| Item 1.01 | Entry into a Material Definitive Agreement. |
On October 14, 2018, in connection with the previously announced complete legal and structural separation (the“Spin-Off”) of Resideo Technologies, Inc. (“Resideo”) from Honeywell International Inc. (the “Company”), the Company entered into certain agreements with Resideo, including an Indemnification and Reimbursement Agreement, dated October 14, 2018, between New HAPI Inc. and the Company (the “Indemnification and Reimbursement Agreement”), to which relevant Resideo subsidiaries will become parties on or before the completion of theSpin-Off.
Indemnification and Reimbursement Agreement
Pursuant to the Indemnification and Reimbursement Agreement, a subsidiary of Resideo (the “Resideo Subsidiary”) has an obligation to make cash payments to the Company in amounts equal to 90% of payments, which include amounts billed (“payments”), with respect to certain environmental claims, remediation and, to the extent arising after theSpin-Off, hazardous exposure or toxic tort claims, in each case, including consequential damages (the “liabilities”) in respect of specified properties contaminated through historical business operations, including the legal and other costs of defending and resolving such liabilities, less 90% of the Company’s net insurance receipts relating to such liabilities, and less 90% of the net proceeds received by the Company in connection with (i) affirmative claims relating to such liabilities, (ii) contributions by other parties relating to such liabilities and (iii) certain property sales (the “recoveries”). The amount payable by the Resideo Subsidiary in respect of such liabilities arising in any given year will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum).
In the event that the Company completes a transfer to a third party in respect of a portion of the remediation liabilities that are within the scope of the Indemnification and Reimbursement Agreement, the Resideo Subsidiary will be obligated to pay 90% of the amount paid or payable by the Company in connection with such liability transfer, less any applicable recoveries. While any amount in respect of a liability transfer is outstanding, the annual payment by the Resideo Subsidiary to Honeywell will be first allocated towards the liabilities described above relating to environmental claims, remediation, hazardous exposure and toxic tort claims arising outside of the scope of the liability transfer, and then towards the liability transfer payment. The amount payable by the Resideo Subsidiary in respect of (i) any such liability transfers and (ii) the liabilities described above relating to environmental claims, remediation, hazardous exposure and toxic tort claims arising in any given year, will be subject to a cap of $140 million (exclusive of any late payment fees up to 5% per annum). To the extent that any amount in respect of liability transfers remains outstanding following such allocation and application of the $140 million cap, such amount will be carried forward and paid in the following year, but only to the extent there is room available under the $140 million cap in the year preceding the date of payment.
Payment amounts under the Indemnification and Reimbursement Agreement will be deferred to the extent that a specified event of default has occurred and is continuing under certain indebtedness, including under Resideo’s principal credit agreement, or the payment thereof causes Resideo to not be compliant with certain financial covenants in certain indebtedness, including in its principal credit agreement, on a pro forma basis, including the maximum total leverage ratio (ratio of consolidated debt to consolidated earnings before interest, taxes and depreciation (“EBITDA”), which excludes any amounts owed to the Company under the Indemnification and Reimbursement Agreement), and the minimum interest coverage ratio. All amounts payable under the Indemnification and Reimbursement Agreement will be guaranteed by certain of Resideo’s subsidiaries that act as guarantors under Resideo’s principal credit agreement, subject to certain exceptions.
The obligation will continue until the earlier of: (1) December 31, 2043; or (2) December 31 of the third consecutive year during which the annual indemnification obligation (including in respect of deferred payment amounts) has been less than $25 million.
The description of the Indemnification and Reimbursement Agreement is qualified in its entirety by reference to the full text of such agreement, which is attached as Exhibit 2.1 to this Current Report on Form8-K and incorporated herein by reference.
