Item 1.01
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Entry into a Material Definitive Agreement
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Separation Agreement
On September 22, 2016, Ashland Global Holdings Inc. (Ashland) entered into a separation agreement with Valvoline Inc.
(Valvoline) to facilitate the separation of Ashland and Valvoline into two separate companies (the Separation). The separation agreement sets forth the agreements between Ashland and Valvoline regarding the principal actions
to be taken in connection with the Separation. It also sets forth other agreements that govern aspects of the relationship between Ashland and Valvoline following the initial Separation.
Transfer of Assets and Assumption of Liabilities.
The separation agreement identifies certain transfers of assets and
assumptions of liabilities that are necessary in advance of the Separation so that Ashland and Valvoline retain the assets of, and the liabilities associated with, their respective businesses.
However, certain liabilities that are not associated with Ashlands specialty chemicals and performance materials businesses (the
Ashland businesses) or the Valvoline business have been allocated regardless of which business they are associated with (if any). For example, Ashland has retained, or assumed from Valvoline, substantially all liabilities arising from or
relating to the exposure of any person to asbestos from the manufacture, production, sale, distribution, conveyance or placement in the stream of commerce on or prior to the date of the Separation of any product or other item, as well as from
repair, use, abatement or disposal on or prior to the date of the Separation of any building material or equipment containing asbestos, regardless of whether related to the Ashland businesses or the Valvoline business. In addition, Ashland has
retained, or assumed from Valvoline, all environmental liabilities, known or unknown, arising from or relating to the Ashland businesses or any other historical business of Ashland LLC (formerly Ashland Inc.), other than the Valvoline business,
arising or relating to events, conduct or conditions occurring prior to, on or after the date of the Separation. The separation agreement also provides for the settlement or extinguishment of certain liabilities and other obligations between Ashland
and Valvoline.
Internal Transactions.
The separation agreement describes certain internal
transactions related to the Separation that have occurred prior to the Separation.
Intercompany Arrangements
. All agreements,
arrangements, commitments and understandings, including most intercompany accounts payable or accounts receivable, between Ashland, on the one hand, and Valvoline, on the other hand, have terminated effective as of the Separation, except specified
agreements and arrangements that are intended to survive the Separation.
Shared Liabilities
. The tax matters agreement, employee
matters agreement and shared environmental liabilities agreement describe certain current and future liabilities that will be shared between Ashland and Valvoline following the Separation. These agreements respectively specify the portion
of the economic costs of such liabilities between Ashland and Valvoline and establish a process for managing, defending and resolving, as well as sharing the costs related to, such liabilities as between Ashland and Valvoline.
Credit Support
. Valvoline has agreed to use reasonable best efforts to arrange, prior to the Separation, for the replacement of all
guarantees, covenants, indemnities, surety bonds, letters of credit or similar assurances of credit support currently provided by or through Ashland or any of its affiliates for the benefit of the Valvoline business.
Representations and Warranties
. In general, neither Ashland nor Valvoline have made representations or warranties regarding any assets
or liabilities transferred or assumed, any consents or approvals that may be required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any
defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forth in the separation agreement, all assets have been transferred on an as is, where is basis.
Further Assurances
. Ashland and Valvoline will use reasonable best efforts to effect any transfers contemplated by the separation
agreement that have not been consummated prior to the Separation as promptly as practicable following the initial Separation. In addition, Ashland and Valvoline will use reasonable best efforts to effect any transfer or re-transfer of any asset or
liability that was improperly transferred or retained as promptly as practicable following the Separation.
The Initial Public
Offering
. The separation agreement governs Ashlands and Valvolines respective rights and obligations regarding the recently completed initial public offering of Valvoline (the IPO). Ashland has the sole and absolute
discretion to determine the terms of, and whether to proceed with, any subsequent spin-off or disposition of Valvoline stock by Ashland following the IPO.
Conditions
. The separation agreement also provides that several conditions must be satisfied or waived by Ashland in its sole and
absolute discretion before the Separation can occur.
Exchange of Information
. Ashland and Valvoline have agreed to provide each
other with information reasonably necessary to comply with reporting, disclosure, filing or other requirements of any national securities exchange or governmental authority, for use in judicial, regulatory, administrative and other proceedings and
to satisfy audit, accounting, regulatory, litigation and other similar requests. Ashland and Valvoline also agree to use reasonable best efforts to retain such information in accordance with Ashlands record retention policies as in effect on
the date of the separation agreement. Each party will also agree to use its reasonable best efforts to assist the other with its financial reporting and audit obligation for an agreed period of time.
Release of Claims
. Ashland and Valvoline have each agreed to release the other and its affiliates, successors and assigns, and all
persons that prior to the Separation have been the others shareholders, directors, officers, agents and employees, and their respective heirs, executors, administrators, successors and assigns, from any claims against any of them that arise
out of or relate to events, circumstances or actions occurring or failing to occur or any conditions existing at or prior to the time of the Separation. These releases are subject to exceptions set forth in the separation agreement.
Indemnification
. Ashland and Valvoline have each agreed to indemnify the other and each of
the others current and former directors, officers and employees, and each of the heirs, administrators, executors, successors and assigns of any of them, against certain liabilities incurred in connection with the separation of the Ashland and
Valvoline businesses. The amount of either Ashlands or Valvolines indemnification obligations will be reduced by any insurance proceeds the party being indemnified receives. The separation agreement also specifies procedures regarding
claims subject to indemnification.
The separation agreement is attached as Exhibit 10.1 to this Current Report and incorporated herein by
reference.
Transition Services Agreement
In order to help ensure an orderly transition, on September 22, 2016, Ashland entered into a transition services agreement pursuant to which it
will, for a limited time following the completion of the IPO, provide Valvoline with various corporate support services, including certain accounting, human resources, information technology, office and building, risk, security, tax and treasury
services. Ashland may also provide Valvoline with additional services that Ashland and Valvoline may identify from time to time in the future. In general, the services will begin following the initial Separation and cover a period not expected to
exceed 24 months.
Ashland has agreed to perform the services with the same standard of quality and care as it uses in servicing its own
business, and in any event with at least the same level of quality and care as such services were provided to the Valvoline business during the preceding year. Ashland and Valvoline have agreed to cooperate in connection with the performance of the
services, provided that such cooperation does not unreasonably disrupt Ashlands or Valvolines operations, and Ashland has agreed to use commercially reasonable efforts, at Valvolines expense, to obtain any third-party consents
required for the performance of the services.
The services will be provided by Ashland without representation or warranty of any kind.
Ashland will have no liability with respect to its furnishing of the services except to the extent occasioned by its bad faith, willful misconduct, fraud, gross negligence or willful breach of the agreement.
Under the transition services agreement, Ashland and Valvoline are each obligated to maintain the confidentiality of the others
confidential information for five years following the termination of the transition services agreement, subject to certain exceptions. Ashland and Valvoline retain all rights, title and interest in and to their respective intellectual property used
in the provision of services under the agreement.
The transition services agreement specifies the costs to Valvoline for the services.
These costs will be consistent with expenses that Ashland has historically allocated or incurred with respect to such services, plus a mark-up of five percent.
The transition services agreement is attached as Exhibit 10.2 to this Current Report and incorporated herein by reference.
Reverse Transition Services Agreement
In order to help ensure an orderly transition, on September 22, 2016, Valvoline entered into a reverse transition services agreement
pursuant to which it will, for a limited time following the completion of this offering, provide Ashland with various corporate support services, including certain human resources, information technology, office and building, security and tax
services, as well as certain regulatory
compliance services required during the period in which Valvoline remains a majority-owned subsidiary of Ashland. Valvoline may also provide Ashland with additional services that Valvoline and
Ashland may identify from time to time in the future. In general, the services will begin following the initial Separation and cover a period not expected to exceed 24 months.
Valvoline has agreed to perform the services with the same standard of quality and care as it uses in servicing its own business, and in any
event with at least the same level of quality and care as such services were provided to the Ashland businesses during the preceding year. Valvoline and Ashland have agreed to cooperate in connection with the performance of the services, provided
that such cooperation does not unreasonably disrupt Valvolines or Ashlands operations, and Valvoline has agreed to use commercially reasonable efforts, at Ashlands expense, to obtain any third-party consents required for the
performance of the services.
The services will be provided by Valvoline without representation or warranty of any kind. Valvoline will
have no liability with respect to its furnishing of the services except to the extent occasioned by its bad faith, willful misconduct, fraud, gross negligence or willful breach of the agreement.
Under the reverse transition services agreement, Valvoline and Ashland are each obligated to maintain the confidentiality of the others
confidential information for five years following the termination of the reverse transition services agreement, subject to certain exceptions. Valvoline and Ashland retain all rights, title and interest in and to their respective intellectual
property used in the provision of services under the agreement.
The reverse transition services agreement specifies the costs to Ashland
for the services. These costs will be consistent with expenses that Ashland has historically allocated or incurred with respect to such services, plus a mark-up of five percent.
The reverse transition services agreement is attached as Exhibit 10.3 to this Current Report and incorporated herein by reference.
Tax Matters Agreement
On
September 22, 2016, Ashland and Valvoline entered into a tax matters agreement that governs the rights, responsibilities and obligations of Ashland and Valvoline after the closing of the IPO with respect to all tax matters (including tax
liabilities, tax attributes, tax returns and tax contests) (the Tax Matters Agreement).
Valvoline will be included in the
U.S. federal consolidated group tax return, and possibly certain combined or similar group tax returns, with Ashland (the Ashland Group Returns) for the period starting approximately on the date of the closing of the IPO and through the
date of the distribution by Ashland to its shareholders of Ashlands remaining shares of Valvoline common stock. We refer to this period as the Interim Period and to this distribution as the Final Separation. Under
the Tax Matters Agreement, Ashland will generally make all necessary tax payments to the relevant tax authorities with respect to Ashland Group Returns, and Valvoline will make tax sharing payments to Ashland. The amount of Valvolines tax
sharing payments will generally be determined as if Valvoline and each of its relevant subsidiaries included in the Ashland Group Returns filed its own consolidated, combined or separate tax returns for the Interim Period that include only Valvoline
and/or its relevant subsidiaries, as the case may be.
For taxable periods that begin on or after the day after the date of the Final
Separation, Valvoline will no longer be included in any Ashland Group Returns and will file tax returns that include only Valvoline and/or its subsidiaries, as appropriate. Valvoline will not be required to make tax sharing payments to Ashland for
those taxable periods. Nevertheless, Valvoline has (and will continue to have following the Final Separation) joint and several liability with Ashland to the IRS for the consolidated U.S. federal income taxes of the Ashland consolidated group for
the taxable periods in which Valvoline was part of the Ashland consolidated group.
The Tax Matters Agreement also generally provides that Valvoline will indemnify Ashland for the
following taxes:
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Taxes of Valvoline for all taxable periods that begin on or after the day after the date of the Final Separation;
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Taxes of Valvoline Inc. for the Interim Period, and taxes of subsidiaries of Valvoline Inc. for all taxable periods that end on or before the date of the Final Separation, that are not attributable to Ashland Group
Returns;
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Taxes for any tax period prior to the closing of the IPO (the Pre-IPO Period) that arise on audit or examination and are directly attributable to the Valvoline business;
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Certain U.S. federal, state or local taxes for the Pre-IPO Period of Ashland and/or its subsidiaries for that period that arise on audit or examination and are directly attributable to neither the Valvoline business nor
the Ashland businesses; and
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Transaction Taxes (as described below) that are allocated to Valvoline under the Tax Matters Agreement.
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The Tax Matters Agreement also provides that Valvoline will indemnify Ashland for any taxes (and reasonable expenses) resulting from the
failure of the Final Separation to qualify for non-recognition of gain and loss or certain reorganization transactions related to the Separation or the Final Separation to qualify for their intended tax treatment (Transaction Taxes),
where the taxes result from (1) breaches of covenants that Valvoline has agreed to in connection with these transactions (including covenants containing the restrictions described below that are designed to preserve the tax-free nature of the Final
Separation), (2) the application of certain provisions of U.S. federal income tax law to the Final Separation with respect to acquisitions of Valvolines common stock or (3) any other actions that Valvoline knows or reasonably should expect
would give rise to such taxes. The Tax Matters Agreement also requires Valvoline to indemnify Ashland for a portion of certain other Transaction Taxes allocated to Valvoline based on Valvolines market capitalization relative to the market
capitalization of Ashland.
Valvoline will generally have either sole control, or joint control with Ashland, over any audit or
examination related to taxes for which Valvoline is required to indemnify Ashland.
The Tax Matters Agreement imposes certain restrictions
on Valvoline and Valvolines subsidiaries (including restrictions on share issuances or repurchases, business combinations, sales of assets, and similar transactions) that will be designed to preserve the tax-free nature of the Final
Separation. These restrictions will apply for the two-year period after the Final Separation. However, Valvoline will be able to engage in an otherwise restricted action if Valvoline obtains an appropriate opinion from counsel or ruling from the
IRS.
The Tax Matters Agreement is attached as Exhibit 10.4 to this Current Report and incorporated herein by reference.
Employee Matters Agreement
On
September 22, 2016, Ashland and Valvoline entered into an employee matters agreement that addresses employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to Valvolines
employees and the compensation and benefit plans and programs in which Valvolines employees participate prior to the Final Separation, as well as other human resources, employment and employee benefit matters.
Employment-Related Liabilities
. Valvoline generally has assumed responsibility for all
employment-related liabilities of or relating to Valvolines current and former employees, former employees who were employed by a terminated, divested or discontinued Valvoline business, former U.S. employees of any other terminated, divested
or discontinued business and former U.S. employees of a shared resource group.
Benefit and Welfare Plans
. Following the closing of
the IPO and prior to the Final Separation, Valvoline will establish benefit plans for its employees that generally will recognize all service, compensation and other factors affecting benefit determinations to the same extent recognized under the
corresponding Ashland benefit plan. Until such time, claims incurred by Valvolines employees will continue to be covered under Ashlands benefit plans, and Valvoline will reimburse Ashland for such costs if they are not otherwise charged
to Valvoline in the ordinary course.
Pension and Retirement Plans
. Valvoline has assumed responsibility for certain Ashland
qualified and nonqualified pension and retirement plans as well as a portion of the trusts or other funding vehicles that have been established to fund such plans. Specifically, prior to the IPO, Valvoline assumed all liabilities and assets relating
to the Ashland Hercules pension plan, other than liabilities and assets relating to active employees who are covered by the Hopewell collective bargaining agreement, which has been retained by Ashland. In addition, Valvoline will assume
responsibility for certain Ashland excess benefit and supplemental pension plan liabilities, as well as the portions of the Ashland nonqualified deferred compensation plans that relate to Valvolines employees and our non-employee directors.
Prior to the Final Separation, Valvoline will establish one or more defined contributions plans that will accept a trust-to-trust transfer of its employees account balances from the Ashland 401(k) plan.
Labor Matters
. Valvoline will assume and comply with any collective bargaining arrangements that cover its employees.
Long-Term Incentive Equity Compensation.
No adjustments have been made to outstanding Ashland long-term incentive equity
compensation awards in connection with the IPO. Outstanding Ashland long-term incentive equity compensation awards held by Valvolines employees at the time of the Final Separation will be converted entirely into equivalent awards with respect
to Valvoline common stock at the time of the Final Separation, with adjustments designed to preserve the aggregate value of the award. In addition, outstanding 2015-2017 LTIP performance units held by Valvolines employees at the time of the
Final Separation will be converted into Valvoline time-based restricted stock units, based on performance achieved as of the Final Separation. Any outstanding 2016-2018 LTIP performance units and any performance units granted following the IPO that
are held by Valvolines employees at the time of the Final Separation will be converted into Valvoline time-based restricted stock units based on performance achieved through the end of the applicable performance period, in accordance with the
terms of the award. Outstanding 2014-2016 LTIP performance units will vest in November 2016 and will be settled in Ashland common stock in accordance with their terms. Long-term incentive awards granted outside of the U.S. will generally be treated
as described above, except to the extent otherwise required by local law.
The employee matters agreement is attached as Exhibit 10.5 to
this Current Report and incorporated herein by reference.
Registration Rights Agreement
On September 22, 2016, Ashland and Valvoline entered into a registration rights agreement with customary representations, warranties and
covenants, pursuant to which Valvoline has granted Ashland and its affiliates certain registration rights with respect to Valvolines common stock owned by Ashland. The registration rights agreement is attached as Exhibit 10.6 to this Current
Report and incorporated herein by reference.