Explanatory Note
On July 1, 2015, E. I. du Pont de Nemours and Company (“EID”) completed the separation of the Performance Chemicals segment through the spin-off of all the issued and outstanding stock of The Chemours Company (“Chemours”) to holders of EID common stock. In connection with the spin-off, EID and Chemours entered into a Separation Agreement (as amended, the “Chemours Separation Agreement”). Effective August 31, 2017, EID and The Dow Chemical Company each merged with subsidiaries of DuPont de Nemours, Inc., f/k/a DowDuPont Inc. (“DuPont”) and, as a result, EID and The Dow Chemical Company became subsidiaries of DuPont. As part of DuPont’s spin-off of Corteva, Inc. (“Corteva”), EID became a subsidiary of Corteva.
In 2017, EID and Chemours amended the Chemours Separation Agreement to provide for a limited sharing of potential future liabilities related to alleged historical releases of perfluorooctanoic acids and its ammonium salts (“PFOA”) for a five-year period that began on July 6, 2017. In addition, in 2017, Chemours and EID each paid $335 million to settle the multi-district litigation in the U.S. District Court for the Southern District of Ohio (“Ohio MDL”), thereby resolving claims of about 3,550 plaintiffs alleging injury from exposure to PFOA in drinking water as a result of the historical manufacture or use of PFOA at the Washington Works plant outside Parkersburg, West Virginia. That plant was previously owned and/or operated by the performance chemicals segment of EID and is now owned and/or operated by Chemours. The 2017 settlement did not resolve claims of certain class members who did not have claims in the Ohio MDL or whose claims are based on diseases first diagnosed after February 11, 2017. About 96 claims alleging personal injury have been filed since the 2017 settlement and a number of additional pre-suit claims for personal injury have been asserted. These filed cases are currently pending in the Ohio MDL.
On May 13, 2019, Chemours filed suit in the Delaware Court of Chancery against DuPont, EID, and Corteva, seeking, among other things, to limit its responsibility for the litigation and environmental liabilities allocated to and assumed by Chemours under the Chemours Separation Agreement (the “Delaware Litigation”). On March 30, 2020, the Court of Chancery granted a motion to dismiss. On December 15, 2020, the Delaware Supreme Court affirmed the judgment of the Court of Chancery. Meanwhile, a confidential arbitration process regarding the same and other claims has proceeded (the “Pending Arbitration”).
| Item 1.01. | Entry into a Material Definitive Agreement. |
On January 22, 2021, DuPont, Corteva, EID, and The Chemours Company, entered into a binding memorandum of understanding (the “MOU”) agreeing to settle and release certain claims regarding the Delaware Litigation and the Pending Arbitration. Under the MOU, Chemours has released any claim set forth in the complaint filed in the Delaware Litigation, any other similar claims arising out of or resulting from the facts recited by Chemours in the complaint or the process and manner of structuring or conducting the Chemours spin-off on July 1, 2015 (the “Chemours Separation”), and any other claims that challenge the Chemours Separation or the assumption of Chemours Liabilities (as defined in the Chemours Separation Agreement) by Chemours and the allocation thereof, subject in each case to certain exceptions set out in the MOU. The parties have further agreed not to bring any future additional claims regarding the Chemours Separation Agreement or the MOU outside of arbitration. In connection with entering into the MOU, the parties will jointly terminate the Pending Arbitration.
The MOU reflects the parties’ agreement to share certain potential future legacy liabilities relating to alleged historical releases of certain per- and polyfluoroalkyl substances (“PFAS”), including PFOA, arising out of pre-July 1, 2015 conduct (“PFAS Liabilities”) until the earlier to occur of (i) December 31, 2040, (ii) the day on which the aggregate amount of Qualified Spend (as defined in the MOU) is equal to $4 billion or (iii) a termination in accordance with the terms of the MOU. The parties have agreed that, during the term of the sharing arrangement, Chemours will bear half of the cost of Qualified Spend, and DuPont and Corteva will collectively bear the other half of the cost of Qualified Spend. Corteva’s and DuPont’s share of Qualified Spend shall not exceed $2 billion in the aggregate. After the term of this arrangement, Chemours’ indemnification obligations under the Separation Agreement would continue unchanged, subject in each case to certain exceptions set out in the MOU.
In order to support and manage any potential future PFAS Liabilities, the parties have also agreed to establish an escrow account. The MOU provides that (1) no later than each of September 30, 2021 and September 30, 2022, Chemours shall deposit $100 million into an escrow account and DuPont and Corteva shall together deposit $100 million in the aggregate into an escrow account and (2) no later than September 30 of each subsequent year through and including 2028, Chemours shall deposit $50 million into an escrow account and DuPont and Corteva shall together deposit $50 million in the aggregate into an escrow account. Subject to the terms and conditions set forth in the MOU, each party may be permitted to defer funding in any year (excluding 2021). Additionally, if on December 31, 2028, the balance of the escrow account (including interest) is less than $700 million, Chemours will make 50% of the deposits and DuPont and Corteva together will make 50% of the deposits necessary to restore the balance of the escrow account to $700 million. Such payments will be made in a series of consecutive annual equal installments commencing on September 30, 2029 pursuant to the escrow account replenishment terms as set forth in the MOU.
All cost sharing arrangements between Corteva and DuPont under the MOU, including funding of the escrow account, shall be paid in accordance with the June 1, 2019 Letter Agreement between Corteva and DuPont (the “Letter Agreement”). Under the Letter Agreement, DuPont will manage such liabilities with Corteva and DuPont sharing the costs on a 50% - 50% basis starting from $1 and up to $300 million and once the $300 million threshold is met, then Corteva and DuPont will share proportionally on the basis of 29% and 71% respectively.
