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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
Commission file number 1-2918
ASHLAND INC.
(a Kentucky corporation)
I.R.S. No. 61-0122250
50 E. RiverCenter Boulevard
P. O. Box 391
Covington, Kentucky 41012-0391
Telephone Number: (606) 815-3333
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 1934 during 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 filing requirements for the past 90 days. [X] Yes [ ] No
At January 31, 1999, there were 74,364,034 shares of
Registrant's Common Stock outstanding. One Right to purchase
one-thousandth of a share of Series A Participating
Cumulative Preferred Stock accompanies each outstanding share
of Registrant's Common Stock.
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<PAGE>
PART I - FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
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Three months ended
December 31
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(In millions except per share data) 1998 1997
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<S> <C> <C>
REVENUES
Sales and operating revenues $ 1,646 $ 1,598
Equity income (loss) (40) 49
Other income 27 27
----------- -----------
1,633 1,674
COSTS AND EXPENSES
Cost of sales and operating expenses 1,299 1,308
Selling, general and administrative expenses 267 211
Depreciation, depletion and amortization 51 41
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1,617 1,560
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OPERATING INCOME 16 114
Interest expense (net of interest income) (33) (27)
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INCOME (LOSS) BEFORE INCOME TAXES (17) 87
Income taxes 6 (35)
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NET INCOME (LOSS) $ (11) $ 52
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EARNINGS (LOSS) PER SHARE - Note A
Basic $ (.14) $ .69
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Diluted $ (.14) $ .68
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DIVIDENDS PAID PER COMMON SHARE $ .275 $ .275
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
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<TABLE>
<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31 September 30 December 31
(In millions) 1998 1998 1997
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ASSETS
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<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 91 $ 34 $ 48
Accounts receivable 1,109 1,129 996
Allowance for doubtful accounts (21) (19) (19)
Inventories - Note A 471 440 449
Deferred income taxes 96 104 99
Other current assets 114 140 85
---------- ---------- -----------
1,860 1,828 1,658
INVESTMENTS AND OTHER ASSETS
Investment in Marathon Ashland Petroleum LLC (MAP) 1,958 2,102 1,943
Investment in Arch Coal 419 422 413
Cost in excess of net assets of companies acquired 212 207 121
Other noncurrent assets 338 362 374
---------- ---------- -----------
2,927 3,093 2,851
PROPERTY, PLANT AND EQUIPMENT
Cost 2,472 2,413 2,159
Accumulated depreciation, depletion and amortization (1,289) (1,252) (1,160)
---------- ---------- -----------
1,183 1,161 999
---------- ---------- -----------
$ 5,970 $ 6,082 $ 5,508
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Debt due within one year $ 224 $ 125 $ 177
Trade and other payables 1,051 1,199 971
Income taxes 36 37 58
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1,311 1,361 1,206
NONCURRENT LIABILITIES
Long-term debt (less current portion) 1,511 1,507 1,345
Employee benefit obligations 458 458 394
Reserves of captive insurance companies 175 165 174
Other long-term liabilities and deferred credits 452 454 333
Commitments and contingencies - Note D
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2,596 2,584 2,246
COMMON STOCKHOLDERS' EQUITY 2,063 2,137 2,056
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$ 5,970 $ 6,082 $ 5,508
========== ========== ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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<TABLE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS' EQUITY
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Accumulated
other
Common Paid-in Retained comprehensive
(In millions) stock capital earnings income Total
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<S> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1997 $ 75 $ 605 $ 1,379 $ (35) $ 2,024
Total comprehensive income (1) 52 (4) 48
Common stock cash dividends (21) (21)
Issued common stock under
Stock incentive plans 4 4
Acquisitions of other companies 1 1 2
Other changes (1) (1)
--------- --------- ---------- ------------ --------
BALANCE AT DECEMBER 31, 1997 $ 75 $ 609 $ 1,411 $ (39) $ 2,056
========= ========= ========== ============ ========
BALANCE AT OCTOBER 1, 1998 $ 76 $ 602 $ 1,501 $ (42) $ 2,137
Total comprehensive income (loss) (1) (11) (1) (12)
Common stock cash dividends (20) (20)
Issued common stock under
Stock incentive plans 5 5
Acquisitions of other companies 7 7
Repurchase of common stock (1) (53) (54)
--------- --------- ---------- ------------ --------
BALANCE AT DECEMBER 31, 1998 $ 75 $ 561 $ 1,470 $ (43) $ 2,063
========= ========= ========== ============ ========
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(1) Reconciliations of net income (loss) to total comprehensive income (loss) follow.
</TABLE>
<TABLE>
<CAPTION>
Three months ended
December 31
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(In millions) 1998 1997
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<S> <C> <C>
Net income (loss) $ (11) $ 52
Unrealized translation adjustments 1 (4)
Unrealized gains (losses) on securities (1) 2
Related tax benefit (expense) - (1)
Losses (gains) on securities included in net income (2) (2)
Related tax expense (benefit) 1 1
----------- ----------
Total comprehensive income (loss) $ (12) $ 48
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At December 31, 1998, accumulated other comprehensive income was a loss of $43 million comprised
of net unrealized translation losses of $27 million, a minimum pension liability of $18 million
and unrealized gains on securities of $2 million.
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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<TABLE>
<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
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Three months ended
December 31
--------------------------------
(In millions) 1998 1997
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<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Net income (loss) $ (11) $ 52
Expense (income) not affecting cash
Depreciation, depletion and amortization 51 41
Deferred income taxes (13) 10
Equity income from affiliates 40 (49)
Distributions from equity affiliates 106 64
Other items - (6)
Change in operating assets and liabilities (1) (100) (153)
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73 (41)
CASH FLOWS FROM FINANCING
Proceeds from issuance of capital stock 3 2
Repayment of long-term debt (21) (13)
Repurchase of capital stock (54) -
Increase in short-term debt 109 126
Dividends paid (20) (21)
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17 94
CASH FLOWS FROM INVESTMENT
Additions to property, plant and equipment (48) (52)
Purchase of leased assets associated with the formation of MAP - (228)
Purchase of operations - net of cash acquired (2) (8) (22)
Investment purchases (3) (42) (103)
Investment sales and maturities (3) 64 199
Other - net 1 29
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(33) (177)
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CASH PROVIDED (USED) BY CONTINUING OPERATIONS 57 (124)
Cash used by discontinued operations - (78)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 57 (202)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 34 250
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 91 $ 48
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(1) Excludes changes resulting from operations acquired or sold.
(2) Amounts exclude acquisitions through the issuance of common stock, which amounted to $7 million in both 1998 and 1997.
(3) Represents primarily investment transactions of captive insurance companies.
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE A - SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL REPORTING
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and
Securities and Exchange Commission regulations, but are subject to
any year-end audit adjustments which may be necessary. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These financial statements should be read in
conjunction with Ashland's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998. Results of operations for
the three months ended December 31, 1998, are not necessarily
indicative of results to be expected for the year ending September
30, 1999.
INVENTORIES
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December 31 September 30 December 31
(In millions) 1998 1998 1997
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<S> <C> <C> <C>
Chemicals $ 376 $ 352 $ 381
Petroleum products 53 48 51
Construction materials 41 39 27
Other products 48 49 44
Supplies 9 9 10
Excess of replacement costs over LIFO carrying values (56) (57) (64)
-------- ------- -------
$ 471 $ 440 $ 449
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</TABLE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (EPS).
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Three months ended
December 31
-----------------------
(In millions except per share data) 1998 1997
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<S> <C> <C>
NUMERATOR
Numerator for basic and diluted EPS - Net income (loss) $ (11) $ 52
========= =========
DENOMINATOR
Denominator for basic EPS - Weighted average
common shares outstanding 75 75
Common shares issuable upon exercise of stock options - 1
--------- ---------
Denominator for diluted EPS - Adjusted weighted
average shares and assumed conversions 75 76
========= =========
BASIC EARNINGS (LOSS) PER SHARE $ (.14) $ .69
========= =========
DILUTED EARNINGS (LOSS) PER SHARE $ (.14) $ .68
========= =========
</TABLE>
6
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE B - UNUSUAL ITEMS
During the quarter ended December 31, 1998, MAP recorded a pretax
charge of $244 million (Ashland's share amounted to $93 million,
or $57 million after tax) to adjust its inventory market valuation
reserve. The reserve reflects the excess of the LIFO cost of MAP's
crude oil and refined product inventories over their net
realizable values. During the quarter ended December 31, 1997,
Ashland recorded a pretax gain of $14 million ($6 million after
tax) on the sale of its 23% interest in Melamine Chemicals, Inc.
The following table shows the effects of unusual items on
Ashland's operating income, net income (loss) and diluted earnings
(loss) per share for the three months ended December 31, 1998, and
1997.
<TABLE>
<CAPTION>
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Operating income Net income (loss)
-------------------------- -------------------------
1998 1997 1998 1997
(In millions excepet per share data)
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<S> <C> <C> <C> <C>
Income before unusual items $ 109 $ 100 $ 46 $ 46
MAP inventory valuation adjustments (93) - (57) -
Ashland Chemical gain on sale of Melamine Chemicals - 14 - 6
----------- ----------- ----------- -----------
Income as reported $ 16 $ 114 $ (11) $ 52
=========== =========== =========== ===========
Diluted earnings per share before unusual items $ .62 $ .60
Impact of unusual items (.76) .08
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Diluted earnings (loss) per share as reported $ (.14) $ .68
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</TABLE>
NOTE C - UNCONSOLIDATED AFFILIATES
Ashland is required by Rule 3-09 of Regulation S-X to file
separate financial statements for its two significant
unconsolidated affiliates, Marathon Ashland Petroleum LLC (MAP)
and Arch Coal, Inc. Such financial statements for the year ended
December 31, 1998, will be filed by means of a Form 10-K/A on or
before March 31, 1999. Unaudited income statement information for
these companies is shown below.
Since MAP commenced operations on January 1, 1998, comparative
information for the quarter ended December 31, 1997, is not
presented. MAP's results for the quarter ended December 31, 1998,
included adjustments to MAP's inventory market valuation reserve.
See Note B for the impact of these adjustments on MAP's and
Ashland's results. MAP is organized as a limited liability company
(LLC) that has elected to be taxed as a partnership. Therefore,
the parents are responsible for income taxes applicable to their
share of MAP's taxable income. The net income reflected below for
MAP does not include any provision for income taxes which will be
incurred by MAP's parents.
<TABLE>
<CAPTION>
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Three months ended
December 31
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(In millions) 1998 1997
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<S> <C> <C>
MAP
Sales and operating revenues $ 4,712
Loss from operations (91)
Net loss (88)
Ashland's equity loss (40)
ARCH COAL
Sales and operating revenues $ 394 $ 329
Income from operations 14 30
Net income - 21
Ashland's equity income (loss) (1) 11
</TABLE>
7
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE D - LITIGATION, CLAIMS AND CONTINGENCIES
Ashland is subject to various federal, state and local
environmental laws and regulations that require remediation
efforts at multiple locations, including current operating
facilities, operating facilities conveyed to MAP, previously owned
or operated facilities, and Superfund or other waste sites. For
information regarding environmental capital expenditures and
reserves, see the "Miscellaneous - Environmental Matters" section
of Ashland's Form 10-K.
Environmental reserves are subject to considerable uncertainties
that affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
Ashland is a defendant in a series of cases involving more than
600 former workers at the Lockheed aircraft manufacturing facility
in Burbank, California. The plaintiffs allege personal injury
resulting from exposure to chemicals sold to Lockheed by Ashland,
and inadequate labeling of such chemicals. The cases are being
tried in the Superior Court of the State of California for the
County of Los Angeles. To date, five trials involving
approximately 130 plaintiffs have resulted in total verdicts
adverse to Ashland, after taking into consideration a reduction of
the punitive damages award in the fifth trial ordered by the trial
judge, of approximately $80 million (approximately $75 million of
which is punitive damages). The damage awards have been appealed.
Ashland continues to believe, upon advice of counsel, that there
is a substantial probability that the punitive damage awards will
be reversed or reduced substantially.
In addition to these matters, Ashland and its subsidiaries are
parties to numerous other claims and lawsuits, some of which are
also for substantial amounts. While these actions are being
contested, the outcome of individual matters is not predictable
with assurance.
Ashland does not believe that any liability resulting from any of
the above matters, after taking into consideration its insurance
coverage and amounts already provided for, will have a material
adverse effect on its consolidated financial position, cash flows
or liquidity. However, such matters could have a material effect
on results of operations in a particular quarter or fiscal year as
they develop or as new issues are identified.
NOTE E - ACQUISITIONS
During the three months ended December 31, 1998, APAC acquired two
relatively small construction businesses, one of which included
the issuance of $7 million in Ashland common stock. These
acquisitions were accounted for as purchases and did not have a
significant effect on Ashland's consolidated financial statements.
8
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<TABLE>
<CAPTION>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
INFORMATION BY INDUSTRY SEGMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended
December 31
-------------------------------
(In millions except as noted) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales and operating revenues
Ashland Chemical $ 990 $ 1,014
APAC 428 337
Valvoline 234 254
Intersegment sales
Ashland Chemical (5) (4)
Valvoline (1) (3)
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1,646 1,598
Equity income (loss)
Ashland Chemical 1 2
Refining and Marketing (40) 36
Arch Coal (1) 11
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(40) 49
Other income
Ashland Chemical 7 21
APAC 2 1
Valvoline 2 3
Refining and Marketing 9 -
Corporate 7 2
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27 27
------------- -----------
$ 1,633 $ 1,674
============= ===========
OPERATING INCOME
Ashland Chemical $ 41 $ 53
APAC 26 19
Valvoline 11 11
Refining and Marketing (1) 52 36
Inventory valuation adjustments (2) (93) -
Arch Coal (1) 11
Corporate (20) (16)
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$ 16 $ 114
============= ===========
OPERATING INFORMATION
APAC
Construction backlog at December 31 (millions) $ 770 $ 651
Hot mix asphalt production (million tons) 6.8 5.3
Aggregate production (million tons) 5.2 4.6
Valvoline lubricant sales (thousand barrels per day) 15.8 15.5
Refining and Marketing (3)
Refined products sold (thousand barrels per day) 1,238.8
Crude oil refined (thousand barrels per day) 862.1
Arch Coal (3)
Tons sold (millions) 26.5 12.8
Tons produced (millions) 24.8 10.8
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(1) Effective January 1, 1998, includes Ashland's equity income from MAP, amortization of Ashland's excess investment in MAP, and
certain retained refining and marketing activities.
(2) Represents Ashland's share of changes in MAP's inventory market valuation reserve. The reserve reflects the excess of the
LIFO cost of MAP's crude oil and refined product inventories over their net realizable values.
(3) Amounts represent 100% of the volumes of MAP, or Arch Coal. MAP commenced operations January 1, 1998.
</TABLE>
9
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
RESULTS OF OPERATIONS
Ashland recorded a net loss of $11 million for the quarter ended
December 31, 1998, compared to net income of $52 million for the
quarter ended December 31, 1997. Excluding unusual items described
in Note B to the Condensed Consolidated Financial Statements, net
income amounted to $46 million for both periods. Improvements in
operating income for Refining and Marketing, APAC and Ashland
Chemical were offset by a decline in operating results for Arch
Coal, increased corporate expenses and higher interest expense.
ASHLAND CHEMICAL
Ashland Chemical reported operating income of $41 million for the
quarter ended December 31, 1998. Results for last year's quarter
amounted to $39 million, excluding a $14 million pretax gain on
the sale of Ashland's 23% interest in Melamine Chemicals. The
improvement reflected record results from the Specialty Chemicals
Group, with record quarters for both the Composite Polymers and
Specialty Polymers & Adhesives divisions. The increase was
partially offset by a decline in Electronic Chemicals, reflecting
the lingering effects of the Asian crisis on the microelectronics
industry. However, Electronic Chemicals rebounded nicely from the
September 1998 quarter, reflecting the emerging recovery in that
industry. The Petrochemicals Group also showed improvement
compared to the December 1997 quarter, as the effects of a strong
maleic anhydride market more than offset the effects of a weak
methanol market.
APAC
For the first quarter of fiscal 1999, APAC's construction
operations reported record December quarter operating income of
$26 million, a 35% improvement over the $19 million reported for
the December quarter last year. Operating income increased from
all geographic regions as asphalt production reached record first
quarter levels. Net revenue (total revenue less subcontract work)
increased 27%, while production of hot mix asphalt was up 27% and
crushed aggregate was up 12% from the December 1997 quarter. In
addition, asphalt plant profits benefited from a 12% decrease in
liquid asphalt costs. The construction backlog at December 31,
1998, amounted to $770 million, the best December level in APAC
history, and represented an 18% improvement over the level of
December 1997. In keeping with Ashland's strategy to grow higher
return businesses, APAC completed two acquisitions in the December
1998 quarter and has since closed another. These acquisitions
strengthen APAC's market-leading position within its core
operating area in the southeastern and midwestern United States.
VALVOLINE
Valvoline reported operating income of $11 million for the quarter
ended December 31, 1998, essentially even with the December 1997
quarter. Results from the core lubricants business remained strong
and Valvoline Instant Oil Change had a record December quarter,
achieving higher daily car counts and lower operating expenses.
Valvoline International declined primarily due to lower results
from its European and Latin American operations. Looking forward,
Eagle One, the automotive appearance-product marketer Valvoline
acquired last February, succeeded in placing its products with all
of Valvoline's major retail accounts and is now well-positioned
for growth in the coming spring and summer selling season.
Additionally, Valvoline's new premium Synpower automotive
chemicals continue to gain momentum in the marketplace.
10
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
REFINING AND MARKETING
Operating income from Refining and Marketing (excluding $93
million in unfavorable inventory market valuation adjustments)
amounted to $52 million for the quarter ended December 31, 1998,
compared to $36 million for the quarter ended December 31, 1997.
Results for the current year include Ashland's 38% share of MAP's
earnings, amortization of Ashland's excess investment in MAP, and
results of certain retained refining and marketing activities.
Results for the prior year's quarter represent the operating
income of the former Ashland Petroleum and SuperAmerica divisions.
MAP was formed January 1, 1998, when Ashland combined its refining
and marketing operations with those of the USX-Marathon Group. The
increase in operating income includes substantial efficiency
improvements resulting from the combined operations of MAP. In the
year since it was formed, MAP has captured approximately $150
million in annual, repeatable, pretax savings and established
itself as an industry leader in earnings per barrel of crude oil
throughput. An additional $100 million in efficiencies are
targeted for calendar 1999. During 1998, MAP was able to overcome
significant decreases in refining crack spreads through the
realization of operating efficiencies, a strong performance by its
asphalt and retail operations, and lower energy costs.
ARCH COAL
Ashland recorded an operating loss of $1 million from its
investment in Arch Coal for the quarter ended December 31, 1998,
compared to operating income of $11 million for the quarter ended
December 31, 1997. The decline was due to delays in obtaining a
new surface-mining permit at West Virginia's Dal-Tex mine,
inadequate rail service and higher-than-expected operating costs
at Colorado's West Elk mine, and bitterly cold weather that
hindered both equipment and rail performance of Western
operations. During the quarter, Arch continued its program of
divesting non-strategic assets and recorded an after-tax gain of
$4.6 million from the sale of an idle coal dock in West Virginia.
That gain was partially offset by an after-tax charge of $2.4
million associated with Arch's routine, periodic review of
reclamation accruals.
As it previously announced, Arch expects continued earnings
weakness during calendar 1999. The delayed start of development
work on the new permit area at Dal-Tex will lead to a tough 1999
even if there is a favorable outcome on the pending injunction
hearing relating to the issued permits. Rail service at West Elk
may limit coal shipments again in 1999. Two small operations - the
Conant Mine in southern Illinois and Arch of Wyoming in the Hanna
Basin - face deteriorating markets for their products. Finally,
lower-than-expected price escalations in sales contracts and the
re-opening and renegotiation of several large contracts with a
large customer will hurt profitability.
CORPORATE
Corporate expenses amounted to $20 million in the quarter ended
December 31, 1998, compared to $16 million for the quarter ended
December 31, 1997. The increase reflects transition costs
associated with the restructuring of corporate general and
administrative functions and the relocation of corporate
headquarters to Covington, Ky., in the Cincinnati metropolitan
area.
INTEREST EXPENSE (NET OF INTEREST INCOME)
For the three months ended December 31, 1998, interest expense
(net of interest income) totaled $33 million, compared to $27
million for the December 1997 quarter. The increase reflects
increased debt levels resulting primarily from $254 million in
purchases of leased assets in December 1997 and January 1998
associated with the formation of MAP and from acquisitions during
1998.
11
<PAGE>
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ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
FINANCIAL POSITION
LIQUIDITY
Ashland's financial position has enabled it to obtain capital for
its financing needs and to maintain investment grade ratings on
its senior debt of Baa2 from Moody's and BBB from Standard &
Poor's. Ashland has a revolving credit agreement which expires on
February 9, 2000, providing for up to $320 million in borrowings,
none of which was in use at December 31, 1998. Under a shelf
registration, Ashland can also issue an additional $220 million in
medium-term notes should future opportunities or needs arise.
Furthermore, Ashland has access to various uncommitted lines of
credit and commercial paper markets, under which $193 million of
short-term borrowings were outstanding at December 31, 1998.
Cash flows from continuing operations, a major source of Ashland's
liquidity, amounted to $73 million for the quarter ended December
31, 1998, compared to a deficit of $41 million for the quarter
ended December 31, 1997. The increase reflects a higher level of
cash distributions from MAP, compared to cash generated from
Ashland's former Refining and Marketing operations in the prior
year's quarter, and less of an increase in working capital
requirements. Cash flows from continuing operations exceeded
Ashland's capital requirements for net property additions and
dividends by $6 million for the December 1998 quarter.
Operating working capital (accounts receivable and inventories,
less trade and other payables) at December 31, 1998, was $508
million, compared to $351 million at September 30, 1998, and $455
million at December 31, 1997. Liquid assets (cash, cash
equivalents and accounts receivable) amounted to 90% of current
liabilities at December 31, 1998, compared to 84% at September 30,
1998, and 85% at December 31, 1997. Ashland's working capital is
affected by its use of the LIFO method of inventory valuation,
which valued inventories $56 million below their replacement costs
at December 31, 1998.
CAPITAL RESOURCES
For the three months ended December 31, 1998, property additions
amounted to $48 million, compared to $52 million for the same
period last year. Property additions and cash dividends for the
remainder of fiscal 1999 are estimated at $150 million and $60
million. On August 7, 1998, Ashland's Board of Directors
authorized the company to repurchase up to 4 million shares of its
common stock in the open market. Through December 31, 1998, 2
million shares had been repurchased at a cost of $97 million. On
January 28, 1999, Ashland's Board increased the authorization,
from 1.6 million remaining shares under the previous
authorization, back up to 4 million additional shares. The timing
and exact number of shares to be repurchased will be dependent on
market conditions. Ashland anticipates meeting its remaining 1999
capital requirements for property additions, debt repayments and
dividends primarily from internally generated funds. However,
external financing may be necessary to fund the remainder of these
requirements, as well as common stock repurchases and
acquisitions.
At December 31, 1998, Ashland's debt level amounted to $1.7
billion, compared to $1.6 billion at September 30, 1998. Debt as a
percent of capital employed amounted to 46% at December 31, 1998,
compared to 43% at September 30, 1998. During the quarter ended
December 31, 1998, Ashland liquidated $200 million of its interest
rate swap agreements, which had converted fixed-rate debt to
floating rates at September 30, 1998. As a result, Ashland's
exposure to short-term interest rate fluctuations for the
remainder of 1999 will be limited to $39 million in floating-rate
debt outstanding at December 31, 1998, the remaining $25 million
floating-rate swap agreement, and any short-term notes and
commercial paper outstanding.
12
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- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
Federal, state and local laws and regulations relating to the
protection of the environment have resulted in higher operating
costs and capital investments by the industries in which Ashland
operates. Because of the continuing trends toward greater
environmental awareness and ever increasing regulations, Ashland
believes that expenditures for environmental compliance will
continue to have a significant effect on its businesses. Although
it cannot accurately predict how such trends will affect future
operations and earnings, Ashland believes the nature and
significance of its ongoing compliance costs will be comparable to
those of its competitors. For information on certain specific
environmental proceedings and investigations, see the "Legal
Proceedings" section of this Form 10-Q. For information regarding
environmental capital expenditures and reserves, see the
"Miscellaneous - Environmental Matters" section of Ashland's Form
10-K.
Environmental reserves are subject to considerable uncertainties
that affect Ashland's ability to estimate its share of the
ultimate costs of required remediation efforts. Such uncertainties
involve the nature and extent of contamination at each site, the
extent of required cleanup efforts under existing environmental
regulations, widely varying costs of alternate cleanup methods,
changes in environmental regulations, the potential effect of
continuing improvements in remediation technology, and the number
and financial strength of other potentially responsible parties at
multiparty sites.
Ashland does not believe that any liability resulting from
environmental matters, after taking into consideration its
insurance coverage and amounts already provided for, will have a
material adverse effect on its consolidated financial position,
cash flows or liquidity. However, such matters could have a
material effect on results of operations in a particular quarter
or fiscal year as they develop or as new issues are identified.
YEAR 2000 READINESS
Ashland, like most other companies, is faced with the Year 2000
issue and began developing plans in 1994 to address the possible
exposures. Project teams are responsible for coordinating the
assessment, remediation and testing of the necessary modifications
to Ashland's computer applications, including both internal
information systems and embedded systems, as well as assessing the
Year 2000 readiness of its major vendors and developing
contingency plans. The team's progress is regularly monitored by
Ashland's senior management and periodically reported to the Audit
Committee of Ashland's Board of Directors.
Ashland has completed the assessment phase related to its internal
information systems, and is resolving identified issues through
system modifications or replacement. Although testing will
continue, Ashland believes that about 90% of its significant
systems are currently Year 2000 compliant, and that the remainder
will be compliant by April 1999.
Ashland is also assessing the embedded systems that operate such
items as its manufacturing systems, laboratory processes and
security systems. Ashland expects to complete this assessment by
April 1999, and remediate or replace non-compliant embedded
systems as necessary by June 1999. The quality of the responses
received from the manufacturers of such equipment, the estimated
effect of the individual system on Ashland, and the ability of
Ashland to perform meaningful tests will determine whether
independent testing of embedded systems will be conducted.
13
<PAGE>
- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
YEAR 2000 READINESS (continued)
Formal communications have been initiated with major vendors to
assess the potential exposure to Ashland from their failure to
remediate their own Year 2000 issues. A failure by any of these
vendors could become a significant challenge to Ashland's ability
to operate its facilities at affected locations. Vendors contacted
include Ashland's suppliers, financial institutions and companies
providing utilities (electric, telephone and water). Alternate
providers of products and services will be established, if deemed
necessary. Although Ashland has no means of ensuring the Year 2000
readiness of such vendors, it will continue to gather information
and monitor their compliance. Based on the representations
provided by these vendors to date, Ashland has no reason to
believe that these vendors are not addressing their Year 2000
issues adequately.
Ashland is also developing contingency plans related to the Year
2000 issue, addressing various scenarios and alternatives. Among
other things, such plans will likely include replacing electronic
applications with manual processes, identifying alternate vendors,
adjusting staffing requirements, and increasing raw material
inventory levels, as deemed necessary. Pilot programs have been
established within Ashland. Contingency plans are expected to be
completed by June 1999, and will be regularly updated as current
issues develop or new issues are identified.
Although a full assessment has not yet been completed, Ashland
estimates that its fiscal 1999 costs related to Year 2000 issues
will not exceed $15 million, and will be minimal thereafter. Such
amount is based on various assumptions, including the expected
availability and costs of internal and external resources and the
complexity of the necessary changes. Such estimate does not
include any costs of new systems for which the principal
justification is improved business functionality, rather than Year
2000 compliance. Since Ashland's Year 2000 compliance program was
initiated several years ago and has been integrated with other
system enhancements, Ashland's total costs of remediating Year
2000 issues are not readily discernible.
Ashland believes it has an effective program to resolve
significant Year 2000 issues in a timely manner. However, certain
phases of that program have not yet been completed and some
exposures are outside Ashland's direct control. If Ashland is
unsuccessful in identifying or remediating Year 2000 issues in its
significant systems, is affected by major vendors or customers not
being Year 2000 compliant, or is affected by general economic
disruptions resulting from Year 2000 issues, its consolidated
financial position or results of operations could be materially
adversely affected.
MAP and Arch Coal also have prepared their own programs to deal
with Year 2000 issues. Arch Coal's program is outlined in the
Management's Discussion and Analysis section of its Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998.
MAP's program is covered in the Management's Discussion and
Analysis section for the Marathon Group in USX Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998. Both of these documents are on file with the Securities and
Exchange Commission.
14
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- -----------------------------------------------------------------------------
ASHLAND INC. AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -----------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, with respect to
Ashland's operating performance. Estimates as to operating
performance are based upon a number of assumptions, including
(among others) prices, supply and demand, market conditions and
operating efficiences. Although Ashland believes that its
expectations are based on reasonable assumptions, it cannot assure
that the expectations reflected herein will be achieved. This
forward-looking information may prove to be inaccurate, and actual
results may differ significantly from those anticipated. Other
factors and risks affecting Ashland are contained in Ashland's
Form 10-K for the fiscal year ended September 30, 1998.
15
<PAGE>
PART II - OTHER INFORMATION
- ------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS - As of December 31, 1998, Ashland had
been identified as a "potentially responsible party" ("PRP") under
Superfund or similar state laws for potential joint and several
liability for clean-up costs in connection with alleged releases
of hazardous substances in connection with 90 waste treatment or
disposal sites. These sites are currently subject to ongoing
investigation and remedial activities, overseen by the United
States Environmental Protection Agency ("EPA") or a state agency,
in which Ashland is typically participating as a member of a PRP
group. Generally, the type of relief sought includes remediation
of contaminated soil and/or groundwater, reimbursement for past
costs of site clean-up and administrative oversight, and/or
long-term monitoring of environmental conditions at the sites.
Ashland carefully monitors the investigatory and remedial activity
at many of these sites. Based on its experience with site
remediation, its familiarity with current environmental laws and
regulations, its analysis of the specific hazardous substances at
issue, the existence of other financially viable PRPs and its
current estimates of investigatory, clean-up and monitoring costs
at each site, Ashland believes that its liability at these sites,
either individually or in the aggregate, after taking into account
its insurance coverage and established reserves, will not have a
material adverse effect on Ashland's consolidated financial
position, cash flow or liquidity. However, such matters could have
a material effect on results of operations in a particular quarter
or fiscal year as they develop or as new issues are identified.
Estimated costs for these matters are recognized in accordance
with generally accepted accounting principles governing the
likelihood that costs will be incurred and Ashland's ability to
reasonably estimate future costs.
LOCKHEED LITIGATION - Ashland is a defendant in a series of cases
involving more than 600 former workers at the Lockheed aircraft
manufacturing facility in Burbank, California. The plaintiffs
allege personal injuries resulting from exposure to chemicals sold
to Lockheed by Ashland, and inadequate labeling of such chemicals.
The cases are being tried in the Superior Court of the State of
California for the County of Los Angeles. To date, five trials
involving approximately 130 plaintiffs have resulted in total
verdicts adverse to Ashland, after taking into consideration a
reduction of the punitive damages award in the fifth trial ordered
by the trial judge, of approximately $80 million (approximately
$75 million of which is punitive damages). The damage awards have
been appealed. Ashland continues to believe, upon advice of
counsel, that there is a substantial probability that the punitive
damage awards will be reversed or substantially further reduced,
and that, after taking into account probable recoveries under
insurance policies, these cases will not have a material adverse
effect on Ashland's consolidated financial position, cash flow or
liquidity.
In addition, Ashland filed an action in Kentucky against
approximately 44 insurance carriers to confirm coverage for
liabilities under the Lockheed cases. One of the insurance
carriers in turn filed an action in California seeking to deny
insurance coverage for liabilities in these cases.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Ashland's Annual Meeting of Shareholders was held on January
28, 1999, at the Metropolitan Club, 50 E. RiverCenter
Boulevard, Covington, Kentucky at 10:30 a.m.
(b) At its Annual Meeting, Ashland's shareholders elected four
directors (Frank C. Carlucci, James B. Farley, Dr. Bernadine
P. Healy and W. L. Rouse, Jr.) to serve a three-year term and
one director (Dr. Ernest H. Drew) to serve a two-year term.
16
<PAGE>
Votes
-----
Affirmative Withheld
----------- ---------
- - Frank C. Carlucci 65,050,666 1,041,083
- - Dr. Ernest H. Drew 65,158,866 932,883
- - James B. Farley 65,158,552 933,197
- - Dr. Bernadine P. Healy 65,119,591 972,158
- - W. L. Rouse, Jr. 65,146,413 945,336
Directors who continued in office: Samuel C. Butler, Paul W.
Chellgren, Ralph E. Gomory, Mannie L. Jackson, Patrick F.
Noonan, Jane C. Pfeiffer and Michael D. Rose.
(c) At its Annual Meeting, Ashland's shareholders ratified the
appointment of Ernst & Young LLP as independent auditors for
fiscal year 1999 by a vote of 65,141,972 affirmative, to
636,796 negative and 312,981 abstention votes.
(d) The results of voting on a shareholder proposal to spin-off
Ashland Chemical, APAC and Valvoline as three separate
companies were 55,896,017 negative, to 5,510,041 affirmative,
751,875 abstention votes and 3,933,816 broker non-votes.
(e) The results of voting on a shareholder proposal to distribute
Arch Coal, Inc. stock to Ashland shareholders were 55,813,273
negative, to 5,469,551 affirmative, 875,109 abstention votes
and 3,933,816 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2 Bylaws of Ashland, as amended to January 28, 1999
10.1 Form of Ashland Inc. Executive Employment Agreement between
Ashland and certain executives of Ashland
10.2 Ashland Inc. 1995 Performance Unit Plan, as amended to
January 27, 1999
27 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Ashland Inc.
----------------------------------
(Registrant)
Date February 11, 1999 /s/ Kenneth L. Aulen
------------------ -----------------------------------
Kenneth L. Aulen
Administrative Vice President and
Controller
(Chief Accounting Officer)
Date February 11, 1999 /s/ David L. Hausrath
------------------- ------------------------------------
David L. Hausrath
Vice President and General Counsel
18
<PAGE>
BY-LAWS
OF
ASHLAND INC.
ARTICLE I
OFFICES
The principal office of the Corporation in the Commonwealth of
Kentucky shall be at 50 E. RiverCenter Boulevard, City of Covington, County
of Kenton. The Corporation may also have offices at other places either
within or without the Commonwealth of Kentucky as may be useful in the
business of the Corporation.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held at the principal office
of the Corporation on the last Thursday of January, annually, at the hour
of 10:30 a.m., or at such other place (within or without the Commonwealth
of Kentucky), date and hour as shall be designated in the notice thereof.
SECTION 2. Annual Meeting Business. To be properly brought before an
annual meeting, business must be (i) specified in the notice of the meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors of the Corporation (the "Board"); (ii) otherwise properly brought
before the meeting by or at the direction of the Board; or (iii) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder
must have given written notice thereof, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation,
not later than ninety days in advance of such meeting (provided that if the
annual meeting of shareholders is held earlier than the last Thursday in
January, such notice must be given within ten days after the first public
disclosure, which may include any public filing with the Securities and
Exchange Commission, of the date of the annual meeting). Any such notice
shall set forth as to each matter the shareholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at
the meeting and in the event that such business includes a proposal to
amend either the articles of incorporation or By-laws of the Corporation,
the language of the proposed amendment; (ii) the name and address of the
shareholder proposing such business; (iii) a representation that the
shareholder is a holder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the
meeting to propose such business; (iv) any material interest of the
shareholder in such business; and (v) a representation as to whether or not
the shareholder will solicit proxies in support of the proposal. No
business shall be conducted at an annual meeting of shareholders except in
accordance with this paragraph and the chairman of any annual meeting of
shareholders may refuse to permit any business to be brought before an
annual meeting which fails to comply with the foregoing procedures or, in
the case of a shareholder proposal, if the shareholder fails to comply with
the representations set forth in the notice.
SECTION 3. Special Meetings. A special meeting of the shareholders may
be called by a majority of the members of the Board, the Chairman of the
Board or the President, at such place (within or without the Commonwealth
of Kentucky), date and hour as shall be designated in the notice thereof.
A special meeting of the shareholders shall be called by the Secretary
on the written request of the holders of not less than one-third of all the
shares entitled to vote at such meeting. Such request shall set forth: (i)
the action proposed to be taken at such meeting and the reasons for the
action; (ii) the name and address of each of such holders who intends to
propose action be taken at such meeting; (iii) a representation that each
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at such meeting to
propose the action specified in the request; (iv) any material interest of
any shareholder in such action; and (v) in the event that any proposed
action consists of or includes a proposal to amend either the articles of
incorporation or the By-laws of the Corporation, the language of the
proposed amendment. The Secretary shall determine the place (within or
without the Commonwealth of Kentucky), date and hour of such meeting. The
Secretary may refuse to call a special meeting unless the request is made
in compliance with the foregoing procedure.
SECTION 4. Notice of Meetings. Notice stating the place, date and hour
of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given to each
shareholder entitled to vote at such meeting not less than ten nor more
then sixty days before the date of the meeting by any form of notice
permitted by Kentucky law. Except as otherwise expressly required by law,
notice of any adjourned meeting of the shareholders need not be given if
the date, hour and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than 120 days or,
unless after the adjournment a new record date is fixed for the adjourned
meeting.
SECTION 5. Record of Shareholders. It shall be the duty of the officer
or agent of the Corporation who shall have charge of its stock transfer
books to prepare and make a complete record of the shareholders entitled to
vote at any meeting of shareholders or adjournment thereof, arranged by
voting group (and within each voting group by class or series), and showing
the address of each shareholder and the number of shares registered in the
name of each shareholder. Such record shall be produced at the time and
place of the meeting and shall be open to the inspection of any shareholder
entitled to vote at such meeting or any adjournment thereof during the
whole time of such meeting or adjournment for the purposes thereof.
SECTION 6. Fixing Date for Determination of Shareholders of Record. In
order that the Corporation may determine the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment
thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be less than ten days before the date of such
meeting, nor more than seventy days prior to any other action. A
determination of shareholders entitled to notice of or to vote at a meeting
of the shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the
adjourned meeting if the meeting is adjourned to a date 120 days or less
after the date fixed for the original meeting. The Board shall fix a new
record date if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
SECTION 7. Quorum. At each meeting of the shareholders or adjournment
thereof, except as otherwise expressly required by law, these By-laws or
the articles of incorporation, shareholders holding a majority of the
shares of the Corporation issued and outstanding and entitled to be voted
thereat shall be present in person or by proxy to constitute a quorum for
the transaction of business. The shareholders present at a duly organized
meeting can continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
SECTION 8. Organization. At each meeting of the shareholders, one of
the following shall act as chairman of the meeting and preside thereat, in
the following order of precedence:
(a) the Chairman of the Board;
(b) the President; or
(c) any other officer of the Corporation designated by the Board or
the executive committee of the Board to act as chairman of such meeting and
to preside thereat if the Chairman of the Board and the President shall be
absent from such meeting.
The Secretary or, if the Secretary shall be absent from such meeting,
the person (who shall be an Assistant Secretary of the Corporation, if one
of such officers shall be present thereat) whom the chairman of such
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 9. Order of Business. The chairman of any meeting of
shareholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting.
Unless and to the extent determined by the Board or the chairman of the
meeting, meetings of shareholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
SECTION 10. Voting. Except as otherwise expressly required by law,
these By-laws, or the articles of incorporation, each shareholder entitled
to vote shall, at each meeting of the shareholders, have one vote (except
that at each election for directors each such shareholder shall have the
right to cast as many votes in the aggregate as the shareholder shall be
entitled to vote under the articles of incorporation multiplied by the
number of directors to be elected at such election; and each shareholder
may cast the whole number of votes for one candidate, or distribute such
votes among two or more candidates), in person or by proxy, for each share
of the Corporation held by the shareholder and registered in the
shareholder's name on the books of the Corporation:
(a) on the date fixed pursuant to the provisions of these By-laws as
the record date for the determination of shareholders who shall be entitled
to receive notice of and to vote at such meeting, or
(b) if no record date shall have been so fixed, then at the close of
business on the day on which notice of such meeting shall be given.
Any vote of shares of the Corporation may be given at any meeting of
the shareholders by the shareholders entitled thereto in person or by proxy
appointed by the shareholder. The attendance at any meeting of a
shareholder shall not have the effect of revoking a previously given proxy
unless the shareholder shall give the Secretary written notice of the
revocation.
At all meetings of the shareholders each matter, except as otherwise
expressly required by law, these By-laws or the articles of incorporation,
shall be approved if the votes cast in favor of such matter exceed the
votes cast opposing such matter.
Except as otherwise expressly required by law, the vote at any meeting
of the shareholders on any question need not be by ballot, unless so
directed by the chairman of the meeting. On a vote by ballot, each ballot
shall be signed by the shareholder voting, or by the shareholder's proxy,
if there be such proxy, and shall state the number of shares voted. Except
as otherwise expressly required by law, the vote at any meeting of the
shareholders on any question need not be by ballot, unless so directed by
the chairman of the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1 . General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board.
SECTION 2. Number and Term of Office. Except as otherwise provided by
law, the number of directors which shall constitute the Board shall be
fixed from time to time by a resolution adopted by a majority of the Board;
provided, however, that a vote of the shareholders is required to increase
or decrease by more than 30% the number of directors from that number last
fixed by the shareholders. So long as the Board shall consist of nine or
more members, the directors shall be classified with respect to the time
for which they shall severally hold office, by dividing them into three
classes, as nearly equal in number as possible.
At each annual meeting, successors to the class of directors whose
term then expires shall be elected to serve for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election and until their successors shall have been elected and
qualified, provided, that the successor to a director whose term expires at
such annual meeting because the director was elected to fill a vacancy on
the Board may, if so specified by the Board, be elected to serve for a term
expiring at the annual meeting of shareholders held in the first or second
year following the year of the director's election and until the director's
successor shall have been elected and qualified. The Board shall increase
or decrease the number of directors in one or more classes as may be
appropriate whenever it increases or decreases the number of directors in
order to ensure that the three classes remain as nearly equal in number as
possible. No decrease in the number of directors constituting the Board
shall shorten the term of any incumbent director.
SECTION 3. Nomination. Nominations for the election of directors may
be made by the Board or by any shareholder entitled to vote for the
election of directors. Any shareholder entitled to vote for the election of
directors at a meeting may nominate a person or persons for election as
directors only if written notice of such shareholder's intent to make such
nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary, not later than (i) with respect to an
election to be held at an annual meeting of shareholders, ninety days in
advance of such meeting (provided that if the annual meeting of
shareholders is held earlier than the last Thursday in January, such notice
must be given within ten days after the first public disclosure, which may
include any public filing with the Securities and Exchange Commission, of
the date of the annual meeting) and (ii) with respect to an election to be
held at a special meeting of shareholders for the election of directors,
the close of business on the seventh day following the date on which notice
of such meeting is first given to shareholders. Each such notice shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a shareholder of record of the
Corporation entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the shareholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would
have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee
been nominated, or intended to be nominated by the Board; (e) the consent
of each nominee to serve as a director of the Corporation if so elected;
and (f) a representation as to whether or not the shareholder will solicit
proxies in support of the shareholder's nominee(s). The chairman of any
meeting of shareholders to elect directors and the Board may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure or if the shareholder fails to comply with the
representations set forth in the notice.
SECTION 4. Election. Except as otherwise expressly provided in the
articles of incorporation, at each meeting of the shareholders for the
election of directors at which a quorum is present, the persons receiving
the greatest number of votes, up to the number of directors to be elected,
shall be the directors.
SECTION 5. Resignation, Removal and Vacancies. Any director may resign
at any time by giving written notice of such resignation to the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein, or, if the time when it shall become
effective shall not be specified therein, then it shall take effect when
accepted by action of the Board. Except as aforesaid, the acceptance of
such resignation shall not be necessary to make it effective.
Any or all directors may be removed at a meeting of the shareholders
called expressly for that purpose (i) in the case of a removal of a
director for cause, by a vote of the holders of a majority of the voting
power of the then outstanding voting stock of the Corporation, voting
together as a single voting group, or (ii) in the case of a removal of a
director without cause, by a vote of the holders of at least 80% of the
voting power of the then outstanding voting stock of the Corporation,
voting together as a single voting group. If less than all the directors
are to be removed, no one of the directors may be removed if the votes cast
against the director's removal would be sufficient to elect the director if
then cumulatively voted at an election of the entire Board or, if there be
classes of directors, at an election of the class of directors of which
that director is a part. For purposes of this Section, "cause" shall mean
the willful and continuous failure of a director to substantially perform
such director's duties to the Corporation (other than any failure resulting
from incapacity due to physical or mental illness) or the willful engaging
by a director in gross misconduct materially and demonstrably injurious to
the Corporation. As used in these By-laws, "voting stock" shall mean shares
of capital stock of the Corporation entitled to vote generally in the
election of directors.
Any vacancy occurring on the Board may be filled by a majority of the
directors then in office, though less than a quorum, and the director
elected to fill such vacancy shall hold office until the next annual
meeting of shareholders at which directors are elected and until the
director's successor is elected and qualified.
SECTION 6. Meetings.
(A) Annual Meetings. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business.
(B) Regular Meetings. Regular meetings of the Board shall be held at
such dates, times and places as the Board shall from time to time
determine.
(C) Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the President or upon the
written request of a majority of the members of the whole Board filed with
the Secretary. Any and all business may be transacted at a special meeting
which may be transacted at a regular meeting of the Board.
(D) Place of Meeting. The Board may hold its meetings at such place or
places within or without the Commonwealth of Kentucky as the Board may from
time to time by resolution determine or as shall be designated in the
respective notices or waiver of notices thereof.
(E) Notice of Meetings. Notices of regular meetings of the Board or of
any adjourned meeting need not be given.
Notices of special meetings of the Board, or of any meeting of any
committee of the Board which has not been fixed in advance as to hour and
place by such committee, shall be sent by the Secretary to each director,
or member of such committee, by any form of notice permitted by Kentucky
law at the director's residence or usual place of business at least two
days before the day on which such meeting is to be held. Such notice shall
include the date, hour and place of such meeting, but any such notice need
not specify the business to be transacted at, or the purpose of, any such
meeting. Notice of any such meeting need not be given to any director or
member of any committee, however, if waived by the director in writing,
whether before or after such meeting shall be held, or if the director
shall be present at such meeting, unless the director at the beginning of
the meeting (or promptly upon such director's arrival) objects to holding
the meeting or transacting business at the meeting and does not thereafter
vote for or assent to action taken at the meeting.
(F) Quorum and Manner of Acting. A majority of the number of directors
fixed by or in the manner provided in these By-laws or in the articles of
incorporation shall be present at any meeting of the Board in order to
constitute a quorum for the transaction of business at such meeting, and
the vote of a majority of those directors shall be necessary for the
passage of any resolution or act of the Board, except as otherwise
expressly required by law, these By-laws or the articles of incorporation.
The directors present at a duly organized meeting can continue to do
business until adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
(G) Action by Consent. Any action required or permitted to be taken at
any meeting of the Board, or of any committee thereof, may be taken without
a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and such writings are filed with the minutes of
the proceedings of the Board or committee.
(H) Presence at a Meeting. Any or all directors may participate in any
meeting of the Board or any committee thereof, or conduct the meeting
through the use of, any means of communication by which all persons
participating may simultaneously hear and speak to each other during the
meeting. Any director participating in a meeting by such means shall be
deemed to be present in person at the meeting for all purposes.
SECTION 7. Compensation. The Board may, from time to time, fix such
amount per annum and such fees to be paid by the Corporation to Directors
for attendance at meetings of the Board or of any committee, or both. The
Board may likewise provide that the Corporation shall reimburse each
director or member of a committee for any expenses incurred by the director
on account of the director's attendance at any such meeting. Nothing
contained in this Section shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 8. Committees. The Board may, by resolution adopted by a
majority of the Board, designate committees, each committee to consist of
two or more directors and to have such duties and functions as shall be
provided in such resolution. The Board shall have the power to change the
members of any such committee at any time, to fill vacancies and to
discharge any such committee, either with or without cause, at any time.
The Board may establish an executive committee in accordance with and
subject to the restrictions set out in the statutes of the Commonwealth of
Kentucky.
ARTICLE IV
OFFICERS
SECTION 1 . Officers. The officers of the Corporation shall be
determined by the Board. The officers of the Corporation may include:
(a) a Chairman of the Board;
(b) a President;
(c) one or more Executive Vice Presidents;
(d) one or more Senior Vice Presidents;
(e) one or more Administrative Vice Presidents;
(f) one or more Vice Presidents;
(g) a Secretary and one or more Assistant Secretaries;
(h) a Treasurer and one or more Assistant Treasurers;
(i) a Controller and one or more Assistant Controllers; and
(j) an Auditor and one or more Assistant Auditors.
In addition, the Board may elect such other officers as it deems
necessary or appropriate and such other officers shall have such powers,
authority, and duties as may be delegated or assigned to such officer, from
time to time, by the Board, the Chairman of the Board, or the President.
The Board shall designate which of the officers shall be executive
officers of the Corporation.
SECTION 2. Election and Appointment and Term of Office. Each officer
shall be elected by the Board at its annual meeting and hold office until
the next annual meeting of the Board and until the officer's successor is
elected or until the officer's earlier death, resignation or removal in the
manner hereinafter provided. If additional officers are elected by the
Board during the year, each of them shall hold office until the next annual
meeting of the Board at which officers are regularly elected and until the
officer's successor is elected or appointed or until the officer's earlier
death, resignation or removal in the manner hereinafter provided.
In addition to the foregoing, the Chairman of the Board, by written
designation filed with the Secretary, may appoint one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and Assistant Auditors of the Corporation. If appointed during
the year, each of them shall hold office until the next annual meeting of
the Board at which officers are regularly elected and until the officer's
successor is elected or appointed or until the officer's earlier death,
resignation or removal in the manner hereinafter provided. Subject to the
authority of the Board, the Chairman of the Board shall also have authority
to fix the salary of such officer.
SECTION 3. Resignation, Removal and Vacancies. Any officer may resign
at any time by giving written notice to the Chairman of the Board, the
President or the Secretary, and such resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective
date. All officers and agents elected or appointed shall be subject to
removal at any time by the Board with or without cause. All appointed
officers may be removed at any time by the Chairman of the Board acting
jointly with the President or any Executive or Senior Vice President, by
written designation filed with the Secretary. A vacancy in any office may
be filled for the unexpired portion of the term in the same manner as
provided for election or appointment to such office.
SECTION 4. Duties and Functions.
(A) Chairman of the Board. The Chairman of the Board, if present,
shall preside at all meetings of the shareholders and the Board. If
designated by Board resolution, the Chairman of the Board shall be Chief
Executive Officer of the Corporation, and if so designated, shall be vested
with executive control and management of the business and affairs of the
Corporation and have the direction of all other officers, agents and
employees. The Chairman of the Board shall perform all such other duties as
are incident to the office or as may be properly required of the Chairman
by the Board, subject in all matters to the control of the Board.
(B) The President. The President, in the absence of the Chairman of
the Board, shall preside at all meetings of the shareholders and the Board.
If designated by Board resolution, the President shall be Chief Executive
Officer of the Corporation, and if so designated, shall be vested with
executive control and management of the business and affairs of the
Corporation and have the direction of all other officers, agents and
employees. The President shall have such powers, authority and duties as
may be delegated or assigned to the President from time to time by the
Board or the Chairman of the Board.
(C) Vice Presidents. The Executive Vice Presidents, Senior Vice
Presidents, Administrative Vice Presidents and Vice Presidents shall have
such powers, authority and duties as may be delegated or assigned to them
from time to time by the Board, the Chairman of the Board or the President.
(D) Secretary. The Secretary shall attend to the giving and serving of
all notices required by law or these By-laws, shall be the custodian of the
corporate seal and shall affix and attest the same to all papers requiring
it; shall have responsibility for preparing minutes of the meetings of the
Board and shareholders; shall have responsibility for authenticating
records of the Corporation; and shall in general perform all the duties
incident to the office of the Secretary, subject in all matters to the
control of the Board.
(E) Treasurer. The Treasurer shall have custody and control of the
funds and securities of the Corporation and shall perform all such other
duties as are incident to the office of the Treasurer or that may be
properly required of the Treasurer by the Board, the Chairman of the Board
or the President.
(F) Controller. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the Corporation; shall see that
adequate audits thereof are currently and regularly made; shall have
general supervision of the preparation of the Corporation's balance sheets,
income accounts and other financial statements or records; and shall
perform such other duties as shall, from time to time, be assigned to him,
by the Board, the Chairman of the Board or the President. These duties and
powers shall extend to all subsidiary corporations and, so far as the
Board, the Chairman of the Board or the President may deem practicable, to
all affiliated corporations.
(G) Auditor. The Auditor shall review the accounting, financial and
related operations of the Corporation and shall be responsible for
measuring the effectiveness of various controls established for the
Corporation. The Auditor's duties shall include, without limitation, the
appraisal of procedures, verifying the extent of compliance with formal
controls and the prevention and detection of fraud or dishonesty and such
other duties as shall, from time to time, be assigned to the Auditor by the
Board, the Chairman of the Board or the President. These duties and powers
shall extend to all subsidiary corporations and, so far as the Board, the
Chairman of the Board or the President may deem practicable, to all
affiliated corporations.
ARTICLE V
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, the
Board and the committees of the Board.
ARTICLE VI
CONTRACTS, CHECKS, AND DEPOSITS
SECTION 1. Contracts and Agreements. The Board may authorize any
officer or agent to enter into any contract or agreement or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or limited to specific instances.
SECTION 2. Checks, Drafts, Orders, Etc. All checks, drafts, or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
agent of the Corporation and in such manner as shall from time to time be
prescribed by the Board in a duly authorized resolution.
SECTION 3. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies, or other depositories in such
manner as shall from time to time be prescribed by the Board in a duly
authorized resolution.
ARTICLE VII
BORROWINGS
SECTION 1. Borrowing Authority. The Chairman of the Board, the President,
an Executive Vice President, the Vice President supervising the law
function, the Treasurer and any other officer, employee, or agent of the
Corporation designated by the Board (collectively, "Designated Officers")
shall, subject to Section 3 of this Article, have the power, acting jointly
with any officer designated by the Board as the Chief Financial Officer or
the Treasurer (collectively, the "Financial Officers"), to authorize the
establishment of borrowing facilities, the borrowing of money, the issuance
of debt obligations, or the guaranteeing of obligations of others on behalf
of the Corporation for borrowed money or similar obligations. Any
individual acting as the approving Financial Officer may not act as one of
the approving Designated Officers on the same authorization.
SECTION 2. Delegation of Authority. Any Financial Officer acting
jointly with any Designated Officer may delegate the authority to establish
borrowing facilities or to borrow money or to issue debt obligations or to
guarantee the obligations of others on behalf of the Corporation for
borrowed money or similar obligations or any combination of the foregoing
to any person(s) on behalf of the Corporation, provided each obligation to
be incurred under each such authority does not exceed the equivalent of
Fifty Million United States Dollars (U.S. $50,000,000). No such delegated
authority may be redelegated. Any individual acting as the approving
Financial Officer may not act as one of the approving Designated Officers
on the same authorization.
SECTION 3. Limitation of Authority. The finance committee of the
Board, or a committee of the Board to which such authority has been
delegated, shall, subject to the last sentence of this Section 3, retain
authority for and, in its sole discretion, shall authorize (a) any
establishment of borrowing facilities, borrowing of money or issuance of
debt obligations by the Corporation which exceeds the equivalent of Fifty
Million United States Dollars (U.S. $50,000,000) and which has a maturity
of more than one year from the effective date of the issuance or borrowing
and (b) any guarantee of any debt obligation of non-affiliated entities by
the Corporation which guaranty is for an amount exceeding the equivalent of
Fifty Million United States Dollars (U.S. $50,000,000) and which underlying
obligation has a maturity of more than one year from the effective date of
the issuance or borrowing. The foregoing limitations shall not apply,
however, to those borrowings, debt issuances, or guaranties of obligations
for borrowed money or similar obligations made or delivered, under or in
connection with a borrowing facility or program previously approved by the
finance committee of the Board, or a committee of the Board to which such
authority has been delegated, or to such types of transactions with or on
behalf of affiliated entities.
ARTICLE VIII
SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Corporation may
be represented by certificates or may be uncertificated. Certificates
representing shares of the Corporation shall be in such form as the Board
shall prescribe. Such certificates shall be in the name of the Corporation
and signed by the Chairman of the Board, the President or a Vice President
and by the Secretary or an Assistant Secretary and shall be sealed with the
corporate seal or contain a facsimile thereof. In case any officer who has
signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it
may nevertheless be issued by the Corporation with the same effect as if
the person were such officer at the date of issue. Where any such
certificate is manually countersigned by a transfer agent or registrar
(other than the Corporation itself or an employee of the Corporation), any
of the other signatures on the certificate may be a facsimile.
SECTION 2. Record. The Corporation shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, as required by applicable law.
Except as otherwise expressly required by law, the person in whose name
shares stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation.
SECTION 3. Transfer of Shares. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the registered
shareholder thereof, or by the registered shareholder's attorney thereunto
duly authorized by written power of attorney duly executed and filed with
the Secretary or with a transfer agent appointed as provided in Section 4
of this Article, and on the surrender of any certificate or certificates
for such shares properly endorsed.
SECTION 4. Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws, concerning
the issue, transfer and registration of shares of the Corporation. The
Board may appoint or authorize any officer or officers to appoint one or
more transfer agents and one or more registrars and may require all
certificates for shares to bear the signature or signatures of any of them.
<PAGE>
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
October in each year.
ARTICLE X
INDEMNIFICATION
SECTION 1. Every person who is or was an officer or employee of the
Corporation or of any other corporation or entity in which that person
served as a director, officer or employee at the request of the Corporation
(hereinafter collectively referred to as a "Covered Person"), shall be
indemnified by the Corporation against any and all reasonable costs and
expenses (including but not limited to attorney's fees) and any liabilities
(including but not limited to judgments, fines, penalties and reasonable
settlements) that may be paid by or imposed against that Covered Person in
connection with or resulting from any pending, threatened or completed
claim, action, suit or proceeding (whether brought by or in the right of
the Corporation or such other corporation or entity or otherwise), and
whether, civil, criminal, administrative, investigative or legislative
(including any appeal relating thereto), in which the Covered Person may be
involved, as a party or witness or otherwise, by reason of the Covered
Person's being or having been an officer or employee of the Corporation or
a director, officer or employee of such other corporation or entity, or by
reasons of any action taken or not taken in such capacity, whether or not
the Covered Person continues to be such at the time such liability or
expense shall have been paid or imposed, if the Covered Person:
(a) has been successful on the merits or otherwise with respect to
such claim, action, suit or proceeding; or (b) acted in good faith, in
what the Covered Person reasonably believed to be the best interests
of the
Corporation or such other corporation or entity, as the case may be, and in
addition, in any criminal action or proceeding, had no reasonable cause to
believe that the Covered Person's conduct was unlawful.
As used in this Article, the terms "expense" and "liability" shall
include, but not be limited to, counsel fees and disbursements and amounts
of judgments, fines or penalties against, and reasonable amounts paid in
settlement by, a Covered Person. The termination of any claim, action, suit
or proceeding by judgment, settlement (whether with or without court
approval), conviction or upon a plea of guilty or nolo contendere, or its
equivalent, shall not create a presumption that a Covered Person did not
meet the standards of conduct set forth in paragraph (b) of this Section 1.
SECTION 2. Indemnification under paragraph (b) of Section 1 shall be
made unless it is determined by any of the following that the Covered
Person has not met the standard of conduct set forth in paragraph (b) of
Section 1:
<PAGE>
(a) the Board, acting by a quorum consisting of directors who were not
parties to (or who are determined to have been successful with respect to)
the claim, action, suit or proceeding;
(b) a committee of the Board established pursuant to Article III
Section 8 of the By-laws consisting of directors who were not parties to
(or who are determined to have been successful with respect to) the claim,
action, suit or proceeding;
(c) any officer or group of officers of the Corporation who, by
resolution adopted by the Board, has been given authority to make such
determinations; or
(d) either of the following selected by the Board if a disinterested
committee of the Board (as described in paragraph (b) of this Section 2)
cannot be obtained or by the person(s) designated in paragraphs (a), (b) or
(c) of this Section 2:
(1) independent legal counsel (who may be the regular counsel of the
Corporation) who has delivered to the Corporation a written determination;
or
(2) an arbitrator or a panel of arbitrators (which panel may include
directors, officers, employees or agents of the Corporation) who has
delivered to the Corporation a written determination.
SECTION 3. Expenses incurred with respect to any claim, action, suit
or proceeding of the character described in Section 1 of this Article shall
be advanced to a Covered Person by the Corporation prior to the final
disposition thereof, but the Covered Person shall be obligated to repay
such advances if it is ultimately determined that the Covered Person is not
entitled to indemnification. As a condition to advancing expenses
hereunder, the Corporation may require the Covered Person to sign a written
instrument acknowledging such obligation to repay any advances hereunder if
it is ultimately determined the Covered Person is not entitled to
indemnity.
Notwithstanding the preceding paragraph, the Corporation may refuse to
advance expenses or may discontinue advancing expenses to a Covered Person
if such advancement is determined by the Corporation, in its sole and
exclusive discretion, not to be in the best interest of the Corporation.
SECTION 4. Notwithstanding anything in this Article to the contrary,
no person shall be indemnified in respect of any claim, action, suit or
proceeding initiated by such person or such person's personal or legal
representative, or which involved the voluntary solicitation or
intervention of such person or such person's personal or legal
representative (other than an action to enforce indemnification rights
hereunder or an action initiated with the approval of a majority of the
Board).
SECTION 5. The rights of indemnification provided in this Article
shall be in addition to any other rights to which any Covered Person may
otherwise be entitled to by contract, vote of shareholders or disinterested
directors, other corporate action or otherwise; and in the event of any
such Covered Person's death, such rights shall extend to the Covered
Person's heirs and legal representatives.
ARTICLE XI
AMENDMENTS
Any By-law may be adopted, repealed, altered or amended by the Board
at any regular or special meeting thereof. The shareholders of the
Corporation shall have the power to amend, alter or repeal any By-law only
to the extent and in the manner provided in the articles of incorporation
of the Corporation.
Name of employee
Address of employee
Dear:
Ashland Inc. considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the
best interest of the Company and its shareholders. In this regard, the
Company recognizes that, as is the case with many publicly-held
corporations, the possibility of a Change in Control of the Company does
exist and that such possibility, and the uncertainty and questions which a
Change in Control of the Company may raise among management, may result in
the departure or distraction of management personnel to the detriment of
the Company and its shareholders. In addition, difficulties in attracting
and retaining new senior management personnel may be experienced.
Accordingly, on the basis of the recommendation of the Personnel and
Compensation Committee of the Board, the Board has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of certain members of the Company's management,
including you, to their assigned duties without distraction in the face of
the potentially disruptive circumstances arising from the possibility of a
Change in Control of the Company.
In order to encourage you to remain in the employ of the Company,
this Agreement sets forth those benefits which the Company will provide to
you in the event your employment with the Company (1) is terminated without
Cause during the term of this Agreement, or (2) you resign for Good Reason
following a Change in Control of the Company under the circumstances
described below.
SECTION A. DEFINITIONS
1. "Agreement" shall mean this letter agreement.
2. "Board" shall mean the Company's Board of Directors.
3. "Cause" shall occur hereunder only upon (A) the willful and
continued failure by you substantially to perform your duties with the
Company (other than any such failure resulting from your incapacity due to
physical or mental illness) after a written demand for substantial
performance is delivered to you by the Board which specifically identifies
the manner in which the Board believes that you have not substantially
performed your duties, (B) the willful engaging by you in gross misconduct
materially and demonstrably injurious to the Company after a written demand
to cease such misconduct is delivered to you by the Board, or (C) your
conviction of or the entering of a plea of nolo contendre to the commission
of a felony involving moral turpitude. For purposes of this paragraph, no
act, or failure to act, on your part shall be considered "willful" unless
done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of
the Company. Notwithstanding the foregoing, you shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered
to you a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for the purpose, among others, (after at least
20 days prior notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), of finding that (i) in the good
faith opinion of the Board you failed to perform your duties or engaged in
misconduct as set forth above in subparagraph (A) or (B) of this paragraph,
and that you did not correct such failure or cease such misconduct after
being requested to do so by the Board, or (ii) as set forth in subparagraph
(C) of this paragraph, you have been convicted of or have entered a plea of
nolo contendre to the commission of a felony involving moral turpitude.
4. "Change in Control of the Company" shall be deemed to have
occurred if (i) there shall be consummated (A) any consolidation, merger,
or share exchange of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property,
other than a merger of the Company in which the holders of the Company's
Common Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange or transfer
(in one transaction or a series of related transactions) of all or
substantially all the assets of the Company, or (ii) the shareholders of
the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) any Person, other than the Company or
a Subsidiary thereof or any employee benefit plan sponsored by the Company
or a Subsidiary thereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the Company
representing 15% or more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of
directors, as a result of a tender or exchange offer, open market
purchases, privately-negotiated purchases or otherwise, or (iv) at any time
during a period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board shall cease for any reason
to constitute at least a majority thereof, unless the election or the
nomination for election by the Company's shareholders of each new director
during such two-year period was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning
of such two-year period.
5. "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act, as amended.
6. "Common Stock" shall mean the common stock, par value $1.00 per
share, of the Company.
7. "Company" shall mean Ashland Inc. and any successor to its
business and/or assets which executes and delivers the agreement provided
for in Section F, paragraph 1 hereof or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
8. "Competitive Activity" shall have the meaning as set forth in
Section C, paragraph 2.
9. "Competitive Operation" shall have the meaning as set forth in
Section C, paragraph 2.
10. "Confidential Information" shall mean information relating to
the Company's, its divisions' and Subsidiaries' and their successors'
business practices and business interests, including, but not limited to,
customer and supplier lists, business forecasts, business and strategic
plans, financial and sales information, information relating to products,
process, equipment, operations, marketing programs, research, or product
development, engineering records, computer systems and software, personnel
records or legal records.
11. "Date Of Termination" shall mean: (A) if this Agreement is
terminated for Disability, thirty (30) days after the Notice of Termination
is given by the Company to you (provided that you shall not have returned
to the performance of your duties on a full-time basis during such thirty
(30) day period), (B) if your employment is terminated for Good Reason by
you, the date specified in the Notice of Termination, and (C) if your
employment is terminated for any other reason, the date on which a Notice
of Termination is received by you unless a later date is specified.
12. "Disability" shall occur when: if, as a result of your
incapacity due to physical or mental illness, you shall have been absent
from your duties with the Company for six (6) consecutive months and shall
not have returned to full-time performance of your duties within thirty
(30) days after written notice is given to you by the Company.
13. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
14. "Excise Tax" shall have the meaning as set forth in Section E.
15. "Good Reason" shall mean:
(a) without your express written consent, the assignment to you
after a Change in Control of the Company, of any duties
inconsistent with, or a significant diminution of, your positions,
duties, responsibilities or status with the Company immediately
prior to a Change in Control of the Company, or a diminution in
your titles or offices as in effect immediately prior to a Change
in Control of the Company or any removal of you from, or any
failure to reelect you to, any of such positions;
(b) a reduction by the Company in your base salary in effect
immediately prior to a Change in Control of the Company or a
failure by the Company to increase (within fifteen months of your
last increase in base salary) your base salary after a Change in
Control of the Company in an amount which is substantially
similar, on a percentage basis, to the average percentage increase
in base salary for all corporate officers of the Company during
the preceding twelve (12) months;
(c) the failure by the Company to continue in effect any thrift,
stock ownership, pension, life insurance, health, dental and
accident or disability plan in which you are participating or are
eligible to participate at the time of a Change in Control of the
Company (or plans providing you with substantially similar
benefits), except as otherwise required by the terms of such plans
as in effect at the time of any Change in Control of the Company,
or the taking of any action by the Company which would adversely
affect your participation in or materially reduce your benefits
under any of such plans or deprive you of any material fringe
benefits enjoyed by you at the time of the Change in Control of
the Company or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled in
accordance with the vacation policies of the Company in effect at
the time of a Change in Control of the Company, unless a
comparable plan is substituted therefor;
(d) the failure by the Company to continue in effect any incentive
plan or arrangement (including without limitation, the Company's
Incentive Compensation plan, annual bonus and contingent bonus
arrangements and credits and the right to receive performance
awards and similar incentive compensation benefits) in which you
are participating at the time of a Change in Control of the
Company (or to substitute and continue other plans or arrangements
providing you with substantially similar benefits), except as
otherwise required by the terms of such plans as in effect at the
time of any Change in Control of the Company;
(e) the failure by the Company to continue in effect any plan or
arrangement to receive securities of the Company (including,
without limitation, any plan or arrangement to receive and
exercise stock options, stock appreciation rights, restricted
stock or grants thereof or to acquire stock or other securities of
the Company) in which you are participating at the time of a
Change in Control of the Company (or to substitute and continue
plans or arrangements providing you with substantially similar
benefits), except as otherwise required by the terms of such plans
as in effect at the time of any Change in Control of the Company,
or the taking of any action by the Company which would adversely
affect your participation in or materially reduce your benefits
under any such plan;
(f) the relocation of the Company's principal executive offices to
a location outside the Covington, Kentucky area, or the Company's
requiring you to be based anywhere other than at your current
location or at the location of the Company's principal executive
or divisional offices, except for required travel on the Company's
business to an extent substantially consistent with your present
business travel obligations, or, in the event you consent to any
such relocation of the Company's principal executive or divisional
offices, the failure by the Company to pay (or reimburse you for)
all reasonable moving expenses incurred by you relating to a
change of your principal residence in connection with such
relocation and to indemnify you against any loss (defined as the
difference between the actual sale price of such residence and the
greater of (a) your aggregate investment in such residence, or (b)
the fair market value of such residence as determined by
Relocation Properties Management LLC or other real estate
appraiser reasonably satisfactory to both you and the Company)
realized in the sale of your principal residence in connection
with any such change of residence;
(g) any breach by the Company of any material provision of this
Agreement; or
(h) any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company.
16. "Gross-up Payment" shall have the meaning as set forth in
Section E.
17. "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
18. "Payment" shall have the meaning as set forth in Section E.
19. "Person" shall have the meaning as set forth in the Sections
13(d) and 14(d)(2) of the Exchange Act.
20. "Qualifying Termination" shall mean the termination of your
employment after a Change in Control of the Company while this Agreement is
in effect, unless such termination is (a) by reason of your death or
Disability, (b) by the Company for Cause, or (c) by you other than for Good
Reason.
21. "Salary Continuation Period" shall have the meaning set forth
in Section C, paragraph 1.
22. "Subsidiary" shall mean any corporation of which more than 20%
of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether or not at the time capital stock of any other class or classes of
such corporation shall or might have voting power upon the occurrence of
any contingency) is at the time directly or indirectly owned by the
Company, by the Company and one or more other Subsidiaries, or by one or
more other Subsidiaries.
SECTION B. TERM AND BENEFITS.
This Agreement shall be in effect for two years from the date you
accept this Agreement and will be automatically renewed for successive two
(2) year periods unless at least thirty (30) days advance written notice is
given by either party to the other party hereto prior to the commencement
of the next succeeding two (2) year period regarding the termination of
this Agreement by the Company. During the term of employment hereunder, you
agree to devote your full business time and attention to the business and
affairs of the Company and to use your best efforts, skills and abilities
to promote its interests.
In the event of your retirement, at your election or in accordance
with the Company's generally applicable retirement policies, as in effect
from time to time, this Agreement shall automatically terminate, without
additional notice to you, as of the effective date of your retirement.
Notwithstanding the first sentence of this paragraph and the first sentence
of this Section B, if a Change in Control of the Company should occur while
you are still an employee of the Company and while this Agreement is in
effect, then this Agreement shall continue in effect from the date of such
Change in Control of the Company for a period of two years. Prior to a
Change in Control of the Company, your employment may be terminated by the
Company for Cause at any time pursuant to a Notice of Termination. In such
event, you shall not be entitled to the benefits provided hereunder. No
benefits shall be payable hereunder unless your employment is terminated
without Cause or there shall have been a Change in Control of the Company
and your employment by the Company shall thereafter terminate in accordance
with Section D hereof.
SECTION C. TERMINATION PRIOR TO CHANGE IN CONTROL.
1. Compensation Prior to a Change in Control. If you are
terminated by the Company without Cause during the term of this Agreement
and prior to a Change in Control of the Company, you shall be entitled to
receive:
(a) payment of your highest salary during the prior two year
fiscal years preceding the fiscal year in which your Date of
Termination occurs for a period of two (2) years after your Date
of Termination ("Salary Continuation Period");
(b) continuation of your and your eligible dependents' existing
participation at regular employee rates, in effect from time to
time, in all of the Company's medical, dental and group life plans
or programs in which you were participating immediately prior to
your Date of Termination during the Salary Continuation Period,
after which time you and your eligible dependents will be eligible
for coverage under COBRA. In the event that your continued
participation in any such plan or program is for whatever reason
impossible, the Company shall arrange upon comparable terms to
provide you with benefits substantially equivalent on an after tax
basis to those which you and your eligible dependents are, or
become, entitled to receive under such plans and programs;
(c) if and when payments are made, payment in cash of any pro-rata
portion (up through your Date Of Termination) of any amounts you
would have received under the Company's performance unit/share
plans, incentive compensation plan and any other similar executive
compensation plan in which you were a participant immediately
prior to your Date of Termination; and
(d) outplacement services historically offered to displaced
employees by the Company under substantially the same terms and
fee structure as is consistent with an employee in your position.
However, in the event that your employment with the Company is terminated
during the term of this Agreement and prior to a Change in Control of the
Company and such termination is not a termination without Cause (including,
without limitation, termination by reason of your voluntary termination,
retirement, death, or Disability), or if your employment is terminated for
Cause during the term of this Agreement, you shall not be entitled to
receive any benefits under this Agreement.
2. Competitive Activity. In consideration of the foregoing, you
agree that if your employment is terminated during the term of this
Agreement and prior to a Change in Control of the Company, then during a
period ending six (6) months following your Date of Termination you shall
not engage in any Competitive Activity; provided, you shall not be subject
to the foregoing obligation if the Company breaches a material provision of
this Agreement. If you engage in any Competitive Activity during that
period, the Company shall be entitled to recover any benefits paid to you
under this Agreement. For purposes of this Agreement, "Competitive
Activity" shall mean your participation, without the written consent of the
General Counsel of the Company, in the management of any business operation
of any enterprise if such operation (a "Competitive Operation") engages in
substantial and direct competition with any business operation actively
conducted by the Company or its divisions and Subsidiaries on your Date of
Termination. For purposes of this paragraph, a business operation shall be
considered a Competitive Operation if such business sells a competitive
product or service which constitutes (i) 15% of that business's total sales
or (ii) 15% of the total sales of any individual subsidiary or division of
that business and, in either event, the Company's sales of a similar
product or service constitutes (i) 15% of the total sales of the Company or
(ii) 15% of the total sales of any individual Subsidiary or division of the
Company. Competitive Activity shall not include (i) the mere ownership of
securities in any enterprise, or (ii) participation in the management of
any enterprise or any business operation thereof, other than in connection
with a Competitive Operation of such enterprise.
3. Release. In exchange for the benefits herein, you completely
release the Company to the fullest extent permitted by law from all claims
you may have against the Company on your Date of Termination except claims
related to (a) claims for benefits to which you are entitled under this
Agreement and (b) any applicable worker's compensation or unemployment
compensation laws.
SECTION D. TERMINATION FOLLOWING CHANGE IN CONTROL.
1. Qualifying Termination. If your termination is a Qualifying
Termination, you shall be entitled to receive the payments and benefits
provided in this Section.
2. Notice of Termination. Except as provided in Section F,
paragraph 1, any termination of your employment following a Change in
Control of the Company shall be communicated by written Notice of
Termination to the other party hereto. No termination shall be effective
without such Notice of Termination.
3. Compensation Upon Termination After a Change in Control.
(a) If your termination is a Qualifying Termination, then the
Company shall pay to you as severance pay (and without regard to
the provisions of any benefit or incentive plan), in a lump sum
cash payment on the fifth (5th) day following your Date of
Termination, an amount equal to three (3) times the highest of
your annual compensation (including annual incentive compensation
and performance share/unit payments) paid or payable in respect of
the prior three (3) fiscal years preceding the fiscal year in
which your Date of Termination occurs or, if greater, the prior
three (3) fiscal years preceding the fiscal year in which the
Change in Control of the Company occurs.
(b) If your termination is a Qualifying Termination, the Company
shall, in addition to the payments required by the preceding
paragraph:
(i) provide for continuation of your and your eligible
dependents' participation at regular employee rates, in
effect from time to time, in all of the Company's
medical, dental and group life plans or programs in which
you were participating immediately prior to your Date of
Termination for a period of two years from your Date of
Termination, after which time you and your eligible
dependents will be eligible for coverage under COBRA. In
the event that your continued participation in any such
plan or program is for whatever reason impossible, the
Company shall arrange upon comparable terms to provide
you with benefits substantially equivalent on an after
tax basis to those which you and your eligible dependents
are, or become, entitled to receive under such plans and
programs;
(ii) provide for full payment in cash of any performance
unit/share awards in existence on your Date of
Termination less any amounts paid to you under the
applicable performance unit/share plan upon a Change in
Control of the Company pursuant to the provisions of such
plan;
(iii) provide for payment in cash of any incentive
compensation (a) for the fiscal year during which the
Change in Control of the Company occurred and any prior
fiscal years for which you have not yet received payment,
and (b) payment of incentive compensation for the fiscal
year in which your Date of Termination occurs calculated
as the greater of (x) the highest incentive compensation
amount you were awarded in the last (3) three fiscal
years preceding the fiscal year in which your Date of
Termination occurs and (y) 125% of your gross base salary
(gross base salary to be calculated as of the day prior
to the date the Change in Control of the Company occurs
or, if greater, your Date of Termination);
(iv) provide those benefits or compensation under any
compensation plan, arrangement or agreement not in
existence as of the date hereof but which may be
established by the Company prior to your Date of
Termination at such time as payments are made thereunder
to the same extent as if you had been a full-time
employee on the date such payments would otherwise have
been made or benefits vested;
(v) if requested by you, purchase your principal
residence in accordance with the provisions of Relocation
Properties Management LLC that have historically applied
in the case of transfers of the Company's employees;
provided, however, that the purchase price of your
residence shall be deemed to be the greater of (a) your
aggregate investment in such residence, or (b) the then
current fair market value of such residence;
(vi) for one (1) year after your Date of Termination,
provide and pay for outplacement services, by a firm
reasonably acceptable to you, that have historically been
offered to displaced employees generally by the Company
under substantially the same terms and fee structure as
is consistent with an employee in your then current
position (or, if higher, your position immediately prior
to the Change in Control of the Company);
(vii) for one (1) year after your Date of Termination,
provide and pay for financial planning services, by a
firm reasonably acceptable to you, that have historically
been offered to you under substantially the same terms
and fee structure as is consistent with an employee in
your then current position (or, if higher, your position
immediately prior to the Change in Control of the
Company);
(viii) pay to you an amount equal to the value of all
unused, earned and accrued vacation as of your Date of
Termination pursuant to the Company's policies in effect
immediately prior to the Change in Control of the
Company; and
(ix) provide for the immediate vesting of all stock
options held by you, as of your Date of Termination,
under any Company stock option plan and all such options
shall be exerciseable for the remaining terms of the
options.
(c) Unless otherwise provided in this Agreement or in the
applicable compensation or stock option plan or program, all
payments shall be made to you within thirty (30) days after your
Date of Termination. These benefits are in addition to all accrued
and vested benefits to which you are entitled to under any of the
Company's plans and arrangements, including but not limited to,
the accrued vested benefits to which you are eligible for and
entitled to receive under any of the Company's qualified and
non-qualified benefit or retirement plans, or any successor plans
in effect on your Date of Termination hereunder.
(d) You shall not be required to mitigate the amount of any
payment provided for in this Section by seeking other employment
or otherwise, nor shall the amount of any payment provided for in
this Section be reduced by any compensation earned by you as the
result of employment by another employer after your Date of
Termination, or otherwise. Except as provided herein, the Company
shall have no right to set off against any amount owing hereunder
any claim which it may have against you.
SECTION E. ADDITIONAL PAYMENTS BY THE COMPANY.
Notwithstanding anything to the contrary in this Agreement, in the
event that any payment or distribution by the Company to or for your
benefit, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended, or any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest or penalties, are
hereinafter collectively referred to as the "Excise Tax"), the Company
shall pay to you an additional payment (a "Gross-up Payment") in an amount
such that after payment by you of all taxes (including any interest or
penalties imposed with respect to such taxes), including any income,
employment and Excise Tax imposed on any Gross-up Payment, you retain an
amount of the Gross-up Payment equal to the Excise Tax imposed upon the
Payments. You and the Company shall make an initial determination as to
whether a Gross-up Payment is required and the amount of any such Gross-up
Payment. If you and the Company can not agree on whether a Gross-up Payment
is required or the amount thereof, then an independent nationally
recognized accounting firm, appointed by you, shall determine the amount of
the Gross-up Payment. The Company shall pay all expenses which you may
incur in determining the Gross-up Payment. You shall notify the Company in
writing of any claim by the Internal Revenue Service which, if successful,
would require the Company to make a Gross-up Payment (or a Gross-up Payment
in excess of that, if any, initially determined by the Company and you)
within ten days of the receipt of such claim. The Company shall notify you
in writing at least ten days prior to the due date of any response required
with respect to such claim if it plans to contest the claim. If the Company
decides to contest such claim, you shall cooperate fully with the Company
in such action; provided, however, the Company shall bear and pay directly
or indirectly all costs and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and
hold you harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result
of the Company's action. If, as a result of the Company's action with
respect to a claim, you receive a refund of any amount paid by the Company
with respect to such claim, you shall promptly pay such refund to the
Company. If the Company fails to timely notify you whether it will contest
such claim or the Company determines not to contest such claim, then the
Company shall immediately pay to you the portion of such claim, if any,
which it has not previously paid to you.
SECTION F. MISCELLANEOUS
1. Assumption of Agreement. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, share
exchange or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
you, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach of a material provision of this Agreement and shall entitle you to
compensation in the same amount and on the same terms as you would be
entitled pursuant to Section D, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective
shall be deemed your Date of Termination without a Notice of Termination
being given.
2. Confidentiality. All Confidential Information which you acquire
or have acquired in connection with or as a result of the performance of
services for the Company, whether under this Agreement or prior to the
effective date of this Agreement, shall be kept secret and confidential by
you unless (a) the Company otherwise consents, (b) the Company breaches any
material provision of this Agreement, or (c) you are legally required to
disclose such Confidential Information by a court of competent
jurisdiction. This covenant of confidentiality shall extend beyond the term
of this Agreement and shall survive the termination of this Agreement for
any reason. If you breach this covenant of confidentiality, the Company
shall be entitled to recover from any benefits paid to you under this
Agreement its damages resulting from such breach.
3. Employment. You agree to be bound by the terms and conditions
of this Agreement and to remain in the employ of the Company during any
period following any public announcement by any person of any proposed
transaction or transactions which, if effected, would result in a Change in
Control of the Company until a Change in Control of the Company has taken
place. However, nothing contained in this Agreement shall impair or
interfere in any way with the right of the Company to terminate your
employment for Cause prior to a Change in Control of the Company.
4. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Center for Public
Resources' Model ADR Procedures and Practices, and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Notwithstanding the foregoing, the Company shall not
be restricted from seeking equitable relief, including injunctive relief as
set forth in paragraph 5 of this Section, in the appropriate forum. Any
cost of arbitration will be paid by the Company. In the event of a dispute
over the existence of Good Reason or Cause after a Change in Control of the
Company, the Company shall continue to pay your salary, bonuses and plan
benefits pending resolution of the dispute. If you prevail in the
arbitration, the remaining amounts due to you under this Agreement are to
be immediately paid to you.
5. Injunctive Relief. You acknowledge and agree that the remedy of
the Company at law for any breach of the covenants and agreements contained
in paragraph 2 of this Section and in Section C, paragraph 2 will be
inadequate, and that the Company will be entitled to injunctive relief
against any such breach or any threatened, imminent, probable or possible
breach. You represent and agree that such injunctive relief shall not
prohibit you from earning a livelihood acceptable to you.
6. Notice. For the purposes of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to
the attention of the General Counsel of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. Indemnification. The Company will indemnify you to the fullest
extent permitted by the laws of the Commonwealth of Kentucky and the
existing By-laws of the Company, in respect of all your services rendered
to the Company and its divisions and Subsidiaries prior to your Date of
Termination. You shall be entitled to the protection of any insurance
policies the Company now or hereafter maintains generally for the benefit
of its directors, officers and employees (but only to the extent of the
coverage afforded by the existing provisions of such policies) to protect
against all costs, charges and expenses whatsoever incurred or sustained by
you in connection with any action, suit or proceeding to which you may be
made a party by reason of your being or having been a director, officer or
employee of the Company or any of its divisions or Subsidiaries during your
employment therewith.
8. Further Assurances. Each party hereto agrees to furnish and
execute such additional forms and documents, and to take such further
action, as shall be reasonably and customarily required in connection with
the performance of this Agreement or the payment of benefits hereunder.
9. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by you and such officer(s) as may be
specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set
forth expressly in this Agreement.
10. Termination of other Agreements. Upon execution by both
parties, this Agreement shall terminate all prior employment and severance
agreements between you and the Company and its divisions or Subsidiaries.
11. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
13. Legal Fees And Expenses. Any other provision of this Agreement
notwithstanding, the Company shall pay all legal fees and expenses which
you may incur as a result of the Company's unsuccessful contesting of the
validity, enforceability or your interpretation of, or determinations
under, any part of this Agreement.
14. Governing Law. This Agreement shall be governed in all
respects by the laws of the Commonwealth of Kentucky.
15. Agreement Binding on Successors. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. This Agreement shall inure to the
benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amounts would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee, or other designee or, if there be no
such designee, to your estate.
16. Headings. All Headings are inserted for convenience only and
shall not affect any construction or interpretation of this Agreement.
If this Agreement correctly sets forth our agreement on the
subject matter hereof, please sign and return to the Company the enclosed
copy of this Agreement which will then constitute our agreement on this
matter.
Sincerely,
ASHLAND INC.
By: __________________________
ACCEPTED this _________
day of ______________, 19___.
- ---------------------------
Employee
ASHLAND INC.
1995 PERFORMANCE UNIT PLAN
(As amended January 27, 1999)
1. PURPOSE
The purpose of this Ashland Inc. 1995 Performance Unit Plan (the
"Plan") is to further the long-term profitable growth of Ashland by
offering a long-term incentive in addition to current compensation to
eligible employees who will be largely responsible for such growth to the
benefit of the Ashland shareholders. It is expected that this plan will
encourage such employees to remain with Ashland and will also encourage
qualified persons to seek and accept employment with Ashland.
2. DEFINITIONS
Terms not otherwise defined herein shall have the following
meanings:
(a) "Ashland" means Ashland Inc., its divisions and subsidiaries.
(b) "Board" means the Board of Directors of Ashland Inc.
(c) "Change in Control" shall be deemed to occur (1) upon the
approval of the shareholders of Ashland (or if such approval is not
required, upon the approval of the Board) of (A) any consolidation or
merger of Ashland in which Ashland is not the continuing or surviving
corporation or pursuant to which shares of Common Stock would be converted
into cash, securities or other property other than a merger in which the
holders of Common Stock immediately prior to the merger will have the same
proportionate ownership of Common Stock of the surviving corporation
immediately after the merger, (B) any sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of Ashland or (C) adoption of any plan or
proposal for the liquidation or dissolution of Ashland, (2) when any
"person" (as defined in Section 3(a)(9) or 13(d) of the Exchange Act),
other than Ashland Inc. or any subsidiary or employee benefit plan or trust
maintained by Ashland Inc. or any of its subsidiaries, shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 15% of the Common Stock outstanding at
the time, without the approval of the Board, or (3) if at any time during a
period of two consecutive years, individuals who at the beginning of such
period constituted the Board shall cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for
election by Ashland's shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
two-year period.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means the Personnel and Compensation Committee of
the Board.
(f) "Common Stock" means the common stock, $1.00 par value, of
Ashland Inc.
(g) "Employee" means an employee selected for participation in the
Plan as set forth in Section 5.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any specified date (or, if a
weekend or holiday, the next preceding business day), the closing price of
a share of Common Stock, as reported on the Composite Tape for New York
Stock Exchange issues.
(j) "Participant" means any Employee who receives a Performance
Unit Award under the Plan for a Performance Period.
(k) "Performance Goals" mean performance goals as may be
established in writing by the Committee which may be based on earnings,
stock price, return on equity, return on investment, total return to
shareholders, economic value added, debt rating or achievement of business
or operational goals, such as drilling or exploration targets or profit per
barrel. Such goals may be absolute in their terms or measured against or in
relationship to other companies comparably or otherwise situated. Such
performance goals may be particular to an Employee or the division,
department, branch, line of business, subsidiary or other unit in which the
Employee works and/or may be based on the performance of Ashland generally.
(l) "Performance Period" means the period of time designated by
the Committee applicable to a Performance Unit Award during which the
Performance Goals shall be measured.
(m) "Performance Unit Award" means an award made pursuant to the
provisions of this Plan, the payment of which is contingent upon attainment
of Performance Goals.
3. SHARES: ADJUSTMENTS IN THE EVENT OF CHANGES IN CAPITALIZATION
(a) Shares Authorized for Issuance. There shall be reserved for
issuance under the Plan 2,200,000 shares of Common Stock, subject to
adjustment pursuant to subsection (b) below. Such shares shall be
authorized but unissued shares of Common Stock.
(b) Adjustments in Certain Events. In the event of any change in
the outstanding Common Stock by reason of any stock split, share dividend,
recapitalization, merger, consolidation, reorganization, combination, or
exchange or reclassification of shares, split-up, split-off, spin-off,
liquidation or other similar change in capitalization, or any distribution
to common shareholders other than cash dividends, the number or kind of
shares that may be issued under the Plan shall be automatically adjusted to
that the proportionate interest of the Employees shall be maintained as
before the occurrence of such event.
4. ADMINISTRATION
Subject to the express provisions of this Plan, the Committee
shall have full authority to construe, interpret and administer this Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan,
to make Performance Unit Awards, to determine the terms, provisions and
conditions of the respective Performance Unit Awards (which need not be
identical) and to make all other determinations necessary or advisable for
the Plan's administration. Decisions of the Committee shall be final,
conclusive and binding upon all parties.
5. ELIGIBILITY
Performance Unit Awards may be made only to regular, full-time,
salaried employees of Ashland as selected by the Committee. Any Employee
may receive one or more Performance Unit Awards as the Committee shall from
time to time determine, and such determinations may be different as to
different Employees and may vary as to different awards. Nothing contained
in this Plan shall be construed to limit the right of Ashland to grant
other forms of incentive compensation otherwise than under this Plan. The
Plan or the receipt of a Performance Unit Award shall not confer on any
individual any right to continue in the employ of Ashland or interfere in
any way with the right of Ashland to terminate his or her employment at any
time, with or without cause, despite the fact that such termination may
have an adverse impact on the Participant's receipt of payment of a
Performance Unit Award.
6. PERFORMANCE UNIT AWARDS
(a) The Performance Goals and Performance Period applicable to a
Performance Unit Award shall be set forth in writing by the Committee no
later than 120 days after the commencement of the Performance Period and
shall be communicated to the Employee. The Committee shall have the
discretion to later revise the Performance Goals solely for the purpose of
reducing or eliminating the amount of compensation otherwise payable upon
attainment of the Performance Goals; provided that the Performance Goals
and the amounts payable upon attainment of the Performance Goals may be
adjusted during any Performance Period to reflect promotions, transfers or
other changes in an Employee's employment so long as such changes are
consistent with the Performance Goals established for other Employees in
the same or similar positions.
(b) In making a Performance Unit Award, the Committee may take
into account an Employee's responsibility level, performance, cash
compensation level, incentive compensation awards and such other
considerations as it deems appropriate. Each Performance Unit Award shall
be established in dollars or shares of Common Stock, or a combination of
both, as determined by the Committee, and shall be based on the Employee's
base salary on the date of the Performance Unit Award. The original amount
of any Performance Unit Award shall not exceed 400% of the Employee's then
annual base salary; the amount paid out upon meeting the Performance Goals
shall not exceed the amount of such Performance Unit Award; and the total
amount of all Performance Unit Awards for a Performance Period shall not
exceed 2% of shareholders' equity as shown in Ashland's Annual Report to
Shareholders at the end of the fiscal year next preceding the commencement
of such Performance Period. In determining the amount of any Performance
Unit Award made, in whole or in part, in shares of Common Stock, the value
thereof shall be based on the Fair Market Value on the first day of the
Performance Period or on such other date as the Board shall determine.
(c) A Performance Unit Award shall terminate for all purposes if
the Employee does not remain continuously employed and in good standing
with Ashland until payment of such Performance Unit Award. An Employee (or
his or her beneficiaries or estate) whose employment was terminated because
of death, disability or retirement will receive a pro rata portion of the
payment of his or her award based upon the portion of the Performance
Period during which he or she was so employed so long as the Performance
Goals are subsequently achieved.
(d) Payment with respect to Performance Unit Awards will be made
to Employees on a date or dates fixed by the Committee. The amount of such
payment shall be determined by the Committee and shall be based on the
original amount of such Performance Unit Award adjusted to reflect the
attainment of the Performance Goals during the Performance Period. Payment
may be made in one or more installments and may be made wholly in cash,
wholly in shares of Common Stock or partly in cash and partly in such
shares, all at the discretion of the Committee.
In addition, Employees may be offered the opportunity to defer the
receipt of payment of a Performance Unit Award. Common Stock may be granted
(i) as a bonus for deferral, or (ii) as a bonus for retaining for a
specified period of time, Common Stock received in payment of a Performance
Unit Award, all under such terms as may be established by the Committee
from time to time. Notwithstanding, in no event shall the value of the
Common Stock granted as a bonus for deferral or retention exceed 20% of the
value of the Performance Unit Award so deferred or retained. Any and all
payments made under the Plan shall be subject to the applicable federal,
state or local taxes required by law to be withheld.
If payment of a Performance Unit Award established in dollars is
to be made in shares of Common Stock or partly in such shares, the number
of shares of Common Stock to be delivered to an Employee on any payment
date shall be determined by dividing (x) the amount payable by (y) the Fair
Market Value on the date the Board approves the Committee's decision to pay
the Performance Unit Award or on such other date as the Board shall
determine.
If payment of a Performance Unit Award established in shares of
Common Stock is to be made in cash or partly in cash, the amount of cash to
be paid to an Employee on any payment date shall be determined by
multiplying (x) the number of shares of Common Stock to be paid in cash on
such payment date with respect to such Performance Unit Award, by (y) the
Fair Market Value on the date the Board approves the Committee's decision
to pay the Performance Unit Award or on such other date as the Board shall
determine. Any payment may be subject to such restrictions and conditions
as the Committee may determine.
7. NONTRANSFERABILITY AND NO SHAREHOLDER RIGHTS
The right to receive payment of a Performance Unit Award shall not
be assigned or transferred in whole or in part, either directly or by
operation of law or otherwise (except by will or the laws of descent and
distribution) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or any other manner. The holder
of a Performance Unit Award payable in whole or in part in shares of Common
Stock shall have none of the rights of a shareholder with respect to such
award until shares of Common Stock shall have been registered in the name
of the person or persons receiving payment of such award on the transfer
books of Ashland upon such payment.
8. CHANGE IN CONTROL
Upon a Change in Control, in order to maintain a Participant's
rights under the Plan, there shall be an acceleration of any Performance
Period relating to any Performance Unit Award, and payment of any
Performance Unit Award shall be made in cash as soon as practicable after
such Change in Control based upon achievement of the Performance Goals
applicable to such award up to the date of the Change in Control. If such
Performance Unit Award was established in shares of Common Stock, the
amount of cash to be paid to an Employee with respect to the Performance
Unit Award shall be determined by multiplying (x) the number of shares of
Common Stock relating to such Performance Unit Award, by (y) the Fair
Market Value on the date of the Change in Control. Further, Ashland's
obligation with respect to such Performance Unit Award shall be assumed, or
new obligations substituted therefor, by the acquiring or surviving
corporation after such Change in Control. In addition, prior to the date of
such Change in Control, the Committee, in its sole judgment may make
adjustment to any Performance Unit Award as may be appropriate to reflect
such Change in Control.
9. GOVERNING LAW
The provisions of this Plan shall be interpreted and construed in
accordance with the laws of the Commonwealth of Kentucky.
10. AMENDMENT AND TERMINATION
The Plan shall be submitted to the shareholders for approval and
adoption on January 26, 1995 or such other date fixed for the next meeting
of shareholders or any adjournment or postponement thereof. Upon
shareholder approval, the Plan will become effective as of October 1, 1994.
Unless terminated sooner by the Committee, to the extent necessary to
ensure that Performance Unit Award payments be deductible under the Code,
this Plan shall terminate on, and no Performance Unit Awards shall be
granted after, the first meeting of shareholders occurring in calendar year
2000. Termination of the Plan shall not affect any awards made hereunder
which are outstanding on the date of termination and such awards shall
continue to be subject to the terms of the Plan notwithstanding its
termination. The Committee may amend, alter or terminate this Plan at any
time without the prior approval of the Board; provided, however, that the
Committee may not, without approval by the Board and the shareholders:
(i) increase the amount of securities that may be issued under the
Plan (except as provided in Section 3(b));
(ii) materially modify the requirements as to eligibility for
participation in the Plan; or
(iii) otherwise materially increase the benefits accruing the
Employees under the Plan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ASHLAND INC.'S 1ST QUARTER 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 1,109
<ALLOWANCES> 21
<INVENTORY> 471
<CURRENT-ASSETS> 1,860
<PP&E> 2,472
<DEPRECIATION> 1,289
<TOTAL-ASSETS> 5,970
<CURRENT-LIABILITIES> 1,311
<BONDS> 1,511
<COMMON> 75
0
0
<OTHER-SE> 1,988
<TOTAL-LIABILITY-AND-EQUITY> 5,970
<SALES> 1,646
<TOTAL-REVENUES> 1,633
<CGS> 1,350
<TOTAL-COSTS> 1,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (17)
<INCOME-TAX> (6)
<INCOME-CONTINUING> (11)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>