bioplastics, such as thermoplastic elastomers, or TPEs.TPEs are often molded over rigid plastics such as ABS and PC/ABS, which presents opportunities for complementary technologyproduct offerings within our Performance Plastics segment.
Sale of Sumika Styron Polycarbonate
On January 31, 2017, the Company completed the sale of its 50% share in Sumika Styron Polycarbonate to SumitomoChemical Company Limited for total sales proceeds of approximately $42.1 million. As a result, the Company recorded a gain onsale of $9.3 million during the six months ended June 30, 2017. In addition, the parties have entered into a long-term agreement tocontinue sourcing polycarbonate resin from Sumika Styron Polycarbonate to the Company’s Performance Plastics segment.
Share Repurchases and Dividends
In June 2017, the Company’s board of directors authorized an increase to our quarterly dividend, from $0.30 per share to$0.36 per share, a 20% increase. In addition, the board of directors authorized the repurchase of up to two million shares of theCompany’s ordinary shares.
During the six months ended June 30, 2017, under existing authority from its board of directors, the Company purchased894,604 ordinary shares from its shareholders through a combination of open market transactions for an aggregate purchase priceof $56.4 million. Additionally, during the six months ended June 30, 2017, the Company’s board of directors declared quarterlydividends for an aggregate value of $0.66 per ordinary share, or $29.7 million, $16.5 million of which remained accrued as ofJune 30, 2017.
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Results of OperationsResults of Operations for the Three and Six Months Ended June 30, 2017 and 2016
The table below sets forth our historical results of operations, and these results as a percentage of net sales for the periodsindicated:
Three Months Ended Six Months Ended June 30, June 30, (in millions) 2017 % 2016 % 2017 % 2016 % Net sales $ 1,145.2 100 % $ 969.7 100 % $ 2,249.7 100 % $ 1,863.8 100 % Cost of sales 1,020.0 89 % 800.0 83 % 1,926.7 86 % 1,554.4 83 % Gross profit 125.2 11 % 169.7 18 % 323.0 14 % 309.4 17 %
Selling, general and administrativeexpenses 55.4 5 % 52.2 5 % 115.8 5 % 106.7 6 % Equity in earnings of unconsolidatedaffiliates 29.9 3 % 38.6 4 % 49.2 2 % 73.6 4 % Operating income 99.7 9 % 156.1 16 % 256.4 12 % 276.3 15 %
Interest expense, net 18.7 2 % 18.8 2 % 36.9 2 % 37.7 2 % Other expense (income), net 2.0 0 % 12.9 1 % (6.1) (0)% 15.5 1 % Income before income taxes 79.0 7 % 124.4 13 % 225.6 10 % 223.1 12 %
Provision for income taxes 18.8 2 % 28.6 3 % 48.1 2 % 50.5 3 % Net income $ 60.2 5 % $ 95.8 10 % $ 177.5 8 % $ 172.6 9 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Net Sales
Of the 18% increase, 21% was due to higher selling prices primarily from the pass through of higher raw material costs,including higher styrene and butadiene costs to customers across our segments. Additionally, 1% of the increase was due toslightly higher sales volume, as increases in Synthetic Rubber, Performance Plastics, and Feedstocks sales volume were mostlyoffset by decreases in Latex Binders and Basic Plastics sales volume. Offsetting these increases in net sales was a 2% decreaserelated to the prior year divestiture of our business in Brazil, as well as a 2% decrease due to an unfavorable currency impactacross our segments, as the euro weakened in comparison to the U.S. dollar.
Cost of Sales
Of the 28% increase, 33% was attributable to higher prices for raw materials, primarily butadiene and styrene monomer.This increase was partially offset by a 1% decrease due to sales volume mix, as well as a 2% decrease due to the prior yeardivestiture of our business in Brazil. In addition, a decrease of 3% was due to a favorable currency impact across our segments, asthe euro weakened in comparison to the U.S. dollar.
Gross Profit
This decrease was primarily due to unfavorable raw material timing impacts, net of a favorable price lag impact, whichcontributed significantly to lower margins within Feedstocks, Basic Plastics, and Synthetic Rubber. Partially offsetting thesetiming impacts were higher sales volume in Synthetic Rubber and Performance Plastics as well as higher margins within LatexBinders. Other contributing factors to the overall decrease were margin compression in Performance Plastics and lower salesvolume in Basic Plastics and Latex Binders.
Selling, General and Administrative Expenses
The majority of the increase is due to costs from additional resources supporting growth initiatives as well as transactionand integration costs incurred in connection with the Company’s acquisition of API Plastics, which closed in July 2017.Additionally, restructuring charges increased $0.7 million, primarily related to the Company’s decision in August 2016 to ceasemanufacturing activities at our latex facility in Livorno, Italy, as well as charges related to the upgrade and replacement of theCompany’s compounding facility in Terneuzen, The Netherlands, which was announced in March 2017. Refer to Notes 16 and13, respectively, in the condensed consolidated financial statements for further information.
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Equity in Earnings of Unconsolidated Affiliates
Equity earnings decreased in 2017, as equity earnings from Americas Styrenics decreased from $37.7 million in 2016 to$29.9 million in 2017, primarily due to lower margins on second quarter sales of styrene purchased during the first quartermaintenance-related outage at the St. James, LA, facility in a decreasing price environment. Additionally, equity earnings fromSumika Styron Polycarbonate decreased from $0.9 million in 2016 to zero in 2017, as the Company completed the sale of its 50%share in the entity to Sumitomo Chemical Company Limited in January 2017 and therefore did not have an ownership interest inthe joint venture during the three months ended June 30, 2017. Refer to Note 3 in the condensed consolidated financial statementsfor further information.
Interest Expense, Net
The slight decrease in interest expense was primarily attributable to lower deferred financing fee amortization recorded intointerest expense from our Accounts Receivable Securitization Facility.
Other Expense (Income), net
Other expense, net for the three months ended June 30, 2017 was $2.0 million, which consisted primarily of net foreignexchange transaction losses of approximately $1.5 million and other expenses of $0.5 million. Included in these net losses of $1.5million were foreign exchange transactions gains of $7.3 million, primarily due to the remeasurement of our euro denominatedpayables due to the relative changes in rates between the U.S. dollar and the euro during the period, more than offset by losses of$8.8 million from our foreign exchange forward contracts.
Other expense, net for the three months ended June 30, 2016 was $12.9 million, which includes an impairment charge forthe estimated loss on sale of our latex and automotive businesses in Brazil of approximately $12.9 million, as well as otherexpenses of $0.2 million. Refer to Note 11 in the condensed consolidated financial statements for further information. Theselosses were slightly offset by net foreign exchange transaction gains of approximately $0.2 million. Included in this net gain of$0.2 million were foreign exchange transactions gains of $2.3 million, primarily due to the remeasurement of our eurodenominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, partially offsetby losses of $2.1 million from our foreign exchange forward contracts.
Provision for Income Taxes
Provision for income taxes for the three months ended June 30, 2017 totaled $18.8 million resulting in an effective tax rateof 23.8%. Provision for income taxes for the three months ended June 30, 2016 totaled $28.6 million resulting in an effective taxrate of 23.0%.
The decrease in provision for income taxes was primarily due to the $45.4 million decrease in income before income taxes.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Net Sales
Of the 21% increase, 24% was due to higher selling prices primarily from the pass through of higher raw material costs,including higher styrene and butadiene costs to customers across our segments. Additionally, 1% of the increase was due toslightly higher sales volume, as increases in Synthetic Rubber, Performance Plastics, and Feedstocks sales volume were mostlyoffset by a decrease in Basic Plastics sales volume. Offsetting these increases in net sales was a 2% decrease related to the prioryear divestiture of our business in Brazil, as well as a 2% decrease due to an unfavorable currency impact across our segments, asthe euro weakened in comparison to the U.S. dollar.
Cost of Sales
Of the 24% increase, 28% was attributable to higher prices for raw materials, primarily butadiene and styrene monomer.This increase was partially offset by a 2% decrease due to the prior year divestiture of our business in Brazil
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as well as a 2% decrease due to a favorable currency impact across our segments, as the euro weakened in comparison to the U.S.dollar.
Gross Profit
The increase was primarily attributable to higher year-to-date margins, especially within the Latex Binders and SyntheticRubber segments. Higher sales volume in Synthetic Rubber and Performance Plastics was partially offset by lower sales volumein Basic Plastics, as well as margin compression in Performance Plastics and lower styrene margins in Feedstocks, in addition tothe styrene outage in Americas Styrenics. Also offsetting this net increase was an unfavorable currency impact as the euroweakened in comparison to the U.S. dollar.
Selling, General and Administrative Expenses
Increased restructuring charges contributed to $2.2 million of this increase, primarily related to the Company’s decision tocease manufacturing activities at our latex facility in Livorno, Italy, as well as charges related to the upgrade and replacement ofthe Company’s compounding facility in Terneuzen, The Netherlands. Additionally, the increase includes costs from additionalresources supporting growth initiatives as well as transaction and integration costs incurred in connection with Company’sacquisition of API Plastics, which closed in July 2017. Refer to Notes 13 and 16, respectively, in the condensed consolidatedfinancial statements for further information.
Equity in Earnings of Unconsolidated Affiliates
Equity earnings decreased in 2017, as equity earnings from Americas Styrenics decreased from $70.6 million in 2016 to$48.4 million in 2017, primarily due to the planned and extended first quarter styrene outage at its St. James, LA, facility,including lower margins on second quarter sales of styrene purchased during the outage. Additionally, equity earnings fromSumika Styron Polycarbonate decreased from $3.0 million in 2016 to $0.8 million in 2017, as the Company completed the sale ofits 50% share in the entity to Sumitomo Chemical Company Limited in January 2017 and therefore did not have an ownershipinterest in the joint venture for the majority of the six months ended June 30, 2017. Refer to Note 3 in the condensed consolidatedfinancial statements for further information.
Interest Expense, Net
The decrease in interest expense was primarily attributable to lower deferred financing fee amortization recorded intointerest expense from our Accounts Receivable Securitization Facility and lower interest expense incurred on the Company’sEuro Notes as a result of fluctuations in the euro foreign exchange rate.
Other Expense (Income), net
Other income, net for the six months ended June 30, 2017 was $6.1 million, which primarily includes a $9.3 million gainrelated to the sale of the Company’s 50% share in Sumika Styron Polycarbonate in January 2017 (refer to Note 3 in the condensedconsolidated financial statements for further information). Additionally, net foreign exchange transaction losses for the periodwere $2.6 million, which included $7.9 million of foreign exchange transaction gains primarily due to the remeasurement of oureuro denominated payables due to the relative changes in rates between the U.S. dollar and the euro during the period, more thanoffset by $10.5 million of losses from our foreign exchange forward contracts.
Other expense, net for the six months ended June 30, 2016 was $15.5 million, which includes an impairment charge for theestimated loss on sale of our latex and automotive businesses in Brazil of approximately $12.9 million, as well as other expensesof $1.0 million. Refer to Note 11 in the condensed consolidated financial statements for further information. Adding to theselosses were net foreign exchange transaction losses of $1.6 million. Included in these net losses of $1.6 million were foreignexchange transactions losses of $2.6 million, primarily due to by the remeasurement of our euro denominated payables due to therelative changes in rates between the U.S. dollar and the euro during the period, partially offset by gains of $1.0 million from ourforeign exchange forward contracts.
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Provision for Income Taxes
Provision for income taxes for the six months ended June 30, 2017 totaled $48.1 million resulting in an effective tax rate of21.3%. Provision for income taxes for the six months ended June 30, 2016 totaled $50.5 million resulting in an effective tax rateof 22.6%.
The decrease in provision for income taxes was primarily due to a lower amount of income before income taxes subject totax. Included in the $225.6 million income before income taxes for the six months ended June 30, 2017 is the $9.3 million gainon sale of our 50% share in Sumika Styron Polycarbonate, which was exempt from tax. Conversely, included in the $223.1million income before income taxes for the six months ended June 30, 2016 was an in impairment charge of $12.9 million for theestimated loss on sale of Trinseo Brazil, which did not provide a tax benefit to the Company.
2017 Outlook
We expect continued strong fundamental business performance over the remainder of 2017. However, due to recent sharpvolatility in the prices of our key raw materials, we expect our results for the second half of 2017 to be impacted by unfavorableraw material timing, net of favorable price lag. We continue to make strong progress on the growth initiatives within ourPerformance Materials segments, including our recently completed acquisition of API Plastics, to go along with our otherinvestments such as the SSBR expansion and pilot plant, new ABS capacity in China, and new product and application growthinitiatives. Additionally, we expect to continue our strategy of balanced cash deployment and maximizing shareholder value,noting the recent approval from our board of directors of a 20% dividend increase as well as an increased repurchaseauthorization of 2 million shares.
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Selected Segment Information
Effective October 1, 2016, the Company realigned its reporting segments to reflect the new model under which the businessis now managed and results are reviewed by the chief executive officer, who is the Company’s chief operating decision maker.The Company’s reportable segments are now as follows: Latex Binders, Synthetic Rubber, Performance Plastics, Basic Plastics,Feedstocks, and Americas Styrenics. In conjunction with this segment realignment, the Company changed its primary measure ofsegment operating performance to Adjusted EBITDA. Refer to the Annual Report for a description of our segments, including adetailed overview, products and end uses, and competition and customers.
The following sections describe net sales, Adjusted EBITDA, and Adjusted EBITDA margin by segment for the three andsix months ended June 30, 2017 and 2016, which have been recast to reflect the above changes. Inter-segment sales have beeneliminated. Refer to Note 12 in the condensed consolidated financial statements for further information on these changes, as wellas for a detailed definition of Adjusted EBITDA and a reconciliation of income before income taxes to segment AdjustedEBITDA.
Latex Binders Segment
Our Latex Binders segment produces SB latex and other latex polymers and binders primarily for coated paper andpackaging board, carpet and artificial turf backings, as well as a number of performance latex applications, such as adhesive,building and construction and the technical textile paper market.
Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Net sales $ 291.5 $ 232.5 25 % $ 580.5 $ 442.0 31 % Adjusted EBITDA $ 36.1 $ 21.5 68 % $ 72.9 $ 40.2 81 % Adjusted EBITDA margin 12 % 9 % 13 % 9 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 25% increase in net sales, 36% was due to higher selling prices, primarily due to the pass through of higherbutadiene and styrene costs to our customers. Offsetting this increase was a 5% decrease due to lower sales volume from NorthAmerica paper customer destocking and a declining market. Additionally, 4% of the decrease was due to the prior year divestitureof our business in Brazil and 2% of the decrease was due to an unfavorable currency impact as the euro weakened in comparisonto the U.S. dollar.
The increase in Adjusted EBITDA was due to margin improvements of $17.7 million, an 82% increase, which includedfavorable raw material timing, net of price lag, as market conditions have improved, particularly in Asia. Higher margins werealso the result of continued diversification of our chemistries and markets as well as higher operating rates. Additionally, fixedcost improvements contributed to 8% of the increase. Lastly, the prior year divestiture of our business in Brazil resulted in a 5%decrease in Adjusted EBITDA.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 31% increase in net sales, 37% was due to higher selling prices, primarily due to the pass through of higherbutadiene and styrene costs to our customers. Offsetting this increase was a 4% decrease due to the prior year divestiture of ourbusiness in Brazil as well as a 2% decrease due to an unfavorable currency impact as the euro weakened in comparison to the U.S.dollar.
The increase in Adjusted EBITDA was due to margin improvements of $34.9 million, an 87% increase, primarily due tofavorable raw material timing, net of price lag, as market conditions have improved, particularly in Asia. Higher margins werealso the result of continued diversification of our chemistries and markets as well as higher operating rates. Additionally, fixedcost improvements contributed to 2% of the increase. Lastly, the prior year divestiture of our business in Brazil resulted in a 3%decrease in Adjusted EBITDA.
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Synthetic Rubber Segment
Our Synthetic Rubber segment produces styrene-butadiene and polybutadiene-based rubber products used predominantly inhigh-performance tires, impact modifiers and technical rubber products, such as conveyor belts, hoses, seals and gaskets. We havea broad synthetic rubber technology and product portfolio, focusing on specialty products, such as SSBR, lithium polybutadienerubber, or Li-PBR, nickel polybutadiene rubber, or Ni-PBR, and neodymium polybutadiene rubber, or Nd-PBR, while alsoproducing core products, such as emulsion styrene-butadiene rubber, or ESBR.
Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Net sales $ 174.0 $ 111.4 56 % $ 337.4 $ 213.6 58 % Adjusted EBITDA $ 27.7 $ 30.2 (8)% $ 74.0 $ 53.3 39 % Adjusted EBITDA margin 16 % 27 % 22 % 25 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 56% increase in net sales, 53% was due to higher selling prices, primarily resulting from the pass through of higherbutadiene and styrene costs to customers. Additionally, 8% of the increase was due to higher sales volume which was a result ofhigher customer demand for SSBR due to the growing performance tire market, as well as higher sales of Ni-PBR, notingdecreased production in the prior year to allow for Nd-PBR trials. These increases were partially offset by a 4% decrease due toan unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was primarily due to unfavorable raw material timing, partly offset by favorable pricelag, which led to a 29% decrease due to margin. Offsetting this decrease was a 25% increase due to higher sales volume andfavorable product mix, primarily related to higher demand for SSBR and Ni-PBR.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 58% increase in net sales, 49% was due to higher selling prices, primarily resulting from the pass through of higherbutadiene and styrene costs to customers. Additionally, 14% of the increase was due to higher sales volume which was a result ofhigher customer demand for SSBR and ESBR, as well as higher sales of Ni-PBR, noting decreased production in the prior year toallow for Nd-PBR trials. These increases were partially offset by a 4% decrease due to an unfavorable currency impact as the euroweakened in comparison to the U.S. dollar.
The increase in Adjusted EBITDA was primarily due to improved year-to-date margins, which contributed to 27% of theincrease, mainly from favorable raw material timing, net of unfavorable price lag. Higher sales volume contributed to 23% of theincrease, primarily related to higher demand for SSBR, ESBR, and Ni-PBR. Partially offsetting these increases was a 10%decrease due to higher production costs.
Performance Plastics Segment
Our Performance Plastics segment consists of compounds and blends and some specialized ABS grades. We are a producerof highly engineered compounds and blends for automotive end markets, as well as consumer electronics, medical, electrical andlighting, collectively referred to as consumer essential markets.
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Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Net sales $ 190.2 $ 183.9 3 % $ 374.7 $ 352.5 6 % Adjusted EBITDA $ 23.5 $ 38.5 (39)% $ 50.4 $ 73.6 (32)% Adjusted EBITDA margin 12 % 21 % 13 % 21 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 3% increase in net sales, 6% was due to higher selling prices due to the pass through of higher raw material costs toour customers, as well as a 3% increase due to increased sales volume as a result of higher volumes sold to the automotive marketin North America and the consumer electronics market in Asia. Partially offsetting these increases was a 4% decrease due to theprior year divestiture of our business in Brazil and a 1% unfavorable currency impact as the euro weakened in comparison to theU.S. dollar.
The decrease in Adjusted EBITDA was due to a 39% decrease, primarily due to margin compression from increased costsof raw materials, such as polycarbonate, not all of which was able to be passed through to our customers. Partially offsetting thesedecreases was a 3% increase due to increased sales volumes to the automotive market in North America and the consumerelectronics market in Asia and a 2% increase related to the prior year divestiture of our business in Brazil.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 6% increase in net sales, 3% was due to higher selling prices due to the pass through of higher raw material costs toour customers as well as an 8% increase due to increased sales volume, primarily related to higher sales to the automotive marketsin Europe and North America, the electrical and medical markets in Europe, and the consumer electronics market in Asia.Partially offsetting these increases was a 3% decrease due to the prior year divestiture of our business in Brazil and a 1%unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 42% decrease in margins from unfavorable raw material timing, net ofprice lag unfavorable price lag, as well as margin compression from increased costs of raw materials, such as polycarbonate, notall of which was able to be passed through to our customers. Partially offsetting this decrease was a 13% increase due to increasedsales volume growth to the automotive markets in Europe and North America and a 3% increase related to the prior yeardivestiture of our business in Brazil.
Basic Plastics Segment
The Basic Plastics segment produces styrenic polymers, including polystyrene, basic ABS, and SAN products, as well asPC, all of which are used as inputs in a variety of end use markets. The Basic Plastics segment also included the results of ourpreviously 50%-owned joint venture Sumika Styron Polycarbonate prior to its sale in January 2017. Refer to Note 3 in thecondensed consolidated financial statements for further information.
Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Net sales $ 382.5 $ 363.3 5 % $ 763.2 $ 705.9 8 % Adjusted EBITDA $ 31.8 $ 43.1 (26)% $ 70.6 $ 80.9 (13)% Adjusted EBITDA margin 8 % 12 % 9 % 11 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 5% increase in net sales, 11% was due to higher selling prices due to the pass through of higher styrene costs tocustomers. This increase was partially offset by a 3% decrease due to lower sales volume, primarily related to lower polystyrenesales volume in Asia, as we have increased our focus on higher margin business, as well as lower
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external polycarbonate sales volume due to higher internal utilization. Additionally, an unfavorable currency impact resulted in a2% decrease as the euro weakened in comparison to the U.S. dollar.
Adjusted EBITDA decreased 26%, primarily due to unfavorable raw material timing resulting in lower margins, whichcontributed to a 15% decrease, while lower sales volume contributed to 7% of the decrease. The sale of Sumika StyronPolycarbonate in the current year resulted in a 2% decrease in Adjusted EBITDA.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 8% increase in net sales, 18% was due to higher selling prices due to the pass through of higher styrene costs tocustomers. This increase was partially offset by a 7% decrease due to lower sales volume, primarily related to lower polystyrenesales in Asia, as we have increased our focus on higher margin business. Additionally, an unfavorable currency impact resulted ina 2% decrease as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to an 11% decrease related to lower sales volume, primarily related to Europeand Asia polystyrene sales, with competitor supply outages in Europe in the prior year and with an increased focus on highermargins in Asia. Higher fixed costs, including start-up costs incurred related to our new ABS capacity in Asia, contributed to adecrease of 3% while the sale of Sumika Styron Polycarbonate in the current year resulted in a 3% decrease in Adjusted EBITDA.Partially offsetting these decreases was a 5% increase due to higher year-to-date margins, primarily due to favorable raw materialtiming.
Feedstocks Segment
The Feedstocks segment includes the Company’s production and procurement of styrene monomer outside of NorthAmerica, which is used as a key raw material in many of the Company’s products, including polystyrene, SB latex, ABS resins,SSBR, etc.
Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Net sales $ 107.0 $ 78.6 36 % $ 193.9 $ 149.8 29 % Adjusted EBITDA $ (1.2) $ 32.5 (104)% $ 40.7 $ 53.4 (24)% Adjusted EBITDA margin (1)% 41 % 21 % 36 %
Three Months Ended - June 30, 2017 vs. June 30, 2016
Of the 36% increase in net sales, 16% was due to higher selling prices, primarily due to the pass through of higher styrenecosts to customers, as well as a 22% increase due to higher styrene-related sales volume. Partially offsetting these increases was a2% decrease as a result of an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 98% decrease as a result of lower styrene margins, including unfavorableraw material timing, as well as a 4% decrease due to higher maintenance-related fixed costs.
Six Months Ended - June 30, 2017 vs. June 30, 2016
Of the 29% increase in net sales, 27% was due to higher selling prices, primarily due to the pass through of higher styrenecosts to customers, as well as a 4% increase due to higher styrene-related sales volume. Partially offsetting these increases was a2% decrease as a result of an unfavorable currency impact as the euro weakened in comparison to the U.S. dollar.
The decrease in Adjusted EBITDA was due to a 16% decrease as a result of lower styrene margins, including unfavorableraw material timing, as well as a 6% decrease due to higher maintenance-related fixed costs.
Americas Styrenics Segment
The Americas Styrenics segment consists solely of the operations of our 50%-owned joint venture, Americas Styrenics, aproducer of both styrene monomer and polystyrene in North America. Styrene monomer is a basic building
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block of plastics and a key input to many of the Company’s products, as well as a key raw material for the production ofpolystyrene. Major applications for the polystyrene products Americas Styrenics produces include appliances, food packaging,food service disposables, consumer electronics and building and construction materials.
Three Months Ended Six Months Ended June 30, June 30,
(in millions) 2017 2016 %
Change 2017 2016 %
Change Adjusted EBITDA* $ 29.9 $ 37.7 (21)% $ 48.4 $ 70.6 (31)%
* The results of this segment are comprised entirely of earnings from Americas Styrenics, our equity method investment.As such, Adjusted EBITDA related to this segment is included within “Equity in earnings of unconsolidated affiliates” inthe consolidated statements of operations.
Three Months Ended - June 30, 2017 vs. June 30, 2016
The decrease in Adjusted EBITDA was primarily due to lower margins on second quarter sales of styrene purchased duringthe first quarter maintenance-related outage at the St. James, LA, styrene facility in a decreasing price environment.
Six Months Ended - June 30, 2017 vs. June 30, 2016
The decrease in Adjusted EBITDA was primarily due to the planned first quarter styrene outage at its St. James, LA,facility, which was extended in order to complete repairs on critical equipment. The facility came back online at full production inearly April 2017. As a result of this extended outage, the Company incurred an unfavorable impact of approximately $23 millionto Adjusted EBITDA through the second quarter of 2017.
Non-GAAP Performance Measures
We present Adjusted EBITDA as a non-GAAP financial performance measure, which we define as income from continuingoperations before interest expense, net; provision for income taxes; depreciation and amortization expense; loss onextinguishment of long-term debt; asset impairment charges; gains or losses on the dispositions of businesses and assets;restructuring; acquisition related costs and other items. In doing so, we are providing management, investors, and credit ratingagencies with an indicator of our ongoing performance and business trends, by removing the impact of transactions and eventsthat we would not consider a part of our core operations.
There are limitations to using the financial performance measures such as Adjusted EBITDA. This performance measure isnot intended to represent net income or other measures of financial performance. As such, it should not be used as an alternativeto net income as an indicator of operating performance. Other companies in our industry may define Adjusted EBITDAdifferently than we do. As a result, it may be difficult to use this or similarly-named financial measures that other companies mayuse, to compare the performance of those companies to our performance. We
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compensate for these limitations by providing a reconciliation of this performance measure to our net income, which isdetermined in accordance with GAAP.
Adjusted EBITDA is calculated as follows for the three and six months ended June 30, 2017 and 2016, respectively:
Three Months Ended Six Months Ended June 30, June 30, (in millions) 2017 2016 2017 2016 Net income $ 60.2 $ 95.8 $ 177.5 $ 172.6 Interest expense, net 18.7 18.8 36.9 37.7 Provision for income taxes 18.8 28.6 48.1 50.5 Depreciation and amortization 26.3 24.9 51.0 47.9 EBITDA $ 124.0 $ 168.1 $ 313.5 $ 308.7 Net loss (gain) on disposition of businesses and assets — 12.9 (9.9) 12.9 Restructuring and other charges 1.1 1.1 3.3 1.8 Acquisition transaction and integration costs 1.1 — 1.1 — Other items — 0.3 — 2.2 Adjusted EBITDA $ 126.2 $ 182.4 $ 308.0 $ 325.6
(a) EBITDA is a non-GAAP financial performance measure that we refer to in making operating decisions because we believeit provides our management as well as our investors and credit agencies with meaningful information regarding theCompany’s operational performance. We believe the use of EBITDA as a metric assists our board of directors, managementand investors in comparing our operating performance on a consistent basis. Other companies in our industry may defineEBITDA differently than we do. As a result, it may be difficult to use EBITDA, or similarly-named financial measures thatother companies may use, to compare the performance of those companies to our performance. We compensate for theselimitations by providing reconciliations of our EBITDA results to our net income, which is determined in accordance withGAAP.
(b) Net gain on disposition of businesses and assets during the six months ended June 30, 2017 relates primarily to the sale ofour 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited, for which the Companyrecorded a gain on sale of $9.3 million during the period. Refer to Note 3 in the condensed consolidated financialstatements for further information. During the three and six months ended June 30, 2016, the Company recorded animpairment charge for the estimated loss on sale of our primary operating entity in Brazil, which includes both latex andautomotive businesses, of approximately $12.9 million. Refer to Note 11 in the condensed consolidated financial statementsfor further information.
(c) Restructuring and other charges for the three and six months ended June 30, 2017 primarily relate to employee terminationbenefit and decommissioning charges incurred in connection with the decision to cease manufacturing activities at our latexbinders manufacturing facility in Livorno, Italy, as well as contract termination charges related to the upgrade andreplacement of the Company’s compounding facility in Terneuzen, The Netherlands. Refer to Note 13 in the condensedconsolidated financial statements for further information. Restructuring and other charges for the three and six monthsended June 30, 2016 primarily relate to employee termination benefit and decommissioning charges incurred in connectionwith the Allyn’s Point shutdown within our latex binders business, as well as employee termination benefit charges relatedto the elimination of certain corporate functions as a result of the sale of our latex and automotive businesses in Brazil.
Note that the accelerated depreciation charges incurred as part of both the upgrade and replacement of the Company’scompounding facility in Terneuzen, The Netherlands as well as the Allyn’s Point shutdown are included within the“Depreciation and amortization” caption above, and therefore are not included as a separate adjustment within this caption.
(d) Acquisition transaction and integration costs for the three and six months ended June 30, 2017 relate to advisory andprofessional fees incurred in conjunction with the Company’s acquisition of API Plastics, which closed in July 2017. Referto Note 16 in the condensed consolidated financial statements for further information.
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(b)
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(e) Other items for the three and six months ended June 30, 2016 relate to fees incurred in conjunction with the Company’ssecondary offerings completed during these periods.
Liquidity and Capital Resources
Cash Flows
The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2017 and 2016,respectively. We have derived the summarized cash flow information from our unaudited financial statements.
Six Months Ended June 30, (in millions) 2017 2016 Net cash provided by (used in): Operating activities $ 36.6 $ 179.7 Investing activities (29.7) (48.2) Financing activities (79.8) (97.0) Effect of exchange rates on cash 7.7 (0.5) Net change in cash and cash equivalents $ (65.2) $ 34.0 Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2017 totaled $36.6 million, inclusive of$45.0 million in dividends from Americas Styrenics, as well as dividends from Sumika Styron Polycarbonate, $8.9 million ofwhich were classified as operating activities, with the remaining $0.9 million classified as investing activities. Refer to Note 3 inthe condensed consolidated financial statements for further information. Net cash used in operating assets and liabilities for thesix months ended June 30, 2017 totaled $210.6 million, due primarily to increases in accounts receivable of $137.7 million andinventories of $66.8 million, respectively. The increases in accounts receivable and inventories were primarily due to increasedraw material prices.
Net cash provided by operating activities during the six months ended June 30, 2016 totaled $179.7 million, due primarilyto earnings for the period. Also impacting cash flows from operating activities for the period was $60.0 million in dividends fromAmericas Styrenics. Net cash used in operating assets and liabilities for the six months ended June 30, 2016 totaled $68.0 million,due primarily to increases in accounts receivable of $53.0 million and inventories of $16.7 million, respectively. The increase inaccounts receivable was primarily due to higher net sales during the second quarter of 2016, compared to the fourth quarter of2015, due primarily to increasing raw material prices as well as volume increases. The increase in inventory was primarily due toincreasing raw material prices.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2017 totaled $29.7 million, primarily from capitalexpenditures of $74.3 million during the period, partially offset by proceeds received of $42.1 million from the sale of theCompany’s 50% share in Sumika Styron Polycarbonate to Sumitomo Chemical Company Limited.
Net cash used in investing activities for the six months ended June 30, 2016 totaled $48.2 million, primarily from capitalexpenditures of $53.2 million during the period, a significant portion of which related to our project to upgrade our legacy ERPenvironment to the latest version of SAP. Partially offsetting these capital expenditures were dividends received from SumikaStyron Polycarbonate during the period, $4.8 million of which were classified as investing activities on the condensedconsolidated statement of cash flows, with the remaining $1.4 million classified as operating activities.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2017 totaled $79.8 million. This activity wasprimarily due to $56.4 million of payments related to the repurchase of ordinary shares during the period and $26.5
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million of dividends paid, as well as $2.5 million of principal payments related to our 2021 Term Loan B. Partially offsettingthese uses of cash was $6.0 million of proceeds received from the exercise of option awards.
Net cash used in financing activities during the six months ended June 30, 2016 totaled $97.0 million. This activity wasprimarily due to $94.4 million of payments related to the repurchase of ordinary shares during the period as well as $2.5 millionof principal payments related to our 2021 Term Loan B. Free Cash Flow
We use Free Cash Flow as a non-GAAP measure to evaluate and discuss the Company’s liquidity position and results. FreeCash Flow is defined as cash from operating activities, less capital expenditures. We believe that Free Cash Flow provides anindicator of the Company’s ongoing ability to generate cash through core operations, as it excludes the cash impacts of variousfinancing transactions as well as cash flows from business combinations that are not considered organic in nature. We also believethat Free Cash Flow provides management and investors with a useful analytical indicator of our ability to service ourindebtedness, pay dividends (when declared), and meet our ongoing cash obligations.
Free Cash Flow is not intended to represent cash flows from operations as defined by GAAP, and therefore, should not beused as an alternative for that measure. Other companies in our industry may define Free Cash Flow differently than we do. As aresult, it may be difficult to use this or similarly-named financial measures that other companies may use, to compare the liquidityand cash generation of those companies to our own. We compensate for these limitations by providing a reconciliation to cashprovided by operating activities, which is determined in accordance with GAAP.
Prior period information below has been recast from its previous presentation to reflect the Company’s current method forcalculating Free Cash Flow. Prior to the third quarter of 2016, we calculated Free Cash Flow as cash from both operating andinvesting activities less the impact of changes in restricted cash. The Company believes our revised method is more aligned toinvestors’ common understanding of Free Cash Flow and allows for easier comparisons between the Company and its peers.Additionally, the Company has not reported material restricted cash balances since 2012 and is not expected to do so under itscurrent practices.
Six Months Ended June 30, (in millions) 2017 2016 Cash provided by operating activities $ 36.6 $ 179.7 Capital expenditures (74.3) (53.2) Free Cash Flow $ (37.7) $ 126.5
Refer to the discussion above for significant impacts to cash provided by operating activities for the six months ended June30, 2017 and 2016, respectively.
Capital Resources and Liquidity
We require cash principally for day-to-day operations, to finance capital investments and other initiatives, to purchasematerials, to service our outstanding indebtedness, and to fund dividend payments to our shareholders. Our sources of liquidityinclude cash on hand, cash flow from operations, and amounts available under the Senior Credit Facility and the AccountsReceivable Securitization Facility.
As of June 30, 2017 and December 31, 2016, we had $1,218.0 million and $1,187.4 million, respectively, in outstandingindebtedness and $1,051.1 million and $890.7 million, respectively, in working capital. In addition, as of June 30, 2017 andDecember 31, 2016, we had $91.5 million and $88.8 million of foreign cash and cash equivalents on our balance sheet,respectively, all of which is readily convertible into other foreign currencies, including the U.S. dollar. Our intention is not topermanently reinvest our foreign cash and cash equivalents. Accordingly, we record deferred income tax liabilities related to theunremitted earnings of our subsidiaries.
Refer to our Annual Report for a detailed description of the Company’s debt structure, borrowing rates, and expected futurepayment obligations.
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The following table outlines our outstanding indebtedness as of June 30, 2017 and December 31, 2016 and the associatedinterest expense, including amortization of deferred financing fees, and effective interest rates for such borrowings as of June 30,2017 and December 31, 2016. Note that the effective interest rates below exclude the impact of deferred financing feeamortization.
As of and for the Six Months Ended As of and for the Year Ended June 30, 2017 December 31, 2016 Effective Effective Interest Interest Interest Interest (dollars in millions) Balance Rate Expense Balance Rate Expense Senior Credit Facility
2021 Term Loan B $ 489.1 4.3 % $ 11.5 $ 491.5 4.3 % $ 23.3 2020 Revolving Facility — — 1.7 — — 3.3
2022 Senior Notes USD Notes 300.0 6.8 % 10.6 300.0 6.8 % 21.1 Euro Notes 427.3 6.4 % 13.5 394.3 6.4 % 27.4
Accounts Receivable SecuritizationFacility — — 1.4 — — 3.3 Other indebtedness* 1.6 4.8 % — 1.6 4.8 % 0.1 Total $ 1,218.0 $ 38.7 $ 1,187.4 $ 78.5
* For the six months ended June 30, 2017, interest expense on “Other indebtedness” totaled less than $0.1 million.
Our Senior Credit Facility includes the 2020 Revolving Facility, which matures in May 2020, and has a borrowing capacityof $325.0 million. As of June 30, 2017, the Company had no outstanding borrowings, and had $308.1 million (net of $16.9million outstanding letters of credit) of funds available for borrowing under the 2020 Revolving Facility. Further, as of June 30,2017, the Borrowers are required to pay a quarterly commitment fee in respect of any unused commitments under the 2020Revolving Facility equal to 0.375% per annum.
We also continue to maintain our Accounts Receivable Securitization Facility set to mature in May 2019, under which ourborrowing capacity is $200.0 million. As of June 30, 2017, there were no amounts outstanding under the Accounts ReceivableSecuritization Facility, with approximately $151.3 million of funds available for borrowing under this facility, based on the poolof eligible accounts receivable.
Our other borrowing arrangements include our $500.0 million 2021 Term Loan B (maturing in November 2021), whichrequires scheduled quarterly payments in amounts equal to 0.25% of the original principal, and our 2022 Senior Notes (maturingin May 2022), whose U.S. dollar equivalent outstanding amount as of June 30, 2017 totaled $727.3 million.
The Senior Credit Facility and Indenture contain certain customary affirmative, negative and financial covenants. As ofJune 30, 2017, the Company was in compliance with all of these debt covenant requirements. Refer to the Annual Report forfurther information on the details of these covenant requirements.
Our ability to raise additional financing and our borrowing costs may be impacted by short- and long-term debt ratingsassigned by independent rating agencies, which are based, in significant part, on our performance as measured by certain creditmetrics such as interest coverage and leverage ratios.
We and our subsidiaries, affiliates or significant shareholders may from time to time seek to retire or purchase ouroutstanding debt through cash purchases in the open market, privately negotiated transactions, exchange transactions orotherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements,contractual restrictions and other factors. The amounts involved may be material.
Trinseo Materials Operating S.C.A. and Trinseo Materials Finance, Inc. (the “Issuers” of our 2022 Senior Notes and“Borrowers” under our Senior Credit Facility) are dependent upon the cash generation and receipt of distributions and dividendsor other payments from our subsidiaries and joint venture in order to satisfy their debt obligations. There are no known significantrestrictions by third parties on the ability of subsidiaries of the Company to disburse or dividend funds to the Issuers and theBorrowers in order to satisfy these obligations. However, as the Company’s subsidiaries are located in a variety of jurisdictions,the Company can give no assurances that its subsidiaries will not
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face transfer restrictions in the future due to regulatory or other reasons beyond our control.
The Company’s cash flow generation in recent years has been strong, with positive cash flows expected to continue for fullyear 2017. However, we can make no assurances that, in the future, our business will generate sufficient cash flow fromoperations or that future borrowings will be available to us under the Senior Credit Facility in an amount sufficient to enable us topay our indebtedness, or to fund our other liquidity needs. In addition, our current indebtedness may limit our ability to procureadditional financing in the future.
The Senior Credit Facility and Indenture also limit the ability of the Borrowers and Issuers, respectively, to pay dividendsor make other distributions to Trinseo S.A., which could then be used to make distributions to shareholders. In April 2017, theCompany paid a dividend of $0.30 per ordinary share (totaling $13.7 million), with an additional dividend to shareholders of$0.36 per ordinary share declared in June 2017 (to be paid in July 2017). These dividends are well within the available capacityunder the terms of the restrictive covenants contained in the Senior Credit Facility and Indenture. Further, significant additionalcapacity continues to be available under the terms of these covenants to support expected future dividends to shareholders, shouldthe Company continue to declare them.
We believe that funds provided by operations, our existing cash and cash equivalent balances, borrowings available underour 2020 Revolving Facility and borrowings available under our Accounts Receivable Securitization Facility will be adequate tomeet planned operating and capital expenditures for at least the next 12 months under current operating conditions.
Contractual Obligations and Commercial Commitments
There have been no material revisions outside the ordinary course of business to our contractual obligations as describedwithin “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations andCommercial Commitments” within our Annual Report.
Critical Accounting Policies and Estimates
Our unaudited interim condensed consolidated financial statements are based on the selection and application of significantaccounting policies. The preparation of unaudited interim condensed consolidated financial statements in conformity with GAAPrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenuesand expenses at the date of and during the reporting period. Actual results could differ from those estimates. However, we are notcurrently aware of any reasonably likely events or circumstances that would result in materially different results.
We describe our significant accounting policies in Note 2, Basis of Presentation and Summary of Significant AccountingPolicies, of the Notes to Consolidated Financial Statements included in our Annual Report, while we discuss our criticalaccounting policies and estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”within our Annual Report.
There have been no material revisions to the critical accounting policies as filed in our Annual Report.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 2 to our condensed consolidated financial statements,included elsewhere within this Quarterly Report.
Item 3. Quantitative and Qualitativ e Disclosures about Market Risk
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within ourAnnual Report, we are exposed to changes in interest rates and foreign currency exchange rates as well as changes in the prices ofcertain commodities that we use in production. There have been no material changes in our
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exposure to market risks from the information provided within our Annual Report, except to our risks related to changes in theprices of certain commodities that we use in the production of our products.
Commodity Price Risk
We purchase certain raw materials such as benzene, ethylene, butadiene, BPA and styrene primarily under short- and long-term supply contracts. The pricing terms for these raw material purchases are generally determined based on commodity indicesand prevailing market conditions within the relevant geography. The selling prices of our products are generally based, in part, onthe current or forecasted costs of our key raw materials, but are often subject to a predetermined lag period for the pass through ofthese costs. As such, during periods of significant raw material price volatility, the Company may experience material volatilityin earnings and cash flows due to the lag in passing through raw material costs, primarily benzene, ethylene, butadiene, andstyrene. Assuming no changes in sales price, volume or mix, a hypothetical 10% change in the market price of our raw materialswould have impacted cost of sales by $155 million for the six months ended June 30, 2017.
We mitigate the risk of volatility in commodity prices where possible by passing changes in raw material costs through toour customers by adjusting our prices or including provisions in our contracts that allow us to adjust prices in such a circumstanceor by including pricing formulas which utilize commodity indices. Nevertheless, we may be subject to the timing differencesdescribed above for the pass through of these costs. In addition, even when raw material costs may be passed on to our customers,during periods of high raw material price volatility, customers without minimum purchase requirements with us may choose todelay purchases of our materials or, in some cases, substitute purchases of our materials with less costly products.
We do not enter into derivative financial instruments for trading or speculative purposes to manage our commodity pricerisk relating to our raw material contracts.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining internal controls designed to provide reasonable assurancethat information required to be disclosed by us in our reports that we file or submit under the Exchange Act (as defined in Rules13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated toour management, with the participation of our Chief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosures. Our management, with the participation of our Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2017. Based onthat evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures asof the end of the period covered by this Quarterly Report were effective to provide the reasonable level of assurance describedabove.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of theExchange Act) that occurred during the quarter ended June 30, 2017 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceeding s
From time to time we may be subject to various legal claims and proceedings incidental to the normal conduct of business,relating to such matters as product liability, antitrust, competition, waste disposal practices, release of chemicals into theenvironment and other matters that may arise in the ordinary course of our business. We currently believe that there is nolitigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedingscan have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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Item 1A. Risk Factors
Our business faces various risks. Certain important factors may have a material adverse effect on our business prospects,financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, weencourage you to consider the risk factors related to our ordinary shares as well those risk factors related to our business andindustry which have been previously disclosed in Item 1A of our Annual Report for the year ended December 31, 2016, for whichthere have been no material changes. We encourage you to consider these risks, in their entirety, in addition to other informationcontained in or incorporated by reference into this Quarterly Report and our other public filings with the SEC. Other events thatwe do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial conditionand results of operations .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent sales of unregistered securities
None.
(b) Use of Proceeds from registered securities
None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table contains information regarding purchases of our ordinary shares made during the quarterended June 30, 2017 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3)of the Securities Exchange Act of 1934:
Issuer Purchases of Equity Securities
Period Total number ofshares purchased
Average price paid per share
Total number ofshares purchasedas part of publiclyannounced plans
or programs
Approximate numberof shares that may yet
be purchased under theplans or programs
April 1 - April 30, 2017 111,300 $ 64.34 111,300 1,849,062May 1 - May 31, 2017 280,366 $ 63.25 280,366 1,568,696June 1 - June 30, 2017 75,733 $ 64.35 75,733 2,000,000Total 467,399 $ 63.69 467,399
(1) The general meeting of our shareholders on June 21, 2016 authorized the Company to repurchase up to 4.5 millionordinary shares at a price per share of not less than $1.00 and not more than $1,000. This authorization ends on June21, 2018 or on the date of its renewal by a subsequent general meeting of shareholders. On November 1, 2016 theCompany announced that the board of directors had authorized the Company to repurchase, subject to market andother conditions, the remaining shares left under the 2016 share repurchase authorization.
(2) The general meeting of our shareholders on June 21, 2017 authorized the Company to sunset the 2016 sharerepurchase authorization and replace it with a new authorization to repurchase up to 4.0 million ordinary shares at aprice per share of not less than $1.00 and not more than $1,000. This authorization ends on June 21, 2020 or on thedate of its renewal by a subsequent general meeting of shareholders. On June 22, 2017 the Company announced thatthe board of directors had authorized the Company to repurchase, subject to market and other conditions, up to 2.0million shares over the subsequent 18 months under the 2017 share repurchase authorization.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
See Exhibit Index.
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TRINSEO S.A. By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: President, Chief Executive Officer (Principal Executive Officer) By: /s/ Barry J. Niziolek Name: Barry J. Niziolek Title: Executive Vice President, Chief Financial Officer (Principal Financial Officer)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, duly authorized.
Date: August 3, 2017
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EXHIBIT INDEX
ExhibitNo. Description3.1† Amended and Restated Articles of Association of Trinseo S.A. 4.1 Form of Specimen Share Certificate of Trinseo S.A. (incorporated herein by reference to Exhibit 4.1 to Amendment
No. 3 to the Registration Statement filed on Form S-1, File No. 333-194561, filed May 16, 2014) 4.2 Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the Guarantors named
therein, and The Bank of New York Mellon, as Trustee, dated as of May 5, 2015 (incorporated herein by referenceto Exhibit 4.1 to the Current Report filed on Form 8-K, File No. 001-36473, filed May 11, 2015)
4.3† First Supplemental Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the
Guarantors named therein, and The Bank of New York Mellon, as Trustee, dated as of July 30, 2015 4.4† Second Supplemental Indenture among Trinseo Materials Operating S.C.A., Trinseo Materials Finance, Inc., the
Guarantors named therein, and The Bank of New York Mellon, as Trustee, dated as of June 9, 2017 10.1† Form of Indemnification Agreement for Directors and Officers 31.1† Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2† Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1† Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 32.2† Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 101.INS† XBRL Instance Document 101.SCH† XBRL Taxonomy Extension Schema Document 101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF† XBRL Taxonomy Extension Definition Linkbase Document 101.LAB† XBRL Taxonomy Extension Label Linkbase Document 101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document
† Filed herewith.
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF
TRINSEO S.A.
I. NAME – REGISTERED OFFICE – OBJECT – DURATION
1 Name
The name of the company is “Trinseo S.A.” (the Company ). The Company is a public limited liability company (société anonyme ) governed by the laws of the Grand Duchy of Luxembourg, in particular the law of August 10, 1915,on commercial companies, as amended from time to time (the Company Law ), and these articles of association (theArticles ).
2 Registered office
2.1 The Company’s registered office is established in Luxembourg, Grand Duchy of Luxembourg. It may betransferred to any other location in the Grand Duchy of Luxembourg by a resolution of the board of directors ofthe Company (the Board ), and the Board may amend the Articles to reflect this change.
2.2 Branches, subsidiaries or other offices may be established in the Grand Duchy of Luxembourg or abroad by aresolution of the Board. If the Board determines that extraordinary political or military developments or eventshave occurred or are imminent, and that those developments or events may interfere with the normal activities ofthe Company at its registered office or the communication between that office and persons abroad, the registeredoffice may be temporarily transferred abroad until such developments or events have completely ceased. Anysuch temporary measures do not affect the nationality of the Company, which, notwithstanding the temporarytransfer of its registered office, will remain a Luxembourg incorporated company.
3 Corporate object
3.1 The Company’s object is the acquisition of participations, in Luxembourg or abroad, in any company orenterprise in any form whatsoever, and the management, development and sale of those participations. TheCompany may in particular acquire and sell, by subscription, purchase and exchange or in any other manner,any stock, shares and other participation securities, bonds, debentures, certificates of deposit and other debtinstruments and, more generally, any securities and financial instruments issued by any public or private entity.It may participate in the creation, development, management and control of any company or enterprise. Further,it may invest in the acquisition and management of a portfolio of patents or other intellectual property rights ofany nature or origin.
3.2 The Company may borrow in any form. The Company may issue notes, bonds and any kind of debt and equitysecurities. It may issue convertible funding instruments and warrants. The Company may lend funds, including,without limitation, the proceeds of any borrowings to its subsidiaries and affiliated companies. It may also giveguarantees and pledge, transfer,
encumber or otherwise create and grant security over some or all of its assets to guarantee its own obligationsand those of any other company, subsidiary or affiliate, and, generally, for its own benefit and that of any othercompany or person. The Company may issue warrants or any other instrument which allows the holder of suchinstrument to subscribe for shares in the Company. For the avoidance of doubt, the Company may not carry outany regulated financial sector activities without having obtained the requisite authorisation.
3.3 The Company may use any techniques, legal means and instruments to manage its investments efficiently andprotect itself against credit risks, currency exchange exposure, interest rate risks and other risks.
3.4 The Company may carry out any commercial, financial or industrial operation and any transaction with respectto real estate or movable property, which directly or indirectly, favours or relates to its corporate object(including without limitation the performance of any kind of services to its subsidiaries).
4 Duration
4.1 The Company is formed for an unlimited period.
4.2 The Company shall not be dissolved by reason of the death, suspension of civil rights, incapacity, insolvency,bankruptcy or any similar event affecting one (1) or more shareholders of the Company (each a Shareholder ,and, together, the Shareholders ).
II. CAPITAL - SHARES
5 Issued share capital
5.1 The issued share capital is set at four hundred eighty-seven thousand seven hundred seventy-nine United StatesDollars and thirty-four United States Dollar cents (USD 487,779.34), represented by forty-eight million sevenhundred seventy seven thousand nine hundred thirty four (48,777,934) ordinary shares with nominal value ofone United States Dollar cent (USD 0.01) each, all subscribed and fully paid-up (the Shares ).
5.2 The authorised share capital is set at five hundred million United States Dollars (USD 500,000,000) representedby fifty billion (50,000,000,000) shares.
5.3 The issued share capital and the authorised share capital may be increased or decreased once or several times bya resolution of the General Meeting, acting in accordance with the conditions prescribed for the amendment ofthese Articles.
5.4 Subject to the provisions of the Company Law and these Articles, each Shareholder has a preferentialsubscription right in the event of the issuance of new Shares by the Company in return for contributions in cash.Such preferential subscription right shall be proportional to the fraction of the capital represented by the Sharesheld by each Shareholder immediately prior to such issuance.
5.5 The Board is authorised, for a period of five (5) years from the date of publication of these Articles, and withoutprejudice to any renewals, to:
(a) increase the issued share capital, in whole or in part and on one (1) or more occasions, up to the authorisedshare capital by the issuance of Shares up to the limits for each class, with the rights as set out in theseArticles, against payment in cash or in kind or against a contribution of share premium, account 115,distributable reserves or retained earnings;
(b) determine the place and date of the issue (or any successive issue) and the terms and conditions of thesubscription for the Shares;
(c) determine the allocation of the subscription price for the Shares to the share capital, share premium and/orany other reserve account of the Company;
(d) limit and/or withdraw the preferential subscription rights of existing Shareholders in case of an issuance ofShares, as the case may be; and
(e) record each such share capital increase by way of a notarial deed and amend the register of Shares toreflect the amendment accordingly.
5.6 The Shareholders’ preferential subscription rights to any Shares may also be limited or cancelled by a resolutionof the General Meeting adopted with the same majority and quorum as set out in Section 9.4.3 of these Articles.
5.7 Whenever the General Meeting or Board has effected a share capital increase pursuant to the foregoingprovisions, Section 5.1 of these Articles shall be amended so as to reflect the increase.
5.8 The Board is authorised to carry out (i) a free allocation of new Shares (within the limits of the Company’sauthorised share capital as detailed at Articles 5.2 and 5.5 above) and (ii) to allocate existing Shares for noconsideration, in each case to those persons to whom such free allocation or issuance is permitted in theCompany Law. The Board is further authorised to set the terms and conditions of such allocation or issuance.
6 Shares
6.1 Each Share is indivisible. In case of the holding of a Share by more than one person, the Company has the rightto suspend the exercise of all rights attaching to such jointly held Share (except the information rights providedby Article 73 of the Company Law) until a sole person has been designated as the holder of such Share of theCompany.
6.2 All Shares shall be identical in all respects and shall share rateably in the payment of dividends and in anydistribution of assets which are allocated to such Shares in accordance with the payment allocation set out inSection 12 of these Articles.
6.3 A register of shares (the Register ) shall be kept at the registered office and may be examined by anyShareholder during normal business hours subject to reasonable notice and the provisions of Article 39 of theCompany Law.
6.4 Subject to Section 6.5, the Company shall consider the person in whose name Shares are recorded in theRegister to be the owner of those Shares.
6.5 Where Shares are recorded in the Register on behalf of one (1) or more persons (each a Beneficiary ) in thename of a securities settlement system or the operator of such a system or in the name of a professionaldepositary of securities or any other depositary or of a sub-depositary designated by one (1) or more of suchdepositaries (each such systems, professionals or other depositaries or sub-depositories, a Depositary ), theCompany shall:
(a) permit the Beneficiary to exercise the rights attaching to those Shares, including admission to and votingat General Meetings; and
(b) consider the Beneficiary to be the owner of such Shares and the relevant Depositary may only exercise thevoting rights attaching to such Shares if it and the Company (or its agent) has not received instructionsfrom the Beneficiary of the Shares,
subject to the Company or its agent having received from the Depositary with whom those Shares are kept inaccount a confirmation of the identity of the Beneficiary and the Shares held on their behalf. The Board shalldetermine the requirements with regard to the form and content of such confirmation to be provided by theDepositary.
6.6 Notwithstanding the provisions of Section 6.5, the Company shall make payments by way of dividends orotherwise to the Depositary recorded in the Register, or in accordance with the Depositary’s instructions. Anysuch payment(s) shall release the Company from any and all obligations in respect of such payment(s).
6.7 A share transfer shall be carried out by the entry in the Register of a declaration of transfer, duly signed anddated by either:
(c) both the transferor and the transferee or their authorised representatives; or
(d) any authorised representative of the Company,
following a notification to, or acceptance by, the Company, in accordance with Section 1690 of the LuxembourgCivil Code, it being understood that when the Shares are recorded in the Register on behalf of Beneficiaries inthe name of a Depository in accordance with Section 6.5 of these Articles, the transfer between Beneficiariesshall be made in accordance with the rules and regulations of the relevant Depository. Any document recordingthe agreement between the transferor and the transferee, which is validly signed by both parties, may also beaccepted by the Company as evidence of a share transfer.
6.8 The Company may repurchase its Shares within the limits set out in the Company Law and these Articles.
III. MANAGEMENT – REPRESENTATION
7 Board of directors
7.1 Composition of the board of directors
7.1.1 The Company shall be managed by the Board, which shall consist of a minimum of three (3) directors and amaximum of twelve (12) directors, (each a Director and together, the Directors ).
7.1.2 The Directors need not be Shareholders.
7.1.3 The General Meeting shall appoint Directors and determine their number, remuneration and term of office.Directors cannot be appointed for a term of office exceeding three (3) years. Directors are eligible for re-appointment at the expiry of their term of office. There shall be staggered terms of office for Directors so thatone third (1/3) of the Directors shall be up for election each year or, if the total number of Directors does notevenly divide by thirds, the Directors shall be divided as close to thirds as possible. The system for staggeredterms of office shall be implemented for the first time by appointing Director(s) for an initial term of one (1)year, Director(s) for an initial term of two (2) years and Director(s) for an initial term of three (3) years.Directors may be removed at any time, with or without cause, by a resolution of the General Meeting.
7.1.4 No legal entity shall be appointed as Director.
7.1.5 If the office of a Director becomes vacant, the other Directors, acting by a simple majority, may fill the vacancyon a provisional basis until a new Director is appointed by the next General Meeting.
7.2 Powers of the board of directors
7.2.1 All powers not expressly reserved to the Shareholders by the Company Law or the Articles fall within thecompetence of the Board, which has full power to carry out and approve all acts and operations consistent withthe Company’s corporate object.
7.2.2 The Board may delegate special or limited powers to one (1) or more agents for specific matters. The Board mayalso establish, and delegate specific powers to, one (1) or more committees.
7.2.3 The Board is authorised to delegate the day-to-day management, and the power to represent the Company in thisrespect, to one (1) or more Directors, officers, managers or other agents, whether Shareholders or not, actingeither individually or jointly. If the day-to-day management is delegated to one (1) or more Directors, the Boardmust report to the annual General Meeting any salary, fee and/or any other advantage granted to thoseDirector(s) in connection with such delegation during the relevant financial year.
7.3 Procedure
7.3.1 The Board shall appoint from among its members a chairman (the Chairman ) and may choose to appointchoose a secretary (the Secretary ). The Secretary need not be a Director and will be responsible for keeping theminutes of the meetings of the Board and of General Meetings. The Chairman will remain Chairman of theBoard after the term of his mandate as Director if his mandate as Director is renewed by the General Meeting.
7.3.2 The Board shall meet at the request of the Chairman, or any two (2) Directors jointly, at the date, time and placeindicated in the notice, which shall, in principle, be in the Grand Duchy of Luxembourg.
7.3.3 Written notice of any Board meeting shall be given to all Directors at least twenty-four (24) hours in advance ofthe date set for such meeting, except in the case of an emergency, in which case the nature of such circumstancesshall be set out in the notice.
7.3.4 No written notice is required if all Directors are present or represented at the meeting and if they state to havebeen duly informed and to have full knowledge of the agenda of the meeting. If all Directors consent in writingto waive notice either before or after the meeting, written notice of a meeting shall not be required. Separatewritten notices shall not be required for meetings which are held at times and places indicated in a schedulepreviously adopted by a resolution of the Board.
7.3.5 A Director may grant to another Director a power of attorney in order to be represented at any Board meeting.
7.3.6 The Board may only validly deliberate and act if a majority of its members and the Chairman are present orrepresented. If this quorum is not reached, a second Board meeting shall be convened with the same agenda andsuch reconvened Board meeting may validly deliberate and act if a majority of its members are present orrepresented. Board resolutions shall be validly adopted by a majority of the votes of the Directors present orrepresented. The Chairman shall have a casting vote in the event of a tied vote. In circumstances in which theChairman is conflicted or absent, a new chairman must be appointed for that specific meeting and shall have acasting vote in the event of a tied vote.
7.3.7 Board resolutions shall be recorded in minutes signed by the Chairman, by all Directors present or represented atthe meeting, or by the Secretary (if any).
7.3.8 Any Director may participate in any meeting of the Board by telephone or video conference, or by any othermeans of communication which allows all those taking part in the meeting to identify, hear and speak to eachother. Participation by such means is deemed equivalent to participation in person at a duly convened and heldmeeting.
7.3.9 Circular resolutions signed by all Directors shall be valid and binding as if passed at a duly convened and heldBoard meeting, and shall bear the date of the last signature.
7.3.10 A Director who has a personal interest in a transaction which conflicts with the interests of the Company shalladvise the Board accordingly and have the statement recorded in the minutes of the meeting at which suchmatter is discussed. The Director concerned shall not take part in the deliberations or vote concerning thatmatter. A special report on the relevant matter shall be
submitted to the next General Meeting, before any other matter is put to the vote at that meeting. Theseprovisions do not apply where the decision of the Board relates to transactions entered into under fair marketconditions in the ordinary course of business.
7.4 Representation
The Company shall be bound towards third parties in all matters by:
(a) the joint signature of any two (2) Directors;
(b) the individual signature of the member(s) of a management committee, if such committee has been formedby the Board;
(c) the signature of a management director, if one has been appointed by the Board;
(d) the joint or single signature of any person(s) to whom the Board has delegated such authority vis-à-visthird parties; and
(e) the individual signature of any other person to whom the Board has delegated the daily management of theCompany in accordance with the Articles, and then only within the scope such person’s daily managementresponsibilities.
8 Liability and indemnification of the Directors
8.1 To the broadest extent permitted by Luxembourg law, the Directors may not be held personally liable by reasonof their office for any commitment or other act or omission they have validly made in the Company’s name,provided those commitments, acts or omissions comply with the Articles and the Company Law.
8.2 Subject to Section 8.3 of these Articles, the Company may, to the broadest extent permitted by Luxembourg law,indemnify any Director, as well as any former Director for any costs, fees and expenses, damages, judgments, orother amounts reasonably incurred by him or her in the defence or resolution (including a settlement) of anylegal actions or proceedings, whether they be civil, criminal or administrative, to which he may be made a partyby virtue of his former or current role as Director of the Company.
8.3 A former or current Director or member of the management board will not be indemnified in case of fraud.
8.4 The indemnification right set out in Section 8.2 of these Articles shall:
(a) not be forfeited in the case of a settlement of any legal actions or proceedings, whether they be civil,criminal or administrative; and
(b) inure to the benefit of the heirs and successors of the former or current member of the board of Directorswithout prejudice to any other indemnification rights that he may otherwise claim.
8.5 Subject to any procedures that may be implemented by the Board in the future, the expenses for the preparationand defence in any legal action or proceeding covered by this Section 8 shall
be advanced by the Company, provided that the concerned former or current Director delivers an unsecuredwritten commitment that all sums paid in advance will be reimbursed to the Company if it is ultimatelydetermined that he is not entitled to indemnification under this Section 8.
IV. GENERAL MEETING OF SHAREHOLDERS
9 General Meeting of Shareholders
For the purpose of this Section 9, the term “Shareholder” shall (i) include any Beneficiary with voting rights and(ii) exclude any Depositary without voting rights, in accordance with Section 6.5 above.
9.1 General
Resolutions of the Shareholders are adopted at an annual General Meeting (an Annual General Meeting ) or anextraordinary General Meeting (an Extraordinary General Meeting ).
9.2 Convening formalities
9.2.1 The Board, the Chairman and the Authorised Statutory Auditor (as defined in Section 11) may convene aGeneral Meeting.
A General Meeting must be called upon written request of one (1) or more Shareholders representing at least tenpercent (10%) of the Shares. The Shareholders shall indicate the agenda in their written request. The GeneralMeeting shall be convened within one (1) month of such request.
One or more Shareholders representing at least ten percent (10%) of the Shares may (i) request the addition ofone (1) or several items on the agenda of any General Meeting and (ii) draft resolutions for items in this respect.Such request including draft resolutions must:
(a) be in writing and sent to the Company by post or electronic means to the address provided in theConvening Notice (as defined below) and be accompanied by a justification or draft resolution to beadopted in the General Meeting;
(b) include the postal or electronic address at which the Company may acknowledge receipt of the requests;and
(c) be received by the Company at least twenty-two (22) days before the date of the relevant GeneralMeeting.
The Company shall acknowledge receipt of requests referred to above within forty-eight (48) hours from receipt.The Company shall prepare a revised agenda including such additional items on or before the fifteenth (15th)day before the date of the relevant General Meeting.
9.2.2 Convening notices for every General Meeting (each a Convening Notice ) shall be published at least thirty (30)days before the date of the General Meeting:
(a) in the Official Gazette ( Mémorial ) and in a Luxembourg newspaper; and
(b) in such media which may reasonably be expected to be relied upon for the effective dissemination ofinformation to the public.
9.2.3 If the required quorum (if any) is not met on the date of the first convened General Meeting another meetingmay be convened by publishing the Convening Notice in the Official Gazette and a Luxembourg newspaperseventeen (17) days prior to the date of the reconvened meeting provided that (a) the first General Meeting wasproperly convened; and (b) no new item has been added to the agenda.
9.2.4 The Convening Notice shall contain at least the following information:
(a) a precise indication of the date and location of the General Meeting and its proposed agenda; and
(b) a clear and precise description of the procedures that Shareholders must follow in order to participate inand to cast their vote in the General Meeting, including information on:
(i) the procedure for voting by proxy, notably the forms to be used to vote by proxy and the means bywhich the Company is prepared to accept electronic notification of appointment of proxy holders;and
(ii) where applicable, the Record Date with an explanation of the manner in which Shareholders mustregister and a statement that only persons who are Shareholders at the Record Date shall have theright to participate and vote in the General Meeting.
9.2.5 For a continuous period from the date of publication of the Convening Notice of the General Meeting andincluding the date of the General Meeting, the Company must make available to its Shareholders on its websitethe following information:
(a) the Convening Notice;
(b) the total number of Shares and the voting rights as at the date of the Convening Notice including separatetotals for each class of Shares when the Company's issued capital is divided into two or more classes ofshares;
(c) the documents to be submitted to the General Meeting;
(d) the draft resolutions of the General Meeting or where no such resolutions are proposed to be adopted, acomment from a Director for each item on the proposed agenda of the General Meeting. Any draftresolution(s) submitted by Shareholder(s) shall be added to the website as soon as possible after theCompany has received them; and
(e) where applicable, the forms to be used to vote by proxy and to vote by correspondence, unless such formsare sent directly to each Shareholder.
Where the forms referred to in item (e) above cannot be made available on the website for technical reasons, theCompany shall indicate on its website how the forms can be obtained on
paper. In this case the Company shall be required to send the forms by post and free of charge to everyShareholder who so requests.
9.2.6 The Convening Notice is sent to registered Shareholders, the Directors and the Authorised Statutory Auditors(as defined in Section 11) (the Addressees ) within the thirty (30) day or seventeen (17) day period, asapplicable, referred to in Section 9.2.2 and Section 9.2.3 above. This communication shall be by letter to theAddressees, unless the Addressees (or any one (1) of them) have/has expressly and in writing agreed to receivecommunication by other means, in which case such Addressee(s) may receive the convening notice by suchother means of communication.
9.3 Advance notice of Board nominations and proposals for other business
9.3.1 Nominations of persons for election to the Board and proposals for other business to be transacted at an AnnualGeneral Meeting may be made (i) by or at the direction of the Board or (ii) by any Shareholder who (A) was aShareholder at the time of the giving of the notice contemplated in Section 9.3.2 below, (B) is entitled to vote atsuch meeting and (C) has complied with the notice procedures set forth in this Section 9.3.
Subject to Section 9.2.1 and except as otherwise required by law or these Articles, this Section 9.3 shall be theexclusive means for a Shareholder to make nominations or propose other business (other than nominations andproposals properly brought pursuant to applicable provisions of US federal law, including the United StatesSecurities Exchange Act of 1934 (as amended from time to time, the Securities Exchange Act ) and the rulesand regulations of the Securities and Exchange Commission thereunder) before an Annual General Meeting.
9.3.2 Except as otherwise required by law, for nominations or proposals to be properly brought before an AnnualGeneral Meeting by a Shareholder pursuant to this Section 9.3, (i) the Shareholder must have given timelynotice thereof in writing to the Company with the information contemplated by Section 9.3.3, including, whereapplicable, delivery to the Company of timely and completed questionnaires as contemplated by Section 9.3.3.The notice requirements of this Section 9.3 shall be deemed satisfied by a Shareholder with respect to businessother than a nomination if the Shareholder has notified the Company of his, her or its intention to present aproposal at an Annual General Meeting in compliance with applicable rules and regulations promulgated underthe Securities Exchange Act and such Shareholder’s proposal has been included in a proxy statement preparedby the Company to solicit proxies for such Annual General Meeting.
9.3.3 To be timely for purposes of Section 9.3.2, a Shareholder’s notice must be delivered to the Company at theregistered office address of the Company on a date not later than the close of business on the ninetieth (90 ) daynor earlier than the close of business on the hundred twentieth (120 ) day prior to the date of the AnnualGeneral Meeting referred to in Section 10.4. In no event shall any adjournment or postponement of an AnnualGeneral Meeting or the announcement thereof commence a new time period for the delivery of such notice.
9.3.4 Such notice from a Shareholder must state: (i) as to each nominee that the Shareholder proposes for election orre-election as a Director, (A) all information relating to such nominee that would be required to be disclosed insolicitations of proxies for the election of such nominee
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as a Director pursuant to Regulation 14A under the Securities Exchange Act and such nominee’s written consentto serve as a Director if elected, and (B) a description of all direct and indirect compensation and other materialmonetary arrangements, agreements or understandings during the past three (3) years, and any other materialrelationship, if any, between or concerning such Shareholder, any Shareholder Associated Person or any of theirrespective affiliates or associates, on the one hand, and the proposed nominee or any of his or her affiliates orassociates, on the other hand; (ii) as to each proposal that the Shareholder seeks to bring before the AnnualGeneral Meeting, a brief description of such proposal, the reasons for making the proposal at the meeting, thetext of the proposal or business (including the text of any resolutions proposed for consideration and in the eventthat such business includes a proposal to amend the Articles, the language of the proposed amendment) and anymaterial interest that the Shareholder has in the proposal; and (iii) (A) the name and address of the Shareholdergiving the notice and the Shareholder Associated Person(s), if any, on whose behalf the nomination or proposalis made, (B) the number of Shares that are, directly or indirectly, owned beneficially or of record by theShareholder or any Shareholder Associated Person, (C) any option, warrant, convertible security, stockappreciation right or similar right with an exercise or conversion privilege or a settlement payment ormechanism at a price related to any Shares or with a value derived in whole or in part from the value of anyShares, whether or not such instrument or right shall be subject to settlement in the underlying Shares orotherwise (each, a Derivative Instrument ) directly or indirectly owned beneficially or of record by suchShareholder or Shareholder Associated Person and any other direct or indirect opportunity to profit or share inany profit derived from any increase or decrease in the value of Shares of the Shareholder or ShareholderAssociated Person, (D) any proxy, contract, arrangement, understanding or relationship pursuant to which suchShareholder or Shareholder Associated Person has a right to vote any Shares, (E) any proportionate interest inShares or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which suchShareholder or Shareholder Associated Person is a general partner or beneficially owns, directly or indirectly, aninterest in a general partner, (F) any performance-related fees (other than an asset-based fee) that suchShareholder or Shareholder Associated Person is entitled to based on any increase or decrease in the value of theShares or Derivative Instruments, (G) any other information relating to such Shareholder or ShareholderAssociated Person, if any, required to be disclosed in a proxy statement or other filing required to be made inconnection with solicitations of proxies for, as applicable, the proposal and/or for the election of Directors in anelection contest pursuant to and in accordance with Section 14(a) of the Securities Exchange Act and the rulesand regulations of the Securities and Exchange Commission thereunder, (H) a representation that theShareholder is entitled to vote at such Annual General Meeting and intends to appear in person or by proxy topropose such business or nomination, (I) a certification as to whether or not the Shareholder and all ShareholderAssociated Persons, have complied with all applicable legal requirements in connection with the Shareholder’sand each Shareholder Associated Person’s acquisition of Shares or other securities of the Company and theShareholder’s and each Shareholder Associated Person’s acts or omissions as a Shareholder or beneficial ownerof securities of the Company, and (J) whether either the Shareholder intends to deliver a proxy statement andform of proxy to holders of, in the case of a proposal, at least the percentage of the Company’s Shares requiredunder applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number ofShareholders reasonably believed by such Shareholder to be sufficient to
elect such nominee or nominees or otherwise to solicit proxies or votes from Shareholders in support of suchproposal or nomination.
For purposes of this Section 9.3, a “Shareholder Associated Person” of any Shareholder means: (i) any“affiliate” or “associate” (as those terms are defined in Rule 12b-2 under the Securities Exchange Act) of suchShareholder; (ii) any Beneficiary or other beneficial owner of any Share or other securities owned of record orbeneficially by such Shareholder; (iii) any person directly or indirectly controlling, controlled by or undercommon control with any such Shareholder Associated Person referred to in Section (i) or (ii) above; and(iv) any person acting in concert in respect of any matter involving the Company or its Shares with either suchShareholder or any Beneficiary or other beneficial owner of any Share or other securities of the Company ownedof record or beneficially owned by such Shareholder.
In addition, in order for a nomination to be properly brought before an Annual General Meeting by aShareholder pursuant to Section (iii) of Section 9.3.1, any nominee proposed by a Shareholder shall complete aquestionnaire, in a form provided by the Company, and deliver a signed copy of such completed questionnaire tothe Company within ten (10) days of the date that the Company makes available to the Shareholder seeking tomake such nomination or such nominee the form of such questionnaire. The Company may require anyproposed nominee to furnish such other information as may be reasonably requested by the Company todetermine the eligibility of the proposed nominee to serve as an independent Director of the Company or thatcould be material to a reasonable Shareholder’s understanding of the independence, or lack thereof, of thenominee. The information required to be included in a notice pursuant to this Section 9.3.3 shall be provided asof the date of such notice and shall be supplemented by the Shareholder not later than ten (10) days after theRecord Date for the determination of Shareholders entitled to notice of the meeting to disclose any changes tosuch information as of the Record Date. The information required to be included in a notice pursuant to thisSection 9.3.3 shall not include any ordinary course business activities of any Depositary or any other broker,dealer, commercial bank, trust company or other nominee who is directed to prepare and submit the noticerequired by this Section 9.3.3 on behalf of a Beneficiary or other beneficial owner of the Shares held by suchbroker, dealer, commercial bank, trust company or other nominee and who is not otherwise affiliated orassociated with such Beneficiary or other beneficial owner.
9.3.5 Subject to these Articles and applicable law, only persons nominated in accordance with procedures stated inthis Section 9.3 shall be eligible for election as and to serve as Directors and the only business that shall beconducted at an Annual General Meeting is the business that has been brought before the meeting in accordancewith the procedures set forth in this Section 9.3. The chairman of the Annual General Meeting shall have thepower and the duty to determine whether a nomination or any proposal has been made according to theprocedures stated in this Section 9.3 and, if any nomination or proposal does not comply with this Section 9.3,unless otherwise required by law, the nomination or proposal shall be disregarded.
9.3.6 Only such business shall be conducted at an Extraordinary General Meeting as shall have been brought beforesuch meeting pursuant to the Convening Notice. Nominations of persons for election to the Board may be madeat an Extraordinary General Meeting at which Directors are to be elected pursuant to the Convening Notice(1) by or at the direction of the Board or
(2) provided that the Board has determined that Directors shall be elected at such meeting, by any Shareholderwho is a Shareholder at the time the notice provided for in this Section 9.3 is delivered to the Company, who isentitled to vote at such meeting upon such election and who complies with the notice procedures set forth in thisSection 9.3.
In the event the Company calls an Extraordinary General Meeting for the purpose of electing one (1) or moreDirectors, any such Shareholder entitled to vote in such election of Directors may nominate a person or persons(as the case may be) for election to such position(s) as specified in the Convening Notice, if the Shareholder’snotice required by Section 9.3.2 shall be delivered to the Company at the registered office of the Company notlater than the close of business on the later of the ninetieth (90 ) day prior to such Extraordinary GeneralMeeting or the tenth (10 ) day following the day on which public announcement is first made of the date of theExtraordinary General Meeting and of the nominees proposed by the Board to be elected at such meeting. In noevent shall the public announcement of an adjournment or postponement of an Extraordinary General Meetingcommence a new time period (or extend any time period) for the giving of a Shareholder’s notice as describedabove.
9.3.7 For purposes of this Section 9.3, “public announcement” means disclosure in a press release reported by theDow Jones News Service, Associated Press or a comparable news service or in a document publicly filed by theCompany with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the SecuritiesExchange Act.
9.3.8 Notwithstanding the foregoing provisions of this Section 9.3, a Shareholder shall also comply with applicablerequirements of the Securities Exchange Act and the rules and regulations thereunder with respect to matters setforth in this Section 9.3. Nothing in this Section 9.3 shall affect any rights, if any, of Shareholders to requestinclusion of nominations or proposals in the Company’s proxy statement pursuant to applicable provisions offederal law, including the Securities Exchange Act.
9.3.9 Notwithstanding the foregoing provisions of this Section 9.3, unless otherwise required by law, if theShareholder (or a qualified representative of the Shareholder) does not appear at the General Meeting to presenta nomination or proposed business or does not provide the information required by Section 9.3.3, including anyrequired supplement thereto, such nomination shall be disregarded and such proposed business shall not betransacted, notwithstanding that proxies in respect of such vote may have been received by the Company.
9.3.10 For purposes of this Section 9.3, to be considered a qualified representative of the Shareholder, a person must bea duly authorised officer, manager or partner of such Shareholder or must be authorised by a writing executed bysuch Shareholder or an electronic transmission delivered by such Shareholder to act for such Shareholder asproxy at the meeting of Shareholders and such person must produce such writing or electronic transmission, or areliable reproduction of the writing or electronic transmission, at the meeting of Shareholders.
9.4 Proceedings at a General Meeting
9.4.1 Each Share is entitled to one (1) vote.
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9.4.2 Except as otherwise required by law or by the Articles, resolutions at a duly convened General Meeting will bepassed by a simple majority of those present or represented and voting. Action may only be taken at a GeneralMeeting if at least fifty per cent (50%) of the Shares are represented. If a quorum shall fail to attend a GeneralMeeting, the chairman of the meeting may adjourn the meeting to another place, if any, date and time.
9.4.3 An Extraordinary General Meeting may only amend the Articles if at least fifty per cent (50%) of the Shares arerepresented and the agenda indicates the proposed amendments to the Articles, including the text of anyproposed amendment to the Company’s object or form. If this quorum is not reached, a second ExtraordinaryGeneral Meeting shall be convened by means of notices published in accordance with Section 9.2.2 of theseArticles. Resolutions at the second Extraordinary General Meeting shall be valid regardless of the proportion ofthe share capital represented at that meeting. At both Extraordinary General Meetings, resolutions must beadopted by at least two-thirds (2/3) of the votes cast.
9.4.4 Any change in the nationality of the Company must be adopted by at least two-thirds (2/3) of the votes cast at aquorate meeting of shareholders. Any increase in a Shareholder’s commitment in the Company in excess of thepar value of its Shares shall require the unanimous consent of the Shareholders.
9.4.5 Every Shareholder shall have the right to ask questions related to items on the agenda of the General Meeting.The Board shall answer questions put to it by Shareholders subject to measures which it may take to ensure theidentification of Shareholders, the good order of General Meetings and their preparation and the protection ofconfidentiality and the Company’s business interests.
The Board may provide one (1) overall answer to questions having the same content. Where the relevantinformation is available on the website of the Company in a question and answer format, the Board shall bedeemed to have answered the questions asked by referring to the website.
9.4.6 Without prejudice to Section 9.2.4(b)(ii), a Shareholder may act at any General Meeting by appointing any othernatural or legal person who need not be a Shareholder as its proxy in writing whether in original, by telefax, ore-mail to which an electronic signature (which is valid under Luxembourg law) is affixed. Such proxy shallenjoy the same rights to speak and ask questions during the General Meeting as those to which the Shareholderthus represented would be entitled. A Shareholder acting as a proxy shall be entitled to vote the Shares of theShareholder he represents in addition to the vote of his own Shares. All the proxies must be received by theBoard before the relevant resolution is put to a vote. A person acting as proxy may represent more than one (1)Shareholder.
9.4.7 The rights of a Shareholder to participate in a General Meeting and to vote in respect of any of his Shares are notsubject to any requirement that his Shares be deposited with, or transferred to, or registered in the name of,another natural or legal person before the General Meeting.
9.4.8 The rights of a Shareholder to sell or otherwise transfer his Shares during the period between the Record Date(as defined in Section 9.4.9) below and the General Meeting to which it applies are not subject to any restrictionto which they are not subject at other times.
9.4.9 The right of a Shareholder to participate in a General Meeting and exercise voting rights attached to its Sharesare determined by reference to the number of Shares held by such Shareholder at midnight (00:00) on the dayfalling fourteen (14) days before the date of the General Meeting or such other day set by the Board andincluded in the Convening Notice (the Record Date ). Each Shareholder shall, on or before the Record Date,indicate to the Company its intention to participate in person at the General Meeting. The Company determinesthe manner in which this declaration is made. For each Shareholder who indicates his intention to participate inthe General Meeting, the Company records his name or corporate denomination and address or registered office,the number of Shares held by him on the Record Date and a description of the documents establishing theholding of Shares on that date.
9.4.10 Proof of the qualification as a Shareholder may be subject only to such requirements as are necessary to ensurethe identification of Shareholders and only to the extent that they are proportionate to achieving that objective.
9.4.11 If all the Shareholders are present or represented at a General Meeting, and consider themselves as being dulyconvened and informed of the agenda of the General Meeting, the General Meeting may be held without priornotice.
9.4.12 The Board may determine any other conditions that must be fulfilled by the Shareholders for them to take part inany General Meeting in person or in proxy.
9.4.13 The Board shall elect a chairman of the General Meeting. The chairman shall appoint a secretary and scrutineer.The chairman, the secretary and the scrutineer form the General Meeting's bureau.
9.4.14 The minutes of the General Meeting will be signed by the members of the bureau of the General Meeting and byany Shareholder who wishes to do so.
9.4.15 However, in case decisions of the General Meeting have to be certified, copies or extracts for use in court orelsewhere, they must be signed by the Chairman or by any two (2) Directors.
9.4.16 Within fifteen (15) days following the date of the General Meeting, the Company shall publish on its website theresults of the votes passed at the General Meeting, including the number of Shares for which votes have beenvalidly cast and the proportion of capital represented by such validly cast votes, the total number of votes validlycast, the number of votes cast for and against each resolution and, where applicable, the number of abstentions.
V. ANNUAL ACCOUNTS - ALLOCATION OF PROFITS - SUPERVISION
10 Financial year and approval of annual accounts
10.1 The financial year begins on the first (1st) of January of each year and ends on the thirty-first (31st) ofDecember of each year.
10.2 Each year, the Board must prepare the balance sheet and profit and loss account, together with an inventorystating the value of the Company’s assets and liabilities, with an annex summarising the Company’scommitments and the debts owed by the officers, Directors.
10.3 One month before the annual General Meeting, the Board shall provide the Authorised Statutory Auditors (asdefined in Section 11), with a report on, and documentary evidence of, the Company’s operations. TheAuthorised Statutory Auditors (as defined in Section 11) shall then prepare a report to the Shareholders inaccordance with the law.
10.4 The annual General Meeting shall be held at the registered office of the Company or in any other place withinthe municipality of the registered office, as may be specified in the notice of the meeting, on the first Monday ofJune of each year at 2 p.m. or at such other date and time within six (6) months of the end of the financial yearspecified by the Board. If that day is a legal holiday in Luxembourg, the annual General Meeting shall be heldon the following Business Day.
11 Auditors
11.1 The Company’s annual accounts and any consolidated financial statements as required to be prepared by law (Accounts ) shall be drawn up in accordance with the applicable accounting standards and the law, and suchAccounts shall be audited at least once in every year by an individual, partnership or company appointed as theréviseur d’entreprises agréé of the Company and taken from those members of the Institut des Réviseursd'Entreprises of Luxembourg , that are authorised to perform audits by the Luxembourg Commission deSurveillance du Secteur Financier (the Authorised Statutory Auditor ).
11.2 The Authorised Statutory Auditor ( réviseur d’entreprises agréé ) shall be elected by the General Meeting for aterm not exceeding six (6) years and shall be eligible for re-appointment.
12 Allocation of profits
12.1 Five per cent. (5%) of the Company’s annual net profits shall be allocated to the reserve required by law (theLegal Reserve ) until such requirements is no longer necessary. This requirement ceases to be compulsory whenthe Legal Reserve reaches an amount of ten per cent. (10%) of the Company’s issued share capital, but shallagain be compulsory if the Legal Reserve falls below the amount of ten per cent. (10%) of the Company’sissued share capital.
12.2 The General Meeting shall determine the allocation of the remaining balance of the annual net profits. TheGeneral Meeting may decide on the payment of a dividend, to transfer the balance to a reserve account, or tocarry it forward in accordance with the applicable legal provisions.
12.3 Interim dividends may be distributed, subject to the following conditions:
(a) the Board must draw up interim accounts;
(b) the interim accounts must show that sufficient profits and other reserves (including share premium) areavailable for distribution; it being understood that the amount to be distributed may not exceed the profitsmade since the end of the last financial year for which the annual accounts have been approved, if any,increased by profits carried
forward and distributable reserves, and reduced by losses carried forward and sums to be allocated to thelegal or a statutory reserve;
(c) within two (2) months of the date of the interim accounts, the Board must resolve to distribute the interimdividends; and
(d) the Authorised Statutory Auditor must prepare a report addressed to the Board which must verify whetherthe above conditions have been met.
VI. DISSOLUTION – LIQUIDATION
13 Dissolution - Liquidation
The Company may be dissolved at any time by a resolution of the General Meeting, acting in accordance with theconditions prescribed for the amendment of the Articles. The General Meeting shall appoint one (1) or more liquidators,who need not be Shareholders, to carry out the liquidation, and shall determine their number, powers and remuneration.Unless otherwise decided by the General Meeting, the liquidators shall have full power to realise the Company’s assetsand pay its liabilities.
VII. GENERAL PROVISION
14 General provision
14.1 Notices and communications may be made or waived and circular resolutions may be evidenced in writing, byfax, email or any other means of electronic communication.
14.2 Powers of attorney may be granted by any of the means described above. Powers of attorney in connection withBoard meetings may also be granted by a Director, in accordance with such conditions as may be accepted bythe Board.
14.3 Signatures may be in handwritten or electronic form, provided they fulfil all legal requirements for beingdeemed equivalent to handwritten signatures. Signatures of circular resolutions or resolutions adopted bytelephone or video conference may appear on one (1) original or several counterparts of the same document, allof which taken together shall constitute one (1) and the same document.
14.4 All matters not expressly governed by these Articles shall be determined in accordance with the applicable lawand, subject to any non-waivable provisions of the law, with any agreement entered into by the Shareholdersfrom time to time.
Execution Version
EXHIBIT 4.3
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE, (this “ Supplemental Indenture ”) dated as of July 30,2015, by and among Trinseo Holdings Asia Pte. Ltd. as a Guarantor (the “ Guaranteeing Subsidiary ”),Trinseo Materials Operating S.C.A, a company ( société en commandite par actions ) organized andexisting under the laws of the Grand Duchy of Luxembourg and registered with the Luxembourg Tradeand Companies Register under number B 153586 (the “ Company ”), Trinseo Materials Finance, Inc., aDelaware corporation (“ Trinseo Finance ” and, together with the Company, the “ Issuers ”), the otherGuarantors (as defined in the Indenture referred to herein) and The Bank of New York Mellon, actingthrough its London Branch, as Trustee under the Indenture referred to below.
W I T N E S S E T H :
WHEREAS, each of the Issuers, the Guarantors and the Trustee have heretofore executed anddelivered an indenture dated as of May 5, 2015 (as amended, supplemented, waived or otherwisemodified, the “ Indenture ”), providing for the issuance (i) €375.0 million aggregate principal amount of6.375% Senior Notes due 2022, issued on the date hereof (the “ Euro Notes ”) and (ii) $300.0 millionaggregate principal amount of 6.750% Senior Notes due 2022, issued on the date hereof (the “ DollarNotes ”, and together with the Euro Notes, the “ Initial Notes ”) (the Initial Notes and any AdditionalNotes are collectively referred to as the “ Notes ”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaryshall execute and deliver to the Trustee a supplemental indenture to which the Guaranteeing Subsidiaryshall unconditionally guarantee, on a joint and several basis with the other Guarantors, all of the Issuers’obligations under the Notes and the Indenture on the terms and conditions set forth herein and under theIndenture (the “ Guarantee ”);
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuers, any Guarantor and the Trusteeare authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture,without the consent of any Holder; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuers hereby request that the Trusteejoin with the Issuers, the Guarantors and the Guaranteeing Subsidiary in the execution of thisSupplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuableconsideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary, the Issuers, theother Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of theHolders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms . As used in this Supplemental Indenture, terms defined inthe Indenture or in the preamble or recitals hereto are used herein as therein defined. The words “herein,”
“hereof” and “hereby” and other words of similar import used in this Supplemental Indenture refer to thisSupplemental Indenture as a whole and not to any particular section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to Be Bound . The Guaranteeing Subsidiary hereby becomes aparty to the Indenture as a Guarantor and as such will have all of the rights and be subject to all of theobligations and agreements of a Guarantor under the Indenture.
SECTION 2.2. Guarantee . The Guaranteeing Subsidiary agrees, on a joint and severalbasis with all the existing Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holderof the Notes and the Trustee the Guaranteed Obligations pursuant to Article X of the Indenture on asenior basis. The Guarantee shall not apply to any liability to the extent that it would result in theGuarantee constituting unlawful financial assistance, in respect of a Guarantor incorporated under thelaws of Singapore, under section 76 of the Companies Act (Chapter 50 of Singapore) (as may beamended and/or re-enacted from time to time).
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices . All notices and other communications to the GuaranteeingSubsidiary shall be given as provided in the Indenture to any Guarantor, at the address set forth inSection 13.2 of the Indenture, with a copy to the Issuers as provided in the Indenture for notices to theIssuers.
SECTION 3.2. Merger and Consolidation . The Guaranteeing Subsidiary shall not sell orotherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or intoanother Person (other than an Issuer or any Restricted Subsidiary that is a Guarantor or becomes aGuarantor concurrently with the transaction) except in accordance with Section 4.1(f) of the Indenture.
SECTION 3.3. Release of Guarantee . This Guarantee shall be released in accordancewith Section 10.2 of the Indenture.
SECTION 3.4. Parties . Nothing expressed or mentioned herein is intended or shall beconstrued to give any Person, firm or corporation, other than the Holders and the Trustee, any legal orequitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture orany provision herein or therein contained.
SECTION 3.5. Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BEGOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OFNEW YORK. THE APPLICATION OF THE PROVISIONS SET OUT IN ARTICLES 86 TO 94‑8 OFTHE LUXEMBOURG LAW ON COMMERCIAL COMPANIES DATED AUGUST 10, 1915 ISEXCLUDED. THE PROVISIONS UNDER SECTION 13.10 OF THE INDENTURE IN RESPECT OFSUBMISSION TO JURISDICTION SHALL APPLY TO THIS SUPPLEMENTAL INDENTURE.
SECTION 3.6. Severability . In case any provision in this Supplemental Indenture shallbe invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisionsshall not in any way be affected or impaired thereby and such provision shall be ineffective only to theextent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged . The Guaranteeing Subsidiary’s Guarantee issubject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledgesthat it will receive direct and indirect benefits from the financing arrangements contemplated by theIndenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to thisGuarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all theterms, conditions and provisions thereof shall remain in full force and effect. This SupplementalIndenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore orhereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee . The Trustee makes no representation or warranty as to thevalidity or sufficiency of this Supplemental Indenture or with respect to the recitals or statementscontained herein, all of which recitals are made solely by the other parties hereto, and the Trusteeassumes no responsibility for their correctness.
SECTION 3.10. Counterparts . The parties hereto may sign any number of copies of thisSupplemental Indenture. Each signed copy shall be an original, but all of them together represent thesame agreement. The exchange of copies of this Supplemental Indenture and of signature pages byfacsimile or PDF transmission shall constitute effective execution and delivery of this SupplementalIndenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for allpurposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be theiroriginal signatures for all purposes.
SECTION 3.11. Execution and Delivery . The Guaranteeing Subsidiary agrees that theGuarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note anotation of any such Guarantee.
SECTION 3.12. Headings . The headings of the Articles and the Sections in thisSupplemental Indenture are for convenience of reference only and shall not be deemed to alter or affectthe meaning or interpretation of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed as of the date first above written.
[Signature Page to Supplemental Indenture]
TRINSEO MATERIALS OPERATING S.C.A., acting
through its general partner Trinseo Materials S.à r.l.represented by its permanent representative AurelienVasseur
By: /s/ Aurelien Vasseur Name: Aurelien Vasseur Title: Permanent Representative TRINSEO MATERIALS FINANCE, INC. By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and President TRINSEO HOLDINGS ASIA PTE. LTD.,
as a Guarantor By: /s/ Dongyu Cai Name: Dongyu Cai Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO (HONG KONG) LIMITED, as a Guarantor
SEALED with the COMMON SEAL of TRINSEO
(HONG KONG) LIMITED and SIGNED by Lee ChungLok and Leong Chin Bown,
/s/ Lee Chung Lok [Signature of Director] Director Lee Chung Lok In the presence of: /s/ Rachel Lau [Signature of Witness] Name of Witness: Rachel Lau Address of Witness: 40‑50 Tsing Yi Road, Tsing Yi Island, Hong Kong Occupation of Witness: Administrative Specialist /s/ Leong Chin Bown [Signature of Director] Director Leong Chin Bown In the presence of: /s/ Alice Chong [Signature of Witness] Name of Witness: Alice Chong Address of Witness: Suite 3401‑3, 34/F, Central Plaza, 18 Harbour R, Wanchai, Hong Kong Occupation of Witness: Finance Assistant
[Signature Page to Supplemental Indenture]
TRINSEO DEUTSCHLAND GMBH,
as a Guarantor By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Managing Director By: /s/ Ralf Irmert Name: Ralf Irmert Title: Managing Director
[Signature Page to Supplemental Indenture]
TRINSEO DEUTSCHLAND
ANLAGENGESSELLSCHAFT MBH, as a Guarantor
By: /s/ Ulrich Alfred Plotzke Name: Ulrich Alfred Plotzke Title: Managing Director By: /s/ Rudolf Marinus van Domburg Name: Rudolf Marinus van Domburg Title: Authorized Signatory ( Prokurist )
[Signature Page to Supplemental Indenture]
Given under the common seal of TRINSEO FINANCE IRELAND, as a Guarantor and delivered as a DEED /s/ Geraldine Lillis Director Geraldine Lillis /s/ Agniesztse Wileauete Secretary FOR AND ON BEHALF OF CANYON CORPORATE
SECRETARIES LIMITED
[Signature Page to Supplemental Indenture]
TRINSEO FINANCE LUXEMBOURG
S.À R.L., as a Guarantor
By: /s/ David Stasse Name: David Stasse Title: Manager
[Signature Page to Supplemental Indenture]
TRINSEO HOLDING B.V.,
as a Guarantor By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO NETHERLANDS B.V.,
as a Guarantor By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO EUROPE GmbH,
as a Guarantor By: /s/ Martin Pugh Name: Martin Pugh Title: Manager
[Signature Page to Supplemental Indenture]
TRINSEO US HOLDING, INC.,
as a Guarantor By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and President
[Signature Page to Supplemental Indenture]
TRINSEO LLC,
as a Guarantor By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and President
[Signature Page to Supplemental Indenture]
THE BANK OF NEW YORK MELLON,
as Trustee By: /s/ Joan Doyle Name: Joan Doyle Title: Vice President
[Signature Page to Supplemental Indenture]
Exbibit 4.4
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE, (this “ Supplemental Indenture ”) dated as ofJune 8, 2017, by and among Trinseo Export GmbH, as a Guarantor (the “ Guaranteeing Subsidiary ”),Trinseo Materials Operating S.C.A, a company ( société en commandite par actions ) organized andexisting under the laws of the Grand Duchy of Luxembourg and registered with the Luxembourg Tradeand Companies Register under number B 153586 (the “ Company ”), Trinseo Materials Finance, Inc., aDelaware corporation (“ Trinseo Finance ” and, together with the Company, the “ Issuers ”), the otherGuarantors (as defined in the Indenture referred to herein) and The Bank of New York Mellon, actingthrough its London Branch, as Trustee under the Indenture referred to below.
W I T N E S S E T H :
WHEREAS, each of the Issuers, the Guarantors and the Trustee have heretofore executed anddelivered an indenture dated as of May 5, 2015 (as amended, supplemented, waived or otherwisemodified, the “ Indenture ”), providing for the issuance of (i) €375.0 million aggregate principal amountof 6.375% Senior Notes due 2022, issued on the date thereof (the “ Euro Notes ”) and (ii) $300.0 millionaggregate principal amount of 6.750% Senior Notes due 2022, issued on the date thereof (the “ DollarNotes ”, and together with the Euro Notes, the “ Initial Notes ”) (the Initial Notes and any AdditionalNotes are collectively referred to as the “ Notes ”);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaryshall execute and deliver to the Trustee a supplemental indenture to which the Guaranteeing Subsidiaryshall unconditionally guarantee, on a joint and several basis with the other Guarantors, all of the Issuers’obligations under the Notes and the Indenture on the terms and conditions set forth herein and under theIndenture (the “ Guarantee ”);
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuers, any Guarantor and the Trusteeare authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture,without the consent of any Holder; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuers hereby request that the Trusteejoin with the Issuers, the Guarantors and the Guaranteeing Subsidiary in the execution of thisSupplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuableconsideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary, the Issuers, theother Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of theHolders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms . As used in this Supplemental Indenture, terms defined in theIndenture or in the preamble or recitals hereto are used herein as therein defined. The words “herein,”
“hereof” and “hereby” and other words of similar import used in this Supplemental Indenture refer to thisSupplemental Indenture as a whole and not to any particular section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to Be Bound . The Guaranteeing Subsidiary hereby becomes a party tothe Indenture as a Guarantor and as such will have all of the rights and be subject to all of the obligationsand agreements of a Guarantor under the Indenture.
SECTION 2.2. Guarantee . The Guaranteeing Subsidiary agrees, on a joint and several basis withall the existing Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of theNotes and the Trustee the Guaranteed Obligations pursuant to Article X of the Indenture on a seniorbasis.
(a) The aggregate liability of the Guaranteeing Subsidiary for Restricted Obligations (as definedin Schedule I to the Indenture) shall be limited to the amount available for distribution as dividends tothe shareholders of the Guaranteeing Subsidiary at the time the Guaranteeing Subsidiary is required toperform under any Transaction Document, provided that this is a requirement under applicable Swiss lawat that time and further provided that such limitation shall not discharge the GuaranteeingSubsidiary from its obligations in excess thereof, but merely postpone the performance date thereof untilsuch times as performance is again permitted notwithstanding such limitation. Any and all indemnitiesand guarantees contained in the Transaction Documents shall be construed in a manner consistent withthe provisions herein contained.
(b) In respect of Restricted Obligations, the Guaranteeing Subsidiary shall:
(1) if and to the extent required by applicable law in force at the relevant time use its bestefforts to mitigate to the extent possible any obligation with respect to withholding tax in accordance withthe Federal Act on Anticipatory Tax of 13 October 1965, as amended (Bundesgesetz über dieVerrechnungssteuer) ("Swiss Withholding Tax") to be levied on the Restricted Obligations (and cause itsparent and other relevant Affiliates to fully cooperate in any mitigating efforts), in particular through thenotification procedure, and promptly notify the Trustee thereof or, if such a notification procedure is notapplicable:
(A) deduct Swiss Withholding Tax at the rate of 35 per cent. (or such other rate as in force fromtime to time pursuant to, in particular, any applicable double taxation treaty) from any payment made byit in respect of Restricted Obligations;
(B) pay any such deduction to the Swiss Federal Tax Administration; and
(C) notify (and the Issuers shall ensure that the Guaranteeing Subsidiary will notify) the Trusteethat such a deduction has been made and provide the Trustee with evidence that such a deduction hasbeen paid to the Swiss Federal Tax Administration; and
(2) to the extent such a deduction is made, not be obliged to pay Additional Amounts in relation toany such payment made by it in respect of Restricted Obligations unless such payment is permitted underthe laws of Switzerland then in force (it being understood that this shall not in any way limit
any obligations of any other Guarantor or the Issuers under any Transaction Document to indemnify theHolders of the Notes and the Trustee in respect of the deduction of the Swiss Withholding Tax). TheGuaranteeing Subsidiary shall use its commercially reasonable efforts to ensure that any Person which is,as a result of a deduction of Swiss Withholding Tax, entitled to a full or partial refund of the SwissWithholding Tax, will, as soon as possible after the deduction of the Swiss Withholding Tax, (i) request arefund of the Swiss Withholding Tax under any applicable law (including double tax treaties) and (ii)promptly upon receipt, pay to the Trustee (or to any such other Person as directed by the Trustee) anyamount so refunded for application as a further payment of the Guaranteeing Subsidiary under andpursuant to the relevant Transaction Document.
(c) If and to the extent requested by the Trustee and if and to the extent this is from time to timerequired under Swiss law (restricting profit distributions), in order to allow the Holders of the Notes andthe Trustee to obtain a maximum benefit under Article X of the Indenture, the GuaranteeingSubsidiary shall, and any parent company of the Guaranteeing Subsidiary being a party to the Indentureshall procure that the Guaranteeing Subsidiary will, promptly implement all such measures and/orpromptly procure the fulfillment of all prerequisites allowing it to promptly make the(requested) payment(s) hereunder from time to time, including the following:
(1) preparation of an up-to-date audited balance sheet of the Guaranteeing Subsidiary;
(2) confirmation of the auditors of the Guaranteeing Subsidiary that the relevant amountrepresents (the maximum of) freely distributable profits;
(3) conversion of restricted reserves into profits and reserves freely available for thedistribution as dividends (to the extent permitted by mandatory Swiss law);
(4) revaluation of hidden reserves (to the extent permitted by mandatory Swiss law);
(5) approval by a shareholders’ meeting of the Guaranteeing Subsidiary of the (resulting) profitdistribution; and
(6) all such other measures necessary or useful to allow the Guaranteeing Subsidiary to makethe payments agreed hereunder with a minimum of limitations.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices . All notices and other communications to the Guaranteeing Subsidiaryshall be given as provided in the Indenture to any Guarantor, at the address set forth in Section 13.2 of theIndenture, with a copy to the Issuers as provided in the Indenture for notices to the Issuers.
SECTION 3.2. Merger and Consolidation . The Guaranteeing Subsidiary shall not sell orotherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or intoanother Person (other than an Issuer or any Restricted Subsidiary that is a Guarantor or becomes aGuarantor concurrently with the transaction) except in accordance with Section 4.1(f) of the Indenture.
SECTION 3.3. Release of Guarantee . This Guarantee shall be released in accordance withSection 10.2 of the Indenture.
SECTION 3.4. Parties . Nothing expressed or mentioned herein is intended or shall be construedto give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitableright, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or anyprovision herein or therein contained.
SECTION 3.5. Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BEGOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OFNEW YORK. THE APPLICATION OF THE PROVISIONS SET OUT IN ARTICLES 86 TO 94-8 OFTHE LUXEMBOURG LAW ON COMMERCIAL COMPANIES DATED AUGUST 10, 1915 ISEXCLUDED. THE PROVISIONS UNDER SECTION 13.10 OF THE INDENTURE IN RESPECT OFSUBMISSION TO JURISDICTION SHALL APPLY TO THIS SUPPLEMENTAL INDENTURE.
SECTION 3.6. Severability . In case any provision in this Supplemental Indenture shall beinvalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shallnot in any way be affected or impaired thereby and such provision shall be ineffective only to the extentof such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged . The Guaranteeing Subsidiary’s Guarantee is subject tothe terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that itwill receive direct and indirect benefits from the financing arrangements contemplated by the Indentureand this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guaranteeare knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture . Except asexpressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms,conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shallform a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafterauthenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee . The Trustee makes no representation or warranty as to the validityor sufficiency of this Supplemental Indenture or with respect to the recitals or statements containedherein, all of which recitals are made solely by the other parties hereto, and the Trustee assumes noresponsibility for their correctness.
SECTION 3.10. Counterparts . The parties hereto may sign any number of copies of thisSupplemental Indenture. Each signed copy shall be an original, but all of them together represent thesame agreement. The exchange of copies of this Supplemental Indenture and of signature pages byfacsimile or PDF transmission shall constitute effective execution and delivery of this SupplementalIndenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for allpurposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be theiroriginal signatures for all purposes.
SECTION 3.11. Execution and Delivery . The Guaranteeing Subsidiary agrees that the Guaranteeshall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of anysuch Guarantee.
SECTION 3.12. Headings . The headings of the Articles and the Sections in this SupplementalIndenture are for convenience of reference only and shall not be deemed to alter or affect the meaning orinterpretation of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be
duly executed as of the date first above written.
TRINSEO MATERIALS OPERATING S.C.A.,
acting through its general partner TrinseoMaterials S.à r.l.
By: /s/ Barry J. Niziolek Name: Barry J. Niziolek Title: Manager TRINSEO MATERIALS FINANCE, INC. By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and
President TRINSEO EXPORT GMBH,
as a Guarantor By: /s/ Dr. Isabel Hacker Name: Dr. Isabel Hacker Title: Chairperson of the Management
( Vorsitzende der Geschaftsführer ) TRINSEO HOLDINGS ASIA PTE. LTD.,
as a Guarantor By: /s/ Dongyu Cai Name: Dongyu Cai Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO (HONG KONG) LIMITED,
as a Guarantor SEALED with the COMMON SEAL of
TRINSEO (HONG KONG) LIMITED andSIGNED by Lee Chung Lok and Leong ChinBown,
/s/ Lee Chung Lok [ Signature of Director ] Director Lee Chung Lok In the presence of: /s/ Rachel Lau [ Signature of Witness ] Name of Witness: Rachel Lau Address of Witness: 40-50 Tsing Yi Road, Tsing Yi, Hong Kong Occupation of Witness: Administrative Specialist /s/ Leong Chin Bown [ Signature of Director ]
Director Leong Chin Bown In the presence of: /s/ Alice Chong [ Signature of Witness ] Name of Witness: Alice Chong Address of Witness: Suite 3401-3, 34/F Central Plaza, 18 Harbour Road,
Wanchai, Hong Kong Occupation of Witness: Administrative Specialist
[Signature Page to Supplemental Indenture]
TRINSEO DEUTSCHLAND GMBH,
as a Guarantor By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Managing Director By: /s/ Ralf Irmert Name: Ralf Irmert Title: Managing Director
[Signature Page to Supplemental Indenture]
TRINSEO DEUTSCHLAND
ANLAGENGESSELLSCHAFT MBH, as a Guarantor
By: /s/ Ulrich Alfred Plotzke Name: Ulrich Alfred Plotzke Title: Managing Director
[Signature Page to Supplemental Indenture]
Given under the common seal ofTRINSEO FINANCE IRELAND UNLIMITED,as a Guarantorand delivered as a DEED /s/ Geraldine Lillis Director Geraldine Lillis /s/ Walter Bosschieter Director Walter Bosschieter
[Signature Page to Supplemental Indenture]
TRINSEO FINANCE LUXEMBOURG S. À R.L., as a Guarantor
By: /s/ David Stasse Name: David Stasse Title: Manager
[Signature Page to Supplemental Indenture]
TRINSEO HOLDING B.V.,
as a Guarantor By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO NETHERLANDS B.V ., as a Guarantor
By: /s/ Walter Bosschieter Name: Walter Bosschieter Title: Director
[Signature Page to Supplemental Indenture]
TRINSEO EUROPE GmbH,
as a Guarantor By: /s/ Christian Page Name: Christian Page Title: Chairperson of the Management
( Vorsitzende der Geschaftsführer )
[Signature Page to Supplemental Indenture]
TRINSEO US HOLDING, INC.,
as a Guarantor By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and
President
[Signature Page to Supplemental Indenture]
TRINSEO LLC,
as a Guarantor By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer and
President
[Signature Page to Supplemental Indenture]
THE BANK OF NEW YORK MELLON , as Trustee
By: /s/ Joan Doyle Name: Joan Doyle Title: Vice President
[Signature Page to Supplemental Indenture]
Exhibit 10.1
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“ Agreement ”) is effective as of [DATE] by and between Trinseo S.A., apublic limited liability company ( soci é t é anonyme ) existing under the laws of the Grand Duchy of Luxembourg (the “Company ”), and <NAME> (“ Indemnitee ”). [The prior indemnification agreement between the Company andIndemnitee shall be deemed superseded by this Agreement as of the effective date of this Agreement.]
WHEREAS, in light of the litigation costs and risks to directors and executive officers resulting from their serviceto the Company, and the desire of the Company to attract and retain qualified individuals to serve as directors andexecutive officers, it is reasonable, prudent and necessary for the Company to indemnify and advance expenses on behalfof its directors and executive officers to the extent permitted by applicable law so that they will serve or continue to servethe Company free from undue concern regarding such risks;
WHEREAS, the Company has requested that Indemnitee serve or continue to serve as a director and/or executiveofficer of the Company and may have requested or may in the future request that Indemnitee serve one or more Entities(as hereinafter defined) as a director, executive officer or in other capacities; and
WHEREAS, Indemnitee may have certain rights to indemnification, advancement of expenses and/or insuranceprovided by the Company (or its subsidiaries); and with the Company’s acknowledgement of and agreement to theforegoing being a material condition to Indemnitee’s willingness to serve as a director and/or executive officer of theCompany.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company andIndemnitee do hereby covenant and agree as follows:
1. Services by Indemnitee . Indemnitee agrees to serve as a director and/or executive officer of theCompany. Indemnitee may at any time and for any reason resign from such position (subject to any contractualobligation under any other agreement or any obligation imposed by operation of law).
2. Indemnification - General . On the terms and subject to the conditions of this Agreement, the Companyshall, to the fullest extent permitted by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless fromand against, all losses, liabilities, judgments, fines, penalties, costs, amounts paid in settlement, Expenses (as hereinafterdefined) and other amounts that Indemnitee incurs and that result from, arise in connection with or are by reason ofIndemnitee’s Corporate Status (as hereinafter defined) and shall advance Expenses to Indemnitee. The obligations of theCompany under this Agreement (a) are joint and several obligations of the Company and its subsidiaries, (b) shallcontinue after such time as Indemnitee ceases to serve as a director or an officer of the Company or in any otherCorporate Status, and (c) include, without limitation, claims for monetary damages against Indemnitee in respect of anyactual or alleged liability or other loss of Indemnitee, to the fullest extent permitted under applicable law as in existenceon the date hereof and as amended from time to time.
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3. Proceedings Other Than Proceedings by or in the Right of the Company . If in connection with or byreason of Indemnitee’s Corporate Status, Indemnitee was, is, or is threatened to be made, a party to or a participant in anyProceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company to procure a judgment inits favor, the Company shall, to the fullest extent permitted by law, indemnify Indemnitee with respect to, and holdIndemnitee harmless from and against, all Expenses, liabilities, judgments, penalties, fines and amounts paid insettlement (including all interest, assessments and other charges paid or payable in connection with or in respect of suchliabilities, judgments, penalties, fines and amounts paid in settlement) incurred by Indemnitee or on behalf of Indemniteein connection with such Proceeding or any claim, issue or matter therein.
4. Proceedings by or in the Right of the Company . If in connection with or by reason of Indemnitee’sCorporate Status, Indemnitee was, is, or is threatened to be made, a party to or a participant in any Proceeding by or inthe right of the Company to procure a judgment in the Company’s favor, the Company shall, to the fullest extentpermitted by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless from and against, all Expensesincurred by Indemnitee or on behalf of Indemnitee in connection with such Proceeding or any claim, issue or mattertherein.
5. Mandatory Indemnification in Case of Successful Defense . Notwithstanding any other provision of thisAgreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, indefense of any Proceeding or any claim, issue or matter therein (including, without limitation, any Proceeding brought byor in the right of the Company), the Company shall, to the fullest extent permitted by law, indemnify Indemnitee withrespect to, and hold Indemnitee harmless from and against, all Expenses incurred by Indemnitee or on behalf ofIndemnitee in connection therewith. If Indemnitee is not wholly successful in defense of such Proceeding but issuccessful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, theCompany shall, to the fullest extent permitted by law, indemnify Indemnitee against all Expenses incurred by Indemniteeor on behalf of Indemnitee in connection with each successfully resolved claim, issue or matter. For purposes of thisSection 5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with orwithout prejudice, on substantive or procedural grounds, or settlement of any such claim prior to a final judgment by acourt of competent jurisdiction with respect to such Proceeding, shall be deemed to be a successful result as to suchclaim, issue or matter.
6. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement or otherwise toindemnification by the Company for some or a portion of the Expenses, liabilities, judgments, penalties, fines andamounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or inrespect of such liabilities, judgments, penalties, fines and amounts paid in settlement) incurred by Indemnitee or onbehalf of Indemnitee in connection with a Proceeding or any claim, issue or matter therein, in whole or in part, theCompany shall, to the fullest extent permitted by law, indemnify Indemnitee to the fullest extent to which Indemnitee isentitled to such indemnification.
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7. Indemnification for Additional Expenses Incurred to Secure Recovery or as Witness .
(a) The Company shall, to the fullest extent permitted by law, indemnify Indemnitee with respect to, and holdIndemnitee harmless from and against, any and all Expenses and, if requested by Indemnitee, shall advance on an as-incurred basis (as provided in Section 8 of this Agreement) such Expenses to Indemnitee, which are incurred byIndemnitee in connection with any action or proceeding or part thereof brought by Indemnitee for (i) indemnification oradvance payment of Expenses by the Company under this Agreement, any other agreement, the Articles of Associationas now or hereafter in effect, (ii) recovery under any director and officer liability insurance policies maintained by theCompany or any of its subsidiaries.
(b) To the extent that Indemnitee is a witness (or is forced or asked to respond to discovery requests) in anyProceeding to which Indemnitee is not a party, the Company shall, to the fullest extent permitted by law, indemnifyIndemnitee with respect to, and hold Indemnitee harmless from and against, and the Company will advance on an as-incurred basis (as provided in Section 8 of this Agreement), all Expenses incurred by Indemnitee or on behalf ofIndemnitee in connection therewith.
8. Advancement of Expenses . The Company shall, to the fullest extent permitted by law, pay on a currentand as-incurred basis all Expenses incurred by Indemnitee in connection with any Proceeding in any way connected with,resulting from or relating to Indemnitee’s Corporate Status. Such Expenses shall be paid in advance of the finaldisposition of such Proceeding, without regard to whether Indemnitee will ultimately be entitled to be indemnified forsuch Expenses and without regard to whether an Adverse Determination (as hereinafter defined) has been or may bemade, except as contemplated by the last sentence of Section 9(f) of this Agreement. Upon submission of a request foradvancement of Expenses pursuant to Section 9(c) of this Agreement, Indemnitee shall be entitled to advancement ofExpenses as provided in this Section 8 , and such advancement of Expenses shall continue until such time (if any) asthere is a final non-appealable judicial determination that Indemnitee is not entitled to indemnification. Indemnitee shallrepay such amounts advanced if and to the extent that it shall ultimately be determined in a decision by a court ofcompetent jurisdiction from which no appeal can be taken that Indemnitee is not entitled to be indemnified by theCompany for such Expenses. Such repayment obligation shall be unsecured and shall not bear interest. The Companyshall not impose on Indemnitee additional conditions to advancement or require from Indemnitee additional undertakingsregarding repayment.
9. Indemnification Procedures .
(a) Notice of Proceeding . Indemnitee agrees to notify the Company promptly upon being servedwith any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceedingor matter which may be subject to indemnification or advancement of Expenses hereunder . Any failure by Indemniteeto notify Company will relieve the Company of its advancement or indemnification obligations under this Agreementonly to the extent the Company can establish that such omission to notify resulted in actual and material prejudice to itwhich cannot be reversed or otherwise eliminated without any material negative
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effect on the Company, and the omission to notify the Company will, in any event, not relieve the Company from anyliability which it may have to indemnify Indemnitee otherwise than under this Agreement. If, at the time of receipt ofany such notice, the Company has director and officer insurance policies in effect, the Company will promptly notify therelevant insurers in accordance with the procedures and requirements of such policies.
(b) Defense; Settlement . Indemnitee shall have the sole right and obligation to control the defenseor conduct of any claim or Proceeding with respect to Indemnitee. The Company shall not, without the prior writtenconsent of Indemnitee, which may be provided or withheld in Indemnitee’s sole discretion, effect any settlement of anyProceeding against Indemnitee or which could have been brought against Indemnitee or which potentially or actuallyimposes any cost, liability, exposure or burden on Indemnitee unless (i) such settlement solely involves the payment ofmoney or performance of any obligation by persons other than Indemnitee and includes an unconditional release ofIndemnitee by all relevant parties from all liability on any matters that are the subject of such Proceeding and anacknowledgment that Indemnitee denies all wrongdoing in connection with such matters and (ii) the Company has fullyindemnified the Indemnitee with respect to, and held Indemnitee harmless from and against, all Expenses incurred byIndemnitee or on behalf of Indemnitee in connection with such Proceeding. The Company shall not be obligated toindemnify Indemnitee against amounts paid in settlement of a Proceeding against Indemnitee if such settlement iseffected by Indemnitee without the Company’s prior written consent, which consent shall not be unreasonably withheld,delayed or conditioned, unless such settlement solely involves the payment of money or performance of any obligationby persons other than the Company and includes an unconditional release of the Company by any party to suchProceeding other than the Indemnitee from all liability on any matters that are the subject of such Proceeding and anacknowledgment that the Company deny all wrongdoing in connection with such matters.
(c) Request for Advancement; Request for Indemnification .
(i) To obtain advancement of Expenses under this Agreement, Indemnitee shall submit to theCompany a written request therefor, together with such invoices or other supporting information as may be reasonablyrequested by the Company and reasonably available to Indemnitee, and, only to the extent required by applicable lawwhich cannot be waived, an unsecured written undertaking to repay amounts advanced. The Company shall makeadvance payment of Expenses to Indemnitee no later than five (5) business days after receipt of the written request foradvancement (and each subsequent request for advancement) by Indemnitee. If, at the time of receipt of any suchwritten request for advancement of Expenses, the Company has director and officer insurance policies in effect, theCompany will promptly notify the relevant insurers in accordance with the procedures and requirements of suchpolicies. The Company shall thereafter keep such director and officer insurers informed of the status of the Proceedingor other claim and take such other actions, as appropriate to secure coverage of Indemnitee for such claim.
(ii) To obtain indemnification under this Agreement, Indemnitee may submit a written requestfor indemnification hereunder. The time at which Indemnitee submits a written request for indemnification shall bedetermined by the Indemnitee in the Indemnitee's
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sole discretion. Once Indemnitee submits such a written request for indemnification (and only at such time thatIndemnitee submits such a written request for indemnification), a Determination (as hereinafter defined) shall thereafterbe made, as provided in and only to the extent required by Section 9(d) of this Agreement. In no event shall aDetermination be made, or required to be made, as a condition to or otherwise in connection with any advancement ofExpenses pursuant to Section 8 and Section 9(c)(i) of this Agreement. If, at the time of receipt of any such request forindemnification, the Company has director and officer insurance policies in effect, the Company will promptly notify therelevant insurers and take such other actions as necessary or appropriate to secure coverage of Indemnitee for such claimin accordance with the procedures and requirements of such policies.
(d) Determination . The Company agrees that Indemnitee shall be indemnified to the fullest extentpermitted by law and that no Determination shall be required in connection with such indemnification unless specificallyrequired by applicable law which cannot be waived. In no event shall a Determination be required in connection withindemnification for Expenses pursuant to Section 7 of this Agreement or incurred in connection with any Proceeding orportion thereof with respect to which Indemnitee has been successful on the merits or otherwise. Any decision that aDetermination is required by law in connection with any other indemnification of Indemnitee, and any suchDetermination, shall be made within twenty (20) days after receipt of Indemnitee’s written request for indemnificationpursuant to Section 9(c)(ii) and such Determination shall be made either (i) by the Disinterested Directors (as hereinafterdefined), even though less than a quorum, so long as Indemnitee does not request that such Determination be made byIndependent Counsel (as hereinafter defined), or (ii) if so requested by Indemnitee, in Indemnitee’s sole discretion, byIndependent Counsel in a written opinion to the Company and Indemnitee. If a Determination is made that Indemnitee isentitled to indemnification, payment to Indemnitee shall be made within five (5) business days after suchDetermination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination withrespect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity uponreasonable advance request any documentation or information which is not privileged or otherwise protected fromdisclosure and which is reasonably available to Indemnitee and reasonably necessary to such Determination. AnyExpenses incurred by Indemnitee in so cooperating with the Disinterested Directors or Independent Counsel, as the casemay be, making such determination shall be advanced and borne by the Company (irrespective of the Determination as toIndemnitee’s entitlement to indemnification) and the Company is liable to indemnify and hold Indemnitee harmlesstherefrom. If the person, persons or entity empowered or selected under Section 9(d) of this Agreement to determinewhether Indemnitee is entitled to indemnification shall not have made a determination within twenty (20) days afterreceipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to thefullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to suchindemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary tomake Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) aprohibition of such indemnification under applicable law; provided, however, that such twenty (20) day period may beextended for a reasonable time, not to exceed an additional twenty (20) days, if the person, persons or entity making the
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determination with respect to entitlement to indemnification in good faith requires such additional time for the obtainingor evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisionsof this Section 9(d) shall not apply if the determination of entitlement to indemnification is to be made by IndependentCounsel pursuant to Section 9(e) .
(e) Independent Counsel . In the event Indemnitee requests that the Determination be made byIndependent Counsel pursuant to Section 9(d) of this Agreement, the Independent Counsel shall be selected as providedin this Section 9(e) . The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that suchselection be made by the Board of Directors, in which event the Board of Directors shall make such selection on behalfof the Company, subject to the remaining provisions of this Section 9(e) ), and Indemnitee or the Company, as the casemay be, shall give written notice to the other, advising the Company or Indemnitee of the identity of the IndependentCounsel so selected. The Company or Indemnitee, as the case may be, may, within five (5) days after such written noticeof selection shall have been received, deliver to Indemnitee or the Company, as the case may be, a written objection tosuch selection; provided , however , that such objection may be asserted only on the ground that the IndependentCounsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 15 of thisAgreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper andtimely objection, the person so selected shall act as Independent Counsel. If a written objection is so made andsubstantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objectionis withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within ten (10)days after submission by Indemnitee of a written request for indemnification pursuant to Section 9(c)(ii) of thisAgreement and after a request for the appointment of Independent Counsel has been made, no Independent Counsel shallhave been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdictionfor resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection ofIndependent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by suchother person as the court shall designate, and the person with respect to whom all objections are so resolved or the personso appointed shall act as Independent Counsel under Section 9(d) of this Agreement. Upon the due commencement ofany judicial proceeding or arbitration pursuant to Section 9(f) of this Agreement, Independent Counsel shall bedischarged and relieved of any further responsibility in such capacity (subject to the applicable standards of professionalconduct then prevailing). Any expenses incurred by or in connection with the appointment of Independent Counsel shallbe borne by the Company (irrespective of the Determination of Indemnitee's entitlement to indemnification) and not byIndemnitee.
(f) Consequences of Determination; Remedies of Indemnitee . The Company shall be bound by andshall have no right to challenge a Favorable Determination. If an Adverse Determination is made, or if for any otherreason the Company do not make timely indemnification payments or advances of Expenses, Indemnitee shall have theright to commence a Proceeding before a court of competent jurisdiction to challenge such Adverse Determination and/orto require the Company to make such payments or advances (and the Company shall have the right to defend its positionin such Proceeding and to appeal any adverse
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judgment in such Proceeding). Indemnitee shall be entitled to be indemnified for all Expenses incurred in connectionwith such a Proceeding and to have such Expenses advanced by the Company in accordance with Section 8 of thisAgreement. If Indemnitee fails to challenge an Adverse Determination within thirty (30) business days, or if Indemniteechallenges an Adverse Determination and such Adverse Determination has been upheld by a final judgment of a court ofcompetent jurisdiction from which no appeal can be taken, then, to the extent and only to the extent required by suchAdverse Determination or final judgment, the Company shall not be obligated to indemnify or advance Expenses toIndemnitee under this Agreement.
(g) Presumptions; Burden and Standard of Proof . The parties intend and agree that, to the extentpermitted by law, in connection with any Determination with respect to Indemnitee’s entitlement to indemnificationhereunder by any person, including a court:
(i) it will be presumed that Indemnitee is entitled to indemnification under this Agreement(notwithstanding any Adverse Determination), and the Company or any other person or entity challenging such right willhave the burden of proof to overcome that presumption in connection with the making by any person, persons or entity ofany determination contrary to that presumption;
(ii) the termination of any action, suit or proceeding by judgment, order, settlement,conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemniteedid not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the bestinterests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe thatIndemnitee’s conduct was unlawful;
(iii) Indemnitee will be deemed to have acted in good faith if Indemnitee’s action is based onthe records or books of account of the Company, including financial statements, or on information supplied toIndemnitee by the officers, employees, or committees of the board of directors of the Company, or on the advice of legalcounsel or other advisors (including financial advisors and accountants) for the Company or on information or recordsgiven in reports made to the Company by an independent certified public accountant or by an appraiser or other expert oradvisor selected by the Company; and
(iv) the knowledge and/or actions, or failure to act, of any director, officer, agent or employeeof the Company or relevant enterprises will not be imputed to Indemnitee in a manner that limits or otherwise adverselyaffects Indemnitee’s rights hereunder.
The provisions of this Section 9(g) shall not be deemed to be exclusive or to limit in any way the othercircumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in thisAgreement.
10. Remedies of Indemnitee .
(a) Subject to Section 10(e) , in the event that (i) a determination is made pursuant to Section 9(d) ofthis Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses isnot timely made pursuant to Section 9(c)
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of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 9(d)of this Agreement within twenty (20) days after receipt by the Company of the request for indemnification, (iv) paymentof indemnification is not made pursuant to Section 5 , 6 or 7 of this Agreement within five (5) business days afterreceipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3 , 4 or 7 ofthis Agreement is not made within five (5) business days after a determination has been made that Indemnitee is entitledto indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action todeclare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny,or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder,Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement ofExpenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a singlearbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shallnot oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 9(d) of this Agreementthat Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to thisSection 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, in which (i) Indemniteeshall not be prejudiced by reason of that adverse determination, and (ii) the Company shall bear the burden ofestablishing that Indemnitee is not entitled to indemnification.
(c) If a determination shall have been made pursuant to Section 9(d) of this Agreement thatIndemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceedingor arbitration commenced pursuant to this Section 10 , absent (i) a misstatement by Indemnitee of a material fact, or anomission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with therequest for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement ofIndemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of theProceeding.
11. Insurance; Subrogation; Other Rights of Recovery, etc .
(a) The Company shall use its reasonable best efforts to purchase and maintain a policy or policies ofinsurance with reputable insurance companies with A.M. Best ratings of “A” or better, providing Indemnitee withcoverage for any liability asserted against, and incurred by, Indemnitee or on Indemnitee’s behalf by reason ofIndemnitee’s Corporate Status, or arising out of Indemnitee’s status as such, whether or not the Company would have thepower to indemnify Indemnitee against such liability. Such insurance policies shall have coverage terms and policylimits at least as favorable to Indemnitee as the insurance coverage provided to any other director or officer of theCompany. If the Company has such insurance in effect at the time it receives from Indemnitee any notice of thecommencement of an action, suit, proceeding or other claim, the Company shall give prompt notice of thecommencement of such action, suit,
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proceeding or other claim to the insurers and take such other actions in accordance with the procedures set forth in thepolicy as required or appropriate to secure coverage of Indemnitee for such action, suit, proceeding or other claim. TheCompany shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, allamounts payable as a result of such action, suit, proceeding or other claim in accordance with the terms of such policy. The Company shall continue to provide such insurance coverage to Indemnitee for a period of at least ten (10) years afterIndemnitee ceases to serve as a director or an officer or in any other Corporate Status.
(b) In the event of any payment by the Company under this Agreement, Indemnitee hereby agrees, as acondition to obtaining any advancement or indemnification from the Company, to assign to the Company all ofIndemnitee’s rights to obtain from such other entity such amounts to the extent that they have been paid by the Companyto or for the benefit of Indemnitee as advancement or indemnification under this Agreement and are adequate toindemnify Indemnitee with respect to the costs, Expenses or other items to the full extent that Indemnitee is entitled toindemnification or other payment hereunder; and Indemnitee will (upon request by the Company) execute all papersrequired and use reasonable best efforts to take all action reasonably necessary to secure such rights, including executionof such documents as are necessary to enable the Company to bring suit or enforce such rights.
(c) The Company hereby unconditionally and irrevocably waives, relinquishes and releases, and covenantsand agrees not to exercise (and to cause each of its subsidiaries not to exercise), any rights that the Company may nowhave or hereafter acquire against the Indemnitee that arise from or relate to the existence, payment, performance orenforcement of the Company’s obligations under this Agreement or under any other indemnification agreement with anyperson or entity, including, without limitation, any right of subrogation (whether pursuant to contract or common law),reimbursement, exoneration, contribution or indemnification, or to be held harmless, whether or not such claim, remedyor right arises in equity or under contract, statute or common law, including, without limitation, the right to take orreceive from the Indemnitee, directly or indirectly, in cash or other property or by set-off or in any other manner,payment or security on account of such claim, remedy or right.
(d) The Company shall not be liable to pay or advance to Indemnitee any amounts otherwise indemnifiableunder this Agreement or under any other indemnification agreement if and to the extent that Indemnitee has otherwiseactually received such payment under any insurance policy, contract, agreement or otherwise; provided , however , thatthe Company hereby agrees that it is the indemnitor of first resort under this Agreement and under any otherindemnification agreement (i.e., the Company’s obligations to Indemnitee under this Agreement or any other agreementor undertaking to provide advancement and/or indemnification to Indemnitee are primary with respect to any insurancethat is or may become available to the Indemnitee ).
(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee in respect of orrelating to Indemnitee’s service at the request of the Company as a director, officer, employee, fiduciary, trustee,representative, partner or agent of the Company shall be reduced by any amount Indemnitee has actually received aspayment of indemnification
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or advancement of Expenses from such the Company, except to the extent that such indemnification payments andadvance payment of Expenses when taken together with any such amount actually received from the Company or underdirector and officer insurance policies maintained by the Company or its subsidiaries are inadequate to fully pay all costs,Expenses or other items to the full extent that Indemnitee is otherwise entitled to indemnification or other paymenthereunder.
(f) Except as provided in Sections 11(c) , 11(d) and 11(e) of this Agreement, the rights to indemnificationand advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to whichIndemnitee may at any time, whenever conferred or arising, be entitled under applicable law, under the Company’sArticles of Association, or otherwise. Indemnitee’s rights under this Agreement are present contractual rights that fullyvest upon Indemnitee’s first service as a director or an officer of the Company. The Parties hereby agree that Sections11(c) , 11(d) and 11(e) of this Agreement shall be deemed exclusive and shall be deemed to modify, amend and clarifyany right to indemnification or advancement provided to Indemnitee under any other contract, agreement or documentwith the Company.
(g) No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrictany right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee inIndemnitee’s Corporate Status prior to such amendment, alteration or repeal.
12. Employment Rights; Successors .
(a) This Agreement shall not be deemed an employment contract between the Company and Indemnitee. ThisAgreement shall continue in force as provided above after Indemnitee has ceased to serve as a director and/or executiveofficer of the Company or any other Corporate Status.
(b) This Agreement shall be binding upon the Company and its successors and assigns and shall inure to thebenefit of Indemnitee and Indemnitee’s heirs, executors and administrators. If the Company or any of its successors orassigns shall (i) consolidate with or merge into any other corporation, limited liability company or entity and shall not bethe continuing or surviving corporation, limited liability company or entity of such consolidation or merger or (ii)transfer all or substantially all of its properties and assets to any individual, corporation or other entity, then, and in eachsuch case, proper provisions shall be made so that the successors and assigns of the Company shall assume all of theobligations set forth in this Agreement.
13. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal orunenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of thisAgreement (including without limitation, each portion of any Section of this Agreement containing any such provisionheld to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way beaffected or impaired thereby; (b) such provision or provisions shall be deemed reformed to the
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extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c)to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Sectionof this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid,illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
14. Exception to Right of Indemnification or Advancement of Expenses . Notwithstanding any otherprovision of this Agreement and except as provided in Section 7(a) of this Agreement or as may otherwise be agreed bythe Company, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreementwith respect to any Proceeding brought by Indemnitee (other than a Proceeding by Indemnitee (i) by way of defense orcounterclaim or other similar portion of a Proceeding, (ii) to enforce Indemnitee’s rights under this Agreement or (iii) toenforce any other rights of Indemnitee to indemnification, advancement or contribution from the Company), unless thebringing of such Proceeding or making of such claim shall have been approved by the Board of Directors of theCompany.
15. Definitions . For purposes of this Agreement:
(a) “ Articles of Association ” means the articles of association of Trinseo S.A.
(b) “ Board of Directors ” means the board of directors of the Company.
(c) “ Company ” means Trinseo S.A., a public limited liability company ( soci é t é anonyme ).
(d) “ Corporate Status ” describes the status of a person by reason of such person’s past, present or futureservice as a director, officer, employee, fiduciary, trustee, or agent of the Company or any of its subsidiaries (including,without limitation, one who serves at the request of the Company as a director, officer, employee, fiduciary, trustee oragent of any other Trinseo Entity).
(e) “ Determination ” means a determination that either (x) there is a reasonable basis for the conclusion thatindemnification of Indemnitee is proper in the circumstances because Indemnitee met a particular standard of conduct (a“ Favorable Determination ”) or (y) there is no reasonable basis for the conclusion that indemnification of Indemnitee isproper in the circumstances because Indemnitee met a particular standard of conduct (an “ Adverse Determination ”). AnAdverse Determination shall include the decision that a Determination was required in connection with indemnificationand the decision as to the applicable standard of conduct.
(f) “ Disinterested Director ” means a director of the Company who is not and was not a party to theProceeding in respect of which indemnification is sought by Indemnitee and does not otherwise have an interestmaterially adverse to any interest of the Indemnitee.
(g) “ Expenses ” shall mean all direct and indirect costs, fees and expenses of any type or nature whatsoeverand shall specifically include, without limitation, all reasonable attorneys’ fees, retainers, court costs, transcript costs,fees and costs of experts, witness fees and costs,
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travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, anyfederal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any paymentsunder this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the typescustomarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being orpreparing to be a witness, in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding,including, but not limited to, the premium for appeal bonds, attachment bonds or similar bonds and all interest,assessments and other charges paid or payable in connection with or in respect of any such Expenses, and shall alsospecifically include, without limitation, all reasonable attorneys’ fees and all other expenses incurred by or on behalf ofIndemnitee in connection with preparing and submitting any requests or statements for indemnification, advancement,contribution or any other right provided by this Agreement. Expenses, however, shall not include amounts of judgmentsor fines against Indemnitee.
(h) “ Trinseo Entity ” means the Company and any of its respective subsidiaries and any other corporation,partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise with respect towhich Indemnitee serves as a director, officer, employee, partner, representative, fiduciary, trustee, or agent, or in anysimilar capacity, at the request of the Company.
(i) “ Independent Counsel ” means, at any time, any law firm, or a member of a law firm, that (a) isexperienced in matters of corporation law and (b) is not, at such time, or has not been in the five years prior to such time,retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respectto matters concerning Indemnitee under this Agreement, or of other indemnities under similar indemnificationagreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnificationhereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under theapplicable standards of professional conduct then prevailing, would have a conflict of interest in representing either theCompany or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees topay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counselagainst any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or itsengagement pursuant hereto and to be jointly and severally liable therefor.
(j) “ Proceeding ” includes any actual, threatened, pending or completed action, suit, arbitration, alternatedispute resolution mechanism, investigation (formal or informal), inquiry, administrative hearing or any other actual,threatened, pending or completed proceeding, whether brought by or in the right of the Company or otherwise andwhether civil, criminal, administrative or investigative in nature, in which Indemnitee was, is, may be or will be involvedas a party, witness or otherwise, by reason of Indemnitee’s Corporate Status or by reason of any action taken byIndemnitee or of any inaction on Indemnitee’s part while acting as director, officer, employees, fiduciary, trustee or agentof the Company (in each case whether or not he is acting or serving in any such capacity or has such status at the timeany liability or expense is incurred for which indemnification or advancement of Expenses can be provided under thisAgreement). If the Indemnitee believes in good faith that a given situation may lead to or
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culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.
16. Construction . Whenever required by the context, as used in this Agreement the singular number shallinclude the plural, the plural shall include the singular, and all words herein in any gender shall be deemed to include (asappropriate) the masculine, feminine and neuter genders.
17. Reliance . The Company expressly confirms and agrees that it has entered into this Agreement andassumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director and/or an officer of theCompany, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director and/oran officer of the Company.
18. Modification and Waiver . No supplement, modification or amendment of this Agreement shall bebinding unless executed in a writing identified as such by all of the parties hereto. Except as otherwise expresslyprovided herein, the rights of a party hereunder (including the right to enforce the obligations hereunder of the otherparties) may be waived only with the written consent of such party, and no waiver of any of the provisions of thisAgreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shallsuch waiver constitute a continuing waiver.
19. Notice Mechanics . All notices, requests, demands or other communications hereunder shall be in writingand shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said noticeor other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, onthe third business day after the date on which it is so mailed:
(a) If to Indemnitee to:
(b) If to the Company, to:
c/o Trinseo S.A. 1000 Chesterbrook Boulevard Suite 300 Berwyn, PA 19312 Attn: Legal Department or to such other address as may have been furnished (in the manner prescribed above) as follows: (a) in the case of achange in address for notices to Indemnitee, furnished by Indemnitee to the
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Company and (b) in the case of a change in address for notices to the Company, furnished by the Company toIndemnitee.
20. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided forin this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifyingIndemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes,amounts paid or to be paid in settlement and/or for reasonably incurred Expenses, in connection with any claim relatingto an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of thecircumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee asa result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company(and their other directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/ortransaction(s).
21. Governing Law; Submission to Jurisdiction; Appointment of Agent for Service of Process . ThisAgreement and the legal relations among the parties shall, to the fullest extent permitted by law, be governed by, andconstrued and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of orin connection with this Agreement shall be brought only in the Court of Chancery of the State of Delaware (the“Delaware Court”), and not in any other state or federal court in the United States of America or any court in any othercountry, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action orproceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of anysuch action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that anysuch action or proceeding brought in the Delaware Court has been brought in an improper or otherwise inconvenientforum.
22. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shallnot be deemed to constitute part of this Agreement or to affect the construction thereof.
23. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for allpurposes be deemed to be an original but all of which together shall constitute one and the same Agreement.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first abovewritten.
Company: TRINSEO S.A. By: Name: Title: Date: By: Name: Title: Date: Indemnitee: Name: Date:
[Signature Page to Indemnification Agreement]
Exhibit 31.1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Christopher D. Pappas, certify that:1. I have reviewed this quarterly report on Form 10-Q of Trinseo S.A.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, includingits consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end ofthe period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the caseof an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.
Date: August 3, 2017
By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer
Exhibit 31.2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Barry J. Niziolek, certify that:1. I have reviewed this quarterly report on Form 10-Q of Trinseo S.A.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end ofthe period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.
Date: August 3, 2017 J.
By: /s/ Barry J. Niziolek Name: Barry J. Niziolek Title: Chief Financial Officer
Exhibit 32.1
Certification of CEO Pursuant to 18 U.S.C. Section 1350,As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Trinseo S.A. (the “Company”) on Form 10-Q for the period ended June 30, 2017 (the“Report”), as filed with the Securities and Exchange Commission on the date hereof, I, the undersigned, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities ExchangeAct of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.
Date: August 3, 2017
By: /s/ Christopher D. Pappas Name: Christopher D. Pappas Title: Chief Executive Officer
Exhibit 32.2
Certification of CFO Pursuant to 18 U.S.C. Section 1350,As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Trinseo S.A. (the “Company”) on Form 10-Q for the period ended June 30, 2017 (the“Report”), as filed with the Securities and Exchange Commission on the date hereof, I, the undersigned, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities ExchangeAct of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.
Date: August 3, 2017 J.
By: /s/ Barry J. Niziolek Name: Barry J. Niziolek Title: Chief Financial Officer